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 September 30, 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 x
    No o




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





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





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




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




Indicate
the number of shares outstanding of each of the issuer's classes of common
stock, as of the latest practicable date: 64,433,033 shares as of November 20,
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 September 30, 2009, which was
originally filed with the Securities and Exchange Commission (the “Commission”)
on November 23, 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
                  
                  
                  Accumulated
                  
                  
                  WarrantPaid-inCapital
                  
                  
                  Deficit
                  
                  
                  LiabilitiesWarrants
                  
                  $
                  (731,000
                  )
                  
                  $
                  424,000
                  
                  
                  $
                  307,000





For the
three months and nine months ended September 30, 2009, the adoption of ASC 815
had the effect of decreasing warrant liabilities and net loss by approximately
$131,000 and for the nine months ended September 30, 2009, the effect increased
warrant liabilities and net loss by approximately $1,110,000.





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.





3)
            Adjust
      the original purchase accounting for our AdNet acquisition.  Our
      AdNet intangible asset was decreased by approximately $1,150,000 and
      approximately $1,239,000 was recorded to goodwill, $100,000 was recorded
      to amount due from former AdNet shareholders and approximately $189,000
      was recorded to deferred tax liability.  In addition,
      amortization expense of approximately $63,000 and $126,000 was recorded
      for the three months and nine months ended September 30,
    2009.





4)
            Reclassify
      legal costs for approximately $8,000 related to stock issued for our AdNet
      acquisition and related to stock issued for cash to additional paid in
      capital.





In
addition, the Company is concurrently filing certain additional improvements to
its disclosures in this amended Form 10-Q/A for the quarter ended September 30,
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
September 30, 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 November 23,
2009.








QUARTERLY
REPORT ON FORM 10-Q/A


OF
CHINA BROADBAND, INC.


FOR
THE PERIOD ENDED SEPTEMBER 30, 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
                      
                      
                      16Item
      3
                      
                      
                      Quantitative
      and Qualitative Disclosures About Market Risk
                      
                      
                      24Item
      4.
                      
                      
                      Controls
      and Procedures
                      
                      
                      24PART II
                      -
                      
                      OTHER
      INFORMATION
                      
                      
                      25Item
      1.
                      
                      
                      Legal
      Proceedings
                      
                      
                      25Item
      1A.
                      
                      
                      Risk
      Factors
                      
                      
                      25Item
      2.
                      
                      
                      Unregistered
      Sales of Equity Securities and Use of Proceeds
                      
                      
                      25Item
      3.
                      
                      
                      Defaults
      Upon Senior Securities
                      
                      
                      25Item
      4.
                      
                      
                      Submission
      of Matters to a Vote of Security Holders
                      
                      
                      25Item
      5.
                      
                      
                      Other
      Information
                      
                      
                      25Item
      6.
                      
                      
                      Exhibits
                      
                      
                      25Signatures
                      
                      
                      26





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, 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” and, each
of their respective subsidiary businesses in the PRC.


2





PART
I — FINANCIAL INFORMATION




Item
1. Financial Statements.





China
Broadband, Inc. and Subsidiaries
 CONSOLIDATED
BALANCE SHEETS
 
 September 30,
                          
                          
                          December 31,2009
                          
                          
                          2008(Unaudited)(Restated)ASSETSCurrent
      assets:Cash
      and cash equivalents
                          
                          $
                          1,941,266
                          
                          
                          $
                          4,425,529Marketable
      equity securities
                          
                          
                          67,608
                          
                          
                          
                          254,496Accounts
      receivable
                          
                          
                          168,710
                          
                          
                          
                          136,709Inventory
                          
                          
                          778,674
                          
                          
                          
                          877,309Prepaid
      expense
                          
                          
                          118,144
                          
                          
                          
                          46,380Loan
      receivable
                          
                          
                          280,033
                          
                          
                          
                          -Amounts
      due from shareholders
                          
                          
                          634,687
                          
                          
                          
                          -Other
      current assets
                          
                          
                          68,509
                          
                          
                          
                          153,277Total
      current assets
                          
                          
                          4,057,631
                          
                          
                          
                          5,893,700Property
      and equipment, net
                          
                          
                          7,786,070
                          
                          
                          
                          9,299,473Intangible
      assets, net
                          
                          
                          4,394,225
                          
                          
                          
                          4,218,758Goodwill
                          
                          
                          1,239,291
                          
                          
                          
                          -Other
      assets
                          
                          
                          455,093
                          
                          
                          
                          692,911Total
      assets
                          
                          $
                          17,932,310
                          
                          
                          $
                          20,104,842LIABILITIES AND SHAREHOLDERS'
      EQUITYCurrent
      liabilities:Accounts
      payable
                          
                          $
                          1,250,452
                          
                          
                          $
                          1,237,251Accrued
      expenses
                          
                          
                          1,562,637
                          
                          
                          
                          936,134Deferred
      revenue
                          
                          
                          1,646,868
                          
                          
                          
                          1,382,103Convertible
      notes payable
                          
                          
                          304,853
                          
                          
                          
                          -Loan
      payable
                          
                          
                          398,937
                          
                          
                          
                          -Payable
      to Shandong Media
                          
                          
                          145,679
                          
                          
                          
                          145,679Payable
      to Jinan Parent
                          
                          
                          152,259
                          
                          
                          
                          2,795,472Warrant
      liabilities
                          
                          
                          1,417,335
                          
                          
                          
                          -Other
      current liabilities
                          
                          
                          130,194
                          
                          
                          
                          72,013Total
      current liabilities
                          
                          
                          7,009,214
                          
                          
                          
                          6,568,652Convertible
      notes payable
                          
                          
                          4,639,879
                          
                          
                          
                          4,564,427Deferred
      tax liability
                          
                          
                          935,819
                          
                          
                          
                          790,617Total
      liabilities
                          
                          
                          12,584,912
                          
                          
                          
                          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, 64,433,033 and
      50,585,455 issued and outstanding
                          
                          
                          64,434
                          
                          
                          
                          50,586Additional
      paid-in capital
                          
                          
                          14,835,135
                          
                          
                          
                          13,372,358Accumulated
      deficit
                          
                          
                          (15,546,470
                          )
                          
                          
                          (12,200,287
                          )Accumulated
      other comprehensive income
                          
                          
                          351,428
                          
                          
                          
                          320,858Total
      shareholders' (deficit) equity
                          
                          
                          (295,473
                          )
                          
                          
                          1,543,515Noncontrolling
      interests
                          
                          
                          5,642,871
                          
                          
                          
                          6,637,631Total
      China Broadband shareholders' equity
                          
                          
                          5,347,398
                          
                          
                          
                          8,181,146Total
      liabilities and shareholders' equity
                          
                          $
                          17,932,310
                          
                          
                          $
                          20,104,842
 
 See
notes to consolidated financial statements.


3





China
Broadband, Inc. and Subsidiaries
 CONSOLIDATED
STATEMENTS OF OPERATIONS
 (Unaudited)
 
 Three
      Months Ended
                  
                  
                  Nine
      Months EndedSeptember
      30,
                  
                  
                  September
      30,
                  
                  
                  September
      30,
                  
                  
                  September
      30,2009
                  
                  
                  2008
                  
                  
                  2009
                  
                  
                  2008(Restated)
                  
                  
                  
                  
                  
                  (Restated)Revenue
                  
                  $
                  2,106,454
                  
                  
                  $
                  1,880,806
                  
                  
                  $
                  6,045,381
                  
                  
                  $
                  3,937,439Cost
      of revenue
                  
                  
                  1,541,084
                  
                  
                  
                  949,299
                  
                  
                  
                  3,817,881
                  
                  
                  
                  1,845,354Gross
      profit
                  
                  
                  565,370
                  
                  
                  
                  931,507
                  
                  
                  
                  2,227,500
                  
                  
                  
                  2,092,085Selling,
      general and adminstrative expenses
                  
                  
                  800,198
                  
                  
                  
                  582,085
                  
                  
                  
                  2,259,003
                  
                  
                  
                  1,393,999Professional
      fees
                  
                  
                  154,350
                  
                  
                  
                  141,785
                  
                  
                  
                  446,747
                  
                  
                  
                  447,201Depreciation
      and amortization
                  
                  
                  917,299
                  
                  
                  
                  768,951
                  
                  
                  
                  2,653,430
                  
                  
                  
                  2,210,481Loss
      from operations
                  
                  
                  (1,306,477
                  )
                  
                  
                  (561,314
                  )
                  
                  
                  (3,131,680
                  )
                  
                  
                  (1,959,596
                  )Interest
      & other income / (expense)Settlement
      gain
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  1,300,692Interest
      income
                  
                  
                  721
                  
                  
                  
                  16,300
                  
                  
                  
                  6,105
                  
                  
                  
                  35,426Interest
      expense
                  
                  
                  (93,085
                  )
                  
                  
                  (89,333
                  )
                  
                  
                  (270,133
                  )
                  
                  
                  (256,776
                  )Change
      in fair value of warrant liabilities
                  
                  
                  130,575
                  
                  
                  
                  -
                  
                  
                  
                  (1,110,212
                  )
                  
                  
                  -Gain
      (loss) on sale of securities
                  
                  
                  15,807
                  
                  
                  
                  -
                  
                  
                  
                  (14,828
                  )
                  
                  
                  17,498Other
                  
                  
                  (12,883
                  )
                  
                  
                  349
                  
                  
                  
                  (13,158
                  )
                  
                  
                  (12,779
                  )Loss
      before income taxes and noncontrolling interest
                  
                  
                  (1,265,342
                  )
                  
                  
                  (633,998
                  )
                  
                  
                  (4,533,906
                  )
                  
                  
                  (875,535
                  )Income
      tax benefit
                  
                  
                  14,680
                  
                  
                  
                  6,433
                  
                  
                  
                  44,040
                  
                  
                  
                  19,299Net
      loss, net of tax
                  
                  
                  (1,250,662
                  )
                  
                  
                  (627,565
                  )
                  
                  
                  (4,489,866
                  )
                  
                  
                  (856,236
                  )Plus:
      Net loss attributable to noncontrolling interests
                  
                  
                  335,066
                  
                  
                  
                  80,734
                  
                  
                  
                  719,312
                  
                  
                  
                  368,272Net
      loss attributable to China Broadband shareholders
                  
                  $
                  (915,596
                  )
                  
                  $
                  (546,831
                  )
                  
                  $
                  (3,770,554
                  )
                  
                  $
                  (487,964
                  )Net
      loss per shareBasic
                  
                  $
                  (0.01
                  )
                  
                  $
                  (0.01
                  )
                  
                  $
                  (0.06
                  )
                  
                  $
                  (0.01
                  )Diluted
                  
                  $
                  (0.01
                  )
                  
                  $
                  (0.01
                  )
                  
                  $
                  (0.06
                  )
                  
                  $
                  (0.01
                  )Weighted
      average shares outstandingBasic
                  
                  
                  64,104,665
                  
                  
                  
                  50,416,266
                  
                  
                  
                  58,951,679
                  
                  
                  
                  50,262,731Diluted
                  
                  
                  64,104,665
                  
                  
                  
                  50,416,266
                  
                  
                  
                  58,951,679
                  
                  
                  
                  50,262,731
 
 See
notes to consolidated financial statements.


