UNITED STATES


SECURITIES AND EXCHANGE
COMMISSION


Washington,
D.C. 20549




FORM 10-Q




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





For the
quarterly period ended June 30, 2010





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





For the
transition period from __________ to __________





Commission
File Number: 000-19644











China
Broadband, Inc.


(Exact
name of registrant as specified in its charter)





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





1900
Ninth Street, 3rd Floor


Boulder,
Colorado 80302


(Address
of principal executive offices)





(303)
449-7733


(Registrant's
telephone number, including area code)











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





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




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




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


Large
      accelerated filer  ̈
            Accelerated
      filer  ̈Non-accelerated
      filer  ̈
            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  ̈ No x




Indicate
the number of shares outstanding of each of the issuer's classes of common
stock, as of the latest practicable date: 190,769,563 shares as of August 18,
2010.





QUARTERLY
REPORT ON FORM 10-Q


OF
CHINA BROADBAND, INC.


FOR
THE PERIOD ENDED JUNE 30, 2010





TABLE
OF CONTENTS




PART I
                  -
                  FINANCIAL
      INFORMATION
                  3Item
      1.
                  
                  Financial
      Statements
                  3Item
      2.
                  
                  Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
                  18Item
      3
                  
                  Quantitative
      and Qualitative Disclosures About Market Risk
                  26Item
      4.
                  
                  Controls
      and Procedures
                  26PART II
                  -
                  OTHER
      INFORMATION
                  27Item
      1.
                  
                  Legal
      Proceedings
                  27Item
      1A.
                  
                  Risk
      Factors
                  27Item
      2.
                  
                  Unregistered
      Sales of Equity Securities and Use of Proceeds
                  27Item
      3.
                  
                  Defaults
      Upon Senior Securities
                  27Item
      4.
                  
                  Removed
      and Reserved
                  27Item
      5.
                  
                  Other
      Information
                  27Item
      6.
                  
                  Exhibits
                  27Signatures
                  28





References





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


2


PART
I — FINANCIAL INFORMATION




Item
1. Financial Statements.





China
Broadband, Inc. and Subsidiaries


CONSOLIDATED
BALANCE SHEETS





June 30,
                      
                      
                      December 31,2010
                      
                      
                      2009(Unaudited)ASSETSCurrent
      assets:Cash
      and cash equivalents
                      
                      $
                      1,606,943
                      
                      
                      $
                      2,190,494Marketable
      equity securities, available for sale
                      
                      
                      47,875
                      
                      
                      
                      47,244Accounts
      receivable, net
                      
                      
                      175,416
                      
                      
                      
                      213,713Inventory
                      
                      
                      441,722
                      
                      
                      
                      455,492Prepaid
      expense
                      
                      
                      518,602
                      
                      
                      
                      237,704Loan
      receivable from related party
                      
                      
                      291,191
                      
                      
                      
                      289,974Amounts
      due from shareholders
                      
                      
                      695,758
                      
                      
                      
                      168,907Other
      current assets
                      
                      
                      67,733
                      
                      
                      
                      78,478Total
      current assets
                      
                      
                      3,845,240
                      
                      
                      
                      3,682,006Property
      and equipment, net
                      
                      
                      5,486,242
                      
                      
                      
                      7,362,641Intangible
      assets, net
                      
                      
                      3,158,624
                      
                      
                      
                      4,294,614Other
      assets
                      
                      
                      384,008
                      
                      
                      
                      430,561Total
      assets
                      
                      $
                      12,874,114
                      
                      
                      $
                      15,769,822LIABILITIES AND SHAREHOLDERS'
      EQUITYCurrent
      liabilities:Accounts
      payable
                      
                      $
                      1,826,861
                      
                      
                      $
                      1,350,076Accrued
      expenses
                      
                      
                      1,893,027
                      
                      
                      
                      1,839,272Deferred
      revenue
                      
                      
                      1,512,882
                      
                      
                      
                      1,637,283Deferred
      tax liability
                      
                      
                      281,626
                      
                      
                      
                      281,626Convertible
      notes payable
                      
                      
                      454,916
                      
                      
                      
                      304,853Warrant
      liabilities
                      
                      
                      755,404
                      
                      
                      
                      819,150Loan
      payable
                      
                      
                      398,960
                      
                      
                      
                      398,960Loan
      payable to beneficial owner
                      
                      
                      20,000
                      
                      
                      
                      -Payable
      to Shandong Media
                      
                      
                      -
                      
                      
                      
                      145,679Payable
      to Jinan Parent
                      
                      
                      133,814
                      
                      
                      
                      152,268Other
      current liabilities
                      
                      
                      480,599
                      
                      
                      
                      378,847Total
      current liabilities
                      
                      
                      7,758,089
                      
                      
                      
                      7,308,014Convertible
      notes payable
                      
                      
                      4,715,331
                      
                      
                      
                      4,665,306Deferred
      tax liability and uncertain tax position liability
                      
                      
                      194,467
                      
                      
                      
                      454,578Total
      liabilities
                      
                      
                      12,667,887
                      
                      
                      
                      12,427,898Commitments
      and ContingenciesShareholders'
      equityPreferred
      stock, $.001 par value; 5,000,000 shares authorized, no shares issued and
      outstanding
                      
                      
                      -
                      
                      
                      
                      -Common
      stock, $.001 par value; 95,000,000 shares authorized, 65,414,515 and
      64,761,396 issued and outstanding
                      
                      
                      65,415
                      
                      
                      
                      64,762Additional
      paid-in capital
                      
                      
                      15,150,032
                      
                      
                      
                      14,901,493Accumulated
      deficit
                      
                      
                      (19,438,701
                      )
                      
                      
                      (17,215,041
                      )Accumulated
      other comprehensive income
                      
                      
                      750,263
                      
                      
                      
                      331,283Total
      China Broadband shareholders' deficit
                      
                      
                      (3,472,991
                      )
                      
                      
                      (1,917,503
                      )Noncontrolling
      interests
                      
                      
                      3,679,218
                      
                      
                      
                      5,259,427Total
      shareholders' equity
                      
                      
                      206,227
                      
                      
                      
                      3,341,924Total
      liabilities and shareholders' equity
                      
                      $
                      12,874,114
                      
                      
                      $
                      15,769,822





See
notes to consolidated financial statements.


3




China
Broadband, Inc. and Subsidiaries


CONSOLIDATED
STATEMENTS OF OPERATIONS


(Unaudited)





Three Months Ended
                
                
                Six Months EndedJune
      30,
                
                
                June
      30,
                
                
                June
      30,
                
                
                June
      30,2010
                
                
                2009
                
                
                2010
                
                
                2009(Restated)
                
                
                
                
                
                (Restated)Revenue
                
                $
                1,817,306
                
                
                $
                1,989,517
                
                
                $
                3,692,987
                
                
                $
                3,938,927Cost
      of revenue
                
                
                1,035,276
                
                
                
                1,102,915
                
                
                
                2,109,084
                
                
                
                2,276,796Gross
      profit
                
                
                782,030
                
                
                
                886,602
                
                
                
                1,583,903
                
                
                
                1,662,131Selling,
      general and adminstrative expenses
                
                
                616,133
                
                
                
                740,878
                
                
                
                1,339,403
                
                
                
                1,458,806Professional
      fees
                
                
                381,271
                
                
                
                181,901
                
                
                
                550,036
                
                
                
                292,397Depreciation
      and amortization
                
                
                957,314
                
                
                
                904,824
                
                
                
                1,902,758
                
                
                
                1,736,131Loss
      from operations
                
                
                (1,172,688
                )
                
                
                (941,001
                )
                
                
                (2,208,294
                )
                
                
                (1,825,203
                )Interest
      & other income / (expense)Interest
      income
                
                
                929
                
                
                
                1,926
                
                
                
                2,290
                
                
                
                5,384Interest
      expense
                
                
                (182,313
                )
                
                
                (89,664
                )
                
                
                (273,548
                )
                
                
                (177,048
                )Change
      in fair value of warrant liabilities
                
                
                21,932
                
                
                
                (626,978
                )
                
                
                63,746
                
                
                
                (1,240,787
                )Gain
      (loss) on sale of securities
                
                
                1,350
                
                
                
                (10,283
                )
                
                
                1,350
                
                
                
                (30,635
                )Impairment
      of intangibles
                
                
                (900,000
                )
                
                
                -
                
                
                
                (900,000
                )
                
                
                -Impairment
      of equipment
                
                
                (750,000
                )
                
                
                -
                
                
                
                (750,000
                )
                
                
                -Other
                
                
                (1,298
                )
                
                
                53
                
                
                
                476
                
                
                
                (275
                )Net
      loss before income taxes and noncontrolling interest
                
                
                (2,982,088
                )
                
                
                (1,665,947
                )
                
                
                (4,063,980
                )
                
                
                (3,268,564
                )Income
      tax benefit
                
                
                246,383
                
                
                
                14,680
                
                
                
                260,111
                
                
                
                29,360Net
      loss, net of tax
                
                
                (2,735,705
                )
                
                
                (1,651,267
                )
                
                
                (3,803,869
                )
                
                
                (3,239,204
                )Plus:  Net
      loss attributable to noncontrolling interests
                
                
                1,316,554
                
                
                
                138,657
                
                
                
                1,580,209
                
                
                
                384,246Net
      loss attributable to China Broadband shareholders
                
                $
                (1,419,151
                )
                
                $
                (1,512,610
                )
                
                $
                (2,223,660
                )
                
                $
                (2,854,958
                )Net
      income (loss) per shareBasic
                
                $
                (0.02
                )
                
                $
                (0.02
                )
                
                $
                (0.03
                )
                
                $
                (0.05
                )Diluted
                
                $
                (0.02
                )
                
                $
                (0.02
                )
                
                $
                (0.03
                )
                
                $
                (0.05
                )Weighted
      average shares outstandingBasic
                
                
                65,089,760
                
                
                
                62,621,651
                
                
                
                64,926,485
                
                
                
                56,290,826Diluted
                
                
                65,089,760
                
                
                
                62,621,651
                
                
                
                64,926,485
                
                
                
                56,290,826





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 June 30, 2010 (Unaudited) and December 31, 2009





Accumulated
                          
                          
                          ChinaAdditional
                          
                          
                          
                          
                          
                          Other
                          
                          
                          BroadbandCommon
                          
                          
                          Par
                          
                          
                          Paid-in
                          
                          
                          Accumulated
                          
                          
                          Comprehensive
                          
                          
                          Shareholders'
                          
                          
                          Noncontrolling
                          
                          
                          Total
                          
                          
                          ComprehensiveShares
                          
                          
                          Value
                          
                          
                          Capital
                          
                          
                          Deficit
                          
                          
                          Income(loss)
                          
                          
                          (Deficit)/Equity
                          
                          
                          Interest
                          
                          
                          Equity
                          
                          
                          LossBalance
      December 31, 2008
                          
                          
                          50,585,455
                          
                          
                          $
                          50,586
                          
                          
                          $
                          13,372,359
                          
                          
                          $
                          (12,200,289
                          )
                          
                          $
                          320,858
                          
                          
                          $
                          1,543,514
                          
                          
                          $
                          6,637,631
                          
                          
                          $
                          8,181,145Cumulative
      effect of 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
                          
                          
                          921,043
                          
                          
                          
                          921
                          
                          
                          
                          259,637
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          260,558
                          
                          
                          
                          -
                          
                          
                          
                          260,558Stock
      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
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          (5,439,125
                          )
                          
                          
                          -
                          
                          
                          
                          (5,439,125
                          )
                          
                          
                          (1,102,756
                          )
                          
                          
                          (6,541,881
                          )
                          
                          $
                          (5,439,125
                          )Foreign
      currency translation adjustments
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          28,345
                          
                          
                          
                          28,345
                          
                          
                          
                          -
                          
                          
                          
                          28,345
                          
                          
                          
                          28,345Unrealized
      loss on marketable equity securities
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          (17,920
                          )
                          
                          
                          (17,920
                          )
                          
                          
                          -
                          
                          
                          
                          (17,920
                          )
                          
                          
                          (17,920
                          )Balance
      December 31, 2009
                          
                          
                          64,761,396
                          
                          
                          $
                          64,762
                          
                          
                          $
                          14,901,493
                          
                          
                          $
                          (17,215,041
                          )
                          
