UNITED STATES


SECURITIES AND EXCHANGE
COMMISSION


Washington,
D.C. 20549




FORM 10-Q/A




x
            QUARTERLY
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
      OF 1934For
      the quarterly period ended June 30, 2009 ̈
            TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
      OF 1934For
      the transition period from __________ to
  __________





Commission
File Number: 000-19644










China Broadband, Inc.


(Exact
name of registrant as specified in its charter)





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





1900
Ninth Street, 3rd Floor


Boulder,
Colorado 80302


(Address
of principal executive offices)





(303)
449-7733


(Registrant's
telephone number, including area code)





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





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




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





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




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





Indicate
the number of shares outstanding of each of the issuer's classes of common
stock, as of the latest practicable date: 64,101,059 shares as of August 14,
2009.





Explanatory
Note





China
Broadband, Inc. (the “Company”) is filing this Amendment No. 1 to its Quarterly
Report on Form 10-Q for the quarter ended June 30, 2009, which was originally
filed with the Securities and Exchange Commission (the “Commission”) on August
19, 2009 (the “Original Filing”).





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





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





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





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





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





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





For the
convenience of the reader, this Form 10-Q/A sets forth the entire filing which
was prepared and relates to the Company as of and for the quarter ended June 30,
2009.  Accordingly, except for the foregoing amended information, this Form
10-Q/A continues to speak as of the date of the Original Filing and does not
reflect events occurring after the Original Filing, and does not modify or
update those disclosures affected by subsequent events.  Forward looking
statements made in the Original Filing have not been revised to reflect events,
results or developments that have become known to us after the date of the
Original Filing (other than the current restatements described above), and such
forward looking statements should be read in their historical context. 
Unless otherwise stated, the information in this Form 10-Q/A not affect by such
current restatements is unchanged and reflects the disclosures made at the time
of the Original Filing.  Accordingly, in conjunction with reading this
amendment to the Original Filing, you should also read all other filings we have
made with the Securities and Exchange Commission since August 19,
2009.




2





QUARTERLY
REPORT ON FORM 10-Q/A


OF
CHINA BROADBAND, INC.


FOR
THE PERIOD ENDED JUNE 30, 2009





TABLE
OF CONTENTS




PART I
      -
                FINANCIAL
      INFORMATION
                4Item
      1.
                Financial
      Statements
                4Item
      2.
                Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
                15Item
      3
                Quantitative
      and Qualitative Disclosures About Market Risk
                27Item
      4.
                Controls
      and Procedures
                27PART II
      -
                OTHER
      INFORMATION
                29Item
      1.
                Legal
      Proceedings
                29Item
      1A.
                Risk
      Factors
                29Item
      2.
                Unregistered
      Sales of Equity Securities and Use of Proceeds
                29Item
      3.
                Defaults
      Upon Senior Securities
                29Item
      4.
                Submission
      of Matters to a Vote of Security Holders
                29Item
      5.
                Other
      Information
                29Item
      6.
                Exhibits
                29Signatures
                
                30





Cautionary
Note Regarding Forward Looking Statements





This
Form 10-Q/A contains “forward-looking” statements that involve risks and
uncertainties. You can identify these statements by the use of forward-looking
words such as "may", "will", "expect", "anticipate", "estimate", "believe",
"continue", or other similar words. You should read statements that contain
these words carefully because they discuss our future expectations, contain
projections of our future results of operations or financial condition or state
other "forward-looking" information. We believe that it is important to
communicate our future expectations to our investors. However, these
forward-looking statements are not guarantees of future performance and actual
results may differ materially from the expectations that are expressed, implied
or forecasted in any such forward-looking statements. There may be events in the
future that we are unable to accurately predict or control, including weather
conditions and other natural disasters which may affect demand for our products,
and the product–development and marketing efforts of our competitors. Examples
of these events are more fully described in the Company’s Annual Report on Form
10-K/A for the year ended December 31, 2008 under Part I. Item 1A. Risk
Factors.





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





References





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





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




3


PART I — FINANCIAL INFORMATION




Item
1. Financial Statements.





China
Broadband, Inc. and Subsidiaries


CONSOLIDATED
BALANCE SHEETS





June
      30,
                    
                    
                    December
      31,2009
                    
                    
                    2008(Unaudited)(Restated)ASSETSCurrent
      assets:Cash
      and cash equivalents
                    
                    $
                    1,874,820
                    
                    
                    $
                    4,425,529Marketable
      equity securities
                    
                    
                    108,873
                    
                    
                    
                    254,496Accounts
      receivable
                    
                    
                    234,787
                    
                    
                    
                    136,709Inventory
                    
                    
                    788,336
                    
                    
                    
                    877,309Prepaid
      expense
                    
                    
                    70,520
                    
                    
                    
                    46,380Loan
      receivable
                    
                    
                    280,033
                    
                    
                    
                    -Amounts
      due from shareholders
                    
                    
                    634,687
                    
                    
                    
                    -Other
      current assets
                    
                    
                    123,185
                    
                    
                    
                    153,277Total
      current assets
                    
                    
                    4,115,241
                    
                    
                    
                    5,893,700Property
      and equipment, net
                    
                    
                    8,245,770
                    
                    
                    
                    9,299,473Intangible
      assets, net
                    
                    
                    4,516,028
                    
                    
                    
                    4,218,758Goodwill
                    
                    
                    1,239,291
                    
                    
                    
                    -Other
      assets
                    
                    
                    477,888
                    
                    
                    
                    692,911Total
      assets
                    
                    $
                    18,594,218
                    
                    
                    $
                    20,104,842LIABILITIES AND SHAREHOLDERS'
      EQUITYCurrent
      liabilities:Accounts
      payable
                    
                    $
                    1,090,002
                    
                    
                    $
                    1,237,251Accrued
      expenses
                    
                    
                    1,389,185
                    
                    
                    
                    936,134Deferred
      revenue
                    
                    
                    1,424,869
                    
                    
                    
                    1,382,103Convertible
      notes payable
                    
                    
                    304,853
                    
                    
                    
                    -Loan
      payable
                    
                    
                    398,517
                    
                    
                    
                    -Payable
      to Shandong Media
                    
                    
                    145,679
                    
                    
                    
                    145,679Payable
      to Jinan Parent
                    
                    
                    152,099
                    
                    
                    
                    2,795,472Warrant
      liabilities
                    
                    
                    1,547,910
                    
                    
                    
                    -Other
      current liabilities
                    
                    
                    90,650
                    
                    
                    
                    72,013Total
      current liabilities
                    
                    
                    6,543,764
                    
                    
                    
                    6,568,652Convertible
      notes payable
                    
                    
                    4,614,452
                    
                    
                    
                    4,564,427Deferred
      tax liability
                    
                    
                    950,499
                    
                    
                    
                    790,617Total
      liabilities
                    
                    
                    12,108,715
                    
                    
                    
                    11,923,696Commitments
      and ContingenciesShareholders'
      equityPreferred
      stock, $.001 par value; 5,000,000 shares authorized, no shares issued and
      outstanding
                    
                    
                    -
                    
                    
                    
                    -Common
      stock, $.001 par value; 95,000,000 shares authorized, 64,101,056 and
      50,585,455 issued and outstanding
                    
                    
                    64,102
                    
                    
                    
                    50,586Additional
      paid-in capital
                    
                    
                    14,768,049
                    
                    
                    
                    13,372,358Accumulated
      deficit
                    
                    
                    (14,630,874
                    )
                    
                    
                    (12,200,287
                    )Accumulated
      other comprehensive income
                    
                    
                    306,289
                    
                    
                    
                    320,858Total
      China Broadband shareholders' equity
                    
                    
                    507,566
                    
                    
                    
                    1,543,515Noncontrolling
      interests
                    
                    
                    5,977,937
                    
                    
                    
                    6,637,631Total
      shareholders' equity
                    
                    
                    6,485,503
                    
                    
                    
                    8,181,146Total
      liabilities and shareholders' equity
                    
                    $
                    18,594,218
                    
                    
                    $
                    20,104,842





See
notes to consolidated financial statements.