4





China
Broadband, Inc. and Subsidiaries
 CONSOLIDATED
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY AND COMPREHENSIVE LOSS
 for
the Periods Ended September 30, 2009 (Unaudited) (Restated) and December
31, 2008
 
 Accumulated
                                    
                                    
                                    ChinaAdditional
                                    
                                    
                                    
                                    
                                    
                                    Other
                                    
                                    
                                    BroadbandCommon
                                    
                                    
                                    Par
                                    
                                    
                                    Paid-in
                                    
                                    
                                    Accumulated
                                    
                                    
                                    Comprehensive
                                    
                                    
                                    Shareholders'
                                    
                                    
                                    Noncontrolling
                                    
                                    
                                    Total
                                    
                                    
                                    ComprehensiveShares
                                    
                                    
                                    Value
                                    
                                    
                                    Capital
                                    
                                    
                                    Deficit
                                    
                                    
                                    Income (loss)
                                    
                                    
                                    (Deficit)/Equity
                                    
                                    
                                    Interest
                                    
                                    
                                    Equity
                                    
                                    
                                    LossBalance
      December 31, 2007
                                    
                                    
                                    50,048,000
                                    
                                    
                                    $
                                    50,048
                                    
                                    
                                    $
                                    10,485,874
                                    
                                    
                                    $
                                    (8,845,424
                                    )
                                    
                                    $
                                    331,768
                                    
                                    
                                    $
                                    2,022,266
                                    
                                    
                                    $
                                    4,879,802
                                    
                                    
                                    $
                                    6,902,068Warrant
      valuation associated with convertible notes payable &
      other
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    745,694
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    745,694
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    745,694Option
      valuation associated with employment agreeement
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    44,898
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    44,898
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    44,898Shares
      issued for penalty of non-registration
                                    
                                    
                                    207,599
                                    
                                    
                                    
                                    208
                                    
                                    
                                    
                                    421,970
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    422,178
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    422,178Warrant
      valuation associated with extension from settlement
    agreement
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    1,426,862
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    1,426,862
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    1,426,862Shares
      issued as payment for convertible note interest
                                    
                                    
                                    329,856
                                    
                                    
                                    
                                    330
                                    
                                    
                                    
                                    247,061
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    247,391
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    247,391Shandong
      Media joint venture
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    2,367,459
                                    
                                    
                                    
                                    2,367,459Comprehensive
      loss:Net
      loss
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    (3,354,865
                                    )
                                    
                                    
                                    -
                                    
                                    
                                    
                                    (3,354,865
                                    )
                                    
                                    
                                    (609,630
                                    )
                                    
                                    
                                    (3,964,495
                                    )Foreign
      currency translation adjustments
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    (10,906
                                    )
                                    
                                    
                                    (10,906
                                    )
                                    
                                    
                                    -
                                    
                                    
                                    
                                    (10,906
                                    )Balance
      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
                                    
                                    
                                    260,703
                                    
                                    
                                    
                                    261
                                    
                                    
                                    
                                    126,193
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    126,454
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    126,454Stock
      option compensation expense
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    33,656
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    33,656
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    33,656Shares
      issued for AdNet acquisition
                                    
                                    
                                    11,254,898
                                    
                                    
                                    
                                    11,255
                                    
                                    
                                    
                                    1,676,980
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    1,688,235
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    1,688,235Costs
      related to stock issued for AdNet acquisition
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    (3,622
                                    )
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    (3,622
                                    )
                                    
                                    
                                    
                                    
                                    
                                    
                                    (3,622
                                    )Shares
      issued for cash
                                    
                                    
                                    2,000,000
                                    
                                    
                                    
                                    2,000
                                    
                                    
                                    
                                    298,000
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    300,000
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    300,000Costs
      related to stock issued for cash
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    (4,021
                                    )
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    
                                    (4,021
                                    )
                                    
                                    
                                    -
                                    
                                    
                                    
                                    (4,021
                                    )Comprehensive
      loss:Net
      loss
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    (2,854,958
                                    )
                                    
                                    
                                    -
                                    
                                    
                                    
                                    (2,854,958
                                    )
                                    
                                    
                                    (384,246
                                    )
                                    
                                    
                                    (3,239,204
                                    )
                                    
                                    $
                                    (2,854,958
                                    )Foreign
      currency translation adjustments
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    21,720
                                    
                                    
                                    
                                    21,720
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    21,720
                                    
                                    
                                    
                                    21,720Unrealized
      loss on marketable equity securities
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -
                                    
                                    
                                    
                                    (36,293
                                    )
                                    
                                    
                                    (36,293
                                    )
                                    
                                    
                                    -
                                    
                                    
                                    
                                    (36,293
                                    )
                                    
                                    
                                    (36,293
                                    )Balance
      June 30, 2009
                                    
                                    
                                    64,101,056
                                    
                                    
                                    $
                                    64,102
                                    
                                    
                                    $
                                    14,768,049
                                    
                                    
                                    $
                                    (14,630,874
                                    )
                                    
                                    $
                                    306,289
                                    
                                    
                                    $
                                    507,566
                                    
                                    
                                    $
                                    5,977,937
                                    
                                    
                                    $
                                    6,485,503
                                    
                                    
                                    $
                                    (2,869,531
                                    )
 
 See
notes to consolidated financial statements.


5





China
Broadband, Inc. and Subsidiaries
 CONSOLIDATED
STATEMENTS OF CASH FLOWS
 (Unaudited)
 
 Nine Months EndedSeptember 30,
                              
                              
                              September 30,2009
                              
                              
                              2008(Restated)Cash
      flows from operatingNet
      loss
                              
                              $
                              (4,489,866
                              )
                              
                              $
                              (856,236
                              )Adjustments
      to reconcile net loss to net cash provided by operating
      activitiesStock
      compensation expense
                              
                              
                              227,528
                              
                              
                              
                              218,137Depreciation
      and amortization
                              
                              
                              2,451,400
                              
                              
                              
                              2,210,481Noncash
      interest expense
                              
                              
                              75,452
                              
                              
                              
                              72,688Deferred
      income tax
                              
                              
                              (44,040
                              )
                              
                              
                              (19,299
                              )Loss
      (gain) on sale of marketable equity securities
                              
                              
                              14,828
                              
                              
                              
                              (17,498
                              )Change
      in fair value of warrant liabilities
                              
                              
                              1,110,212
                              
                              
                              
                              -Settlement
      gain
                              
                              
                              -
                              
                              
                              
                              (1,300,692
                              )Change
      in assets and liabilities, net of amounts assumed in AdNet
      acquisition:Accounts
      receivable
                              
                              
                              (32,000
                              )
                              
                              
                              105,992Inventory
                              
                              
                              98,635
                              
                              
                              
                              (239,660
                              )Prepaid
      expenses and other assets
                              
                              
                              (62,192
                              )
                              
                              
                              33,763Accounts
      payable and accrued expenses
                              
                              
                              834,550
                              
                              
                              
                              431,247Deferred
      revenue
                              
                              
                              264,765
                              
                              
                              
                              98,824Other
                              
                              
                              (9
                              )
                              
                              
                              (73,580
                              )Net
      cash provided by operating activities
                              
                              
                              449,263
                              
                              
                              
                              664,167Cash
      flows from investing activities:Cash
      acquired in AdNet acquisition
                              
                              
                              17,568
                              
                              
                              
                              -Proceeds
      from sale of marketable equity securities
                              
                              
                              174,513
                              
                              
                              
                              339,998Acquisition
      of property and equipment
                              
                              
                              (554,727
                              )
                              
                              
                              (1,566,948
                              )Loans
      to Shandong Media shareholders
                              
                              
                              (553,004
                              )
                              
                              
                              (242,155
                              )Net
      cash used in investing activities
                              
                              
                              (915,650
                              )
                              
                              
                              (1,469,105
                              )Cash
      flows from financing activitiesProceeds
      from sale of equity securities
                              
                              
                              300,000
                              
                              
                              
                              -Proceeds
      from issuance of convertible notes payable
                              
                              
                              304,853
                              
                              
                              
                              4,850,000Legal
      fees associated with AdNet Acquisition and share issuance
                              
                              
                              (7,643
                              )
                              
                              
                              -Issuance
      costs associated with private placement and convertible
    notes
                              
                              
                              -
                              
                              
                              
                              (104,500
                              )Receipts
      from (payments to) Jinan Parent
                              
                              
                              (2,643,213
                              )
                              
                              
                              240,489Net
      cash (used in) provided by financing activities
                              
                              
                              (2,046,003
                              )
                              
                              
                              4,985,989Effect
      of exchange rate changes on cash
                              
                              
                              28,124
                              
                              
                              
                              478,094Net
      increase (decrease) in cash and cash equivalents
                              
                              
                              (2,484,263
                              )
                              
                              
                              4,659,145Cash
      and cash equivalents at beginning of period
                              
                              
                              4,425,529
                              
                              
                              
                              472,670Cash
      and cash equivalents at end of period
                              
                              $
                              1,941,266
                              
                              
                              $
                              5,131,815Supplemental Cash Flow
      Information:Cash
      paid for taxes
                              
                              $
                              -
                              
                              
                              $
                              -Cash
      paid for interest
                              
                              $
                              792
                              
                              
                              $
                              490Value
      assigned to shares as payment for interest expense
                              
                              $
                              193,873
                              
                              
                              $
                              183,598Shandong
      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 new accounting
      pronouncement on January 1, 2009, reclassification of warrants from equity
      to warrant liabilities
                              
                              $
                              424,373
                              
                              
                              $
                              -
 
 See
notes to consolidated financial statements.


6





CHINA
BROADBAND, INC. AND SUBSIDIARIES


NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS





1.
            Basis of
      Presentation





China
Broadband, Inc., a Nevada corporation (“China Broadband”, “we,” “us,” or “the
Company”) owns and operates in the media segment through its subsidiaries in the
People’s Republic of China (“PRC” or “China”) (i) a cable broadband business
(Jinan Broadband), (ii) a print based media and television programming guide
publication (Shandong Newspaper) and (iii) a provider of multimedia advertising
content to internet cafés (AdNet Media).





(i)
            The
      principal activities of the Company are to provide cable and wireless
      broadband services, principally internet services, Internet Protocol Point
      wholesale services, related network equipment rental and sales, and fiber
      network construction and maintenance through its Jinan Broadband
      subsidiary based in the Jinan region of
China.





(ii)
            We
      operate a print based media and television programming guide publication
      business through our Shandong Newspaper joint venture based in the
      Shandong Province of China, effective as of July 1, 2008.  The
      results of which are included in our financial statements as of July
      2008.





(iii)
            We
      operate a business whose primary focus is the delivery of multimedia
      advertising content to internet cafés in the PRC, effective as of April 7,
      2009, the results of which are included in our financial statements as of
      April 2009.





The
accompanying unaudited interim 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 on a
basis consistent with those reflected in our fiscal 2008 Annual Report on Form
10-K/A, filed with the Securities and Exchange Commission, but does not include
all the disclosures required by generally accepted accounting principles. 
These interim financial statements are unaudited and, in the opinion of
management, include all adjustments, consisting of normal recurring adjustments
and accruals, which are necessary for a fair presentation of results for the
respective interim periods presented.  The results of operations for the
interim periods are not necessarily indicative of the results that may be
expected for the full year or for any future period.