                          $
                          331,283
                          
                          
                          $
                          (1,917,503
                          )
                          
                          $
                          5,259,427
                          
                          
                          $
                          3,341,924
                          
                          
                          $
                          (5,428,700
                          )Shares
      issued as payment for convertible note interest
                          
                          
                          653,119
                          
                          
                          
                          653
                          
                          
                          
                          131,982
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          132,635
                          
                          
                          
                          -
                          
                          
                          
                          132,635Stock
      option compensation expense
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          26,557
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          26,557
                          
                          
                          
                          -
                          
                          
                          
                          26,557Interest
      expense related to discount and beneficial convertible features in
      connection with convertible note and warrants issuance
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          90,000
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          90,000
                          
                          
                          
                          -
                          
                          
                          
                          90,000Comprehensive
      loss:Net
      loss
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          (2,223,660
                          )
                          
                          
                          -
                          
                          
                          
                          (2,223,660
                          )
                          
                          
                          (1,580,209
                          )
                          
                          
                          (3,803,869
                          )
                          
                          $
                          (2,223,660
                          )Foreign
      currency translation adjustments
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          410,349
                          
                          
                          
                          410,349
                          
                          
                          
                          -
                          
                          
                          
                          410,349
                          
                          
                          
                          410,349Unrealized
      gain on marketable equity securities
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          8,631
                          
                          
                          
                          8,631
                          
                          
                          
                          -
                          
                          
                          
                          8,631
                          
                          
                          
                          8,631Balance
      June 30, 2010
                          
                          
                          65,414,515
                          
                          
                          $
                          65,415
                          
                          
                          $
                          15,150,032
                          
                          
                          $
                          (19,438,701
                          )
                          
                          $
                          750,263
                          
                          
                          $
                          (3,472,991
                          )
                          
                          $
                          3,679,218
                          
                          
                          $
                          206,227
                          
                          
                          $
                          (1,804,680
                          )





See
notes to consolidated financial statements.


5





China
Broadband, Inc. and Subsidiaries


CONSOLIDATED
STATEMENTS OF CASH FLOWS


(Unaudited)





Six Months EndedJune 30,
                  
                  
                  June 30,2010
                  
                  
                  2009(Restated)Cash
      flows from operatingNet
      loss
                  
                  $
                  (3,803,869
                  )
                  
                  $
                  (3,239,204
                  )Adjustments
      to reconcile net loss to net cash provided by operating
      activitiesStock
      compensation expense
                  
                  
                  159,193
                  
                  
                  
                  160,111Interest
      expense related to discount and beneficial convertible features in
      connection with convertible note and warrant issuance
                  
                  
                  90,000
                  
                  
                  
                  -Depreciation
      and amortization
                  
                  
                  1,902,758
                  
                  
                  
                  1,528,029Noncash
      interest expense - original issue discount
                  
                  
                  50,025
                  
                  
                  
                  50,025Deferred
      income tax
                  
                  
                  (260,111
                  )
                  
                  
                  (29,360
                  )(Gain)
      loss on sale of marketable equity securities
                  
                  
                  (1,350
                  )
                  
                  
                  30,626Change
      in fair value of warrant liabilities
                  
                  
                  (63,746
                  )
                  
                  
                  1,240,787Adjustment
      to foreign currency translation account
                  
                  
                  378,332
                  
                  
                  
                  -Impairment
      charge to Shandong Media intangibles
                  
                  
                  900,000
                  
                  
                  
                  -Impairment
      charge to Jinan equipment
                  
                  
                  750,000
                  
                  
                  
                  -Change
      in assets and liabilities, net of amounts assumed in AdNet
      acquisition,Accounts
      receivable
                  
                  
                  39,573
                  
                  
                  
                  (98,078
                  )Inventory
                  
                  
                  15,684
                  
                  
                  
                  88,973Prepaid
      expenses and other assets
                  
                  
                  (268,862
                  )
                  
                  
                  (69,244
                  )Accounts
      payable and accrued expenses
                  
                  
                  494,733
                  
                  
                  
                  460,686Deferred
      revenue
                  
                  
                  (126,461
                  )
                  
                  
                  42,766Other
                  
                  
                  -
                  
                  
                  
                  (2
                  )Net
      cash provided by operating activities
                  
                  
                  255,899
                  
                  
                  
                  166,115Cash
      flows from investing activities:Cash
      acquired in AdNet acquisition
                  
                  
                  -
                  
                  
                  
                  17,568Proceeds
      from sale of marketable equity securities
                  
                  
                  9,350
                  
                  
                  
                  78,706Acquisition
      of property and equipment
                  
                  
                  (468,887
                  )
                  
                  
                  (236,515
                  )Loan
      to Sinotop Group Ltd
                  
                  
                  (580,000
                  )
                  
                  
                  -Loans
      to Shandong Media shareholders
                  
                  
                  (526,141
                  )
                  
                  
                  (552,140
                  )Net
      cash used in investing activities
                  
                  
                  (1,565,678
                  )
                  
                  
                  (692,381
                  )Cash
      flows from financing activitiesProceeds
      from sale of equity securities
                  
                  
                  -
                  
                  
                  
                  300,000Proceeds
      from issuance of convertible notes payable
                  
                  
                  750,000
                  
                  
                  
                  304,853Legal
      fees associated with AdNet acquisition and share issuance
                  
                  
                  -
                  
                  
                  
                  (7,643
                  )Payments
      to Jinan Parent
                  
                  
                  (18,454
                  )
                  
                  
                  (2,643,373
                  )Net
      cash provided by (used in) financing activities
                  
                  
                  731,546
                  
                  
                  
                  (2,046,163
                  )Effect
      of exchange rate changes on cash
                  
                  
                  (5,318
                  )
                  
                  
                  21,720Net
      decrease in cash and cash equivalents
                  
                  
                  (583,551
                  )
                  
                  
                  (2,550,709
                  )Cash
      and cash equivalents at beginning of period
                  
                  
                  2,190,494
                  
                  
                  
                  4,425,529Cash
      and cash equivalents at end of period
                  
                  $
                  1,606,943
                  
                  
                  $
                  1,874,820


6




China
Broadband, Inc. and Subsidiaries


CONSOLIDATED
STATEMENTS OF CASH FLOWS


(Unaudited)





Six Months EndedJune 30,
                    
                    
                    June 30,2010
                    
                    
                    2009(Restated)Supplemental Cash Flow
      Information:Cash
      paid for taxes
                    
                    $
                    -
                    
                    
                    $
                    -Cash
      paid for interest
                    
                    $
                    824
                    
                    
                    $
                    552Value
      assigned to shares as payment for interest expense
                    
                    $
                    132,635
                    
                    
                    $
                    126,455Shandong
      Media valuation adjustment
                    
                    $
                    -
                    
                    
                    $
                    275,448Repayment
      of convertible notes payable by assignment of Sinotop Group Ltd note
      receivable
                    
                    $
                    580,000
                    
                    
                    $
                    -Cumulative
      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.


7





CHINA
BROADBAND, INC. AND SUBSIDIARIES


NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS





1.
            Basis of
      Presentation





China
Broadband, Inc., a Nevada corporation (“China Broadband”, “we”, “us”, or “the
Company”) owns and operates in the media segment through its subsidiaries in the
People’s Republic of China (“PRC” or “China”) (1) a cable broadband business,
Beijing China Broadband Network Technology Co. Ltd ( “Jinan Broadband”) and (2)
a print based media and television programming guide publication, Shandong Lushi
Media Co., Ltd. ( “Shandong Media”).





(1)  We
provide cable and wireless broadband services, principally internet services,
Internet Protocol Point wholesale services, related network equipment rental and
sales, and fiber network construction and maintenance through our variable
interest entity (“VIE”), Jinan Broadband, based in the Jinan region of
China.





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





We
acquired AdNet Media Technologies (Beijing) Co. Ltd (“AdNet”) during the first
half of 2009.  Due to the shift of our business model to the pay-per-view
(“PPV”) and video-on-demand (“VOD”)business, as of December 31, 2009 we
permanently suspended day to day operations of AdNet.  We have
maintained our technology and other assets of AdNet for future use in our new
PPV business.





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





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





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





The
information presented in the accompanying condensed consolidated balance sheet
as of December 31, 2009 has been derived from the Company’s audited consolidated
financial statements but does not include all disclosures required by U.S.
GAAP.  All other information has been derived from the Company’s
unaudited condensed consolidated financial statements for the three months and
six months ended June 30, 2010.





2.
            Restatement





The
financial statements for the three months and six months ended June 30, 2009
have been restated for the reasons described below and the accompanying
financial statements for the three months and six months ended June 30, 2009
include the following changes.




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


8




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





For the
three months and six months ended June 30, 2009, the adoption of ASC 815 had the
effect of increasing warrant liabilities and net loss by approximately $627,000
and $1,241,000, respectively.





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 was recorded for the three
      months and six months ended June 30,
2009.





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





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





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





4.
            Going Concern and Management’s
      Plans





The
Company has incurred significant continuing losses during 2010 and has a working
capital deficit at June 30, 2010 and has relied on debt and equity financings to
fund operations.  These conditions raise substantial doubt about the
Company’s ability to continue as a going concern.





The
unaudited consolidated financial statements have been prepared assuming that the
Company will continue as a going concern and, accordingly, do not include any
adjustments that might result from the outcome of this
uncertainty.  As of June 30, 2010, the Company had limited cash
resources and management continued its efforts to raise additional funds through
debt or equity offerings.  The Company's independent registered public
accounting firm's report of the financial statements for the year ended December
31, 2009, contained an explanatory paragraph regarding the Company's ability to
continue as a going concern.


9





Management
has raised additional funds through an equity offering and will continue to seek
funds to merge with or acquire other companies.  See Note 21
“Subsequent Events” below.





5.
            Shandong
      Media Joint Venture - Cooperation Agreement Additional
    Payment




In
connection with the Shandong Newspaper Cooperation Agreement, based on certain
financial performance we were required to make an additional payment of 5
million RMB (approximately US $730,000).  In 2008 we recorded the
additional payment due as an increase to our Shandong Media noncontrolling
interest account.  We are currently in discussions with Shandong
Broadcast & TV Weekly Press and Modern Movie & TV Biweekly Press with
regards to this payment.





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 are Jinan Broadband and Shandong
Media.




7.
            Fair
      Value Measurements





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





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


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


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





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





The
following tables present the fair value hierarchy for those assets and
liabilities measured at fair value on a recurring basis at June 30, 2010 and
December 31, 2009:





June 30, 2010Fair Value MeasurementsLevel 1
                      
                      
                      Level 2
                      
                      
                      Level 3
                      
                      
                      Total Fair ValueAssetsAvailable-for-sale
      securities
                      
                      $
                      47,875
                      
                      
                      $
                      -
                      
                      
                      $
                      -
                      
                      
                      $
                      47,875LiabilitiesFair
      value of warrants
                      
                      $
                      -
                      
                      
                      $
                      -
                      
                      
                      $
                      755,404
                      
                      
                      $
                      755,404





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


10





8.
            Related
      Party Transactions





Loan
Receivable





As of
June 30, 2010, the Company advanced an aggregate of approximately $291,000 in
the form of a loan to Music Magazine to fund its operations.  The loan
is unsecured, interest free and is due on December 31, 2010.  Music
Magazine is an affiliate of Modern Movie & TV Biweekly Press, our partner in
our Shandong Media joint venture company.





Amounts
due from Shareholders





As of
June 30, 2010, amounts due from shareholders include approximately $92,000
advanced to Shandong Broadcast & TV Weekly Press and approximately $604,000
advanced to Modern Movie & TV Biweekly Press. Both companies are our
partners in our Shandong Media joint venture company.  The amount due
from Shandong Broadcast & TV Weekly Press is unsecured, interest free and
has no fixed repayment terms.  The amount due from Modern Movie &
TV Biweekly Press is unsecured, interest free and is due on December 31,
2010.  During the 6 months ended June 30, 2010, we received repayments
of approximately $17,000 from Shandong Broadcast and TV Weekly Press and
advanced approximately $543,000 net amount to Modern Movie & TV Biweekly
Press.