4





China
Broadband, Inc. and Subsidiaries


CONSOLIDATED
STATEMENTS OF OPERATIONS


(Unaudited)





Three Months Ended
                  
                  
                  Six Months EndedJune
      30,
                  
                  
                  June
      30,
                  
                  
                  June
      30,
                  
                  
                  June
      30,2009
                  
                  
                  2008
                  
                  
                  2009
                  
                  
                  2008(Restated)
                  
                  
                  
                  
                  
                  (Restated)Revenue
                  
                  $
                  1,989,517
                  
                  
                  $
                  1,053,367
                  
                  
                  $
                  3,938,927
                  
                  
                  $
                  2,056,633Cost
      of revenue
                  
                  
                  1,102,915
                  
                  
                  
                  543,857
                  
                  
                  
                  2,276,796
                  
                  
                  
                  896,055Gross
      profit
                  
                  
                  886,602
                  
                  
                  
                  509,510
                  
                  
                  
                  1,662,131
                  
                  
                  
                  1,160,578Selling,
      general and adminstrative expenses
                  
                  
                  740,878
                  
                  
                  
                  310,808
                  
                  
                  
                  1,458,806
                  
                  
                  
                  811,914Professional
      fees
                  
                  
                  181,901
                  
                  
                  
                  168,163
                  
                  
                  
                  292,397
                  
                  
                  
                  305,416Depreciation
      and amortization
                  
                  
                  904,824
                  
                  
                  
                  694,075
                  
                  
                  
                  1,736,131
                  
                  
                  
                  1,441,530Loss
      from operations
                  
                  
                  (941,001
                  )
                  
                  
                  (663,536
                  )
                  
                  
                  (1,825,203
                  )
                  
                  
                  (1,398,282
                  )Interest
      & other income / (expense)Settlement
      gain
                  
                  
                  -
                  
                  
                  
                  1,300,692
                  
                  
                  
                  -
                  
                  
                  
                  1,300,692Interest
      income
                  
                  
                  1,926
                  
                  
                  
                  3,535
                  
                  
                  
                  5,384
                  
                  
                  
                  19,126Interest
      expense
                  
                  
                  (89,664
                  )
                  
                  
                  (88,901
                  )
                  
                  
                  (177,048
                  )
                  
                  
                  (167,443
                  )Change
      in fair value of warrant liabilities
                  
                  
                  (626,978
                  )
                  
                  
                  -
                  
                  
                  
                  (1,240,787
                  )
                  
                  
                  -Gain
      (loss) on sale of securities
                  
                  
                  (10,283
                  )
                  
                  
                  17,498
                  
                  
                  
                  (30,635
                  )
                  
                  
                  17,498Other
                  
                  
                  53
                  
                  
                  
                  389
                  
                  
                  
                  (275
                  )
                  
                  
                  (13,128
                  )Net
      income (loss) before income taxes and noncontrolling
    interest
                  
                  
                  (1,665,947
                  )
                  
                  
                  569,677
                  
                  
                  
                  (3,268,564
                  )
                  
                  
                  (241,537
                  )Income
      tax benefit
                  
                  
                  14,680
                  
                  
                  
                  6,433
                  
                  
                  
                  29,360
                  
                  
                  
                  12,866Net
      income (loss), net of tax
                  
                  
                  (1,651,267
                  )
                  
                  
                  576,110
                  
                  
                  
                  (3,239,204
                  )
                  
                  
                  (228,671
                  )Plus:  Net
      loss attributable to noncontrolling interests
                  
                  
                  138,657
                  
                  
                  
                  119,476
                  
                  
                  
                  384,246
                  
                  
                  
                  287,538Net
      income (loss) attributable to China Broadband shareholders
                  
                  $
                  (1,512,610
                  )
                  
                  $
                  695,586
                  
                  
                  $
                  (2,854,958
                  )
                  
                  $
                  58,867Net
      income (loss) per shareBasic
                  
                  $
                  (0.02
                  )
                  
                  $
                  0.01
                  
                  
                  $
                  (0.05
                  )
                  
                  $
                  0.00Diluted
                  
                  $
                  (0.02
                  )
                  
                  $
                  0.01
                  
                  
                  $
                  (0.05
                  )
                  
                  $
                  0.00Weighted
      average shares outstandingBasic
                  
                  
                  62,621,651
                  
                  
                  
                  50,297,145
                  
                  
                  
                  56,290,826
                  
                  
                  
                  50,185,120Diluted
                  
                  
                  62,621,651
                  
                  
                  
                  60,635,811
                  
                  
                  
                  56,290,826
                  
                  
                  
                  63,114,715





See
notes to consolidated financial statements.


5





China
Broadband, Inc. and Subsidiaries


CONSOLIDATED
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY AND COMPREHENSIVE LOSS


for
the Periods Ended June 30, 2009 (Unaudited) (Restated) and December 31,
2008





Accumulated
                                
                                
                                ChinaAdditional
                                
                                
                                
                                
                                
                                Other
                                
                                
                                BroadbandCommon
                                
                                
                                Par
                                
                                
                                Paid-in
                                
                                
                                Accumulated
                                
                                
                                Comprehensive
                                
                                
                                Shareholders'
                                
                                
                                Noncontrolling
                                
                                
                                Total
                                
                                
                                ComprehensiveShares
                                
                                
                                Value
                                
                                
                                Capital
                                
                                
                                Deficit
                                
                                
                                Income
      (loss)
                                
                                
                                (Deficit)/Equity
                                
                                
                                Interest
                                
                                
                                Equity
                                
                                
                                LossBalance
      December 31, 2007
                                
                                
                                50,048,000
                                
                                
                                $
                                50,048
                                
                                
                                $
                                10,485,874
                                
                                
                                $
                                (8,845,424
                                )
                                
                                $
                                331,768
                                
                                
                                $
                                2,022,266
                                
                                
                                $
                                4,879,802
                                
                                
                                $
                                6,902,068Warrant
      valuation associated with convertible notes payable &
      other
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                745,694
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                745,694
                                
                                
                                
                                -
                                
                                
                                
                                745,694Option
      valuation associated with employment agreeement
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                44,898
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                44,898
                                
                                
                                
                                -
                                
                                
                                
                                44,898Shares
      issued for penalty of non-registration
                                
                                
                                207,599
                                
                                
                                
                                208
                                
                                
                                
                                421,970
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                422,178
                                
                                
                                
                                -
                                
                                
                                
                                422,178Warrant
      valuation associated with extension from settlement
    agreement
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                1,426,862
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                1,426,862
                                
                                
                                
                                -
                                
                                
                                
                                1,426,862Shares
      issued as payment for convertible note interest
                                
                                
                                329,856
                                
                                
                                
                                330
                                
                                
                                
                                247,061
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                247,391
                                
                                
                                
                                -
                                
                                
                                
                                247,391Shandong
      Media joint venture
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                2,367,459
                                
                                
                                
                                2,367,459Comprehensive
      loss:Net
      loss
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                (3,354,865
                                )
                                
                                
                                -
                                
                                
                                
                                (3,354,865
                                )
                                
                                
                                (609,630
                                )
                                
                                
                                (3,964,495
                                )Foreign
      currency translation adjustments
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                (10,906
                                )
                                
                                
                                (10,906
                                )
                                
                                
                                -
                                
                                
                                
                                (10,906
                                )Balance
      December 31, 2008
                                
                                
                                50,585,455
                                
                                
                                $
                                50,586
                                
                                
                                $
                                13,372,359
                                
                                
                                $
                                (12,200,289
                                )
                                
                                $
                                320,862
                                
                                
                                $
                                1,543,518
                                
                                
                                $
                                6,637,631
                                
                                
                                $
                                8,181,149Cumulative
      effect of accounting change for warrants - reclassification of warrants to
      warrant liabilities
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                (731,496
                                )
                                
                                
                                424,373
                                
                                
                                
                                -
                                
                                
                                
                                (307,123
                                )
                                
                                
                                -
                                
                                
                                
                                (307,123
                                )Shandong
      Media valuation adjustment
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                (275,448
                                )
                                
                                
                                (275,448
                                )Shares
      issued as payment for convertible note interest
                                
                                
                                260,703
                                
                                
                                
                                261
                                
                                
                                
                                126,193
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                126,454
                                
                                
                                
                                -
                                
                                
                                
                                126,454Stock
      option compensation expense
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                33,656
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                33,656
                                
                                
                                
                                -
                                
                                
                                
                                33,656Shares
      issued for AdNet acquisition
                                
                                
                                11,254,898
                                
                                
                                
                                11,255
                                
                                
                                
                                1,676,980
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                1,688,235
                                
                                
                                
                                -
                                
                                
                                
                                1,688,235Costs
      related to stock issued for AdNet acquisition
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                (3,622
                                )
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                (3,622
                                )
                                
                                
                                
                                
                                
                                
                                (3,622
                                )Shares
      issued for cash
                                
                                
                                2,000,000
                                
                                
                                
                                2,000
                                
                                
                                
                                298,000
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                300,000
                                
                                
                                
                                -
                                
                                
                                
                                300,000Costs
      related to stock issued for cash
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                (4,021
                                )
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                (4,021
                                )
                                
                                
                                -
                                
                                
                                
                                (4,021
                                )Comprehensive
      loss:Net
      loss
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                (2,854,958
                                )
                                
                                
                                -
                                
                                
                                
                                (2,854,958
                                )
                                
                                
                                (384,246
                                )
                                
                                
                                (3,239,204
                                )
                                
                                $
                                (2,854,958
                                )Foreign
      currency translation adjustments
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                21,720
                                
                                
                                
                                21,720
                                
                                
                                
                                -
                                
                                
                                
                                21,720
                                
                                
                                
                                21,720Unrealized
      loss on marketable equity securities
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                (36,293
                                )
                                
                                
                                (36,293
                                )
                                
                                
                                -
                                
                                
                                
                                (36,293
                                )
                                
                                
                                (36,293
                                )Balance
      June 30, 2009
                                
                                
                                64,101,056
                                
                                
                                $
                                64,102
                                
                                
                                $
                                14,768,049
                                
                                
                                $
                                (14,630,874
                                )
                                
                                $
                                306,289
                                
                                
                                $
                                507,566
                                
                                
                                $
                                5,977,937
                                
                                
                                $
                                6,485,503
                                
                                
                                $
                                (2,869,531
                                )





See
notes to consolidated financial statements.