The
financial statements of the Company were filed with the Securities and Exchange
Commission on November 20, 2009. We have evaluated subsequent events up to the
time of the filing.





2.
            Restatement





The
accompanying financial statements for the three months and nine months ended
September 30, 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
                  
                  
                  Accumulated
                  
                  
                  WarrantPaid-inCapital
                  
                  
                  Deficit
                  
                  
                  LiabilitiesWarrants
                  
                  $
                  (731,000
                  )
                  
                  $
                  424,000
                  
                  
                  $
                  307,000





For the
three months ended September 30, 2009, the adoption of ASC 815 had the effect of
decreasing warrant liabilities and net loss by approximately $131,000 and for
the nine months ended September 30, 2009, the effect increased warrant
liabilities and net loss by approximately $1,110,000.





2)
            Corrected
      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 non-controlling
  interest.





3)
            Adjusted
      the original purchase accounting for our AdNet acquisition.  Our
      AdNet intangible asset was decreased by approximately $1,150,000 and
      approximately $1,239,000 was recorded to goodwill, $100,000 was recorded
      to amount due from former AdNet shareholders and approximately $189,000
      was recorded to deferred tax liability.  In addition,
      amortization expense of approximately $63,000 and $126,000 was recorded
      for the three months and nine months ended September 30,
    2009.


7





4)
            Reclassified
      legal costs for approximately $8,000 related to stock issued for our AdNet
      acquisition and related to stock issued for cash to additional paid in
      capital.




3.
            Accounting
      Policy Changes





The
Financial Accounting Standards Board (FASB) issued FASB Accounting Standards
Codification (ASC) effective for financial statements issued for interim and
annual periods ending after September 15, 2009.  The ASC is an
aggregation of previously issued authoritative U.S. generally accepted
accounting principles (GAAP) in one comprehensive set of guidance organized by
subject area.  In accordance with the ASC, references to previously
issued accounting standards have been replaced by ASC
references.  Subsequent revisions to GAAP will be incorporated into
the ASC through Accounting Standards Updates (ASU).





On
January 1, 2009, the Company adopted ASC 805, Business Combinations, and
ASC 810, Consolidation.  ASC
805 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.





ASC 810
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 continues 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 on the
financial statements as of and for the year ended December 31, 2008, contained
an explanatory paragraph regarding the Company's ability to continue as a going
concern.




By July
of 2009,  the Company completed (i) a private financing of 5%
Convertible Promissory Notes for gross proceeds of approximately $305,000 and
(ii) a private financing of 2,000,000 shares of restricted Common Stock, par
value $.001 of the Company (the “Common Stock”), at a purchase price of $.15 per
share, for aggregate gross proceeds of $300,000.  See financial
statement note 5 below for a description of these transactions.  As
part of the Convertible Note financing we were required to reduce the conversion
price of existing notes held by the investors.





Management
plans to continue its efforts to raise additional funds through debt or equity
offerings.  The Company continues to evaluate 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.
            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 development stage 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, Ms. Priscilla Lu and Mr. Wang Yingqinee Michael Wang).





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 cash 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).


8




The fair
value of the Broadband Shares issued in the AdNet Acquisition totaled
$1,688,235.  The fair value of these shares was determined to be $.15
per share based on the sale of shares sold at $.15 per share in the private
equity transactions that occurred in the same period.





The
purchase price was allocated to each major class of identifiable assets acquired
and liabilities assumed based upon their estimated fair values at the date of
the acquisition.  The following represents the allocation of the
purchase price.





AdnetCash
                        
                        $
                        17,568Due
      from former AdNet shareholders
                        
                        
                        100,000Property
      and equipment
                        
                        
                        6,986Other
      assets
                        
                        
                        18,935Software
      technology
                        
                        
                        756,969Loan
      payable
                        
                        
                        (199,358
                        )Accounts
      payable
                        
                        
                        (5,478
                        )Accrued
      expenses
                        
                        
                        (53,229
                        )Other
      current liabilities
                        
                        
                        (4,207
                        )Deferred
      tax liability
                        
                        
                        (189,242
                        )Net
      identifiable assets and liabilities
                        
                        $
                        448,944Goodwill
                        
                        
                        1,239,291Consideration
      paid
                        
                        $
                        1,688,235





The
purchase price allocation for acquisitions requires extensive use of accounting
estimates and judgments to allocate the purchase price to the identifiable
tangible and intangible assets acquired and liabilities assumed based on their
respective fair values.





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 24,000 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).





6.
            Variable
      Interest Entities





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





Our
consolidated VIEs were recorded at fair value on the date we became the primary
beneficiary.  Our VIEs at September 30, 2009 include Jinan Broadband
and Shandong Newspaper.




7.
            Fair
      Value Measurements





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





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


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


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





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


9





The
following table presents the fair value hierarchy for those assets and
liabilities measured at fair value on a recurring basis as of September 30, 2009
and December 31, 2008





September 30, 2009Fair Value MeasurementsLevel 1
                        
                        
                        Level 2
                        
                        
                        Level 3
                        
                        
                        Total FairValueAssetsAvailable-for-sale
      securities
                        
                        $
                        67,608
                        
                        
                        $
                        -
                        
                        
                        $
                        -
                        
                        
                        $
                        67,608LiabilitiesFair
      value of warrants
                        
                        $
                        -
                        
                        
                        $
                        -
                        
                        
                        $
                        1,417,335
                        
                        
                        $
                        1,417,335





December 31, 2008Fair Value MeasurementsLevel 1
                        
                        
                        Level 2
                        
                        
                        Level 3
                        
                        
                        Total FairValueAssetsAvailable-for-sale
      securities
                        
                        $
                        254,496
                        
                        
                        $
                        -
                        
                        
                        $
                        -
                        
                        
                        $
                        254,496





8.
            Related
      Party Transactions





Loan
Receivable





As of
September 30, 2009, the Company has loaned approximately $280,000 to Music
Magazine to fund its operations.  The loan is unsecured, interest free
and has no fixed repayment terms.  Music Magazine is related through
Modern Movie & TV Biweekly Press.





Amounts
due from Shareholders





Amounts
due from shareholders include $91,000 advanced to Shandong Broadcast & TV
Weekly Press and $544,000 advanced to Modern Movie & TV Biweekly
Press. Both companies are our partners in our Shandong Media joint venture
company.  The amount due from Shandong Broadcast & TV Weekly Press
is unsecured, interest free and has no fixed repayment terms.  The
amount due from Modern Movie & TV Biweekly Press is unsecured, interest free
and is due on December 31, 2009 (previously June 30, 2009).  During
the period ended September 30, 2009, the Company advanced approximately $553,000
to the shareholders.





Payable
to Jinan Parent





During
the nine months ended September 30, 2009, Jinan Broadband paid $2,643,000 to
Jinan Parent.  At September 30, 2009, $152,000 remains due to Jinan
Parent.  The advance is unsecured, interest free and has no fixed
repayment terms.




9.
            Goodwill
      and Other 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.




Goodwill
and intangible assets with indefinite useful lives are not amortized, but are
tested for impairment at least annually. Goodwill represents the excess of the
purchase price over the fair value of the net tangible and identifiable
intangible assets acquired in each business combination.




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. Goodwill and other long-lived assets are reviewed for
impairment whenever events, such as significant changes in the business climate,
changes in product and service offerings, or other circumstances indicate that
the carrying amount may not be recoverable.




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


10





Balance at
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      Balance atDecember 31,
                      
                      
                      
                      
                      
                      
                      
                      
                      Other
                      
                      
                      September 30,2008
                      
                      
                      Additions
                      
                      
                      Amortization
                      
                      
                      Changes
                      
                      
                      2009Amortized
      intangible assets:Service
      agreement
                      
                      $
                      1,570,482
                      
                      
                      $
                      -
                      
                      
                      $
                      (65,040
                      )
                      
                      $
                      -
                      
                      
                      $
                      1,505,442Publication
      rights
                      
                      
                      968,977
                      
                      
                      
                      -
                      
                      
                      
                      (37,269
                      )
                      
                      
                      (101,915
                      )
                      
                      
                      829,793Customer
      relationships
                      
                      
                      228,933
                      
                      
                      
                      -
                      
                      
                      
                      (18,075
                      )
                      
                      
                      (24,712
                      )
                      
                      
                      186,146Operating
      permits
                      
                      
                      1,450,366
                      
                      
                      
                      -
                      
                      
                      
                      (55,782
                      )
                      
                      
                      (152,547
                      )
                      
                      
                      1,242,037Software
      technology
                      
                      
                      -
                      
                      
                      
                      756,969
                      
                      
                      
                      (126,162
                      )
                      
                      
                      -
                      
                      
                      
                      630,807Total
      amortized intangible assets
                      
                      $
                      4,218,758
                      
                      
                      $
                      756,969
                      
                      
                      $
                      (302,328
                      )
                      
                      $
                      (279,174
                      )
                      
                      $
                      4,394,225Unamortized
      intangible assets:Goodwill
                      
                      $
                      -
                      
                      
                      $
                      1,239,291
                      
                      
                      $
                      -
                      
                      
                      $
                      -
                      
                      
                      $
                      1,239,291




In
accordance with ASC 250, we recorded amortization expense related to our
intangible assets of $302,328 and $77,193 for the nine months ended September
30, 2009 and 2008, respectively.




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





Jinan
                    
                    
                    Shandong
                    
                    
                    AdNetBroadband
                    
                    
                    Media
                    
                    
                    Media
                    
                    
                    Total2009
      (three months)
                    
                    $
                    21,680
                    
                    
                    $
                    33,234
                    
                    
                    $
                    63,080
                    
                    
                    $
                    117,9942010
                    
                    
                    86,720
                    
                    
                    
                    132,934
                    
                    
                    
                    252,323
                    
                    
                    
                    471,9772011
                    
                    
                    86,720
                    
                    
                    
                    132,934
                    
                    
                    
                    252,323
                    
                    
                    
                    471,9772012
                    
                    
                    86,720
                    
                    
                    
                    132,934
                    
                    
                    
                    63,081
                    
                    
                    
                    282,7352013
                    
                    
                    86,720
                    
                    
                    
                    132,934
                    
                    
                    
                    -
                    
                    
                    
                    219,654Thereafter
                    
                    
                    1,136,882
                    
                    
                    
                    1,693,006
                    
                    
                    
                    -
                    
                    
                    
                    2,829,888Total
      amortization to be recognized
                    
                    $
                    1,505,442
                    
                    
                    $
                    2,257,976
                    
                    
                    $
                    630,807
                    
                    
                    $
                    4,394,225





10.
            Private
      Financings, June 2009





Issuance of Convertible Notes, June
2009





During
the nine months ended September 30, 2009, the Company completed a private
financing of 5% Convertible Promissory Notes (the “Notes”) for gross proceeds of
approximately $305,000 (the “Note Offering”).  The Note Offering was
pursuant to a Note Purchase Agreement (the “Note Purchase Agreement”) with nine
persons who were existing holders (the “Note Investors”) of Convertible
Promissory Notes issued in January of 2008 (the “January 2008 Notes”), pursuant
to which the Company issued approximately $305,000 principal amount of Notes to
the Note Investors at face value.  The Notes accrue interest at 5% per
year payable quarterly in cash or stock, are initially convertible at $.20 per
share, and become due and payable in full on May 27, 2010.  The
Company did not pay any placement agent or similar fees in connection with the
Note Offering.