Payable
to Jinan Parent





During
the six months ended June 30, 2010, our payable to Jinan Parent decreased
approximately $18,000.  At June 30, 2010, approximately $134,000
remains due to Jinan Parent.  The advance is unsecured, interest free
and has no fixed repayment terms.





Loan Payable to Beneficial
Owner





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





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





On March
9, 2010, a significant beneficial owner of the Company’s securities, Oliveira
Capital LLC, advanced $600,000 to China Broadband Cayman in order to make the
loan to Sinotop Hong Kong as described above.





On June
24, 2010, the Company repaid $580,000 of the $600,000 loan by assigning the
Company’s Convertible Promissory Note from Sinotop Hong Kong in the amount or
$580,000 to Oliveira Capital.  As of June 30, 2010, $20,000 remains
payable to Oliveira Capital.





On July
30, 2010, Oliveira Capital LLC agreed to (i) cancel the remaining $20,000 of the
March 9, 2010 loan and (ii) assign the $580,000 note of Sinotop Hong Kong to the
Company, in exchange for (x) 1,200,000 shares of Series B Preferred Stock of the
Company and (y) warrants to purchase of 36,000,000 shares of the Company’s
common stock.    See Note 21 “Subsequent Events”
below.


11





9.
            Property
      and Equipment





Duringthe second quarter of
2010, based on our best estimate, the Company recorded an impairment reserve of
$750,000 related to the equipment at our Jinan Broadband subsidiary.  In
July 2010, the equipment was taken out of service due to changes in customer
needs.  The net book value of the equipment is $1,483,000.  During the
next quarter, the Company will evaluate whether there are other uses for the
equipment or whether the equipment can be sold.  Further, we will be able
to better determine the net realizable value of the
equipment.





Property and equipment at June 30, 2010 and
December 31, 2009consisted of the following:





June 30,
                        
                        
                        December 31,2010
                        
                        
                        2009Furniture
      and office equipment
                        
                        $
                        1,016,000
                        
                        
                        $
                        984,000Headend
      facilities and machinery
                        
                        
                        14,672,000
                        
                        
                        
                        14,172,000Vehicles
                        
                        
                        30,000
                        
                        
                        
                        30,000Total
      property and equipment
                        
                        
                        15,718,000
                        
                        
                        
                        15,186,000Less:  accumulated
      depreciation
                        
                        
                        (9,482,000
                        )
                        
                        
                        (7,823,000
                        )Less:  impairment
      charge
                        
                        
                        (750,000
                        )
                        
                        
                        -Net
      carrying value
                        
                        $
                        5,486,000
                        
                        
                        $
                        7,363,000Depreciation
      expense
                        
                        $
                        1,620,000
                        
                        
                        $
                        1,509,000




10.
            Intangible
      Assets




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




Determining
the fair value of a reporting unit requires the use of significant estimates and
assumptions, including revenue growth rates, discount rates and future market
conditions, among others. Long-lived assets are reviewed for impairment whenever
events, such as significant changes in the business climate, changes in product
and service offerings, or other circumstances indicate that the carrying amount
may not be recoverable.  Our Shandong Media joint venture has
sustained consistent losses.  In accordance with SFAS 144 we prepared
an analysis and accordingly recorded an impairment charge of $900,000 to our
Shandong Media intangibles which include publication rights, operating permits
and customer relationships during the second quarter of 2010.




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




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




Balance at
                  
                  
                  
                  
                  
                  Amortization/
                  
                  
                  
                  
                  
                  Balance atDecember31,
                  
                  
                  
                  
                  
                  Impairment
                  
                  
                  Other
                  
                  
                  June 30,2009
                  
                  
                  Additions
                  
                  
                  Charge
                  
                  
                  Changes
                  
                  
                  2010Amortized
      intangible assets:Service
      agreement
                  
                  $
                  1,483,762
                  
                  
                  $
                  -
                  
                  
                  $
                  (43,360
                  )
                  
                  $
                  -
                  
                  
                  $
                  1,440,402Publication
      rights
                  
                  
                  824,812
                  
                  
                  
                  -
                  
                  
                  
                  (354,116
                  )
                  
                  
                  -
                  
                  
                  
                  470,696Customer
      relationships
                  
                  
                  183,730
                  
                  
                  
                  -
                  
                  
                  
                  (82,307
                  )
                  
                  
                  -
                  
                  
                  
                  101,423Operating
      permits
                  
                  
                  1,234,583
                  
                  
                  
                  -
                  
                  
                  
                  (530,045
                  )
                  
                  
                  -
                  
                  
                  
                  704,538Software
      technology
                  
                  
                  567,727
                  
                  
                  
                  -
                  
                  
                  
                  (126,162
                  )
                  
                  
                  -
                  
                  
                  
                  441,565Total
      amortized intangible assets
                  
                  $
                  4,294,614
                  
                  
                  $
                  -
                  
                  
                  $
                  (1,135,990
                  )
                  
                  $
                  -
                  
                  
                  $
                  3,158,624





Balance at
                  
                  
                  
                  
                  
                  Amortization/
                  
                  
                  
                  
                  
                  Balance atDecember 31,
                  
                  
                  
                  
                  
                  Impairment
                  
                  
                  Other
                  
                  
                  December 31,2008
                  
                  
                  Additions
                  
                  
                  Charge
                  
                  
                  Changes
                  
                  
                  2009Amortized intangible assets:Service
      agreement
                  
                  $
                  1,570,482
                  
                  
                  $
                  -
                  
                  
                  $
                  (86,720
                  )
                  
                  $
                  -
                  
                  
                  $
                  1,483,762Publication
      rights
                  
                  
                  968,977
                  
                  
                  
                  -
                  
                  
                  
                  (42,250
                  )
                  
                  
                  (101,915
                  )
                  
                  
                  824,812Customer
      relationships
                  
                  
                  228,933
                  
                  
                  
                  -
                  
                  
                  
                  (20,491
                  )
                  
                  
                  (24,712
                  )
                  
                  
                  183,730Operating
      permits
                  
                  
                  1,450,366
                  
                  
                  
                  -
                  
                  
                  
                  (63,236
                  )
                  
                  
                  (152,547
                  )
                  
                  
                  1,234,583Software
      technology
                  
                  
                  -
                  
                  
                  
                  756,969
                  
                  
                  
                  (189,242
                  )
                  
                  
                  -
                  
                  
                  
                  567,727Total
      amortized intangible assets
                  
                  $
                  4,218,758
                  
                  
                  $
                  756,969
                  
                  
                  $
                  (401,939
                  )
                  
                  $
                  (279,174
                  )
                  
                  $
                  4,294,614Unamortized
      intangible assets:Goodwill
                  
                  $
                  -
                  
                  
                  $
                  1,239,291
                  
                  
                  $
                  (1,239,291
                  )
                  
                  $
                  -
                  
                  
                  $
                  -




12




In
accordance with ASC 250, we recorded amortization expense related to our
intangible assets of $235,990 and $180,525 for the six months ended June 30,
2010 and 2009, respectively.




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




Jinan
                      
                      
                      Shandong
                      
                      
                      AdNetYears ending December 31,
                      
                      Broadband
                      
                      
                      Media
                      
                      
                      Media
                      
                      
                      Total2010
      (six months)
                      
                      $
                      43,360
                      
                      
                      $
                      88,985
                      
                      
                      $
                      126,162
                      
                      
                      $
                      258,5072011
                      
                      
                      86,720
                      
                      
                      
                      177,969
                      
                      
                      
                      252,323
                      
                      
                      
                      517,0122012
                      
                      
                      86,720
                      
                      
                      
                      177,969
                      
                      
                      
                      63,081
                      
                      
                      
                      327,7702013
                      
                      
                      86,720
                      
                      
                      
                      177,969
                      
                      
                      
                      -
                      
                      
                      
                      264,6892014
                      
                      
                      86,720
                      
                      
                      
                      177,969
                      
                      
                      
                      -
                      
                      
                      
                      264,689Thereafter
                      
                      
                      1,050,161
                      
                      
                      
                      475,796
                      
                      
                      
                      -
                      
                      
                      
                      1,525,957Total
      amortization to be recognized
                      
                      $
                      1,440,401
                      
                      
                      $
                      1,276,657
                      
                      
                      $
                      441,566
                      
                      
                      $
                      3,158,624





11.
            Accrued
      Expenses




Accrued
expenses at June 30, 2010 and December 31, 2009 consist of the
following:





June 30,
                  
                  
                  December 31,2010
                  
                  
                  2009Accrued
      expenses
                  
                  $
                  860,000
                  
                  
                  $
                  1,053,000Accrued
      payroll
                  
                  
                  1,033,000
                  
                  
                  
                  786,000$
                  1,893,000
                  
                  
                  $
                  1,839,000





12.
            Convertible
      Notes





On April
14, 2010, we entered into a convertible promissory note with a private investor
for a loan amount of $150,000.  Interest was payable at an annual rate
equal to the applicable federal rate on the date of issuance.  The
principal and accrued interest on the Note was paid in connection with the
closing of the financings on July 30, 2010 (see Note 21 “Subsequent Event”
below).  Under the terms of the Note, the Company granted the Payee a
5-year warrant to purchase 1,000,000 shares of the Company’s common stock at an
exercise price of $.05 per share.  The Company recorded interest
expense of $90,000 during the six months ended June 30, 2010 related to discount
and beneficial convertible features in connection with convertible note and
warrants issuance.





In 2009,
we completed a private placement transaction and sold 5% Convertible Promissory
Notes, or the 2009 Notes, for gross proceeds of approximately $305,000 and an
aggregate of 2,000,000 shares of our common stock at a purchase price of $.15
per share, for aggregate proceeds of $300,000. The Notes accrue interest at 5%
per year payable quarterly in cash or stock, are initially convertible at $.20
per share, and initially became due and payable in full on May 27,
2010.  Simultaneous with the closing of the financings on July 30,
2010 (see Note 21 “Subsequent Events” below), and pursuant to a Waiver and
Agreement to Convert, dated May 20, 2010, the note holders agreed to convert
100% of the outstanding principal and interest owing on such notes into shares
of common stock and warrants.  The Company did not pay any placement
agent or similar fees in connection with the Note
Offering.





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





On
January 11, 2008, we completed a private placement transaction and sold an
aggregate of $4,971,250 principal amount of notes due January 11, 2013, or the
January 2008 Notes, and Class A Warrants to purchase an aggregate of 6,628,333
shares of our common stock, at $.60 per share and expiring on June 11,
2013.  The conversion price of these January 2008 Notes was originally
$.75 per share and, in June of 2009 in connection with a subsequent financing
with these investors, reduced to $.20 per share (see waiver letters under
“Private Financings, June 2009” above).  One investor had his
conversion price reduced to $.25 per share.  We recorded a $504,661
original issue discount related to the Notes.  We calculate the
interest at 5% annually and issue shares for interest payments on a quarterly
basis.  We recorded amortization of original issue discount as
interest expense of $50,025 for each of the six months ended June 30, 2010 and
2009.  Simultaneous with the closing of the financings on July 30,
2010 (see Note 21 “Subsequent Events” below), and pursuant to a Waiver and
Agreement to Convert, dated May 20, 2010, the note holders agreed to convert
100% of the outstanding principal and interest owing on such notes into shares
of common stock and warrants.





13




The
convertible notes due are as follows:





June 30,
                    
                    
                    December 31,2010
                    
                    
                    2009Convertible
      notes, noncurrent
                    
                    $
                    4,971,250
                    
                    
                    $
                    4,971,250Less:  Original
      issue discount
                    
                    
                    (255,919
                    )
                    
                    
                    (305,944
                    )$
                    4,715,331
                    
                    
                    $
                    4,665,306Convertible
      notes, current
                    
                    $
                    454.916
                    
                    
                    $
                    304,853





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:




June 30,
                  
                  December 31,2010
                  
                  2009Risk-free
      interest rate
                  1.17%
                  
                  1.50%Expected
      volatility
                  295.69%
                  
                  309.62%Expected
      life (in years)
                  2.95
      years
                  
                  3.4
      yearsExpected
      dividend yield
                  0
                  
                  0





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





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





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





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 as of June 30, 2010 and 2009:





Three Months Ended
                  
                  
                  Six Months EndedJune 30,
                  
                  
                  June 30,2010
                  
                  
                  2009
                  
                  
                  2010
                  
                  
                  2009Warrants
                  
                  
                  17,874,800
                  
                  
                  
                  16,874,800
                  
                  
                  
                  17,874,800
                  
                  
                  
                  16,874,800Options
                  
                  
                  317,500
                  
                  
                  
                  317,500
                  
                  
                  
                  317,500
                  
                  
                  
                  317,500




14




For each
of the three month and six month periods ended June 30, 2010 and 2009, the
number of securities not included in the diluted EPS because the effect would
have been anti-dilutive was 18,192,300 and 17,192,300,
respectively.