6





China
Broadband, Inc. and Subsidiaries


CONSOLIDATED
STATEMENTS OF CASH FLOWS


(Unaudited)





Six Months EndedJune
      30,
                          
                          
                          June
      30,2009
                          
                          
                          2008(Restated)Cash
      flows from operatingNet
      loss
                          
                          $
                          (3,239,204
                          )
                          
                          $
                          (228,671
                          )Adjustments
      to reconcile net loss to net cash provided by operating
      activitiesStock
      compensation expense
                          
                          
                          160,111
                          
                          
                          
                          91,250Depreciation
      and amortization
                          
                          
                          1,528,029
                          
                          
                          
                          1,441,530Noncash
      interest expense
                          
                          
                          50,025
                          
                          
                          
                          47,261Deferred
      income tax
                          
                          
                          (29,360
                          )
                          
                          
                          (12,866
                          )Gain
      (loss) on sale of marketable equity securities
                          
                          
                          30,626
                          
                          
                          
                          (17,498
                          )Change
      in fair value of warrant liabilities
                          
                          
                          1,240,787
                          
                          
                          
                          -Gain
      on settlement agreement
                          
                          
                          -
                          
                          
                          
                          (1,300,692
                          )Change
      in assets and liabilities, net of amounts assumed in AdNet
      acquisition,Accounts
      receivable
                          
                          
                          (98,078
                          )
                          
                          
                          54,285Inventory
                          
                          
                          88,973
                          
                          
                          
                          (106,300
                          )Prepaid
      expenses and other assets
                          
                          
                          (69,244
                          )
                          
                          
                          (11,408
                          )Accounts
      payable and accrued expenses
                          
                          
                          460,686
                          
                          
                          
                          321,370Deferred
      revenue
                          
                          
                          42,766
                          
                          
                          
                          110,610Other
                          
                          
                          (2
                          )
                          
                          
                          (747
                          )Net
      cash provided by operating activities
                          
                          
                          166,115
                          
                          
                          
                          388,124Cash
      flows from investing activities:Investment
      in Shandong Newspaper
                          
                          
                          -
                          
                          
                          
                          (1,449,248
                          )Cash
      acquired in AdNet acquisition
                          
                          
                          17,568
                          
                          
                          
                          -Proceeds
      from sale of marketable equity securities
                          
                          
                          78,706
                          
                          
                          
                          339,998Acquisition
      of property and equipment
                          
                          
                          (236,515
                          )
                          
                          
                          (1,115,686
                          )Loans
      to Shandong Media shareholders
                          
                          
                          (552,140
                          )
                          
                          
                          -Net
      cash used in investing activities
                          
                          
                          (692,381
                          )
                          
                          
                          (2,224,936
                          )Cash
      flows from financing activitiesProceeds
      from sale of equity securities
                          
                          
                          300,000
                          
                          
                          
                          -Proceeds
      from issuance of convertible notes payable
                          
                          
                          304,853
                          
                          
                          
                          4,850,000Legal
      fees associated with AdNet acquisition and share issuance
                          
                          
                          (7,643
                          )
                          
                          
                          -Issuance
      costs associated with private placement and convertible
    notes
                          
                          
                          -
                          
                          
                          
                          (104,500
                          )Payable
      to Jinan Parent
                          
                          
                          (2,643,373
                          )
                          
                          
                          231,864Net
      cash (used in) provided by financing activities
                          
                          
                          (2,046,163
                          )
                          
                          
                          4,977,364Effect
      of exchange rate changes on cash
                          
                          
                          21,720
                          
                          
                          
                          448,260Net
      increase (decrease) in cash and cash equivalents
                          
                          
                          (2,550,709
                          )
                          
                          
                          3,588,812Cash
      and cash equivalents at beginning of period
                          
                          
                          4,425,529
                          
                          
                          
                          472,670Cash
      and cash equivalents at end of period
                          
                          $
                          1,874,820
                          
                          
                          $
                          4,061,482Supplemental Cash Flow
      Information:Cash
      paid for taxes
                          
                          $
                          -
                          
                          
                          $
                          -Cash
      paid for interest
                          
                          $
                          552
                          
                          
                          $
                          375Value
      assigned to shares as payment for interest expense
                          
                          $
                          126,455
                          
                          
                          $
                          119,806Shandong
      Media valuation adjustment
                          
                          $
                          275,448
                          
                          
                          $
                          -Convertible
      notes issued as payment for debt issuance costs
                          
                          $
                          -
                          
                          
                          $
                          121,250Value
      assigned to shares issued as penalty for non-registration of 7%
      convertible notes
                          
                          $
                          -
                          
                          
                          $
                          12,125Cumulative
      effect of change in accounting principle upon adoption of new accounting
      pronouncement on January 1, 2009, reclassification of warrants from equity
      to warrant liabilities
                          
                          $
                          424,373
                          
                          
                          $
                          -





See
notes to consolidated financial statements.




7


NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS





1.
            Basis of
      Presentation





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





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





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





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





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





The
financial statements of the Company were filed with the Securities and Exchange
Commission on August 19, 2009. We have evaluated subsequent events up to the
time of the filing.





2.
            Restatement





The
accompanying financial statements for the three months and six months ended June
30, 2009 have been restated as described below:





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





Additional
                    
                    
                    Accumulated
                    
                    
                    WarrantPaid-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.





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 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.


8


3.
            Accounting
      Policy Changes





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





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





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





4.
            Going Concern and Management’s
      Plans





The
unaudited consolidated financial statements have been prepared assuming that the
Company will continue as a going concern and, accordingly, do not include any
adjustments that might result from the outcome of this uncertainty. The
Company's independent registered public accounting firm's report of the
financial statements included for the year ended December 31, 2008, contained an
explanatory paragraph regarding the Company's ability to continue as a going
concern.




During
2009,  the Company completed (i) a private financing of 5% Convertible
Promissory Notes for gross proceeds of $304,902 and (ii) a private financing of
2,000,000 shares of restricted Common Stock, par value $.001 of the Company (the
“Common Stock”), at a purchase price of $.15 per share, for aggregate gross
proceeds of $300,000.  See financial statement note 4 below for a
description of the transactions.





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





5.
            Acquisition
      of AdNet





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





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





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





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





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




9


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





AdNet
holds an Internet Content Provider (“ICP”) license and is in the business of
providing delivery of multimedia advertising content to internet cafés in
China.  AdNet currently services over 24,000 cafés and currently operates
and is licensed to operate in 28 provinces in the PRC. AdNet maintains servers
in five data centers located in the Chinese cities of Wuhan, Wenzhou, Yantai,
Yunan, with a master distribution server in Tongshan.  Partnering with a
local advertisement agency, AdNet provides a network for tens of thousands of
daily video advertisement insertions to entertainment content traffic (movies,
music, video, and games).





6.
            Variable
      Interest Entities





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





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




7.
            Fair
      Value Measurements





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





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


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


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





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





The
following tables present the fair value hierarchy for those assets and
liabilities measured at fair value on a recurring basis as of June 30, 2009 and
December 31, 2008:





June
      30, 2009Fair
      Value MeasurementsLevel
      1
                      
                      
                      Level
      2
                      
                      
                      Level
      3
                      
                      
                      Total
      Fair ValueAssetsAvailable-for-sale
      securities
                      
                      $
                      108,873
                      
                      
                      $
                      -
                      
                      
                      $
                      -
                      
                      
                      $
                      108,873LiabilitiesFair
      value of warrants
                      
                      $
                      -
                      
                      
                      $
                      -
                      
                      
                      $
                      1,547,910
                      
                      
                      $
                      1,547,910





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





8.
            Related
      Party Transactions





Loan
Receivable





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





Amounts
due from Shareholders





Amounts
due from shareholders include $91,000 advanced to Shandong Broadcast & TV
Weekly Press and $544,000 advanced to Modern Movie & TV Biweekly Press in
2008. Both companies are our partners in our Shandong Media joint venture
company.  The amount due from Shandong Broadcast & TV Weekly Press is
unsecured, interest free and has no fixed repayment terms.  The amount due
from Modern Movie & TV Biweekly Press is unsecured, interest free and is due
on December 31, 2009.  During the period ended June 30, 2009, the Company
advanced approximately $552,000 to the shareholders.