Equity
Financing; Issuance of Common Stock





During
the nine months ended September 30, 2009 and pursuant to a Securities Purchase
Agreement with three investors, the Company completed a private financing of
2,000,000 shares of restricted Common Stock, par value $.001 of the Company (the
“Common Stock”), at a purchase price of $.15 per share, for aggregate gross
proceeds of $300,000 (the “Equity Financing”).  The company did not
pay any placement agent or similar fees in connection with such
financing.





Waiver
Letters





In
connection with the Note Offering and the Equity Financing, the Company entered
into a waiver letter (the “Waiver Letter”) with all the holders of January 2008
Notes (“Existing Note Holders”), pursuant to which, among other things, the
conversion price of the January 2008 Notes were reduced from $.75 per share to
(i) $.20 per share (i.e. the same conversion price as the Notes in the Note
Offering) for the Existing Note Holders that invested in the Notes (i.e. the
Note Investors), and (ii) $.25 per share for those Existing Note Holders that
did not reinvest in the new notes.  All of the Existing Note Holders
waived certain anti dilution adjustments in respect of the contemplated Equity
Financing or in respect of their Warrants which were issued to them in
connection with the January 2008 Notes, which warrants remain exercisable at
$.60 per share.


11





The
Company also agreed, pursuant to the Waiver Letter, that if it raises capital in
excess of $10,000,000 and up to $20,000,000 it will repay the January 2008
Notes, on a pari pasu
basis based on principal amount outstanding, a minimum of 12.5% of the net
proceeds raised and, that if it is successful in raising over $20,000,000, it
will repay the January 2008 Notes, on a pari pasu basis based on
principal, a minimum aggregate of 15.0% of the net proceeds raised, until repaid
in full.





Exemption
from registration of the Notes issued to the Note Investors is claimed under
Section 4(2) of the Act and Rule 506 promulgated thereunder, based on, among
other things, the representations madeby each of the investors
in the Note Purchase Agreement that include, among other things, a
representation from each such purchaser that it or he is an “accredited
investor” within the meaning of Regulation D promulgated under the Act and that
such purchases were not made as part of a general or public solicitation or with
a view towards distribution or resale of securities acquired in the
financing.





11.
            Convertible Notes, January
      2008





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 Convertible Notes due January 11,
2013, and Class A Warrants to purchase an aggregate of 6,628,333 shares of
common stock of the Company at $.60 per share expiring on June 11,
2013.  The conversion price of these January 2008 Notes was originally
$.75 per share and, in June of 2009 in connection with a subsequent filing with
these investors, reduced to $.20 per share (see “Private Financings; June 2009 –
Waiver Letters” above).





12.
            Settlement
      Agreement





On
January 11, 2008, simultaneously with the closing of the Convertible Notes
described above in Note 6, the Company entered into a Settlement Agreement
(“Settlement Agreement”) which was negotiated by the Company, its advisors and
management and certain shareholders, for purposes of facilitating the Company’s
business plan and expediting and facilitating the Company’s financing activities
and avoiding disputes between management and certain investors and consultants
concerning possible claims that such investors suggested might be brought
against these principals for their activities in forming and operating China
Cablecom and its entry into a merger agreement as being violative of their
employment agreements with the Company.  The Settlement Agreement
provided, subject to the terms thereof, for general mutual releases of all
executives and management and their affiliated entities and also provided for
the modification of employment agreements of both, Mr. Clive Ng, our Chairman
and Mr. Yue Pu, our Vice Chairman and former Chief Financial
Officer.  The Settlement Agreement also required the transfer of
390,000 Cablecom Holding shares held by Mr. Ng to the Company and to certain of
the Company’s shareholders and consultants in exchange for releases in favor of
the Company and management and their affiliates.





The
following represents the details of the net gain the Company recognized as a
result of the Settlement Agreement during the nine month period ending September
30, 2008 which is classified within  “Interest and other income
(expense)” in the accompaning Statement of Operations:





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


13.
            Warrant
      Liabilities





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





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





September 30,
                  
                  
                  January 1,2009
                  
                  
                  2009Risk-free
      interest rate
                  
                  
                  1.93
                  %
                  
                  
                  1.30
                  %Expected
      volatility
                  
                  
                  302.02
                  %
                  
                  
                  311.69
                  %Expected
      life (in years)
                  
                  3.7
      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 principles. The cumulative effect on the
accounting for the warrants at January 1, 2009 was as follows:





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


12





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.





14.
            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 for the three and nine months ended September 30, 2009
and 2008:





Three Months Ended
                  
                  
                  Nine Months EndedSeptember 30,
                  
                  
                  September 30,2009
                  
                  
                  2008
                  
                  
                  2009
                  
                  
                  2008Warrants
                  
                  
                  16,874,800
                  
                  
                  
                  16,874,800
                  
                  
                  
                  16,874,800
                  
                  
                  
                  16,874,800Options
                  
                  
                  317,500
                  
                  
                  
                  317,500
                  
                  
                  
                  317,500
                  
                  
                  
                  317,500





For each
of the three month and nine month periods ended September 30, 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.





15.
            Comprehensive
      Loss





Comprehensive
loss consists of the following:





Three Months Ended
                      
                      
                      Nine Months EndedSeptember 30,
                      
                      
                      September 30,2009
                      
                      
                      2008
                      
                      
                      2009
                      
                      
                      2008Net
      loss attributable to shareholders
                      
                      $
                      (915,596
                      )
                      
                      $
                      (546,831
                      )
                      
                      $
                      (3,770,554
                      )
                      
                      $
                      (487,964
                      )Other
      comprehensive income:Foreign
      currency translation adjustments
                      
                      
                      6,407
                      
                      
                      
                      29,831
                      
                      
                      
                      28,124
                      
                      
                      
                      478,096Unrealized
      gain (loss) on marketable equity securities
                      
                      
                      38,735
                      
                      
                      
                      (1,564,000
                      )
                      
                      
                      2,442
                      
                      
                      
                      (1,394,000
                      )Comprehensive
      loss
                      
                      $
                      (870,454
                      )
                      
                      $
                      (2,081,000
                      )
                      
                      $
                      (3,739,988
                      )
                      
                      $
                      (1,403,868
                      )





16.
            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 September 30, 2009, 317,500 options
have been issued under the plan.





The
following table provides the details of the total stock based compensation for
the three and nine months ended September 30, 2009 and 2008:





Three Months Ended
                    
                    
                    Nine Months EndedSeptember 30,
                    
                    
                    September 30,
                    
                    
                    September 30,
                    
                    
                    September 30,2009
                    
                    
                    2008
                    
                    
                    2009
                    
                    
                    2008Stock
      option amortization
                    
                    $
                    -
                    
                    
                    $
                    -
                    
                    
                    $
                    33,656
                    
                    
                    $
                    22,414Stock
      issued as non registration penalty
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    12,000$
                    -
                    
                    
                    $
                    -
                    
                    
                    $
                    33,656
                    
                    
                    $
                    34,414





The
Company accounts for its stock option awards pursuant to the provisions of ASC
718, Stock
Compensation.  The fair value of each option award is estimated
on the date of grant using the Black-Scholes option valuation model. The Company
recognizes the fair value of each option as compensation expense ratably using
the straight-line attribution method over the service period, which is generally
the vesting period. The Black-Scholes model incorporates the following
assumptions:




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





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





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





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





The
following table outlines the variables used in the Black-Scholes option-pricing
model for options issued in 2008.





2008Risk
      free interest rate
                    
                    
                    3.53
                    %Volatility
                    
                    
                    188.76
                    %Dividend
      yield
                    
                    
                    —Expected
      option life
                    
                    4
      years


13





There
were no stock options issued during the nine month period ending September 30,
2009.  As of September 30, 2009, there were 317,500 options
outstanding with 162,500 options exercisable at a weighted average exercise
price of $0.62 with a weighted average remaining life of 6.1 years.





As of
September 30, 2009 the Company had total unrecognized compensation expense
related to options granted of $35,000 which will be recognized over a remaining
service period of 2 years.





17.
            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 September 30, 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





18.
            Interest
      Expense and Share Issuance





In
connection with the Convertible Notes issued in January 2008 and June 2009 as
described above in Notes 10 and 11, during the three months ended September 30,
2009 and 2008 the Company incurred $93,000 and $89,000 in interest expense
related to these Notes and Warrants, respectively.  During the nine
months ended September 30, 2009 and 2008 the Company incurred $269,000 and
$256,000 in interest expense related to these Notes and Warrants,
respectively.





As set
forth in the related documents and with the consent of the Note holders, the
Company issued 592,677 and 244,799 shares to the Note holders in lieu of cash of
approximately $194,000 and $184,000 for interest in the nine month periods ended
September 30, 2009 and 2008, respectively.





19.
            Income
    Taxes





In June
2006, the FASB issued ASC 740,Income Taxes.  ASC 740 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.  ASC 740 also provides guidance
on de-recognition, classification, interest and penalties, accounting in interim
periods, disclosure and transition.





Under ASC
740, 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
September 30, 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 nine months
ended September 30, 2009.





The
Company is subject to a 5% business tax on the business income of our operating
companies located in China.





Deferred
taxes are recognized for the future tax consequences attributable to temporary
differences between the carrying amounts of assets and liabilities for financial
statement purposes and income tax purposes using enacted rates expected to be in
effect when such amounts are realized or settled.  The effect on
deferred taxes of a change in tax rates is recognized in income in the period
that includes the enactment date.  The income tax benefit for the
three month and nine month periods ended September 30, 2009 and 2008 results
from changes in calculated deferred taxes, particular liabilities associated
with intangible assets.  Deferred tax assets associated with net
operating losses have a full valuation allowance recorded against
them.


14





20.
            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.





21.
            Recent
      Accounting Pronouncements





In July
2009, the FASB issued the Accounting Standards Codification (“Codification”),
which became the single source of authoritative generally accepted accounting
principles (GAAP) in the United States, other than rules and interpretive
releases issued by the Securities and Exchange Commission (SEC).  The
Codification is a reorganization of current GAAP into a topical format that
eliminates the current GAAP hierarchy and instead establishes two levels of
guidance – authoritative and non-authoritative.  All
non-grandfathered, non-SEC accounting literature that is not included in the
Codification will become non-authoritative.  All references to
authoritative accounting literature in our financial statements are referenced
in accordance with the Codification.  There were no changes to the
content of our financial statements or disclosures as a result of implementing
the Codification.





In
October 2009, the FASB issued amendments to the criteria for separating
consideration in multiple-deliverable arrangements.  These amendments
will establish a selling price hierarchy for determining the selling price of a
deliverable.  The amendments will require that a vendor determine its
best estimate of selling price in a manner that is consistent with that used to
determine the price to sell the deliverable on a standalone
basis.  These amendments will eliminate the residual method of
allocation and require that arrangement consideration be allocated at the
inception of the arrangement to all deliverables using the relative selling
price method.  These amendments will expand disclosures related to
vendor’s multiple-deliverable revenue arrangements.  These amendments
will be effective for arrangements entered into after January 1,
2011.  We are currently evaluating the impact these amendments will
have on our consolidated financial statements and disclosures.