15.
            Comprehensive
      Loss





During
the second quarter of 2010, the Company received payments in full satisfaction
of the amounts due from non-controlling interests.  Subsequently, the
Company made certain balance sheet reclassifications to correct an error related
to the original purchase accounting for our Shandong Media Joint
Venture.  The reclassification had the effect of increasing foreign
currency translation by approximately $378,000.  The Company assessed
the impact of this adjustment on the current period and all prior periods and
determined that the effect of this adjustment was not material to the full year
2008 or 2009, and that reclassification did not result in a material
misstatement to any previously issued annual or quarterly financial
statements.





Comprehensive
loss for the periods ended June 30, 2010 and 2009 is as follows:





Three
      Months Ended
                  
                  
                  Six
      Months EndedJune 30,
                  
                  
                  June 30,2010
                  
                  
                  2009
                  
                  
                  2010
                  
                  
                  2009Net
      loss attributable to shareholders
                  
                  $
                  (1,419,151
                  )
                  
                  $
                  (1,512,610
                  )
                  
                  $
                  (2,223,660
                  )
                  
                  $
                  (2,854,958
                  )Other
      comprehensive income (loss):Currency
      translation adjustment
                  
                  
                  390,732
                  
                  
                  
                  923
                  
                  
                  
                  410,349
                  
                  
                  
                  21,721Unrealized
      gain (loss) on marketable equity securities
                  
                  
                  (67,937
                  )
                  
                  
                  48,869
                  
                  
                  
                  8,631
                  
                  
                  
                  (36,291
                  )Comprehensive
      loss
                  
                  $
                  (1,096,356
                  )
                  
                  $
                  (1,462,818
                  )
                  
                  $
                  (1,804,680
                  )
                  
                  $
                  (2,869,528
                  )





16.
            Interest
      Expense and Share Issuance





In
connection with the Convertible Notes issued in January 2008 and June 2009,
during the six months ended June 30, 2010 and 2009 the Company incurred $183,000
and $176,000, respectively, for interest expense related to these
Notes.





As set
forth in the related documents and with the consent of the Note holders, we
issued 653,119 and 260,703 shares to the Note holders as payment for convertible
note interest of approximately $133,000 and $126,000 for the six months ended
June 30, 2010 and 2009, respectively.





In
connection with the Convertible Note issued April 2010 we recorded interest
expense of $90,000 related to discount and beneficial convertible features in
connection with the convertible note and warrants issuance.





17.
            Stock
      Based Compensation





Through
June 30, 2010, we have issued 317,500 options to purchase shares of our common
stock.





The
following table provides the details of the total stock based compensation
during the three and six month periods ended June 30, 2010 and
2009:





Three Months Ended
                  
                  
                  Six Months EndedJune
      30,
                  
                  
                  June
      30,
                  
                  
                  June
      30,
                  
                  
                  June
      30,2010
                  
                  
                  2009
                  
                  
                  2010
                  
                  
                  2009Stock
      option amortization
                  
                  $
                  18,000
                  
                  
                  $
                  18,000
                  
                  
                  $
                  27,000
                  
                  
                  $
                  27,000Warrant
      amortization
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  7,000Stock
      issued as payment for interest
                  
                  
                  67,000
                  
                  
                  
                  64,000
                  
                  
                  
                  132,000
                  
                  
                  
                  126,000$
                  85,000
                  
                  
                  $
                  82,000
                  
                  
                  $
                  159,000
                  
                  
                  $
                  160,000





The
Company accounts for its stock option awards pursuant to the provisions of ASC
718, Stock Compensation
and recorded a charge of $27,000 during both six month periods ended June 30,
2010 and 2009 in connection with stock option compensation.





There
were no stock options issued during the six month periods ended June 30, 2010
and 2009.  As of June 30, 2010, there were 317,500 options outstanding
with 292,500 options exercisable at a weighted average exercise price of $0.63
with a weighted average remaining life of 4.5 years.





As of
June 30, 2010 the Company had total unrecognized compensation expense related to
options granted of $8,000 which will be recognized over a remaining service
period of .75 years.


15


18.
            Warrants


In
connection with the Company’s Share Exchange, capital raising efforts in 2007,
the Company’s January 2008 Financing of Convertible Notes and Class A Warrants
and the April 2010 Convertible Note, the Company issued warrants to investors
and service providers to purchase common stock of the Company.  As of
June 30, 2010, the weighted average exercise price was $.88 and the weighted
average remaining life was 3.0 years.  The following table outlines
the warrants outstanding as of June 30, 2010:


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
                    
                    6/11/2013April
      2010 Financing Investor Warrants
                    
                    
                    1,000,000
                    
                    
                    $
                    0.05
                    
                    4/14/201517,874,800




19.
            Income
    Taxes





Deferred
taxes are recognized for the future tax consequences attributable to temporary
differences between the carrying amounts of assets and liabilities for financial
statement purposes and income tax purposes using enacted rates expected to be in
effect when such amounts are realized or settled.  The effect on
deferred taxes of a change in tax rates is recognized in income in the period
that includes the enactment date.  The income tax benefit for the six
month periods ended June 30, 2010 and 2009 results primarily from changes in
calculated deferred taxes, particularly liabilities associated with intangible
assets.  The Company recorded approximately $260,000 income tax
benefit during the six months ended June 30, 2010 primarily due to the
recognition of the impairment charge related to the Shandong Media
intangibles.  Deferred tax assets associated with net operating losses
have a full valuation allowance recorded against them.





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





The
estimation of the income tax effect of any future repatriation of the Company’s
share of any profits generated by its interests in Jinan Broadband, Shandong
Media and AdNet is not practicable.  This is because it may involve
additional Chinese taxation on the distributions, or sale proceeds, to the
extent that they are in excess of the investments made, but with credits for
some or all of the Chinese taxes against U.S. taxes, plus the utilization of
operating losses of the WFOE.  All of the foregoing would be subject
to various tax-planning strategies.





The
Company has not recognized deferred tax assets relating to the excess of its
income tax bases in its non-U.S. subsidiaries over their financial statement
carrying value because the Company expects to hold the investments and reinvest
future earnings indefinitely.





The
Company’s income tax benefit for the six months ended June 30, 2010 and 2009
each consisted entirely of foreign deferred taxes arising from net operating
loss carryforwards.





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


16





20.
            Non-Controlling
      Interests





In
December 2007, the FASB issued authoritative guidance which establishes
reporting standards that require companies to more clearly identify in the
financial statements and disclose the impact of noncontrolling interests in a
consolidated subsidiary on the consolidated financial
statements.  Noncontrolling interests are now classified as equity in
the financial statements. The consolidated income statement is presented by
requiring net income to include net income for both the parent and the
noncontrolling interests, with disclosure of both amounts on the consolidated
statements of income.  The calculation of earnings per share continues
to be based on income amounts attributable to the parent.  Prior
period amounts related to noncontrolling interests have been reclassified to
conform to the current period presentation.  The Company adopted this
guidance on January 1, 2009.





During
the second quarter of 2010, the Company made certain adjustments to correct an
error related to an under-allocation of amortization expense to Non-controlling
Interests in prior periods.  The adjustment related to prior allocations of
amortization expense for certain intangible assets of both Jinan Broadband and
Shandong Media had the effect of increasing the Net Loss Attributable to
Non-Controlling Interests in the three and six month periods ended June 30, 2010
by approximately $277,000. The Company assessed the impact of this
adjustment on the current period and all prior periods and determined that the
effect of this adjustment did not result in a material misstatement to the
current periods or any previously issued annual or quarterly financial
statements.





21.
            Subsequent
      Events





On July
30, 2010, we acquired, through our subsidiary China Broadband Cayman, Sinotop
Group Limited, a Hong Kong corporation, or Sinotop Hong Kong.  Through
a series of contractual arrangements referred to herein as “VIE Contracts”,
Sinotop Hong Kong controls Beijing Sino Top Scope Technology Co., Ltd., or
Sinotop Beijing.  Sinotop Beijing, a corporation established in the
PRC is, in turn, a party to a joint venture with two other PRC companies to
provide integrated value-added service solutions for the delivery of
pay-per-view (“PPV”), video-on-demand (“VOD”), and enhanced premium content for
cable providers.





Also on
July 30, 2010, in connection with the acquisition of Sinotop Hong Kong, we
closed financings with several accredited investors and sold, in the aggregate,
$9,625,000 of securities and, specifically, sold (i) $3.125 million of common
units, at a per unit price of $0.05, with each common unit consisting of one
share of common stock and a warrant for the purchase of one share of common
stock at an exercise price of $0.05, (ii) $3.5 million of Series A units, at a
per unit price of $0.50, with each Series A unit consisting of one share of
Series A Preferred Stock (convertible into ten shares of common stock) and a
warrant to purchase 34.2857 shares of common stock at an exercise price of
$0.05, and (iii) $3.0 million of Series B units, at a per unit price of $0.50,
with each Series B unit consisting of one share of Series B Preferred Stock
(convertible into ten shares of common stock) and a warrant to purchase ten
shares of common stock.  Accordingly, the Company issued 62,500,000
shares of Common Stock, 7,000,000 shares of Series A Preferred Stock, 6,000,000
shares of Series B Preferred Stock in connection with the Financings, and
warrants to purchase an aggregate of 362,500,000 shares of Common
Stock.  The proceeds of the financings will be used to fund our value
added service platform and for general working capital purposes.





Simultaneous
with the closing of the financings above, and pursuant to (i) a Waiver and
Agreement to Convert, dated May 20, 2010, with the holders of an aggregate of
$4,971,250 in principal amount of notes of the Company, dated January 11, 2008,
and (ii) a Waiver and Agreement to Convert, dated May 20, 2010, with the holders
of an aggregate of $304,902 in principal amount of notes of the Company, dated
June 30, 2009, the holders of such notes agreed to convert 100% of the
outstanding principal and interest owing on such notes into an aggregate of
62,855,048 shares of Common Stock, 4,266,800 shares of Series B Preferred Stock
and warrants for the purchase of an aggregate of 105,523,048 shares of Common
Stock, as set forth in the respective waivers.





On July
30, 2010, Oliveira Capital LLC agreed to (i) cancel the remaining $20,000 of the
March 9, 2010 loan and (ii) assign the $580,000 note of Sinotop Hong Kong to the
Company, in exchange for (x) 1,200,000 shares of Series B Preferred Stock of the
Company and (y) warrants to purchase of 36,000,000 shares of the Company’s
common stock.


17


Cautionary
Note Regarding Forward Looking Statements





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





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





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





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





Overview





We
operate in the media segment through our Chinese VIEs, (1) a cable broadband
business based in the Jinan region of China and (2) a television
program guide, newspaper and magazine publishing business based in the Shandong
region of China.





Through
our VIE Jinan Broadband, we provide cable and wireless broadband services,
principally internet services, Internet Protocol Point wholesale services,
related network equipment rental and sales, and fiber network construction and
maintenance.  Jinan Broadband’s revenue consists primarily of sales to
our PRC-based internet consumers, cable modem consumers, business customers and
other internet and cable services.





Through
our VIE Shandong Media, we operate our publishing business, which includes the
distribution of periodicals, the publication of advertising, the organization of
public relations events, the provision of information related services,
copyright transactions, the production of audio and video products, and the
provision of audio value added communication services. Shandong Media’s revenue
consists primarily of sales of publications and advertising
revenues.