10


Payable
to Jinan Parent





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




9.
            Goodwill
      and Other Intangible Assets




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




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




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




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




Balance
      at
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  Balance
      atDecember
      31,
                  
                  
                  
                  
                  
                  
                  
                  
                  Other
                  
                  
                  June
      30,2008
                  
                  
                  Additions
                  
                  
                  Amortization
                  
                  
                  Changes
                  
                  
                  2009Amortized
      intangible assets:Service
      agreement
                  
                  $
                  1,570,482
                  
                  
                  $
                  -
                  
                  
                  $
                  (43,360
                  )
                  
                  $
                  -
                  
                  
                  $
                  1,527,122Publication
      rights
                  
                  
                  968,977
                  
                  
                  
                  -
                  
                  
                  
                  (24,846
                  )
                  
                  
                  (101,915
                  )
                  
                  
                  842,216Customer
      relationships
                  
                  
                  228,933
                  
                  
                  
                  -
                  
                  
                  
                  (12,050
                  )
                  
                  
                  (24,712
                  )
                  
                  
                  192,171Operating
      permits
                  
                  
                  1,450,366
                  
                  
                  
                  -
                  
                  
                  
                  (37,188
                  )
                  
                  
                  (152,547
                  )
                  
                  
                  1,260,631Software
      technology
                  
                  
                  -
                  
                  
                  
                  756,969
                  
                  
                  
                  (63,081
                  )
                  
                  
                  -
                  
                  
                  
                  693,888Total
      amortized intangible assets
                  
                  $
                  4,218,758
                  
                  
                  $
                  756,969
                  
                  
                  $
                  (180,525
                  )
                  
                  $
                  (279,174
                  )
                  
                  $
                  4,516,028Unamortized
      intangible assets:Goodwill
                  
                  $
                  -
                  
                  
                  $
                  1,239,291
                  
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  1,239,291




In
accordance with ASC 250, we recorded amortization expense related to our
intangible assets of $180,525 and $51,462 for the six months ended June 30, 2009
and 2008, respectively.




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




Jinan
                      
                      
                      Shandong
                      
                      
                      AdNetBroadband
                      
                      
                      Media
                      
                      
                      Media
                      
                      
                      Total2009
      (six months)
                      
                      $
                      43,360
                      
                      
                      $
                      66,467
                      
                      
                      $
                      126,161
                      
                      
                      $
                      235,9882010
                      
                      
                      86,720
                      
                      
                      
                      132,934
                      
                      
                      
                      252,323
                      
                      
                      
                      471,9772011
                      
                      
                      86,720
                      
                      
                      
                      132,934
                      
                      
                      
                      252,323
                      
                      
                      
                      471,9772012
                      
                      
                      86,720
                      
                      
                      
                      132,934
                      
                      
                      
                      63,081
                      
                      
                      
                      282,7352013
                      
                      
                      86,720
                      
                      
                      
                      132,934
                      
                      
                      
                      -
                      
                      
                      
                      219,654Thereafter
                      
                      
                      1,136,882
                      
                      
                      
                      1,696,815
                      
                      
                      
                      -
                      
                      
                      
                      2,833,697Total
      amortization to be recognized
                      
                      $
                      1,527,122
                      
                      
                      $
                      2,295,018
                      
                      
                      $
                      693,888
                      
                      
                      $
                      4,516,028





10.
            Private
      Financings, June 2009





Issuance of Convertible Notes, June
2009





During
the six months ended June 30, 2009, the Company completed a private financing of
5% Convertible Promissory Notes (the “Notes) for gross proceeds of $304,902 (the
“Note Offering”).  The Note Offering was pursuant to a Note Purchase
Agreement (the “Note Purchase Agreement”) with nine persons who were existing
holders (the “Note Investors”) of Convertible Promissory Notes issued in January
of 2008 (the “January 2008 Notes”), pursuant to which the Company issued
$304,902 principal amount of Notes to the Note Investors at face value. 
The Notes accrue interest at 5% per year payable quarterly in cash or stock, are
initially convertible at $.20 per share, and become due and payable in full on
May 27, 2010.  The Company did not pay any placement agent or similar fees
in connection with the Note Offering.





Waiver
Letters





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





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




11


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





Equity Financing; Issuance of Common
Stock





During
the six months ended June 30, 2009 and pursuant to a Securities Purchase
Agreement with three investors, the Company completed a private financing of
2,000,000 shares of restricted Common Stock, par value $.001 of the Company (the
“Common Stock”), at a purchase price of $.15 per share, for aggregate gross
proceeds of $300,000 (the “Equity Financing”).  The company did not pay any
placement agent or similar fees in connection with such financing.  As
indicated above, the Existing Note Holders waived, in part, anti dilution rights
with respect to this Equity Financing.





11.
            Convertible Notes, January
      2008





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





As
described in Note 9 above, in connection with the Note Offering and Equity
Financing, the Company entered into a waiver letter with all the holders of
January 2008 Notes (“Existing Note Holders”) pursuant to which, among other
things, the conversion price of the January 2008 Notes were reduced from $.75
per share down to (i) $.20 per share (i.e. the same conversion price as the
Notes in the Note Offering) for the Existing Note Holders that invested in the
Notes (i.e. the Note Investors), and (ii) $.25 per share for those Existing Note
Holders that did not reinvest in the new notes.





12.
            Settlement
      Agreement





On
January 11, 2008, simultaneously with the closing of the Convertible Notes
described above in Note 5, the Company entered into a Settlement Agreement
(“Settlement Agreement”) which was negotiated by the Company, its advisors and
management and certain shareholders, for purposes of facilitating the Company’s
business plan and expediting and facilitating the Company’s financing activities
and avoiding disputes between management and certain investors and consultants
concerning possible claims that such investors suggested might be brought
against these principals for their activities in forming and operating China
Cablecom and its entry into a merger with a subsidiary of Jaguar as being
violative of their employment agreements with the Company.  The Settlement
Agreement provided, subject to the terms thereof, for general mutual releases of
all executives and management and their affiliated entities and also provided
for the modification of employment agreements of both, Mr. Clive Ng, our
Chairman and Mr. Yue Pu, our Vice Chairman and former Chief Financial
Officer.  The Settlement Agreement also called for the transfer of certain
securities by Mr. Ng to the Company and to certain of the Company’s shareholders
and consultants in exchange for releases in favor of the Company and management
and their affiliates.





The
following represents the details of the net gain the Company recognized as a
result of the Settlement Agreement during the quarter ended June 30, 2008 which
is recorded in “Interest and other income (expense)” in the accompany Statement
of Operations:





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





13.
            Warrant
      Liabilities





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




12


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





June
      30,
                  
                  
                  January
      1,2009
                  
                  
                  2009Risk-free
      interest rate
                  
                  
                  2.24
                  %
                  
                  
                  1.30
                  %Expected
      volatility
                  
                  
                  317.27
                  %
                  
                  
                  311.69
                  %Expected
      life (in years)
                  
                  3.9
      years
                  
                  
                  4.4
      yearsExpected
      dividend yield
                  
                  
                  0
                  
                  
                  
                  0





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





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





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





14.
            Net
      Loss Per Common Share




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




Potential
common shares outstanding for three and six months ended June 30, 2009 and
2008:





Three
      Months Ended
                    
                    Six
      Months EndedJune 30,
                    
                    June 30,2009
                    
                    
                    2008
                    
                    
                    2009
                    
                    
                    2008Warrants
                    
                    
                    16,874,800
                    
                    
                    
                    16,874,800
                    
                    
                    
                    16,874,800
                    
                    
                    
                    16,874,800Options
                    
                    
                    317,500
                    
                    
                    
                    317,500
                    
                    
                    
                    317,500
                    
                    
                    
                    317,500





For each
of the three month and six month periods ended June 30, 2009 and 2008, the
number of securities not included in the diluted EPS because the effect would
have been anti-dilutive was 17,192,300.




15.
            Comprehensive
      Income (Loss)





Comprehensive
income (loss) consists of the following:





Three
      Months Ended
                    
                    
                    Six
      Months EndedJune 30,
                    
                    
                    June 30,2009
                    
                    
                    2008
                    
                    
                    2009
                    
                    
                    2008Net
      income (loss) attributable to shareholders
                    
                    $
                    (1,513,000
                    )
                    
                    $
                    696,000
                    
                    
                    $
                    (2,855,000
                    )
                    
                    $
                    59,000Other
      comprehensive income (loss):Currency
      translation adjustment
                    
                    
                    1,000
                    
                    
                    
                    313,000
                    
                    
                    
                    22,000
                    
                    
                    
                    448,000Unrealized
      gain (loss) on marketable equity securities
                    
                    
                    49,000
                    
                    
                    
                    170,000
                    
                    
                    
                    (36,000
                    )
                    
                    
                    170,000Comprehensive
      income (loss)
                    
                    $
                    (1,463,000
                    )
                    
                    $
                    1,179,000
                    
                    
                    $
                    (2,869,000
                    )
                    
                    $
                    677,000





16.
            Stock
      Based Compensation





In March
2008, the board of directors of the company approved the China Broadband, Inc.
2008 Stock Incentive Plan (the “Plan”), pursuant to which options or other
similar securities may be granted. Qualified or Non-qualified Options to
purchase up to 2,500,000 shares of the Company’s common stock may be issued
under the Plan. The Plan may also be administered by an independent committee of
the board of directors.  Through June 30, 2009, 250,000 options have been
issued under the plan.