22.
            Subsequent
      Events





China
Broadband, Inc., through its wholly owned subsidiary, China Broadband, Ltd.,
entered into a non binding memorandum of understanding to acquire 51% of
Laketune Technologies, a joint venture partnership company with the State
Administration of Radio Film & Television (SARFT) entity WASU (Hangzhou
Digital) in the People’s Republic of China (the “PRC”).  The
completion of this joint venture is subject to a number of
conditions.  In connection therewith, the Company distributed an
information research sheet relating to the Company’s businesses and the
broadband business in the PRC which generally contains certain research and
information relating to the broadband business in the PRC (the “Information
Sheet”).  A copy of this Information Sheet can be found in the
Company’s Current Report on Form 8-K filed on June 26, 2009.


15


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 consolidated financial statements and related
notes for the nine months ended September 30, 2009 contained in this Form
10-Q/A.  The following is also necessarily subject to, and we
incorporate herein, the forward looking statements disclosure provided in the
forepart to this Form 10-Q/A as well as Risk Factors discussed
therein  as can be found in our Form 10-K/A for the year ended
December 31, 2008, all of which should be considered. These forward looking
statements are afforded the safe harbor protections of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended.





Overview





We operate in the media segment,
through our VIE 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 April 2009 we acquired an internet café
content provider and advertising business in the PRC (AdNet Media) (See “Recent
Developments” below).





Recent
Developments





As
described below, during the nine months ended September 30, 2009 we completed
(i) a private financing of 5% Convertible Promissory Notes (the “Notes”) for
gross proceeds of $304,902 (the “Note Offering”) and (ii) a private financing of
2,000,000 shares of restricted Common Stock, par value $.001 of the Company (the
“Common Stock”), at a purchase price of $.15 per share, for aggregate proceeds
of $300,000 (the “Equity Financing”) and simultaneously entered into a waiver
letter agreement with certain note-holders as more fully described
below.  See “Private Financings” in this section
below.   In April of 2007, we also completed our acquisition,
through our wholly owned subsidiary, of AdNet Medeia Technologies(Beijing) Co.,
Ltd., a PRC based company providing advertising marketing to internet café users
in the PRC.





Laketune





China Broadband, Inc.,
through its wholly owned subsidiary, China Broadband, Ltd., entered into a non
binding memorandum of understanding to acquire 51% of Laketune Technologies, a
joint venture partnership company with the State Administration of Radio Film
& Television (SARFT) entity WASU (Hangzhou Digital) in the People’s Republic
of China (the “PRC”).  The completion of this joint venture is subject
to a number of conditions.  In connection therewith, the Company
distributed an information research sheet relating to the Company’s businesses
and the broadband business in the PRC which generally contains certain research
and information relating to the broadband business in the PRC (the “Information
Sheet”).  A copy of this Information Sheet can be found in the
Company’s Current Report on Form 8-K filed on June 26, 2009.





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, Ms. Priscilla Lu
and Mr. Wang Yingqi nee Michael Wang).  As part of the acquisition,
and, among other provisions, Ms. Priscilla Lu was appointed to the China
Broadband board of directors.





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 39,000 cafés 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 our VIE
subsidiary, Jinan Broadband, our Shandong Media joint venture and our recently
acquired business of AdNet Media. Through WFOE, we acquired a 51% interest in
Jinan Broadband effective April 1, 2007, a 50% interest in the Shandong
Media joint venture effective July 1, 2008 and 100% interest in AdNet Media
effective April 7, 2009.





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





3 Months Ended
                    
                    
                    Amount
                    
                    
                    %September 30,
                    
                    
                    September 30,
                    
                    
                    Increase /
                    
                    
                    Increase /2009
                    
                    
                    2008
                    
                    
                    (Decrease)
                    
                    
                    (Decrease)Revenue
                    
                    $
                    2,106,000
                    
                    
                    $
                    1,881,000
                    
                    
                    $
                    225,000
                    
                    
                    
                    12
                    %Cost
      of revenue
                    
                    
                    1,541,000
                    
                    
                    
                    949,000
                    
                    
                    
                    592,000
                    
                    
                    
                    62
                    %Gross
      profit
                    
                    
                    565,000
                    
                    
                    
                    932,000
                    
                    
                    
                    (367,000
                    )
                    
                    
                    -39
                    %Selling,
      general and adminstrative expenses
                    
                    
                    800,000
                    
                    
                    
                    582,000
                    
                    
                    
                    218,000
                    
                    
                    
                    37
                    %Professional
      fees
                    
                    
                    155,000
                    
                    
                    
                    142,000
                    
                    
                    
                    13,000
                    
                    
                    
                    9
                    %Depreciation
      and amortization
                    
                    
                    917,000
                    
                    
                    
                    769,000
                    
                    
                    
                    148,000
                    
                    
                    
                    19
                    %Loss
      from operations
                    
                    
                    (1,307,000
                    )
                    
                    
                    (561,000
                    )
                    
                    
                    (746,000
                    )
                    
                    
                    133
                    %Interest
      & other income / (expense)Interest
      income
                    
                    
                    1,000
                    
                    
                    
                    16,000
                    
                    
                    
                    (15,000
                    )
                    
                    
                    -94
                    %Interest
      expense
                    
                    
                    (93,000
                    )
                    
                    
                    (89,000
                    )
                    
                    
                    (4,000
                    )
                    
                    
                    4
                    %Change
      in fair value of warrant liabilities
                    
                    
                    131,000
                    
                    
                    
                    -
                    
                    
                    
                    131,000
                    
                    
                    
                    -Gain
      on sale of securities
                    
                    
                    16,000
                    
                    
                    
                    -
                    
                    
                    
                    16,000
                    
                    
                    
                    -Other
                    
                    
                    (13,000
                    )
                    
                    
                    -
                    
                    
                    
                    (13,000
                    )
                    
                    
                    -Net
      loss before income taxes and noncontrolling interest
                    
                    
                    (1,265,000
                    )
                    
                    
                    (634,000
                    )
                    
                    
                    (631,000
                    )
                    
                    
                    100
                    %Income
      tax benefit
                    
                    
                    15,000
                    
                    
                    
                    6,000
                    
                    
                    
                    9,000
                    
                    
                    
                    150
                    %Net
      loss, net of tax
                    
                    
                    (1,250,000
                    )
                    
                    
                    (628,000
                    )
                    
                    
                    (622,000
                    )
                    
                    
                    99
                    %Plus:
      Net loss attributable to noncontrolling interests
                    
                    
                    335,000
                    
                    
                    
                    81,000
                    
                    
                    
                    254,000
                    
                    
                    
                    314
                    %Net
      loss attributable to China Broadband shareholders
                    
                    $
                    (915,000
                    )
                    
                    $
                    (547,000
                    )
                    
                    $
                    (368,000
                    )
                    
                    
                    67
                    %


16




Comparison of Three Months
Ended September 30, 2009 and 2008





Revenues





Our
revenues are generated by our operating companies in the PRC.





Revenues for the three months ended
September 30, 2009 totaled $2,106,000, as compared to $1,881,000 for the three
months ended September 30, 2008, an increase in revenue of approximately
$225,000, or 12%.





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 of $1,170,000, an increase of $9,000, or 1% as compared to
revenues of $1,161,000 for the three months ended 2008.





Shandong
Media’s revenue consists primarily of sales of publications and advertising
revenues of $934,000, an increase of $214,000 or 30% as compared to revenues of
$720,000 for the three months ended 2008.  The increase is primarily
attributable to increases in advertising revenues.  (For a description
of the Shandong Media joint venture, see “Shandong Media Joint Venture and
Shandong Newspaper Cooperation Agreement”, below).





AdNet
Media is an early stage company that started operations during the first quarter
of 2009.  AdNet Media’s revenue is expected to consist primarily of
advertising revenue and video service fees.  Advertising revenues will
be generated from advertisers who participate in an ad platform developed by
AdNet which is accessed through internet cafés.  Video service fees
are expected to be generated from the internet café or agent who uses our online
video services which includes movies, music, videos and games.  For
the three months ended September 30, 2009, revenues totaled
$2,000.  AdNet Media’s revenues were not included in our operating
results during the third quarter of 2008 (For a description of the AdNet Media
acquisition, see “Completion
of Acquisition of AdNet”, above).





Gross
Profit





Our gross profit for the three months
ended September 30, 2009 was $565,000, as compared to $932,000 for the three
months ended September 30, 2008.The decrease in
gross profit of approximately $367,000 or 39% is primarily comprised of $415,000
decrease from our Jinan Broadband operations offset by $52,000 increase from our
Shandong Media operations.  The decrease in gross profit attributable
to Jinan Broadband was primarily due to increases in cable network connection
costs, telecom bandwith costs and charges associated with the write down of
switches and other consumer related parts held in inventory.





Gross profit as a percentage of revenue
was 27% for the three months ended September 30, 2009, as compared to 50% for
the three months ended September 30, 2008.





Selling,
General and Administrative Expenses





Our
selling, general and administrative expenses for the three months ended
September 30, 2009 increased approximately $218,000 to $800,000, as compared to
$582,000 for the three months ended September 30, 2008.  The increase
is primarily attributable to the inclusion of our AdNet Media acquisition in
April 2009 along with increased personnel and marketing expenses at our Shandong
Media company.





Salaries and personnel costs are the
major component of selling, general and administrative expenses.  For
the three months ended September 30, 2009, salaries and personnel costs
accounted for 60% of our selling, general and administrative
expenses.  During the 2009 period, salaries and personnel costs
totaled $459,000, an increase of $148,000 or 57% as compared to $311,000 for the
2008 period.  The increase in salaries and personnel costs is
primarily attributable to the inclusion of our AdNet Media acquisition in April
2009 along with increased personnel costs at our Shandong Media
company.





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





Professional
Fees





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.


17





Depreciation
and Amortization





2009
                    
                    
                    2008Depreciation
                    
                    $
                    772,000
                    
                    
                    $
                    720,000Amortization
                    
                    
                    145,000
                    
                    
                    
                    49,000Total
                    
                    $
                    917,000
                    
                    
                    $
                    769,000




Depreciation expense during 2009
relates to the depreciation on the approximately $14.7 million of property,
plant and equipment, at our Jinan Broadband subsidiary.  The increase
in amortization of $96,000 is primarily attributable to the amortization related
to our Shandong Media intangible assets acquired in 2008 and our software
technology acquired in the acquisition of AdNet.





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 $131,000
classified as a change in fair value of warrants on our statement of operations
for the 3 months ended September 30, 2009.





Interest
and Other Income (Expense), net





Interest and other income (expense),
net, of approximately $42,000 during the three months ended September 30, 2009
consisted primarily of:


·
            interest
      expense related to the 5% Convertible Notes and Warrants issued in January
      2008 and June 2009 in the amount of approximately
  $93,000


·
            the
      gain on the sale of marketable equity securities in the amount of
      $16,000


·
            the
      decrease in fair value of warrant liabilities in the amount of
      $131,000





Interest
expense of $93,000 for the three months ended September 30, 2009 relates to the
5% Convertible Notes and Warrants issued in January 2008 and June
2009.  For the 2008 period, interest expense was
$89,000.  Interest expense includes amortization of the original
issued discount on the notes allocated to the warrants issued in the
financing.