In
addition, our subsidiary AdNet holds a business license to operate in 28
provinces and provide internet content advertising in cafés in the
PRC.  Though we acquired AdNet during the first half of 2009, due to
the shift of our business model to the pay-per-view
(“PPV”) and video-on-demand (“VOD”) business, as of December 31,
2009, we permanently suspended the day-to-day operations of AdNet.  We
have maintained our technology and other assets of AdNet for future use in our
new PPV business.


18





Recent
Developments





On July
30, 2010, we acquired, through our subsidiary China Broadband Cayman, Sinotop
Group Limited, a Hong Kong corporation, or Sinotop Hong Kong.  Through
a series of contractual arrangements referred to herein as “VIE Contracts”,
Sinotop Hong Kong controls Beijing Sino Top Scope Technology Co., Ltd., or
Sinotop Beijing.  Sinotop Beijing, a corporation established in the
PRC is, in turn, a party to a joint venture with two other PRC companies to
provide integrated value-added service solutions for the delivery of PPV, VOD,
and enhanced premium content for cable providers.





Also on
July 30, 2010, in connection with the acquisition of Sinotop Hong Kong, we
closed financings with several accredited investors and sold, in the aggregate,
$9,625,000 of securities and, specifically, sold (i) $3.125 million of common
units, at a per unit price of $0.05, with each common unit consisting of one
share of common stock and a warrant for the purchase of one share of common
stock at an exercise price of $0.05, (ii) $3.5 million of Series A units, at a
per unit price of $0.50, with each Series A unit consisting of one share of
Series A Preferred Stock (convertible into ten shares of common stock) and a
warrant to purchase 34.2857 shares of common stock at an exercise price of
$0.05, and (iii) $3.0 million of Series B units, at a per unit price of $0.50,
with each Series B unit consisting of one share of Series B Preferred Stock
(convertible into ten shares of common stock) and a warrant to purchase ten
shares of common stock.  Accordingly, the Company issued 62,500,000
shares of Common Stock, 7,000,000 shares of Series A Preferred Stock, 6,000,000
shares of Series B Preferred Stock in connection with the Financings, and
warrants to purchase an aggregate of 362,500,000 shares of Common
Stock.  The proceeds of the financings will be used to fund our value
added service platform and for general working capital purposes.





Simultaneous
with the closing of the financings above, and pursuant to (i) a Waiver and
Agreement to Convert, dated May 20, 2010, with the holders of an aggregate of
$4,971,250 in principal amount of notes of the Company, dated January 11, 2008,
and (ii) a Waiver and Agreement to Convert, dated May 20, 2010, with the holders
of an aggregate of $304,902 in principal amount of notes of the Company, dated
June 30, 2009, the holders of such notes agreed to convert 100% of the
outstanding principal and interest owing on such notes into an aggregate of
62,855,048 shares of Common Stock, 4,266,800 shares of Series B Preferred Stock
and warrants for the purchase of an aggregate of 105,523,048 shares of Common
Stock, as set forth in the respective waivers.





On July
30, 2010, Oliveira Capital LLC agreed to (i) cancel the remaining $20,000 of the
March 9, 2010 loan and (ii) assign the $580,000 note of Sinotop Hong Kong to the
Company, in exchange for (x) 1,200,000 shares of Series B Preferred Stock of the
Company and (y) warrants to purchase of 36,000,000 shares of the Company’s
common stock.





On August
9, 2010, Pu Yue resigned as a member of our Board of Directors.  Mr.
Yue’s resignation was not in connection with any disagreement with the
Company.





Results
of Operations





Comparison of Three Months
Ended June 30, 2010 and 2009





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





3 Months Ended
                          
                          
                          Amount
                          
                          
                          %June
      30,
                          
                          
                          June
      30,
                          
                          
                          Increase
      /
                          
                          
                          Increase
      /2010
                          
                          
                          2009
                          
                          
                          (Decrease)
                          
                          
                          (Decrease)Revenue
                          
                          $
                          1,817,000
                          
                          
                          $
                          1,989,000
                          
                          
                          $
                          (172,000
                          )
                          
                          
                          -9
                          %Cost
      of revenue
                          
                          
                          1,035,000
                          
                          
                          
                          1,103,000
                          
                          
                          
                          (68,000
                          )
                          
                          
                          -6
                          %Gross
      profit
                          
                          
                          782,000
                          
                          
                          
                          886,000
                          
                          
                          
                          (104,000
                          )
                          
                          
                          -12
                          %Selling,
      general and adminstrative expenses
                          
                          
                          616,000
                          
                          
                          
                          741,000
                          
                          
                          
                          (125,000
                          )
                          
                          
                          -17
                          %Professional
      fees
                          
                          
                          381,000
                          
                          
                          
                          182,000
                          
                          
                          
                          199,000
                          
                          
                          
                          109
                          %Depreciation
      and amortization
                          
                          
                          957,000
                          
                          
                          
                          905,000
                          
                          
                          
                          52,000
                          
                          
                          
                          6
                          %Loss
      from operations
                          
                          
                          (1,172,000
                          )
                          
                          
                          (942,000
                          )
                          
                          
                          (230,000
                          )
                          
                          
                          24
                          %Interest
      & other income / (expense)Interest
      income
                          
                          
                          1,000
                          
                          
                          
                          2,000
                          
                          
                          
                          (1,000
                          )
                          
                          
                          -50
                          %Interest
      expense
                          
                          
                          (182,000
                          )
                          
                          
                          (90,000
                          )
                          
                          
                          (92,000
                          )
                          
                          
                          102
                          %Change
      in fair value of warrant liabilities
                          
                          
                          22,000
                          
                          
                          
                          (627,000
                          )
                          
                          
                          649,000
                          
                          
                          
                          -Gain
      (loss) on sale of securities
                          
                          
                          1,000
                          
                          
                          
                          (10,000
                          )
                          
                          
                          11,000
                          
                          
                          
                          -110
                          %Impairment
      of intangibles
                          
                          
                          (900,000
                          )
                          
                          
                          -
                          
                          
                          
                          (900,000
                          )
                          
                          
                          -Impairment
      of equipment
                          
                          
                          (750,000
                          )
                          
                          
                          -
                          
                          
                          
                          (750,000
                          )
                          
                          
                          -Other
                          
                          
                          (2,000
                          )
                          
                          
                          -
                          
                          
                          
                          (2,000
                          )
                          
                          
                          -Loss
      before income taxes and noncontrolling interests
                          
                          
                          (2,982,000
                          )
                          
                          
                          (1,667,000
                          )
                          
                          
                          (1,315,000
                          )
                          
                          
                          79
                          %Income
      tax benefit
                          
                          
                          246,000
                          
                          
                          
                          15,000
                          
                          
                          
                          231,000
                          
                          
                          
                          1540
                          %Net
      loss, net of tax
                          
                          
                          (2,736,000
                          )
                          
                          
                          (1,652,000
                          )
                          
                          
                          (1,084,000
                          )
                          
                          
                          66
                          %Net
      loss attributable to noncontrolling interests
                          
                          
                          1,317,000
                          
                          
                          
                          139,000
                          
                          
                          
                          1,178,000
                          
                          
                          
                          847
                          %Net
      loss attributable to China Broadband shareholders
                          
                          $
                          (1,419,000
                          )
                          
                          $
                          (1,513,000
                          )
                          
                          $
                          94,000
                          
                          
                          
                          -6
                          %





Revenues





Our
revenues are generated by our operating companies in the PRC.  Revenues for
the three months ended June 30, 2010 totaled $1,817,000, as compared to
$1,989,000 for the three months ended June 30, 2009, a decrease of approximately
$172,000, or 9%.


19





Jinan
Broadband’s revenue consists primarily of sales to our PRC based internet
consumers, cable modem consumers, business customers and other internet and
cable services.  For the three months ended June 30, 2010, revenues totaled
$1,080,000, a decrease of $59,000, or 5%, as compared to revenues of $1,138,000
for the same period of 2009. The decrease is attributable to decreases in our
value added services.





Shandong
Media’s revenue consists primarily of sales of publications and advertising
revenues.  For the three months ended June 30, 2010, revenues totaled
$738,000, a decrease of $111,000, or 13%, as compared to revenues of $849,000
for the same period of 2009.  Although we had decreases in both our
publication and advertising revenues, the decrease is mainly attributable to
decreases in advertising revenue which can be directly correlated to the decline
of the advertising market as a whole in China.  We anticipate that this
decrease is temporary and that the advertising market will recover.  We
will continue to look to increase our advertising sales for the publishing side
of the business.  We have experienced advertising growth from Q1 to Q2 of
2010.





Gross
Profit





Our gross
profit for the three months ended June 30, 2010 was $782,000, as compared to
$886,000 for the three months ended June 30, 2009, a decrease of approximately
$104,000, or 12%.  Jinan Broadband’s gross profit decreased $104,000, or
18%, due to both decreased revenue and increased costs.  Shandong Media’s
gross profit decreased $11,000, or 4%, primarily due to decreased
revenues.





Gross
profit as a percentage of revenue was 43% for the three months ended June 30,
2010, as compared to 45% for the three months ended June 30, 2009.





Selling,
General and Administrative Expenses





Our
selling, general and administrative expenses for the three months ended June 30,
2010 decreased approximately $125,000 to $616,000, as compared to $741,000 for
the three months ended June 30, 2009.





Salaries
and personnel costs are the major component of selling, general and
administrative expenses. For the three months ended June 30, 2010, salaries and
personnel costs totaled $386,000, a decrease of $35,000 or 8% as compared to
$421,000 for the same period of 2009. During the three months ended June 30,
2010, salaries and personnel costs accounted for 55% of our selling, general and
administrative expenses.





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





Professional
Fees





Our
professional fees are generally related to public company reporting and
governance expenses as well as costs related to our acquisitions.  Our
costs for professional fees increased $199,000, or 109%, to $381,000 during the
three months ended June 30, 2010 from $182,000 in 2009.  Increases for
this period relate to current fundraising activities.  See “Recent
Developments” above.





Depreciation
and Amortization





Our
depreciation expense increased $56,000, or 7%, to $816,000 for the three months
ended June 30, 2010 from $760,000 in 2009.  The increase is mainly due to
the acquisition of new equipment by our Jinan Broadband subsidiary.





Our
amortization expense decrease $4,000, or 3%, to $141,000 for the three months
ended June 30, 2010 from $145,000 in 2009.


20


Interest
and Other Income (Expense), net





Interest
income


Our
interest income decreased $1,000, or 50%, to $1,000 for the three months ended
June 30, 2010 from $2,000 in 2009.





Interest
expense


Interest
expense is related to our 5% Convertible Notes issued in January 2008 and June
2009 and our April 2010 convertible note.  Interest expense increased
$92,000, or 102%, to $182,000 for the three months ended June 30, 2010 from
$90,000 in 2009, primarily due to additional convertible notes issued in 2009
and 2010.  Interest expense includes amortization of the original issue
discount on the notes resulting from the allocation of fair value to the
warrants issued in the financing.  Interest on the Notes compounds
monthly at the annual rate of five percent (5%). The outstanding principal
amount of the January 2008 Notes as of June 30, 2010 was $4,971,250, net of
original issue discount of $504,661.  The outstanding principal amount on
the June 2009 Notes as of December 31, 2009 was approximately
$305,000.





We expect
our interest expense to decrease substantially.  Simultaneous with the
closing of the financings on July 30, 2010 (see “Recent Developments” above),
and pursuant to a Waiver and Agreement to Convert, dated May 20, 2010, the note
holders agreed to convert 100% of the outstanding principal and interest owing
on such notes into shares of common stock and warrants.  In addition,
the convertible promissory note issued in April 2010 was paid in
full.





Change
in fair value of warrant liabilities


Under new
authoritative guidance, effective January 1, 2009, the Company was required to
reclassify warrants from equity to warrant liabilities.  Warrants are fair
valued quarterly using the Black-Scholes Merton Model and changes in fair value
are recorded to the statement of operations.  We recorded a gain of $22,000
classified as a change in fair value of warrants on our statement of operations
for the three months ended June 30, 2010 and we recorded a charge of $627,000 in
2009.





Loss
on sale of marketable equity securities


During
the three month period ended June 30, 2010 we recorded a gain of approximately
$1,000 on the sale of our Cablecom Holding shares and we recorded a loss of
approximately $10,000 during the same period of 2009.