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





Three Months Ended
                    
                    
                    Six Months EndedJune
      30,
                    
                    
                    June
      30,
                    
                    
                    June
      30,
                    
                    
                    June
      30,2009
                    
                    
                    2008
                    
                    
                    2009
                    
                    
                    2008Stock
      option amortization
                    
                    $
                    18,000
                    
                    
                    $
                    -
                    
                    
                    $
                    27,000
                    
                    
                    $
                    8,000Warrant
      amortization
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    7,000
                    
                    
                    
                    14,000Stock
      issued in lieu of interest
                    
                    
                    64,000
                    
                    
                    
                    64,000
                    
                    
                    
                    126,000
                    
                    
                    
                    120,000Stock
      issued as non registration penalty
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    12,000$
                    82,000
                    
                    
                    $
                    64,000
                    
                    
                    $
                    160,000
                    
                    
                    $
                    154,000




The
Company accounts for its stock option awards pursuant to the provisions of ASC
718, Stock
Compensation.  During the three month periods ended June 30, 2009
and 2008, the Company recorded a charge of $18,000 and $0, respectively. 
During the six month periods ended June 30, 2009 and 2008, the Company recorded
a charge of $27,000 and $8,000, respectively in connection with the issuance of
stock options.





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




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





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




13




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





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





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





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




There
were no stock options issued during the six month period ending June 30,
2009.  As of June 30, 2009, there were 162,500 options exercisable at a
weighted average exercise price of $0.62 with a weighted average remaining life
of 6.4 years.





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





17.
            Warrants





In
connection with the Company’s Share Exchange, capital raising efforts in 2007
and the Company’s January 2008 Financing of Convertible Notes and Class A
Warrants, the Company issued warrants to investors and service providers to
purchase common stock of the Company at a fixed exercise price and for a
specified period of time.  The following table outlines the warrants
outstanding as of June 30, 2009:




Number ofWarrants
                              
                              
                              Exercise
                              
                              ExpirationName
                              
                              Issued
                              
                              
                              Price
                              
                              DateShare
      Exchange Consulting Warrants
                              
                              
                              4,474,800
                              
                              
                              $
                              0.60
                              
                              1/11/20132007
      Private Placement Broker Warrants
                              
                              
                              640,000
                              
                              
                              $
                              0.60
                              
                              1/11/20132007
      Private Placement Investor Warrants
                              
                              
                              4,000,000
                              
                              
                              $
                              2.00
                              
                              1/11/2013January
      2008 Financing Class A Warrants
                              
                              
                              6,628,333
                              
                              
                              $
                              0.60
                              
                              6/11/2013January
      2008 Financing Broker Warrants
                              
                              
                              1,131,667
                              
                              
                              $
                              0.50
                              
                              6/11/201316,874,800





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





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





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





18.
            Interest
      Expense and Share Issuance





In
connection with the Convertible Notes issued in January 2008 and June 2009 as
described above in Notes 9 and 10, during the three months ended June 30, 2009
and 2008 the Company incurred $89,000 and $89,000 in interest expense related to
these Notes and Warrants, respectively.  During the six months ended June
30, 2009 and 2008 the Company incurred $176,000 and $167,000 in interest expense
related to these Notes and Warrants, respectively.





As set
forth in the related documents and with the consent of the Note holders, the
Company issued 260,703 and 159,743 shares to the Note holders in lieu of cash of
approximately $126,000 and $120,000 for interest in the six month periods ended
June 30, 2009 and 2008, respectively.




19.
            Income
    Taxes





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




14





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





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





At June
30, 2009, Company’s management considered that the Company had no uncertain tax
positions that affected its consolidated financial position and results of
operations or cash flow, and will continue to evaluate for the uncertain
position in future. There are no estimated interest costs and penalties provided
in the Company’s financial statements for the six months ended June 30,
2009.





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





Deferred
taxes are recognized for the future tax consequences attributable to temporary
differences between the carrying amounts of assets and liabilities for financial
statement purposes and income tax purposes using enacted rates expected to be in
effect when such amounts are realized or settled.  The effect on deferred
taxes of a change in tax rates is recognized in income in the period that
includes the enactment date.





20.
            Reclassifications





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





21.
            Subsequent
      Events





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





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





The
following is a discussion and analysis of our results of operations and
should be read in conjunction with our consolidated financial statements and
related notes for the quarter ended June 30, 2009 contained in this Form
10-Q/A.  The following is also necessarily subject to, and we incorporate
herein, the forward looking statements disclosure provided in the forepart to
this Form 10-Q/A as well as Risk Factors discussed therein, all of which should
be considered.





Overview





We operate in the media segment,
through our indirect subsidiaries in the PRC, a cable broadband business based
in the Jinan region of China (“Jinan Broadband”) and a television programming
guide publication business joint venture (“Shandong Media”) in the Shandong
Province of China.  Accordingly, our principal activities are
providing cable and wireless broadband and print based media and television
programming guide services in the PRC.  In April 2009 we acquired an
internet café content provider and advertising business in the PRC (AdNet Media)
(See “Recent Developments” below).





Recent
Developments





As
described below, during the six months ended June 30, 2009 we completed (i) a
private financing of 5% Convertible Promissory Notes (the “Notes”) for gross
proceeds of $304,902 (the “Note Offering”) and (ii) a private financing of
2,000,000 shares of restricted Common Stock, par value $.001 of the Company (the
“Common Stock”), at a purchase price of $.15 per share, for aggregate proceeds
of $300,000 (the “Equity Financing”) and simultaneously entered into a waiver
letter agreement with certain note-holders as more fully described below. 
See “Private Financings” in this section below.




15





Laketune
Non Binding Memorandum of Understanding





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





Completion
of Acquisition of AdNet





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





Issuance
of Restricted Shares to AdNet Shareholders





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





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





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





AdNet
holds an Internet Content Provider (“ICP”) license and is in the business of
providing delivery of multimedia advertising content to internet cafés in
China.  AdNet currently services over 24,000 cafés and currently operates
and is licensed to operate in 28 provinces in the PRC. AdNet maintains servers
in five data centers located in the Chinese cities of Wuhan, Wenzhou, Yantai,
Yunan, with a master distribution server in Tongshan.  Partnering with a
local advertisement agency, AdNet provides a network for tens of thousands of
daily video advertisement insertions to entertainment content traffic (movies,
music, video, and games).





Results
of Operations





China
Broadband’s operating results reflect the operating results of our indirect
subsidiary, Jinan Broadband, our Shandong Media joint venture and our recently
acquired business of AdNet Media. Through WFOE, we acquired a 51% interest in
Jinan Broadband effective April 1, 2007, a 50% interest in the Shandong
Media joint venture effective July 1, 2008 and 100% interest in AdNet Media
effective April 7, 2009.





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





3 Months Ended
                    
                    
                    Amount
                    
                    
                    %June 30,
                    
                    
                    June 30,
                    
                    
                    Increase /
                    
                    
                    Increase /2009
                    
                    
                    2008
                    
                    
                    (Decrease)
                    
                    
                    (Decrease)Revenue
                    
                    $
                    1,989,000
                    
                    
                    $
                    1,054,000
                    
                    
                    $
                    935,000
                    
                    
                    
                    89
                    %Cost
      of revenue
                    
                    
                    1,103,000
                    
                    
                    
                    544,000
                    
                    
                    
                    559,000
                    
                    
                    
                    103
                    %Gross
      profit
                    
                    
                    886,000
                    
                    
                    
                    510,000
                    
                    
                    
                    376,000
                    
                    
                    
                    74
                    %Selling,
      general and adminstrative expenses
                    
                    
                    741,000
                    
                    
                    
                    311,000
                    
                    
                    
                    430,000
                    
                    
                    
                    138
                    %Professional
      fees
                    
                    
                    182,000
                    
                    
                    
                    169,000
                    
                    
                    
                    13,000
                    
                    
                    
                    8
                    %Depreciation
      and amortization
                    
                    
                    905,000
                    
                    
                    
                    694,000
                    
                    
                    
                    211,000
                    
                    
                    
                    30
                    %Loss
      from operations
                    
                    
                    (942,000
                    )
                    
                    
                    (664,000
                    )
                    
                    
                    (278,000
                    )
                    
                    
                    42
                    %Interest
      & other income / (expense)Settlement
      gain
                    
                    
                    -
                    
                    
                    
                    1,301,000
                    
                    
                    
                    (1,301,000
                    )
                    
                    
                    -100
                    %Interest
      income
                    
                    
                    2,000
                    
                    
                    