Under new
authoritative guidance, effective January 1, 2009, the Company was required to
reclassify warrants from equity to warrant liabilities.  Warrants are
fair valued quarterly using the Black-Scholes Merton Model and changes in fair
value are recorded to the statement of operations.  We recorded a gain
of $131,000 classified as a change in fair value of warrants on our statement of
operations for the 3 months ended September 30, 2009.




We expect our interest expense to
increase due to additional convertible notes issued in June 2009 for
approximately $305,000.  Interest on the Notes compounds monthly at
the annual rate of five percent (5%).  The June 2009 Notes mature on
May 27, 2010.  The outstanding principal amount on the June 2009 Notes
as of September 30, 2009 approximates $305,000.  The January 2008
Notes mature on January 11, 2013.  The outstanding principal amount of
the January 2008 Notes as of September 30, 2009 was $4,971,250.





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 September 30, 2009, $304,000
of our operating loss from Jinan Broadband was allocated to Jinan Parent, as
compared to $69,000 during the third quarter of 2008.





50% of the operating profit and loss of
our Shandong Media joint venture is allocated to our 50% Shandong Newspaper
joint venture partner.  During the three months ended September 30,
2009, $31,000 of our operating profit from Shandong Media was allocated to
Shandong Newspaper, as compared to $12,000 of our operating loss during the
third quarter of 2008.





Net
Loss Attributable to Shareholders





Net loss
attributable to shareholders for the three months ended September 30, 2009 was
$915,000 as compared to $547,000 for the 2008 period, an increase of $369,000,
or 67%.





The following table breaks down the
results of operations for the three months ended September 30, 2009 and 2008
between our operating companies and our non-operating
companies.





Ø
            The
      operating companies include Jinan Broadband, Shandong Media and AdNet
      Media.


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


18






3 Months Ended
                                                              
                                                              
                                                              3 Months EndedSeptember 30, 2009
                                                              
                                                              
                                                              September 30, 2008% of
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              % ofTotal
                                                              
                                                              
                                                              Non-
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              Total
                                                              
                                                              
                                                              Non-Operating
                                                              
                                                              
                                                              Revenue
                                                              
                                                              
                                                              Operating
                                                              
                                                              
                                                              Total
                                                              
                                                              
                                                              Operating
                                                              
                                                              
                                                              Revenue
                                                              
                                                              
                                                              Operating
                                                              
                                                              
                                                              TotalRevenue
                                                              
                                                              $
                                                              2,106,000
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              $
                                                              -
                                                              
                                                              
                                                              $
                                                              2,106,000
                                                              
                                                              
                                                              $
                                                              1,881,000
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              $
                                                              -
                                                              
                                                              
                                                              $
                                                              1,881,000Cost
      of revenue
                                                              
                                                              
                                                              1,541,000
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              -
                                                              
                                                              
                                                              
                                                              1,541,000
                                                              
                                                              
                                                              
                                                              949,000
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              -
                                                              
                                                              
                                                              
                                                              949,000Gross
      profit
                                                              
                                                              
                                                              565,000
                                                              
                                                              
                                                              
                                                              27
                                                              %
                                                              
                                                              
                                                              -
                                                              
                                                              
                                                              
                                                              565,000
                                                              
                                                              
                                                              
                                                              932,000
                                                              
                                                              
                                                              
                                                              50
                                                              %
                                                              
                                                              
                                                              -
                                                              
                                                              
                                                              
                                                              932,000Selling,
      general and adminstrative expenses
                                                              
                                                              
                                                              579,000
                                                              
                                                              
                                                              
                                                              27
                                                              %
                                                              
                                                              
                                                              221,000
                                                              
                                                              
                                                              
                                                              800,000
                                                              
                                                              
                                                              
                                                              381,000
                                                              
                                                              
                                                              
                                                              20
                                                              %
                                                              
                                                              
                                                              201,000
                                                              
                                                              
                                                              
                                                              582,000Professional
      fees
                                                              
                                                              
                                                              23,000
                                                              
                                                              
                                                              
                                                              1
                                                              %
                                                              
                                                              
                                                              132,000
                                                              
                                                              
                                                              
                                                              155,000
                                                              
                                                              
                                                              
                                                              9,000
                                                              
                                                              
                                                              
                                                              0
                                                              %
                                                              
                                                              
                                                              133,000
                                                              
                                                              
                                                              
                                                              142,000Depreciation
      and amortization
                                                              
                                                              
                                                              772,000
                                                              
                                                              
                                                              
                                                              37
                                                              %
                                                              
                                                              
                                                              145,000
                                                              
                                                              
                                                              
                                                              917,000
                                                              
                                                              
                                                              
                                                              720,000
                                                              
                                                              
                                                              
                                                              38
                                                              %
                                                              
                                                              
                                                              49,000
                                                              
                                                              
                                                              
                                                              769,000Loss
      from operations
                                                              
                                                              
                                                              (809,000
                                                              )
                                                              
                                                              
                                                              -38
                                                              %
                                                              
                                                              
                                                              (498,000
                                                              )
                                                              
                                                              
                                                              (1,307,000
                                                              )
                                                              
                                                              
                                                              (178,000
                                                              )
                                                              
                                                              
                                                              -9
                                                              %
                                                              
                                                              
                                                              (383,000
                                                              )
                                                              
                                                              
                                                              (561,000
                                                              )Interest
      & other income / (expense)Interest
      income
                                                              
                                                              
                                                              1,000
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              -
                                                              
                                                              
                                                              
                                                              1,000
                                                              
                                                              
                                                              
                                                              15,000
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              1,000
                                                              
                                                              
                                                              
                                                              16,000Interest
      expense
                                                              
                                                              
                                                              -
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              (93,000
                                                              )
                                                              
                                                              
                                                              (93,000
                                                              )
                                                              
                                                              
                                                              -
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              (89,000
                                                              )
                                                              
                                                              
                                                              (89,000
                                                              )Change
      in fair value of warrant liabilities
                                                              
                                                              
                                                              -
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              131,000
                                                              
                                                              
                                                              
                                                              131,000
                                                              
                                                              
                                                              
                                                              -
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              -
                                                              
                                                              
                                                              
                                                              -Gain
      on sale of securities
                                                              
                                                              
                                                              -
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              16,000
                                                              
                                                              
                                                              
                                                              16,000
                                                              
                                                              
                                                              
                                                              -
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              -
                                                              
                                                              
                                                              
                                                              -Other
                                                              
                                                              
                                                              (13,000
                                                              )
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              -
                                                              
                                                              
                                                              
                                                              (13,000
                                                              )
                                                              
                                                              
                                                              -
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              -
                                                              
                                                              
                                                              
                                                              -Loss
      before income taxes and noncontrolling interest
                                                              
                                                              
                                                              (821,000
                                                              )
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              (444,000
                                                              )
                                                              
                                                              
                                                              (1,265,000
                                                              )
                                                              
                                                              
                                                              (163,000
                                                              )
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              (471,000
                                                              )
                                                              
                                                              
                                                              (634,000
                                                              )Income
      tax benefit
                                                              
                                                              
                                                              -
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              15,000
                                                              
                                                              
                                                              
                                                              15,000
                                                              
                                                              
                                                              
                                                              -
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              6,000
                                                              
                                                              
                                                              
                                                              6,000Net
      loss, net of tax
                                                              
                                                              
                                                              (821,000
                                                              )
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              (429,000
                                                              )
                                                              
                                                              
                                                              (1,250,000
                                                              )
                                                              
                                                              
                                                              (163,000
                                                              )
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              (465,000
                                                              )
                                                              
                                                              
                                                              (628,000
                                                              )Plus:
      Net loss attributable to noncontrolling interest
                                                              
                                                              
                                                              (335,000
                                                              )
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              -
                                                              
                                                              
                                                              
                                                              (335,000
                                                              )
                                                              
                                                              
                                                              (81,000
                                                              )
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              -
                                                              
                                                              
                                                              
                                                              (81,000
                                                              )Net
      loss attributable to China Broadband shareholders
                                                              
                                                              $
                                                              (486,000
                                                              )
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              $
                                                              (429,000
                                                              )
                                                              
                                                              $
                                                              (915,000
                                                              )
                                                              
                                                              $
                                                              (82,000
                                                              )
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              $
                                                              (465,000
                                                              )
                                                              
                                                              $
                                                              (547,000
                                                              )





Comparison of Nine Months
Ended September 30, 2009 and 2008




9 Months Ended
                        
                        
                        Amount
                        
                        
                        %September 30,
                        
                        
                        September 30,
                        
                        
                        Increase /
                        
                        
                        Increase /2009
                        
                        
                        2008
                        
                        
                        (Decrease)
                        
                        
                        (Decrease)Revenue
                        
                        $
                        6,045,000
                        
                        
                        $
                        3,937,000
                        
                        
                        $
                        2,108,000
                        
                        
                        
                        54
                        %Cost
      of revenue
                        
                        
                        3,818,000
                        
                        
                        
                        1,845,000
                        
                        
                        
                        1,973,000
                        
                        
                        
                        107
                        %Gross
      profit
                        
                        
                        2,227,000
                        
                        
                        
                        2,092,000
                        
                        
                        
                        135,000
                        
                        
                        
                        6
                        %Selling,
      general and adminstrative expenses
                        
                        
                        2,259,000
                        
                        
                        
                        1,394,000
                        
                        
                        
                        865,000
                        
                        
                        
                        62
                        %Professional
      fees
                        
                        
                        447,000
                        
                        
                        
                        447,000
                        
                        
                        
                        -
                        
                        
                        
                        0
                        %Depreciation
      and amortization
                        
                        
                        2,653,000
                        
                        
                        
                        2,210,000
                        
                        
                        
                        443,000
                        
                        
                        
                        20
                        %Loss
      from operations
                        
                        
                        (3,132,000
                        )
                        
                        
                        (1,959,000
                        )
                        
                        
                        (1,173,000
                        )
                        
                        
                        60
                        %Interest
      & other income / (expense)Settlement
      gain
                        
                        
                        -
                        
                        
                        
                        1,301,000
                        
                        
                        
                        (1,301,000
                        )
                        
                        
                        -100
                        %Interest
      income
                        
                        
                        6,000
                        
                        
                        
                        35,000
                        
                        
                        
                        (29,000
                        )
                        
                        
                        -83
                        %Interest
      expense
                        
                        
                        (270,000
                        )
                        
                        
                        (257,000
                        )
                        
                        
                        (13,000
                        )
                        
                        
                        5
                        %Change
      in fair value of warrant liabilities
                        
                        
                        (1,110,000
                        )
                        
                        
                        -
                        
                        
                        
                        (1,110,000
                        )
                        
                        
                        -(Loss)
      gain on sale of securities
                        
                        
                        (15,000
                        )
                        
                        
                        17,000
                        
                        
                        
                        (32,000
                        )
                        
                        
                        -188
                        %Other
                        
                        
                        (13,000
                        )
                        
                        
                        (13,000
                        )
                        
                        
                        -
                        
                        
                        
                        0
                        %Net
      loss before income taxes and noncontrolling interest
                        
                        
                        (4,534,000
                        )
                        
                        
                        (876,000
                        )
                        
                        
                        (3,658,000
                        )
                        
                        
                        418
                        %Income
      tax benefit
                        
                        
                        44,000
                        
                        
                        
                        19,000
                        
                        
                        
                        25,000
                        
                        
                        
                        132
                        %Net
      loss, net of tax
                        
                        
                        (4,490,000
                        )
                        
                        
                        (857,000
                        )
                        
                        
                        (3,633,000
                        )
                        
                        
                        424
                        %Plus:
      Net loss attributable to noncontrolling interests
                        
                        
                        719,000
                        
                        
                        
                        368,000
                        
                        
                        
                        351,000
                        
                        
                        
                        95
                        %Net
      loss attributable to China Broadband shareholders
                        
                        $
                        (3,771,000
                        )
                        
                        $
                        (489,000
                        )
                        
                        $
                        (3,282,000
                        )
                        
                        
                        671
                        %
  Revenues





Our
revenues are generated by our operating companies in the PRC.  Our
revenues for the nine months ended September 30, 2009 include revenues primarily
from our Jinan Broadband and Shandong Media companies while the revenues for the
nine months ended September 30, 2008 includes revenues from Jinan Broadband and
from Shandong Media from July 1, 2008.