Impairment
of intangibles


Our
Shandong Media joint venture has not experienced the growth
anticipated.  We prepared an analysis and accordingly recorded an
impairment charge of $900,000 to our Shandong Media intangibles which include
publication rights, operating permits and customer relationships during the
second quarter of 2010.





Impairment
of equipment


Duringthe second quarter of
2010, based on our best estimate, the Company recorded an impairment reserve of
$750,000 related to the equipment at our Jinan Broadband subsidiary.  In
July 2010, the equipment was taken out of service due to changes in customer
needs.  The net book value of the equipment is $1,483,000.  During the
next quarter, the Company will evaluate whether there are other uses for the
equipment or whether the equipment can be sold.





Net
Income/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
June 30, 2010, $735,000 of our operating losses from Jinan Broadband was
allocated to Jinan Parent, as compared to $142,000 during the same period of
2009.





50% of
the operating loss of our Shandong Media joint venture is allocated to our 50%
Shandong Newspaper joint venture partner.  During the three months ended
June 30, 2010, $582,000 of our operating loss from Shandong Media was allocated
to Shandong Newspaper, as compared to $3,000 of operating income during the same
period of 2009.


21


Net
Loss Attributable to Shareholders





Net loss
attributable to shareholders for the three months ended June 30, 2010 was
$1,663,000, an increase of $150,000, or 10%, as compared to $1,513,000 for the
three months ended June 30, 2009.  The increase is primarily due to
impairment charges recognized in 2010 related to our Shandong Media intangibles
and Jinan Broadband equipment offset by the recognition of a $627,000 charge due
to the increase in the fair value of warrant liabilities in
2009.





The
following table breaks down the results of operations for the three months ended
June 30, 2010 and 2009 between our VIE operating companies and our non-operating
companies.  Our VIE operating companies include Jinan Broadband and
Shandong Media.





3
      Months Ended
                                      
                                      
                                      3
      Months EndedJune
      30, 2010
                                      
                                      
                                      June
      30, 2009% of
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      % ofTotal
                                      
                                      
                                      Non-
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      Total
                                      
                                      
                                      Non-Operating
                                      
                                      
                                      Revenue
                                      
                                      
                                      Operating
                                      
                                      
                                      Total
                                      
                                      
                                      Operating
                                      
                                      
                                      Revenue
                                      
                                      
                                      Operating
                                      
                                      
                                      TotalRevenue
                                      
                                      $
                                      1,817,000
                                      
                                      
                                      
                                      
                                      
                                      $
                                      -
                                      
                                      
                                      $
                                      1,817,000
                                      
                                      
                                      $
                                      1,989,000
                                      
                                      
                                      
                                      
                                      
                                      $
                                      -
                                      
                                      
                                      $
                                      1,989,000Cost
      of revenue
                                      
                                      
                                      1,035,000
                                      
                                      
                                      
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      1,035,000
                                      
                                      
                                      
                                      1,103,000
                                      
                                      
                                      
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      1,103,000Gross
      profit
                                      
                                      
                                      782,000
                                      
                                      
                                      
                                      43
                                      %
                                      
                                      
                                      -
                                      
                                      
                                      
                                      782,000
                                      
                                      
                                      
                                      886,000
                                      
                                      
                                      
                                      45
                                      %
                                      
                                      
                                      -
                                      
                                      
                                      
                                      886,000Selling,
      general and adminstrative expenses
                                      
                                      
                                      418,000
                                      
                                      
                                      
                                      23
                                      %
                                      
                                      
                                      198,000
                                      
                                      
                                      
                                      616,000
                                      
                                      
                                      
                                      531,000
                                      
                                      
                                      
                                      27
                                      %
                                      
                                      
                                      210,000
                                      
                                      
                                      
                                      741,000Professional
      fees
                                      
                                      
                                      -
                                      
                                      
                                      
                                      0
                                      %
                                      
                                      
                                      381,000
                                      
                                      
                                      
                                      381,000
                                      
                                      
                                      
                                      12,000
                                      
                                      
                                      
                                      1
                                      %
                                      
                                      
                                      170,000
                                      
                                      
                                      
                                      182,000Depreciation
      and amortization
                                      
                                      
                                      816,000
                                      
                                      
                                      
                                      45
                                      %
                                      
                                      
                                      141,000
                                      
                                      
                                      
                                      957,000
                                      
                                      
                                      
                                      760,000
                                      
                                      
                                      
                                      38
                                      %
                                      
                                      
                                      145,000
                                      
                                      
                                      
                                      905,000Loss
      from operations
                                      
                                      
                                      (452,000
                                      )
                                      
                                      
                                      -11
                                      %
                                      
                                      
                                      (720,000
                                      )
                                      
                                      
                                      (1,172,000
                                      )
                                      
                                      
                                      (417,000
                                      )
                                      
                                      
                                      -21
                                      %
                                      
                                      
                                      (525,000
                                      )
                                      
                                      
                                      (942,000
                                      )Interest
      & other income / (expense)Interest
      income
                                      
                                      
                                      1,000
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      1,000
                                      
                                      
                                      
                                      2,000
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      2,000Interest
      expense
                                      
                                      
                                      -
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      (182,000
                                      )
                                      
                                      
                                      (182,000
                                      )
                                      
                                      
                                      -
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      (90,000
                                      )
                                      
                                      
                                      (90,000
                                      )Change
      in fair value of warrant liabilities
                                      
                                      
                                      -
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      22,000
                                      
                                      
                                      
                                      22,000
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      (627,000
                                      )
                                      
                                      
                                      (627,000
                                      )Gain
      (loss) on sale of securities
                                      
                                      
                                      -
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      1,000
                                      
                                      
                                      
                                      1,000
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      (10,000
                                      )
                                      
                                      
                                      (10,000
                                      )Impairment
      of intangibles
                                      
                                      
                                      -
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      (900,000
                                      )
                                      
                                      
                                      (900,000
                                      )
                                      
                                      
                                      -
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -Impairment
      of equipment
                                      
                                      
                                      (750,000
                                      )
                                      
                                      
                                      
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      (750,000
                                      )
                                      
                                      
                                      -
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -Other
                                      
                                      
                                      -
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      (2,000
                                      )
                                      
                                      
                                      (2,000
                                      )
                                      
                                      
                                      -
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -Loss
      before income taxes and noncontrolling interest
                                      
                                      
                                      (1,201,000
                                      )
                                      
                                      
                                      
                                      
                                      
                                      
                                      (1,781,000
                                      )
                                      
                                      
                                      (2,982,000
                                      )
                                      
                                      
                                      (415,000
                                      )
                                      
                                      
                                      
                                      
                                      
                                      
                                      (1,252,000
                                      )
                                      
                                      
                                      (1,667,000
                                      )Income
      tax benefit
                                      
                                      
                                      -
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      246,000
                                      
                                      
                                      
                                      246,000
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      15,000
                                      
                                      
                                      
                                      15,000Net
      income (loss)
                                      
                                      
                                      (1,201,000
                                      )
                                      
                                      
                                      
                                      
                                      
                                      
                                      (1,535,000
                                      )
                                      
                                      
                                      (2,736,000
                                      )
                                      
                                      
                                      (415,000
                                      )
                                      
                                      
                                      
                                      
                                      
                                      
                                      (1,237,000
                                      )
                                      
                                      
                                      (1,652,000
                                      )Net
      loss attributable to noncontrolling interest
                                      
                                      
                                      1,317,000
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      1,317,000
                                      
                                      
                                      
                                      139,000
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      139,000Net
      loss attributable to shareholders
                                      
                                      $
                                      116,000
                                      
                                      
                                      
                                      
                                      
                                      
                                      $
                                      (1,535,000
                                      )
                                      
                                      $
                                      (1,419,000
                                      )
                                      
                                      $
                                      (276,000
                                      )
                                      
                                      
                                      
                                      
                                      
                                      $
                                      (1,237,000
                                      )
                                      
                                      $
                                      (1,513,000
                                      )





Comparison of Six months
Ended June 30, 2010 and 2009





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





6 Months Ended
                          
                          
                          Amount
                          
                          
                          %June
      30,
                          
                          
                          June
      30,
                          
                          
                          Increase
      /
                          
                          
                          Increase
      /2010
                          
                          
                          2009
                          
                          
                          (Decrease)
                          
                          
                          (Decrease)Revenue
                          
                          $
                          3,693,000
                          
                          
                          $
                          3,939,000
                          
                          
                          $
                          (246,000
                          )
                          
                          
                          -6
                          %Cost
      of revenue
                          
                          
                          2,109,000
                          
                          
                          
                          2,277,000
                          
                          
                          
                          (168,000
                          )
                          
                          
                          -7
                          %Gross
      profit
                          
                          
                          1,584,000
                          
                          
                          
                          1,662,000
                          
                          
                          
                          (78,000
                          )
                          
                          
                          -5
                          %Selling,
      general and adminstrative expenses
                          
                          
                          1,339,000
                          
                          
                          
                          1,459,000
                          
                          
                          
                          (120,000
                          )
                          
                          
                          -8
                          %Professional
      fees
                          
                          
                          550,000
                          
                          
                          
                          292,000
                          
                          
                          
                          258,000
                          
                          
                          
                          88
                          %Depreciation
      and amortization
                          
                          
                          1,903,000
                          
                          
                          
                          1,736,000
                          
                          
                          
                          167,000
                          
                          
                          
                          10
                          %Loss
      from operations
                          
                          
                          (2,208,000
                          )
                          
                          
                          (1,825,000
                          )
                          
                          
                          (383,000
                          )
                          
                          
                          21
                          %Interest
      & other income / (expense)Interest
      income
                          
                          
                          2,000
                          
                          
                          
                          5,000
                          
                          
                          
                          (3,000
                          )
                          
                          
                          -60
                          %Interest
      expense
                          
                          
                          (274,000
                          )
                          
                          
                          (176,000
                          )
                          
                          
                          (98,000
                          )
                          
                          
                          56
                          %Change
      in fair value of warrant liabilities
                          
                          
                          64,000
                          
                          
                          
                          (1,241,000
                          )
                          
                          
                          1,305,000
                          
                          
                          
                          -105
                          %Gain
      (loss) on sale of securities
                          
                          
                          1,000
                          
                          
                          
                          (31,000
                          )
                          
                          
                          32,000
                          
                          
                          
                          -103
                          %Impairment
      of intangibles
                          
                          
                          (900,000
                          )
                          
                          
                          -
                          
                          
                          
                          (900,000
                          )
                          
                          
                          -Impairment
      of equipment
                          
                          
                          (750,000
                          )
                          
                          
                          -
                          
                          
                          
                          (750,000
                          )
                          
                          
                          -Other
                          
                          
                          1,000
                          
                          
                          
                          -
                          
                          
                          
                          1,000
                          
                          
                          
                          -Loss
      before income taxes and noncontrolling interest
                          
                          
                          (4,064,000
                          )
                          
                          
                          (3,268,000
                          )
                          
                          
                          (796,000
                          )
                          
                          
                          24
                          %Income
      tax benefit
                          
                          
                          260,000
                          
                          
                          
                          29,000
                          
                          
                          
                          231,000
                          
                          
                          
                          797
                          %Net
      loss, net of tax
                          
                          
                          (3,804,000
                          )
                          
                          
                          (3,239,000
                          )
                          
                          
                          (565,000
                          )
                          
                          
                          17
                          %Plus:
      Net loss attributable to noncontrolling interests
                          
                          
                          1,580,000
                          
                          
                          
                          384,000
                          
                          
                          
                          1,196,000
                          
                          
                          
                          311
                          %Net
      loss attributable to China Broadband shareholders
                          
                          $
                          (2,224,000
                          )
                          
                          $
                          (2,855,000
                          )
                          
                          $
                          631,000
                          
                          
                          
                          -22
                          %





Revenues





Our
revenues are generated by our operating companies in the PRC.  Revenues for
the six months ended June 30, 2010 totaled $3,693,000, as compared to $3,939,000
for the six months ended June 30, 2009, a decrease of approximately $246,000, or
6%.





Jinan
Broadband’s revenue consists primarily of sales to our PRC based internet
consumers, cable modem consumers, business customers and other internet and
cable services.  For the six months ended June 30, 2010, revenues totaled
$2,310,000, an increase of $86,000, or 4%, as compared to revenues of $2,224,000
for the same period of 2009. The increase is attributable to increased sales to
business customers.