                    4,000
                    
                    
                    
                    (2,000
                    )
                    
                    
                    -50
                    %Interest
      expense
                    
                    
                    (90,000
                    )
                    
                    
                    (89,000
                    )
                    
                    
                    (1,000
                    )
                    
                    
                    1
                    %Change
      in fair value of warrant liabilities
                    
                    
                    (627,000
                    )
                    
                    
                    -
                    
                    
                    
                    (627,000
                    )
                    
                    
                    -Gain
      (loss) on sale of securities
                    
                    
                    (10,000
                    )
                    
                    
                    18,000
                    
                    
                    
                    (28,000
                    )
                    
                    
                    -156
                    %Net
      income (loss) before income taxes and noncontrolling
    interests
                    
                    
                    (1,667,000
                    )
                    
                    
                    570,000
                    
                    
                    
                    (2,237,000
                    )
                    
                    
                    -392
                    %Income
      tax benefit
                    
                    
                    15,000
                    
                    
                    
                    6,000
                    
                    
                    
                    9,000
                    
                    
                    
                    150
                    %Net
      income (loss), net of tax
                    
                    
                    (1,652,000
                    )
                    
                    
                    576,000
                    
                    
                    
                    (2,228,000
                    )
                    
                    
                    -387
                    %Net
      loss attributable to noncontrolling interests
                    
                    
                    139,000
                    
                    
                    
                    120,000
                    
                    
                    
                    19,000
                    
                    
                    
                    16
                    %Net
      income (loss) attributable to China Broadband shareholders
                    
                    $
                    (1,513,000
                    )
                    
                    $
                    696,000
                    
                    
                    $
                    (2,209,000
                    )
                    
                    
                    -317
                    %





6 Months Ended
                    
                    
                    Amount
                    
                    
                    %June 30,
                    
                    
                    June 30,
                    
                    
                    Increase /
                    
                    
                    Increase /2009
                    
                    
                    2008
                    
                    
                    (Decrease)
                    
                    
                    (Decrease)Revenue
                    
                    $
                    3,939,000
                    
                    
                    $
                    2,057,000
                    
                    
                    $
                    1,882,000
                    
                    
                    
                    91
                    %Cost
      of revenue
                    
                    
                    2,277,000
                    
                    
                    
                    896,000
                    
                    
                    
                    1,381,000
                    
                    
                    
                    154
                    %Gross
      profit
                    
                    
                    1,662,000
                    
                    
                    
                    1,161,000
                    
                    
                    
                    501,000
                    
                    
                    
                    43
                    %Selling,
      general and adminstrative expenses
                    
                    
                    1,459,000
                    
                    
                    
                    812,000
                    
                    
                    
                    647,000
                    
                    
                    
                    80
                    %Professional
      fees
                    
                    
                    292,000
                    
                    
                    
                    305,000
                    
                    
                    
                    (13,000
                    )
                    
                    
                    -4
                    %Depreciation
      and amortization
                    
                    
                    1,736,000
                    
                    
                    
                    1,442,000
                    
                    
                    
                    294,000
                    
                    
                    
                    20
                    %Loss
      from operations
                    
                    
                    (1,825,000
                    )
                    
                    
                    (1,398,000
                    )
                    
                    
                    (427,000
                    )
                    
                    
                    31
                    %Interest
      & other income / (expense)Settlement
      gain
                    
                    
                    -
                    
                    
                    
                    1,301,000
                    
                    
                    
                    (1,301,000
                    )
                    
                    
                    -100
                    %Interest
      income
                    
                    
                    5,000
                    
                    
                    
                    19,000
                    
                    
                    
                    (14,000
                    )
                    
                    
                    -74
                    %Interest
      expense
                    
                    
                    (176,000
                    )
                    
                    
                    (167,000
                    )
                    
                    
                    (9,000
                    )
                    
                    
                    5
                    %Gain
      (loss) on sale of securities
                    
                    
                    (31,000
                    )
                    
                    
                    17,000
                    
                    
                    
                    (48,000
                    )
                    
                    
                    -282
                    %Change
      in fair value of warrant liabilities
                    
                    
                    (1,241,000
                    )
                    
                    
                    -
                    
                    
                    
                    (1,241,000
                    )
                    
                    
                    -Other
                    
                    
                    -
                    
                    
                    
                    (14,000
                    )
                    
                    
                    14,000
                    
                    
                    
                    -100
                    %Net
      income (loss) before income taxes and noncontrolling
    interest
                    
                    
                    (3,268,000
                    )
                    
                    
                    (242,000
                    )
                    
                    
                    (3,026,000
                    )
                    
                    
                    1250
                    %Income
      tax benefit
                    
                    
                    29,000
                    
                    
                    
                    13,000
                    
                    
                    
                    16,000
                    
                    
                    
                    123
                    %Net
      income (loss), net of tax
                    
                    
                    (3,239,000
                    )
                    
                    
                    (229,000
                    )
                    
                    
                    (3,010,000
                    )
                    
                    
                    1314
                    %Plus:
      Net loss attributable to noncontrolling interests
                    
                    
                    384,000
                    
                    
                    
                    288,000
                    
                    
                    
                    96,000
                    
                    
                    
                    33
                    %Net
      income (loss) attributable to China Broadband shareholders
                    
                    $
                    (2,855,000
                    )
                    
                    $
                    59,000
                    
                    
                    $
                    (2,914,000
                    )
                    
                    
                    -4939
                    %




16





Comparison of Three Months
Ended June 30, 2009 and 2008





Revenues





Our
revenues are generated by our operating companies in the PRC.  Our revenues
for the three months ended June 30, 2009 include revenues primarily from our
Jinan Broadband and Shandong Media companies.  By comparison, our revenues
for the three months ended June 30, 2008 include only our Jinan Broadband
business.





Revenues for the three months ended
June 30, 2009 totaled $1,990,000, as compared to $1,054,000 for the three months
ended June 30, 2008.  The increase in revenue of approximately $936,000, or
89% is primarily attributable to including the revenues from our Shandong Media
joint venture of which by comparison were not included in our 2008 operating
results.





Jinan
Broadband’s revenue consists primarily of sales to our PRC based Internet
consumers, cable modem consumers, business customers and other internet and
cable services of $1,138,000, an increase of $85,000, or 8% as compared to
revenues of $1,053,000 for the three months ended 2008. The increase is
attributable to increases in our internet sales and our value-added
services.





Shandong
Media’s revenue consists primarily of sales of publications and advertising
revenues.  For the three months ended June 30, 2009, revenues from the
Shandong Media joint venture totaled $849,000.  By comparison, Shandong
Media’s revenues were not included in our operating results during the second
quarter of 2008 (For a description of the Shandong Media joint venture, see
“Shandong Media Joint Venture
and Shandong Newspaper Cooperation Agreement”, below).





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




Gross
Profit





Our gross profit for the three months
ended June 30, 2009 was $887,000, as compared to $510,000 for the three months
ended June 30, 2008.The increase in gross profit of approximately $377,000 or 74% is
comprised of $308,000 from the inclusion of our Shandong Media joint venture,
$79,000 increase attributable to our Jinan Broadband operations offset by
$10,000 from the inclusion of our AdNet Media acquisition.  The increase in
gross profit attributable to Jinan Broadband was primarily due to increased
sales while cost of sales remained relatively constant.





Gross profit as a percentage of revenue
was 45% for the three months ended June 30, 2009, as compared to 48% for the
three months ended June 30, 2008.





Selling,
General and Administrative Expenses





Our
selling, general and administrative expenses for the three months ended June 30,
2009 increased approximately $430,000 to $741,000, as compared to $311,000 for
the three months ended June 30, 2008.  The increase is primarily
attributable to the inclusion of our Shandong Media joint venture in mid 2008
and our AdNet Media acquisition in April 2009.





Salaries and personnel costs are the
major component of selling, general and administrative expenses.  For the
three months ended June 30, 2009, salaries and personnel costs accounted for 57%
of our selling, general and administrative expenses.  During the 2009
period, salaries and personnel costs totaled $421,000, an increase of $237,000
or 129% as compared to $184,000 for the 2008 period.  The increase in
salaries and personnel costs is primarily attributable to the inclusion of our
Shandong Media joint venture entered into mid 2008 and our AdNet Media
acquisition in April 2009.





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





Professional
Fees





The following is a list of our
professional fees accrued for the three months ended June 30, 2009 and
2008.





2009
                  
                  
                  2008Accounting
                  
                  $
                  102,000
                  
                  
                  $
                  63,000Consulting
                  
                  $
                  21,000
                  
                  
                  $
                  16,000Legal
                  
                  $
                  59,000
                  
                  
                  $
                  89,000Total
                  
                  $
                  182,000
                  
                  
                  $
                  168,000




17





The professional fees are generally
related to public company reporting and governance expenses as well as costs
related to our acquisitions.  We expect our costs for professional services
for public company reporting and corporate governance expenses to remain
significant, but to decrease as a percentage of our overall revenues if we
continue to acquire new entities and enter into strategic
partnerships.