Revenues for the nine months ended
September 30, 2009 totaled $6,045,000, as compared to $3,937,000 for the nine
months ended September 30, 2008.  The increase in revenue of
approximately $2,108,000, or 54% is primarily attributable to including a full
nine months of revenues from our Shandong Media joint venture while the 2008
period includes only three months of operating results.





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 of $3,393,000, an increase of $175,000, or 6% as compared to
revenues of $3,218,000 for the nine months ended 2008. The increase is
attributable to increases in our network leasing sales and value-added
services.





Shandong
Media’s revenue consists primarily of sales of publications and advertising
revenues.  For the nine months ended September 30, 2009, revenues from
the Shandong Media joint venture totaled $2,648,000.  By comparison,
Shandong Media’s revenues of $719,000 for the nine months ended 2008 only
include three months operating results.  (For a description of the
Shandong Media joint venture, see “Shandong Media Joint Venture and
Shandong Newspaper Cooperation Agreement”, below).





AdNet
Media is an early stage company that started operations during the first quarter
of 2009.  AdNet Media’s revenue is expected to consist primarily of
advertising revenue and video service fees.  Advertising revenues will
be generated from advertisers who participate in an ad platform developed by
AdNet which is accessed through internet cafés.  Video service fees
are expected to be generated from the internet café or agent who uses our online
video services which includes movies, music, videos and games.  For
the nine months ended September 30, 2009, revenues totaled
$5,000.  AdNet Media’s revenues were not included in our operating
results for the 2008 period.   (For a description of the AdNet
Media acquisition, see “Completion of Acquisition of
AdNet”, above).





Gross
Profit





Our gross profit for the nine months
ended September 30, 2009 was $2,227,000, as compared to $2,092,000 for the nine
months ended September 30, 2008.The increase in
gross profit of approximately $135,000, or 6%, is primarily comprised of
$513,000 decrease from our Jinan Broadband operations offset by $664,000
increase from a 9 month inclusion for 2009 compared to a 3 month inclusion for
2008 of our Shandong Media joint venture.  The decrease in gross
profit attributable to Jinan Broadband was primarily due to increased costs of
revenue, particularly costs of cable network connections costs, telecom
bandwidth costs and charges associated with the write down of switches and other
consumer related parts held in inventory.





Gross profit as a percentage of revenue
was 37% for the nine months ended September 30, 2009, as compared to 53% for the
nine months ended September 30, 2008.


.


Selling,
General and Administrative Expenses





Our
selling, general and administrative expenses for the nine months ended September
30, 2009 increased approximately $867,000 to $2,259,000, as compared to
$1,392,000 for the nine months ended September 30, 2008.  The increase
is primarily attributable to the inclusion of nine months for 2009 compared to
three months for 2008 of our Shandong Media joint venture entered into in mid
2008 and the inclusion of our AdNet Media acquisition in April
2009.





Salaries and personnel costs are the
major component of selling, general and administrative expenses.  For
the nine months ended September 30, 2009, salaries and personnel costs accounted
for 58% of our selling, general and administrative expenses.  During
the 2009 period, salaries and personnel costs totaled $1,311,000, an increase of
$507,000 or 63% as compared to $803,000 for 2008 period. The increase in
salaries and personnel costs is primarily attributable to the inclusion of our
Shandong Media joint venture entered into in mid 2008 and the inclusion of our
AdNet Media acquisition in April 2009.





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




19







Professional
Fees





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
                    
                    $
                    2,281,000
                    
                    
                    $
                    2,067,000Amortization
                    
                    
                    372,000
                    
                    
                    
                    143,000Total
                    
                    $
                    2,653,000
                    
                    
                    $
                    2,210,000




Depreciation expense during 2009
relates to the depreciation on the approximately $14.7 million of property,
plant and equipment, at our Jinan Broadband subsidiary.  The increase
in amortization of $229,000 is primarily attributable to the amortization
related to our Shandong Media intangible assets acquired in 2008 and our
software technology acquired in the acquisition of AdNet.





Interest
and Other Income (Expense), net


Interest and other income (expense),
net, of approximately $(1,402,000) during the nine months ended September 30,
2009 consisted primarily of:


·
            interest
      expense related to the 5% Convertible Notes and Warrants issued in January
      2008 and June 2009 in the amount of approximately
  $270,000


·
            the
      loss on the sale of marketable equity securities in the amount of
      $15,000


·
            the
      increase in fair value of warrant liabilities in the amount of
      $1,110,000





Interest
expense of $270,000 for the nine months ending September 30, 2009 relates to the
5% Convertible Notes and Warrants issued in January 2008 and June
2009.  For the 2008 period, interest expense was $257,000. Interest
expense includes amortization of the original issued discount on the notes
allocated to the warrants issued in the financing.





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 $1,110,000 classified as a change in fair value of warrants on our
statement of operations for the 9 months ended September 30, 2009.





We expect our interest expense to
increase due to additional convertible notes issued in June 2009 in the amount
of approximately $305,000.  Interest on the Notes compounds monthly at
the annual rate of five percent (5%).  The January 2008 Notes mature
on January 11, 2013.  The outstanding principal amount of the January
2008 Notes as of September 30, 2009 was $4,971,250.  The June 2009
Notes mature on May 27, 2010.  The outstanding principal amount on the
June 2009 Notes as of September 30, 2009 is approximately $305,000.





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 nine months ended September 30, 2009, $670,000
of our operating loss from Jinan Broadband was allocated to Jinan Parent, as
compared to $356,000 during the 2008 period.





50% of the operating loss of our
Shandong Media joint venture is allocated to our 50% Shandong Newspaper joint
venture partner.  During the nine months ended September 30, 2009,
$49,000 of our operating loss from Shandong Media was allocated to Shandong
Newspaper as compared to $12,000 during the 2008 period which only included
three months.  We consolidated the results of Shandong Media effective
July 1, 2008.





Net
Income (Loss) Attributable to Shareholders





Net loss
attributable to shareholders for the nine months ended September 30, 2009 was
$3,771,000, an increase of $3,283,000 as compared to the net loss attributable
to shareholders of $489,000 for the 2008 period.  Operating results
for 2008 included a one-time net gain recognition of $1,301,000 from a
settlement agreement.





The following table breaks down the
results of operations for the nine months ended September 30, 2009 and 2008
between our operating companies and our non-operating
companies.





Ø
            The
      operating companies include Jinan Broadband, Shandong Media and AdNet
      Media.


20





Ø
            2009
      includes nine months of operations from our Shandong Media company and six
      months of operations from our AdNet Media company as compared to 3 months
      of operations and no operations, respectively in
  2008.





9 Months Ended
                          
                          
                          9 Months EndedSeptember 30, 2009
                          
                          
                          September 30, 2008% of
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          % ofTotal
                          
                          
                          Non-
                          
                          
                          
                          
                          
                          
                          
                          
                          Total
                          
                          
                          Non-Operating
                          
                          
                          Revenue
                          
                          
                          Operating
                          
                          
                          Total
                          
                          
                          Operating
                          
                          
                          Revenue
                          
                          
                          Operating
                          
                          
                          TotalRevenue
                          
                          $
                          6,045,000
                          
                          
                          
                          
                          
                          $
                          -
                          
                          
                          $
                          6,045,000
                          
                          
                          $
                          3,937,000
                          
                          
                          
                          
                          
                          $
                          -
                          
                          
                          $
                          3,937,000Cost
      of revenue
                          
                          
                          3,818,000
                          
                          
                          
                          
                          
                          
                          -
                          
                          
                          
                          3,818,000
                          
                          
                          
                          1,845,000
                          
                          
                          
                          
                          
                          
                          -
                          
                          
                          
                          1,845,000Gross
      profit
                          
                          
                          2,227,000
                          
                          
                          
                          37
                          %
                          
                          
                          -
                          
                          
                          
                          2,227,000
                          
                          
                          
                          2,092,000
                          
                          
                          
                          53
                          %
                          
                          
                          -
                          
                          
                          
                          2,092,000Selling,
      general and adminstrative expenses
                          
                          
                          1,635,000
                          
                          
                          
                          27
                          %
                          
                          
                          624,000
                          
                          
                          
                          2,259,000
                          
                          
                          
                          779,000
                          
                          
                          
                          20
                          %
                          
                          
                          615,000
                          
                          
                          
                          1,394,000Professional
      fees
                          
                          
                          38,000
                          
                          
                          
                          1
                          %
                          
                          
                          408,000
                          
                          
                          
                          446,000
                          
                          
                          
                          12,000
                          
                          
                          
                          0
                          %
                          
                          
                          435,000
                          
                          
                          
                          447,000Depreciation
      and amortization
                          
                          
                          2,283,000
                          
                          
                          
                          38
                          %
                          
                          
                          371,000
                          
                          
                          
                          2,654,000
                          
                          
                          
                          2,067,000
                          
                          
                          
                          53
                          %
                          
                          
                          143,000
                          
                          
                          
                          2,210,000Loss
      from operations
                          
                          
                          (1,729,000
                          )
                          
                          
                          -29
                          %
                          
                          
                          (1,403,000
                          )
                          
                          
                          (3,132,000
                          )
                          
                          
                          (766,000
                          )
                          
                          
                          -19
                          %
                          
                          
                          (1,193,000
                          )
                          
                          
                          (1,959,000
                          )Interest
      & other income / (expense)Settlement
      gain
                          
                          
                          -
                          
                          
                          
                          
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          
                          
                          
                          
                          1,301,000
                          
                          
                          
                          1,301,000Interest
      income
                          
                          
                          6,000
                          
                          
                          
                          
                          
                          
                          
                          -
                          
                          
                          
                          6,000
                          
                          
                          
                          18,000
                          
                          
                          
                          
                          