Shandong
Media’s revenue consists primarily of sales of publications and advertising
revenues.  For the six months ended June 30, 2010, revenues totaled
$1,383,000, a decrease of $332,000, or 19%, as compared to revenues of
$1,715,000 for the same period of 2009.  Although we had decreases in both
our publication and advertising revenues, the decrease is mainly attributable to
decreases in advertising revenue which can be directly correlated to the decline
of the advertising market as a whole in China.  We believe this decrease to
be temporary.  We will continue to look to increase our advertising sales
for the publishing side of the business.   We have experienced
advertising growth from Q1 to Q2 of 2010.





Gross
Profit





Our gross
profit for the six months ended June 30, 2010 was $1,584,000, as compared to
$1,662,000 for the six months ended June 30, 2009, a decrease of approximately
$78,000, or 5%.  Jinan Broadband’s gross profit increased $16,000, or 2%,
mainly due to increased revenue.  Shandong Media’s gross profit decreased
$104,000, or 17%, primarily due to decreased revenues.





Gross
profit as a percentage of revenue was 43% for the six months ended June 30,
2010, as compared to 42% for the six months ended June 30, 2009.





Selling,
General and Administrative Expenses





Our
selling, general and administrative expenses for the six months ended June 30,
2010 decreased approximately $120,000 to $1,339,000, as compared to $1,459,000
for the six months ended June 30, 2009.


22


Salaries
and personnel costs are the major component of selling, general and
administrative expenses. For the six months ended June 30, 2010, salaries and
personnel costs totaled $847,000, a decrease of $4,000 or 1/2% as compared to
$851,000 for the same period of 2009. During the six months ended June 30, 2010,
salaries and personnel costs accounted for 59% of our selling, general and
administrative expenses.





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





Professional
Fees





Our
professional fees are generally related to public company reporting and
governance expenses as well as costs related to our acquisitions.  Our
costs for professional fees increased $258,000, or 88%, to $550,000 during the
six months ended June 30, 2010 from $292,000 in 2009.  Increases for
this period relate to current fundraising activities.  See “Recent
Developments” above





Depreciation
and Amortization





Our
depreciation expense increased $111,000, or 7%, to $1,620,000 for the six months
ended June 30, 2010 from $1,509,000 in 2009.  The increase is mainly due to
the acquisition of new equipment by our Jinan Broadband subsidiary.





Our
amortization expense increased $56,000, or 24%, to $283,000 for the six months
ended June 30, 2010 from $227,000 in 2009.  The increase is mainly due to
the amortization expense related to our software technology acquired from our
AdNet Media acquisition.





Interest
and Other Income (Expense), net





Interest
income


Our
interest income decreased $3,000, or 60%, to $2,000 for the three months ended
June 30, 2010 from $5,000 in 2009





Interest
expense


Interest
expense is related to our 5% Convertible Notes issued in January 2008 and June
2009 and our April 2010 convertible note.  Interest expense increased
$98,000, or 56%, to $274,000 for the six months ended June 30, 2010 from
$176,000 in 2009, primarily due to additional convertible notes issued in 2009
and 2010.  Interest expense includes amortization of the original issue
discount on the notes resulting from the allocation of fair value to the
warrants issued in the financing.  Interest on the Notes compounds
monthly at the annual rate of five percent (5%). The outstanding principal
amount of the January 2008 Notes as of June 30, 2010 was $4,971,250, net of
original issue discount of $504,661.  The outstanding principal amount on
the June 2009 Notes as of December 31, 2009 was approximately
$305,000.





We expect
our interest expense to decrease substantially.  Simultaneous with the
closing of the financings on July 30, 2010 (see “Recent Developments” above),
and pursuant to a Waiver and Agreement to Convert, dated May 20, 2010, the note
holders agreed to convert 100% of the outstanding principal and interest owing
on such notes into shares of common stock and warrants.  In addition,
the convertible promissory note issued in April 2010 was paid in
full.





Change
in fair value of warrant liabilities


Under new
authoritative guidance, effective January 1, 2009, the Company was required to
reclassify warrants from equity to warrant liabilities.  Warrants are fair
valued quarterly using the Black-Scholes Merton Model and changes in fair value
are recorded to the statement of operations.  We recorded a gain of $64,000
classified as a change in fair value of warrants on our statement of operations
for the six months ended June 30, 2010 and we recorded a charge of $1,241,000 in
2009.


23





Loss
on sale of marketable equity securities


During
the six month period ended June 30, 2010 we recorded a gain of approximately
$1,000 on the sale of our Cablecom Holding shares and we recorded a loss of
approximately $31,000 during the same period of 2009.





Impairment
of intangibles


Our
Shandong Media joint venture has not experienced the growth
anticipated.  We prepared an analysis and accordingly recorded an
impairment charge of $900,000 to our Shandong Media intangibles which include
publication rights, operating permits and customer relationships during the
second quarter of 2010.





Impairment
of equipment


Duringthe second quarter of
2010, based on our best estimate, the Company recorded an impairment reserve of
$750,000 related to the equipment at our Jinan Broadband subsidiary.  In
July 2010, the equipment was taken out of service due to changes in customer
needs.  The net book value of the equipment is $1,483,000.  During the
next quarter, the Company will evaluate whether there are other uses for the
equipment or whether the equipment can be sold.





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 six months ended
June 30, 2010, $938,000 of our operating losses from Jinan Broadband was
allocated to Jinan Parent, as compared to $366,000 during the same period of
2009.





50% of
the operating loss of our Shandong Media joint venture is allocated to our 50%
Shandong Newspaper joint venture partner.  During the six months ended June
30, 2010, $642,000 of our operating loss from Shandong Media was allocated to
Shandong Newspaper, as compared to $18,000 during the same period of
2009.





Net
Loss Attributable to Shareholders





Net loss
attributable to shareholders for the six months ended June 30, 2010 was
$2,468,000, an increase of $387,000, or 14%, as compared to $2,855,000 for the
six months ended June 30, 2009.  The increase is primarily due to
impairment charges recognized in 2010 related to our Shandong Media intangibles
and Jinan Broadband equipment offset by the recognition of a $1,241,000 charge
due to the increase in the fair value of warrant liabilities in
2009.





The
following table breaks down the results of operations for the six months ended
June 30, 2010 and 2009 between our VIE operating companies and our non-operating
companies.  Our VIE operating companies include Jinan Broadband and
Shandong Media.





6
      Months Ended
                                              
                                              
                                              6
      Months EndedJune
      30, 2010
                                              
                                              
                                              June
      30, 2009% of
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              % ofTotal
                                              
                                              
                                              Non-
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              Total
                                              
                                              
                                              Non-Operating
                                              
                                              
                                              Revenue
                                              
                                              
                                              Operating
                                              
                                              
                                              Total
                                              
                                              
                                              Operating
                                              
                                              
                                              Revenue
                                              
                                              
                                              Operating
                                              
                                              
                                              TotalRevenue
                                              
                                              $
                                              3,693,000
                                              
                                              
                                              
                                              
                                              
                                              $
                                              -
                                              
                                              
                                              $
                                              3,693,000
                                              
                                              
                                              $
                                              3,939,000
                                              
                                              
                                              
                                              
                                              
                                              $
                                              -
                                              
                                              
                                              $
                                              3,939,000Cost
      of revenue
                                              
                                              
                                              2,109,000
                                              
                                              
                                              
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              2,109,000
                                              
                                              
                                              
                                              2,277,000
                                              
                                              
                                              
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              2,277,000Gross
      profit
                                              
                                              
                                              1,584,000
                                              
                                              
                                              
                                              43
                                              %
                                              
                                              
                                              -
                                              
                                              
                                              
                                              1,584,000
                                              
                                              
                                              
                                              1,662,000
                                              
                                              
                                              
                                              42
                                              %
                                              
                                              
                                              -
                                              
                                              
                                              
                                              1,662,000Selling,
      general and adminstrative expenses
                                              
                                              
                                              952,000
                                              
                                              
                                              
                                              26
                                              %
                                              
                                              
                                              389,000
                                              
                                              
                                              
                                              1,341,000
                                              
                                              
                                              
                                              1,056,000
                                              
                                              
                                              
                                              27
                                              %
                                              
                                              
                                              403,000
                                              
                                              
                                              
                                              1,459,000Professional
      fees
                                              
                                              
                                              -
                                              
                                              
                                              
                                              0
                                              %
                                              
                                              
                                              549,000
                                              
                                              
                                              
                                              549,000
                                              
                                              
                                              
                                              16,000
                                              
                                              
                                              
                                              0
                                              %
                                              
                                              
                                              276,000
                                              
                                              
                                              
                                              292,000Depreciation
      and amortization
                                              
                                              
                                              1,621,000
                                              
                                              
                                              
                                              44
                                              %
                                              
                                              
                                              281,000
                                              
                                              
                                              
                                              1,902,000
                                              
                                              
                                              
                                              1,510,000
                                              
                                              
                                              
                                              38
                                              %
                                              
                                              
                                              226,000
                                              
                                              
                                              
                                              1,736,000Loss
      from operations
                                              
                                              
                                              (989,000
                                              )
                                              
                                              
                                              -27
                                              %
                                              
                                              
                                              (1,219,000
                                              )
                                              
                                              
                                              (2,208,000
                                              )
                                              
                                              
                                              (920,000
                                              )
                                              
                                              
                                              -23
                                              %
                                              
                                              
                                              (905,000
                                              )
                                              
                                              
                                              (1,825,000
                                              )Interest
      & other income / (expense)Interest
      income
                                              
                                              
                                              2,000
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              2,000
                                              
                                              
                                              
                                              5,000
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              5,000Interest
      expense
                                              
                                              
                                              (1,000
                                              )
                                              
                                              
                                              
                                              
                                              
                                              
                                              (273,000
                                              )
                                              
                                              
                                              (274,000
                                              )
                                              
                                              
                                              -
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              (176,000
                                              )
                                              
                                              
                                              (176,000
                                              )Change
      in fair value of warrant liabilities
                                              
                                              
                                              -
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              64,000
                                              
                                              
                                              
                                              64,000
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              (1,241,000
                                              )
                                              
                                              
                                              (1,241,000
                                              )Gain
      (loss) on sale of securities
                                              
                                              
                                              -
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              1,000
                                              
                                              
                                              
                                              1,000
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              (31,000
                                              )
                                              
                                              
                                              (31,000
                                              )Impairment
      of intangibles
                                              
                                              
                                              -
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              (900,000
                                              )
                                              
                                              
                                              (900,000
                                              )
                                              
                                              
                                              -
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -Impairment
      of equipment
                                              
                                              
                                              (750,000
                                              )
                                              
                                              
                                              
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              (750,000
                                              )
                                              
                                              
                                              -
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -Other
                                              
                                              
                                              -
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              1,000
                                              
                                              
                                              
                                              1,000
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -Loss
      before income taxes and noncontrolling interest
                                              
                                              
                                              (1,738,000
                                              )
                                              
                                              
                                              
                                              
                                              
                                              
                                              (2,326,000
                                              )
                                              
                                              
                                              (4,064,000
                                              )
                                              
                                              
                                              (915,000
                                              )
                                              
                                              
                                              
                                              
                                              
                                              
                                              (2,353,000
                                              )
                                              
                                              
                                              (3,268,000
                                              )Income
      tax benefit
                                              
                                              
                                              -
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              260,000
                                              
                                              
                                              
                                              260,000
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              29,000
                                              
                                              
                                              
                                              29,000Net
      loss, net of tax
                                              
                                              
                                              (1,738,000
                                              )
                                              
                                              
                                              
                                              
                                              
                                              
                                              (2,066,000
                                              )
                                              
                                              
                                              (3,804,000
                                              )
                                              
                                              
                                              (915,000
                                              )
                                              
                                              
                                              
                                              
                                              
                                              
                                              (2,324,000
                                              )
                                              
                                              
                                              (3,239,000
                                              )Plus:
      Net loss attributable to noncontrolling interest
                                              
                                              
                                              1,580,000
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              1,580,000
                                              
                                              
                                              
                                              384,000
                                              
                                              
                                              
                                              
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              384,000Net
      loss attributable to China Broadband shareholders
                                              
                                              $
                                              (158,000
                                              )
                                              
                                              
                                              
                                              
                                              
                                              $
                                              (2,066,000
                                              )
                                              
                                              $
                                              (2,224,000
                                              )
                                              
                                              $
                                              (531,000
                                              )
                                              
                                              
                                              
                                              
                                              
                                              $
                                              (2,324,000
                                              )
                                              
                                              $
                                              (2,855,000
                                              )





Liquidity
and Capital Resources





As of
June 30, 2010 we had cash and cash equivalents of approximately
$1,607,000.  The following sets forth a summary of the Company’s cash flows
for the six months ended June 30, 2010 and 2009:





Six Months EndedJune 30,
                
                
                June 30,2010
                
                
                2009Net
      cash provided by operating activities
                
                $
                256,000
                
                
                $
                166,000Net
      cash used in investing activities
                
                
                (1,566,000
                )
                
                
                (693,000
                )Net
      cash provided by (used in) financing activities
                
                
                732,000
                
                
                
                (2,046,000
                )Effect
      of exchange rate changes on cash
                
                
                (5,000
                )
                
                
                22,000Net
      decrease in cash and cash equivalents
                
                
                (583,000
                )
                
                
                (2,551,000
                )Cash
      and cash equivalents at beginning of period
                
                
                2,190,000
                
                
                
                4,426,000Cash
      and cash equivalents at end of period
                
                
                1,607,000
                
                
                
                1,875,000





Operating
activities


Cash
provided by operating activities for the six months ended June 30, 2010 and 2009
was $256,000 and $166,000, respectively.