Depreciation
and Amortization





2009
                  
                  
                  2008Depreciation
                  
                  $
                  760,000
                  
                  
                  $
                  646,000Amortization
                  
                  $
                  145,000
                  
                  
                  $
                  48,000Total
                  
                  $
                  905,000
                  
                  
                  $
                  694,000





Depreciation expense during 2009
relates to the depreciation on the approximately $14.4 million of property,
plant and equipment, at our Jinan Broadband subsidiary.  The increase in
amortization of $97,000 is primarily attributable to the amortization related to
our Shandong Media intangible assets acquired in 2008 and our software
technology acquired in the acquisition of AdNet.





Interest
and Other Income (Expense), net





Interest
and other income (expense), net, of approximately $(725,000) during the three
months ended June 30, 2009 consisted primarily of:


·
            interest
      expense related to the 5% Convertible Notes and Warrants issued in January
      2008 and June 2009 in the amount of approximately
  $90,000


·
            the
      loss on the sale of marketable equity securities in the amount of
      $10,000


·
            the
      increase in fair value of warrant liabilities in the amount of
      $627,000





During
the three months ended June 30, 2008, interest and other income (expense), net,
of approximately $1,233,000, a decrease of $1,958,000 compared to the second
quarter of 2009 was primarily due to the net gain of $1,301,000 recognized from
a Settlement Agreement entered into on January 11, 2008.





Under new
authoritative guidance, effective January 1, 2009, the Company was required to
reclassify warrants from equity to warrant liabilities.  Warrants are fair
valued quarterly using the Black-Scholes Merton Model and changes in fair value
are recorded to the statement of operations.  We recorded a charge of
$627,000 classified as a change in fair value of warrants on our statement of
operations for the 3 months ended June 30, 2009.





We expect our interest expense to
increase due to additional convertible notes issued in June 2009 in the amount
of $304,902.  Interest on the Notes compounds monthly at the annual rate of
five percent (5%).  The June 2009 Notes mature on May 27, 2010.  The
outstanding principal amount on the June 2009 Notes as of June 30, 2009 is
$304,902.  The January 2008 Notes mature on January 11, 2013.  The
outstanding principal amount of the January 2008 Notes as of June 30, 2009 was
$4,971,250.





Net
Loss Attributable to Noncontrolling Interest





49% of the operating loss of our Jinan
Broadband subsidiary is allocated to Jinan Parent, the 49% co-owner of this
business.  During the three months ended June 30, 2009, $142,000 of our
operating loss from Jinan Broadband was allocated to Jinan Parent, as compared
to $119,000 during the second quarter of 2008.





50% of the operating profit of our
Shandong Media joint venture is allocated to our 50% Shandong Newspaper joint
venture partner.  During the three months ended June 30, 2009, $3,000 of
our operating profit from Shandong Media was allocated to Shandong
Newspaper.  We consolidated the results of Shandong Media effective July 1,
2008.  Accordingly, there was no allocation for the three months ended June
30, 2008.





Net
Loss Attributable to Shareholders





Net loss
attributable to shareholders for the three months ended June 30, 2009 was
$1,513,000.  For the 2008 period, the company had net income attributable
to shareholders of $695,000, a decrease of $2,208,000, or 317%.  The
decrease in net income attributable to shareholders is primarily due to (1) the
recognition of a net gain of $1,301,000 from a Settlement Agreement entered into
on January 11, 2008 and (2) the recognition of a $627,000 charge due the
increase in the fair value of warrant liabilities.  Other changes
include:





·
            an
      increase in the net loss from Jinan Broadband of $45,000 as compared to
      the second quarter of 2008


·
            a
      net profit of $6,000 from the inclusion of our Shandong Media joint
      venture


·
            a
      net loss of $132,000 from the inclusion of our AdNet Media
      acquisition


·
            general
      increases in corporate costs




18





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





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


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





3 Months Ended
                                            
                                            
                                            3 Months EndedJune 30, 2009
                                            
                                            
                                            June 30, 2008% of
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            % ofTotal
                                            
                                            
                                            Non-
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            Total
                                            
                                            
                                            Non-Operating
                                            
                                            
                                            Revenue
                                            
                                            
                                            Operating
                                            
                                            
                                            Total
                                            
                                            
                                            Operating
                                            
                                            
                                            Revenue
                                            
                                            
                                            Operating
                                            
                                            
                                            TotalRevenue
                                            
                                            $
                                            1,989,000
                                            
                                            
                                            
                                            
                                            
                                            $
                                            -
                                            
                                            
                                            $
                                            1,989,000
                                            
                                            
                                            $
                                            1,054,000
                                            
                                            
                                            
                                            
                                            
                                            $
                                            -
                                            
                                            
                                            $
                                            1,054,000Cost
      of revenue
                                            
                                            
                                            1,103,000
                                            
                                            
                                            
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            1,103,000
                                            
                                            
                                            
                                            544,000
                                            
                                            
                                            
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            544,000Gross
      profit
                                            
                                            
                                            886,000
                                            
                                            
                                            
                                            45
                                            %
                                            
                                            
                                            -
                                            
                                            
                                            
                                            886,000
                                            
                                            
                                            
                                            510,000
                                            
                                            
                                            
                                            48
                                            %
                                            
                                            
                                            -
                                            
                                            
                                            
                                            510,000Selling,
      general and adminstrative expenses
                                            
                                            
                                            531,000
                                            
                                            
                                            
                                            27
                                            %
                                            
                                            
                                            210,000
                                            
                                            
                                            
                                            741,000
                                            
                                            
                                            
                                            106,000
                                            
                                            
                                            
                                            10
                                            %
                                            
                                            
                                            205,000
                                            
                                            
                                            
                                            311,000Professional
      fees
                                            
                                            
                                            12,000
                                            
                                            
                                            
                                            1
                                            %
                                            
                                            
                                            170,000
                                            
                                            
                                            
                                            182,000
                                            
                                            
                                            
                                            3,000
                                            
                                            
                                            
                                            0
                                            %
                                            
                                            
                                            166,000
                                            
                                            
                                            
                                            169,000Depreciation
      and amortization
                                            
                                            
                                            760,000
                                            
                                            
                                            
                                            38
                                            %
                                            
                                            
                                            145,000
                                            
                                            
                                            
                                            905,000
                                            
                                            
                                            
                                            646,000
                                            
                                            
                                            
                                            61
                                            %
                                            
                                            
                                            48,000
                                            
                                            
                                            
                                            694,000Loss
      from operations
                                            
                                            
                                            (417,000
                                            )
                                            
                                            
                                            -11
                                            %
                                            
                                            
                                            (525,000
                                            )
                                            
                                            
                                            (942,000
                                            )
                                            
                                            
                                            (245,000
                                            )
                                            
                                            
                                            -23
                                            %
                                            
                                            
                                            (419,000
                                            )
                                            
                                            
                                            (664,000
                                            )Interest
      & other income / (expense)Settlement
      gain
                                            
                                            
                                            -
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            1,301,000
                                            
                                            
                                            
                                            1,301,000Interest
      income
                                            
                                            
                                            2,000
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            2,000
                                            
                                            
                                            
                                            3,000
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            1,000
                                            
                                            
                                            
                                            4,000Interest
      expense
                                            
                                            
                                            -
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            (90,000
                                            )
                                            
                                            
                                            (90,000
                                            )
                                            
                                            
                                            -
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            (89,000
                                            )
                                            
                                            
                                            (89,000
                                            )Change
      in fair value of warrant liabilities
                                            
                                            
                                            -
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            (627,000
                                            )
                                            
                                            
                                            (627,000
                                            )
                                            
                                            
                                            -
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -Loss
      on sale of securities
                                            
                                            
                                            -
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            (10,000
                                            )
                                            
                                            
                                            (10,000
                                            )
                                            
                                            
                                            -
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            18,000
                                            
                                            
                                            
                                            18,000Income
      (loss) before income tax
                                            
                                            
                                            (415,000
                                            )
                                            
                                            
                                            
                                            
                                            
                                            
                                            (1,252,000
                                            )
                                            
                                            
                                            (1,667,000
                                            )
                                            
                                            
                                            (242,000
                                            )
                                            
                                            
                                            
                                            
                                            
                                            
                                            812,000
                                            
                                            
                                            
                                            570,000Income
      tax benefit
                                            
                                            
                                            -
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            15,000
                                            
                                            
                                            
                                            15,000
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            6,000
                                            
                                            
                                            
                                            6,000Net
      income (loss)
                                            
                                            
                                            (415,000
                                            )
                                            
                                            
                                            
                                            
                                            
                                            
                                            (1,237,000
                                            )
                                            
                                            
                                            (1,652,000
                                            )
                                            
                                            
                                            (242,000
                                            )
                                            
                                            
                                            
                                            
                                            
                                            
                                            818,000
                                            
                                            
                                            