                          
                          
                          17,000
                          
                          
                          
                          35,000Interest
      expense
                          
                          
                          (1,000
                          )
                          
                          
                          
                          
                          
                          
                          (269,000
                          )
                          
                          
                          (270,000
                          )
                          
                          
                          -
                          
                          
                          
                          
                          
                          
                          
                          (257,000
                          )
                          
                          
                          (257,000
                          )Change
      in fair value of warrant liabilities
                          
                          
                          -
                          
                          
                          
                          
                          
                          
                          
                          (1,110,000
                          )
                          
                          
                          (1,110,000
                          )
                          
                          
                          -
                          
                          
                          
                          
                          
                          
                          
                          -
                          
                          
                          
                          -(Loss)
      gain on sale of securities
                          
                          
                          -
                          
                          
                          
                          
                          
                          
                          
                          (15,000
                          )
                          
                          
                          (15,000
                          )
                          
                          
                          -
                          
                          
                          
                          
                          
                          
                          
                          17,000
                          
                          
                          
                          17,000Other
                          
                          
                          (13,000
                          )
                          
                          
                          
                          
                          
                          
                          -
                          
                          
                          
                          (13,000
                          )
                          
                          
                          (3,000
                          )
                          
                          
                          
                          
                          
                          
                          (10,000
                          )
                          
                          
                          (13,000
                          )Loss
      before income taxes and noncontrolling interest
                          
                          
                          (1,737,000
                          )
                          
                          
                          
                          
                          
                          
                          (2,797,000
                          )
                          
                          
                          (4,534,000
                          )
                          
                          
                          (751,000
                          )
                          
                          
                          
                          
                          
                          
                          (125,000
                          )
                          
                          
                          (876,000
                          )Income
      tax benefit
                          
                          
                          -
                          
                          
                          
                          
                          
                          
                          
                          44,000
                          
                          
                          
                          44,000
                          
                          
                          
                          -
                          
                          
                          
                          
                          
                          
                          
                          19,000
                          
                          
                          
                          19,000Net
      loss, net of tax
                          
                          
                          (1,737,000
                          )
                          
                          
                          
                          
                          
                          
                          (2,753,000
                          )
                          
                          
                          (4,490,000
                          )
                          
                          
                          (751,000
                          )
                          
                          
                          
                          
                          
                          
                          (106,000
                          )
                          
                          
                          (857,000
                          )Plus:
      Net loss attributable to noncontrolling interest
                          
                          
                          719,000
                          
                          
                          
                          
                          
                          
                          
                          -
                          
                          
                          
                          719,000
                          
                          
                          
                          368,000
                          
                          
                          
                          
                          
                          
                          
                          -
                          
                          
                          
                          368,000Net
      loss attributable to China Broadband shareholders
                          
                          $
                          (1,018,000
                          )
                          
                          
                          
                          
                          
                          $
                          (2,753,000
                          )
                          
                          $
                          (3,771,000
                          )
                          
                          $
                          (383,000
                          )
                          
                          
                          
                          
                          
                          $
                          (106,000
                          )
                          
                          $
                          (489,000
                          )





Liquidity
and Capital Resources





As of September 30, 2009 we had
$1,941,000 of cash on hand and a working capital deficit of
$2,952,000.  As of September 30, 2009, we had total current
liabilities of $7,009,000.  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).





Private
Financings, June 2009





During
the nine months ended September 30, 2009 we completed (i) a private financing of
5% Convertible Promissory Notes (the “Notes”) for gross proceeds of
approximately $305,000 (the “Note Offering”) and (ii) a private financing of
2,000,000 shares of restricted Common Stock, par value $.001 of the Company (the
“Common Stock”), at a purchase price of $.15 per share, for aggregate proceeds
of $300,000 (the “Equity Financing”).





Issuance
of Convertible Notes, June 2009





During
the nine months ended September 30, 2009, the Company completed a private
financing of 5% Convertible Promissory Notes (the “Notes”) for gross proceeds of
approximately $305,000 (the “Note Offering”).  The Note Offering was
pursuant to a Note Purchase Agreement (the “Note Purchase Agreement”) with nine
persons who were existing holders (the “Note Investors”) of Convertible
Promissory Notes issued in January of 2008 (the “January 2008 Notes”), pursuant
to which the Company issued approximately $305,000 principal amount of Notes to
the Note Investors at face value.  The Notes accrue interest at 5% per
year payable quarterly in cash or stock, are initially convertible at $.20 per
share, and become due and payable in full on May 27, 2010.  The
Company did not pay any placement agent or similar fees in connection with the
Note Offering.





Equity
Financing; Issuance of Common Stock





During
the nine months ended September 30, 2009 and pursuant to a Securities Purchase
Agreement with three investors, the Company completed a private financing of
2,000,000 shares of restricted Common Stock, par value $.001 of the Company (the
“Common Stock”), at a purchase price of $.15 per share, for aggregate gross
proceeds of $300,000 (the “Equity Financing”).





Waiver
Letters





In
connection with the Note Offering and the Equity Financing, the Company entered
into a waiver letter (the “Waiver Letter”) with all the holders of January 2008
Notes (“Existing Note Holders”), pursuant to which, among other things, the
conversion price of the January 2008 Notes were reduced from $.75 per share to
(i) $.20 per share (i.e. the same conversion price as the Notes in the Note
Offering) for the Existing Note Holders that invested in the Notes (i.e. the
Note Investors), and (ii) $.25 per share for those Existing Note Holders that
did not reinvest in the new notes.  All of the Existing Note Holders
waived certain anti dilution adjustments in respect of the contemplated Equity
Financing or in respect of their Warrants which were issued to them in
connection with the January 2008 Notes, which warrants remain exercisable at
$.60 per share.





The
foregoing are summaries only of the Note Offering, Waiver Letters and Equity
Financing which are filed as exhibits to our Current Report on Form 8-K,dated
June 30, 2009, the provisions of which are incorporated herein.





Loan
Receivable





The Company has a loan receivable for
$280,000 as of September 30, 2009 from a related party, Music
Magazine.  The loan is unsecured, interest free and has no fixed
repayment terms.





Amounts
due from Shareholders





Amounts due from shareholders include
$91,000 from Shandong Broadcast & TV Weekly Press and $543,000 from Modern
Movie & TV Biweekly Press as of September 30, 2009.  Both
companies are our partners in our Shandong Media joint venture
company.  The amount due from Shandong Broadcast & TV Weekly Press
is unsecured, interest free and has no fixed repayment terms.  The
amount due from Modern Movie & TV Biweekly Press is unsecured, interest free
and the due date for repayment has been extended from June 30, 2009 to December
31, 2009.  During the period ended September 30, 2009 the company
advanced approximately $553,000 to the shareholders.


21





Payable
to Jinan Parent





During the nine months ended September
30, 2009, Jinan Broadband paid $2,643,000 to Jinan Parent.  The
current balance due is $152,000.  The advance is unsecured, interest
free and has no fixed repayment terms.





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.





Convertible
Notes Interest





During the nine months ended September
30, 2009 the Company incurred $269,000 in interest expense related to
the January 2008 and June 2009 financings.  Based on conversion
values the Company issued 592,577 shares to the Note holders in lieu of cash of
approximately $194,000 for interest accrued.





Cablecom
Holding Shares





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,
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 nine months ended September 30, 2009,
we sold 236,665 of the Cablecom Holdings shares for total net proceeds of
$175,000 and recorded a net loss on the sales of approximately
$15,000.  As of September 30, 2009, we hold 81,455 shares of Cablecom
Holdings.  The fair value of the remaining 81,455 Cablecom shares at
September 30, 2009 approximates $68,000.





Cash
Flows





The
following sets forth a summary of the Company’s cash flows for the nine months
ended September 30, 2009 and 2008:





Nine Months EndedSeptember 30,
                        
                        
                        September 30,2009
                        
                        
                        2008Net
      cash provided by operating activities
                        
                        $
                        449,000
                        
                        
                        $
                        664,000Net
      cash used in investing activities
                        
                        $
                        (916,000
                        )
                        
                        $
                        (1,469,000
                        )Net
      cash (used in) provided by financing activities
                        
                        $
                        (2,046,000
                        )
                        
                        $
                        4,986,000Effect
      of exchange rate changes on cash
                        
                        $
                        28,000
                        
                        
                        $
                        478,000





Cash provided by operating activities
for nine months ended 2009 and 2008 approximate $449,000 and $664,000,
respectively.





Investing activities for the nine
months ended September 30, 2009 and 2008 used cash of $916,000 and $1,469,000,
respectively.  For 2009, this amount consisted of (i) cash acquired in
our AdNet acquisition of $18,000 and (ii) proceeds of $174,000 from the sale of
our Cablecom Holding Shares, offset by (i) $555,000 for additions to property
and equipment and (ii) $553,000 loan to our Shandong Media
shareholder.  For 2008 this amount consisted of additions to property
and equipment in the amount of $1,567,000 and $242,000 loan to our Shandong
Media shareholder partially offset by the proceeds from the sale of Cablecom
Holding Shares in the amount of $340,000.




Financing activities for the nine
months ended September 30, 2009 and 2008 (used) provided cash of $(2,046,000)
and $4,986,000, respectively.  For 2009, the amount consisted of
proceeds from the sale of equity securities of $300,000 and proceeds from the
issuance of convertible notes of $305,000 offset by payment to Jinan Parent of
$2,643,000.  For 2008, this amount consisted of proceeds from the
issuance of convertible notes of $4,850,000, 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 $241,000.





Foreign
Currency Translation





Our WOFE,
Jinan Broadband subsidiary, Shandong Media joint venture and our AdNet Media
acquisition 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 $28,000 and $478,000
during the nine months ended September 30, 2009 and 2008,
respectively.




22







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.




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.




We are required to make an additional
payment 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 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 year after closing of the transaction
relating to the Shandong Newspaper Cooperation Agreement:




·
            equals
      or exceeds 16 million RMB, then we will be required to contribute an
      additional 20 million RMB (or, approximately $3,000,000 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).


Based on
financial performance we will be required to make the additional minimum payment
of 5 million RMB (approximately US $730,000).  The due date of the
additional payment has been extended to December 31, 2009.
  The
Shandong Newspaper Cooperation Agreement resulted in the creation of a Variable
Interest Entity (“VIE”) as defined under Financial Accounting Standards Board
(“FASB”) ASC 810, Consolidation.  The
intended result of the contractual arrangements is that, as of July 1, 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 is required to make further capital contributions
based upon 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 nor fund the required
contribution to Shandong Newspaper 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.


23





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 and Assumptions





There
have been no material changes to the Company’s Critical Accounting Policies
filed in the Company’s 2008 Annual Report on Form 10-K/A.





Recent
Accounting Pronouncements




Refer to
Note 21 to the financial statements for updates on recent accounting
pronouncements since the filing of our 2008 annual report on Form
10-K/A.





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 September 30, 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.





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 gain of $131,000 and a charge of $1,111,000 during the three months and nine
months ended September 30, 2009, respectively.





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 period
ended September 30, 2009 that have materially affected or are reasonably likely
to materially affect the Company’s internal controls over financial
reporting.


24




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.





None.





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.


25




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 August 23, 2010.





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


26