24





Investing
activities


Investing
activities for the six months ended June 30, 2010 and 2009 used cash of
$1,566,000 and $693,000, respectively.  For 2010, this amount consisted
primarily of (i) $469,000 for additions to property, (ii) $580,000 loan to
Sinotop Group Ltd for our acquisition (see “Recent Developments” above) and
(iii) $526,000 loan to our Shandong Media shareholders.  For 2009, this
amount consisted primarily of (i) $237,000 for additions to property and
equipment and (ii) $552,000 loan to our Shandong Media
shareholders.




Financing
activities


Financing
activities for the six months ended 2010 and 2009 provided (used) cash of
$732,000 and ($2,046,000), respectively.  For 2010, the amount consisted
primarily of $750,000 from the issuance of a convertible notes payable. 
For 2009, the amount was due to an increase in the payable to Jinan Parent in
the amount of $2,643,000 offset by total proceeds of approximately $605,000 from
the sale of equity securities and the issuance of convertible notes
payable.





As
discussed above, on July 30, 2010, we consummated financings which resulted in
gross proceeds to the Company of $9.625 million.  While we believe
that the proceeds from these financings will sustain our business operations for
the near term, we anticipate that we will need to raise additional funds to
fully implement our business model and related strategies.  In
addition, the fact that we have incurred significant continuing losses during
the first six months of 2010, had a working capital deficit at June 30, 2010,
and have relied on debt and equity financings to fund out operations to date,
could raise substantial doubt about our ability to continue as a going
concern.





Obligations
Under Material Contracts





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





Based on
certain financial performance we were required to make an additional payment of
5 million RMB (approximately US $730,000).  In 2008 we recorded the
additional payment due as an increase to our Shandong noncontrolling interest
account.  We are currently in discussions with Shandong Broadcast & TV
Weekly Press and Modern Movie & TV Biweekly Press with regards to this
payment.





On June
30, 2009, we consummated a note offering pursuant to which we issued
$304,902 principal amount of notes to nine investors.  The notes accrue
interest at 5% per year payable quarterly in cash or stock, were initially
convertible at $.20 per share, and become due and payable in full on May 27,
2010. Simultaneous with the closing of the financings above, and pursuant to (i)
a Waiver and Agreement to Convert, dated May 20, 2010, with the holders of an
aggregate of $4,971,250 in principal amount of notes of the Company, dated
January 11, 2008, and (ii) a Waiver and Agreement to Convert, dated May 20,.
2010, with the holders of an aggregate of $304,902 in principal amount of notes
of the Company, dated June 30, 2009, the holders of such notes agreed to convert
100% of the outstanding principal and interest owing on such notes into an
aggregate of 62,855,048 shares of Common Stock, 4,266,800 shares of Series B
Preferred Stock and warrants for the purchase of an aggregate of 105,523,048
shares of Common Stock, as set forth in the respective waivers.


25





Critical
Accounting Policies and Significant Judgments and Estimates


The
discussion and analysis of our financial condition and results of operation are
based upon our consolidated financial statements, which have been prepared in
accordance with accounting principles generally accepted in the United States of
America.  Note 2 to the consolidated financial statements in our Annual
Report on Form 10-K for the year ended December 31, 2009 includes a summary of
our most significant accounting policies.  There have been no material
changes to the critical accounting policies previously disclosed in our 2009
Annual Report on Form 10-K.  The preparation of these financial statements
requires us to make estimates and judgments that affect the reported amounts of
assets, liabilities, revenues and expenses, and related disclosure of assets and
liabilities.  On an ongoing basis, we evaluate our estimates and judgments,
including those related to revenue recognition, inventories, securities
available for sale, income taxes, stock-based compensation and warrant
liabilities.  Management bases its estimates on historical experience and
on various other factors that are believed to be reasonable under the
circumstances, the results of which form the basis for making judgments about
the carrying values of assets and liabilities that are not readily apparent from
other sources.  Actual results may differ from these estimates under
different assumptions or conditions.  Periodically, we review our critical
accounting estimates with the Audit Committee of our Board of
Directors.





Recent
Accounting Pronouncements


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





Off-Balance
Sheet Arrangements


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





Item
3. Quantitative and Qualitative Disclosures about Market Risk





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





Item
4. Controls and Procedures





a.
Evaluation of Disclosure Controls and Procedures





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





As
required by Rule 13a-15 under the Exchange Act, our management,
including our Principal Executive Officer and Principal Financial Officer,
evaluated the effectiveness of the design and operation of our disclosure
controls and procedures as of June 30, 2010.  Based on that evaluation, our
Principal Executive Officer and Principal Financial Officer concluded that
as of June 30, 2010, and as of the date that the evaluation of the effectiveness
of our disclosure controls and procedures was completed, our disclosure controls
and procedures were not effective to satisfy the objectives for which they are
intended.  Until recently, we have not had the resources to
effectively monitor new accounting pronouncements, which has resulted in a
material weakness in our internal controls and procedures. As a
result of this weakness, we have restated our financial statements for the three
months ended March 30, 2009 the three and six months ended June 30, 2009 and the
three and nine months ended September 30, 2009.Although the material
weaknesses existed at June 30, 2010, we have hired outside consultants to cure
this weakness and help improve our internal controls.





b.
Changes in Internal Control over Financial Reporting





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


26





PART
II - OTHER INFORMATION




Item
1. Legal Proceedings.





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





Item
1A. Risk Factors




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





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





None.





Item
3. Defaults Upon Senior Securities.




None.





Item
4. Removed and Reserved




Item
5. Other Information.




None.





Item 6. Exhibits.




EXHIBIT
INDEX




Exhibit
      No.
              
              Description3.1
              
              Amended
      and Restated Bylaws of the Company3.2
              
              Certificate
      of Designations of Preferences, Rights and Limitations of Series A
      Preferred Stock3.3
              
              Certificate
      of Designations of Preferences, Rights and Limitations of Series B
      Preferred Stock4.1
              
              Form
      of Warrant issued pursuant to the Securities Purchase Agreement dated May
      20, 20104.2
              
              Form
      of Warrant issued pursuant to the Series A Securities Purchase Agreement
      dated May 20, 2010, as amended on July 30, 2010.4.3
              
              Form
      of Warrant issued pursuant to the Series B Securities Purchase Agreement
      dated May 20, 2010.4.4
              
              Form
      of Registration Rights Agreement dated July 30, 2010 pursuant to the
      Securities Purchase Agreement dated May 20, 2010.4.5
              
              Registration
      Rights Agreement dated July 30, 2010 between the Company and Shane
      McMahon.4.6
              
              Registration
      Rights Agreement dated July 30, 2010 pursuant to the Series B Securities
      Purchase Agreement dated May 20, 2010.10.1
              
              Form
      of Securities Purchase Agreement dated May 20, 201010.2
              
              Form
      of Series A Securities Purchase Agreement, dated May 20,
    201010.3.
              
              Form
      of Series B Securities Purchase Agreement dated May 20,
    2010.10.4
              
              Form
      of Waiver and Agreement to Convert, dated May 20, 201010.5
              
              Form
      of Waiver and Agreement to Convert, dated May 20, 201010.6
              
              Loan
      Cancellation Agreement, dated May 20, 2010, between the Company and Steven
      Oliveira10.7
              
              Loan
      Cancellation and Note Assignment Agreement, dated June 24, 2010, between
      the Company and Chardan SPAC Asset Management LLC10.8
              
              First
      Amendment to Series A Securities Purchase Agreement, dated July 30,
      201010.9
              
              Employment
      Agreement, dated July 30, 2010 between the Company and Shane
      McMahon10.10
              
              Employment
      Agreement, dated July 30, 2010 between the Company and Weicheng
      Liu10.11
              
              Employment
      Agreement, dated July 30, 2010 between the Company and Marc
      Urbach10.12
              
              Employment
      Agreement, dated July 30, 2010 between the Company and Clive
      Ng10.13
              
              Ordinary
      Share Purchase Agreement, dated July 30, 2010, among the Company, China
      Broadband Ltd. and Weicheng Liu31.1
              
              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.


27


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
      and Principal Financial
      Officer)


28


Exhibit
Index





Exhibit
      No.
              
              Description3.1
              
              Amended
      and Restated Bylaws of the Company3.2
              
              Certificate
      of Designations of Preferences, Rights and Limitations of Series A
      Preferred Stock3.3
              
              Certificate
      of Designations of Preferences, Rights and Limitations of Series B
      Preferred Stock4.1
              
              Form
      of Warrant issued pursuant to the Securities Purchase Agreement dated May
      20, 20104.2
              
              Form
      of Warrant issued pursuant to the Series A Securities Purchase Agreement
      dated May 20, 2010, as amended on July 30, 2010.4.3
              
              Form
      of Warrant issued pursuant to the Series B Securities Purchase Agreement
      dated May 20, 2010.4.4
              
              Form
      of Registration Rights Agreement dated July 30, 2010 pursuant to the
      Securities Purchase Agreement dated May 20, 2010.4.5
              
              Registration
      Rights Agreement dated July 30, 2010 between the Company and Shane
      McMahon.4.6
              
              Registration
      Rights Agreement dated July 30, 2010 pursuant to the Series B Securities
      Purchase Agreement dated May 20, 2010.10.1
              
              Form
      of Securities Purchase Agreement dated May 20, 201010.2
              
              Form
      of Series A Securities Purchase Agreement, dated May 20,
    201010.3.
              
              Form
      of Series B Securities Purchase Agreement dated May 20,
    2010.10.4
              
              Form
      of Waiver and Agreement to Convert, dated May 20, 201010.5
              
              Form
      of Waiver and Agreement to Convert, dated May 20, 201010.6
              
              Loan
      Cancellation Agreement, dated May 20, 2010, between the Company and Steven
      Oliveira10.7
              
              Loan
      Cancellation and Note Assignment Agreement, dated June 24, 2010, between
      the Company and Chardan SPAC Asset Management LLC10.8
              
              First
      Amendment to Series A Securities Purchase Agreement, dated July 30,
      201010.9
              
              Employment
      Agreement, dated July 30, 2010 between the Company and Shane
      McMahon10.10
              
              Employment
      Agreement, dated July 30, 2010 between the Company and Weicheng
      Liu10.11
              
              Employment
      Agreement, dated July 30, 2010 between the Company and Marc
      Urbach10.12
              
              Employment
      Agreement, dated July 30, 2010 between the Company and Clive
      Ng10.13
              
              Ordinary
      Share Purchase Agreement, dated July 30, 2010, among the Company, China
      Broadband Ltd. and Weicheng Liu31.1
              
              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.




29