                                            576,000Net
      loss attributable to noncontrolling interest
                                            
                                            
                                            139,000
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            139,000
                                            
                                            
                                            
                                            120,000
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            120,000Net
      income (loss) attributable to shareholders
                                            
                                            $
                                            (276,000
                                            )
                                            
                                            
                                            
                                            
                                            
                                            $
                                            (1,237,000
                                            )
                                            
                                            $
                                            (1,513,000
                                            )
                                            
                                            $
                                            (122,000
                                            )
                                            
                                            
                                            
                                            
                                            
                                            $
                                            818,000
                                            
                                            
                                            $
                                            696,000





Comparison of Six Months
Ended June 30, 2009 and 2008




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




6
      Months Ended
                            
                            
                            Amount
                            
                            
                            %June
      30,
                            
                            
                            June
      30,
                            
                            
                            Increase
      /
                            
                            
                            Increase
      /2009
                            
                            
                            2008
                            
                            
                            (Decrease)
                            
                            
                            (Decrease)Revenue
                            
                            $
                            3,939,000
                            
                            
                            $
                            2,057,000
                            
                            
                            $
                            1,882,000
                            
                            
                            
                            91
                            %Cost
      of revenue
                            
                            
                            2,277,000
                            
                            
                            
                            896,000
                            
                            
                            
                            1,381,000
                            
                            
                            
                            154
                            %Gross
      profit
                            
                            
                            1,662,000
                            
                            
                            
                            1,161,000
                            
                            
                            
                            501,000
                            
                            
                            
                            43
                            %Selling,
      general and adminstrative expenses
                            
                            
                            1,459,000
                            
                            
                            
                            812,000
                            
                            
                            
                            647,000
                            
                            
                            
                            80
                            %Professional
      fees
                            
                            
                            292,000
                            
                            
                            
                            305,000
                            
                            
                            
                            (13,000
                            )
                            
                            
                            -4
                            %Depreciation
      and amortization
                            
                            
                            1,736,000
                            
                            
                            
                            1,442,000
                            
                            
                            
                            294,000
                            
                            
                            
                            20
                            %Loss
      from operations
                            
                            
                            (1,825,000
                            )
                            
                            
                            (1,398,000
                            )
                            
                            
                            (427,000
                            )
                            
                            
                            31
                            %Interest
      & other income / (expense)Settlement
      gain
                            
                            
                            -
                            
                            
                            
                            1,301,000
                            
                            
                            
                            (1,301,000
                            )
                            
                            
                            -100
                            %Interest
      income
                            
                            
                            5,000
                            
                            
                            
                            19,000
                            
                            
                            
                            (14,000
                            )
                            
                            
                            -74
                            %Interest
      expense
                            
                            
                            (176,000
                            )
                            
                            
                            (167,000
                            )
                            
                            
                            (9,000
                            )
                            
                            
                            5
                            %Gain
      (loss) on sale of securities
                            
                            
                            (31,000
                            )
                            
                            
                            17,000
                            
                            
                            
                            (48,000
                            )
                            
                            
                            -282
                            %Change
      in fair value of warrant liabilities
                            
                            
                            (1,241,000
                            )
                            
                            
                            -
                            
                            
                            
                            (1,241,000
                            )
                            
                            
                            -Other
                            
                            
                            -
                            
                            
                            
                            (14,000
                            )
                            
                            
                            14,000
                            
                            
                            
                            -100
                            %Net
      income (loss) before income taxes and noncontrolling
    interest
                            
                            
                            (3,268,000
                            )
                            
                            
                            (242,000
                            )
                            
                            
                            (3,026,000
                            )
                            
                            
                            1250
                            %Income
      tax benefit
                            
                            
                            29,000
                            
                            
                            
                            13,000
                            
                            
                            
                            16,000
                            
                            
                            
                            123
                            %Net
      income (loss), net of tax
                            
                            
                            (3,239,000
                            )
                            
                            
                            (229,000
                            )
                            
                            
                            (3,010,000
                            )
                            
                            
                            1314
                            %Plus:
      Net loss attributable to noncontrolling interests
                            
                            
                            384,000
                            
                            
                            
                            288,000
                            
                            
                            
                            96,000
                            
                            
                            
                            33
                            %Net
      income (loss) attributable to China Broadband shareholders
                            
                            $
                            (2,855,000
                            )
                            
                            $
                            59,000
                            
                            
                            $
                            (2,914,000
                            )
                            
                            
                            -4939
                            %


Revenues





Our
revenues are generated by our operating companies in the PRC.  Our revenues
for the six months ended June 30, 2009 include revenues primarily from our Jinan
Broadband and Shandong Media companies.  By comparison, our revenues for
the six months ended June 30, 2008 include only our Jinan Broadband
business.





Revenues for the six months ended June
30, 2009 totaled $3,939,000, as compared to $2,057,000 for the six months ended
June 30, 2008.  The increase in revenue of approximately $1,882,000, or 91%
is primarily attributable to including the revenues of our Shandong Media joint
venture which by comparison were not included in our 2008 operating
results.





Jinan
Broadband’s revenue consists primarily of sales to our PRC based Internet
consumers, cable modem consumers, business customers and other internet and
cable services of $2,223,000, an increase of $167,000, or 8% as compared to
revenues of $2,057,000 for the six months ended 2008. The increase is
attributable to increases in our internet sales, network leasing sales and
value-added services.





Shandong
Media’s revenue consists primarily of sales of publications and advertising
revenues.  For the six months ended June 30, 2009, revenues from the
Shandong Media joint venture totaled $1,714,000.  By comparison, Shandong
Media’s revenues were not included in our operating results for the 2008
period.  (For a description of the Shandong Media joint venture, see “Shandong Media Joint Venture and
Shandong Newspaper Cooperation Agreement”, below).





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





Gross
Profit





Our gross profit for the six months
ended June 30, 2009 was $1,662,000, as compared to $1,161,000 for the six months
ended June 30, 2008.The increase in gross profit of approximately $501,000, or 43%, is
comprised of $609,000 from the inclusion of our Shandong Media joint venture
offset by $10,000 from the inclusion of our AdNet Media acquisition and by a
$98,000 decrease attributable to our Jinan Broadband operations.  The
decrease in gross profit attributable to Jinan Broadband was primarily due to
increase costs of revenue, particularly costs of telecom bandwidth.





Gross profit as a percentage of revenue
was 42% for the six months ended June 30, 2009, as compared to 56% for the six
months ended June 30, 2008.


.


Selling,
General and Administrative Expenses





Our
selling, general and administrative expenses for the six months ended June 30,
2009 increased approximately $647,000 to $1,459,000, as compared to $812,000 for
the six months ended June 30, 2008.  The increase is primarily attributable
to the inclusion of our Shandong Media joint venture in mid 2008 and our AdNet
Media acquisition in April 2009.





Salaries and personnel costs are the
major component of selling, general and administrative expenses.  For the
six months ended June 30, 2009, salaries and personnel costs accounted for 58%
of our selling, general and administrative expenses.  During the 2009
period, salaries and personnel costs totaled $851,000, an increase of $372,000
or 78% as compared to $479,000 for 2008 period. The increase in salaries and
personnel costs is primarily attributable to the inclusion of our Shandong Media
joint venture entered into mid 2008 and our AdNet Media acquisition in April
2009.




19




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





Professional
Fees





The following is a list of our
professional fees accrued for the six months ended June 30, 2009 and
2008.





2009
                  
                  
                  2008Accounting
                  
                  $
                  167,000
                  
                  
                  $
                  115,000Consulting
                  
                  $
                  32,000
                  
                  
                  $
                  64,000Legal
                  
                  $
                  93,000
                  
                  
                  $
                  126,000Total
                  
                  $
                  292,000
                  
                  
                  $
                  305,000





The professional fees are generally
related to public company reporting and governance expenses as well as costs
related to our acquisitions.  We expect our costs for professional services
for public company reporting and corporate governance expenses to remain
significant, but to decrease as a percentage of our overall revenues if we
continue to acquire new entities and enter into strategic
partnerships.





Depreciation
and Amortization





2009
                    
                    
                    2008Depreciation
                    
                    $
                    1,509,000
                    
                    
                    $
                    1,348,000Amortization
                    
                    $
                    227,000
                    
                    
                    $
                    94,000Total
                    
                    $
                    1,736,000
                    
                    
                    $
                    1,442,000





Depreciation expense during 2009
relates to the depreciation on the approximately $14.4 million of property,
plant and equipment, at our Jinan Broadband subsidiary.  The increase in
amortization of $133,000 is primarily attributable to the amortization related
to our Shandong Media intangible assets acquired in 2008 and our software
technology acquired in the acquisition of AdNet.





Interest
and Other Income (Expense), net





Interest and other income (expense),
net, of approximately $(1,443,000) during the six months ended June 30, 2009
consisted primarily of:


·
            interest
      expense related to the 5% Convertible Notes and Warrants issued in January
      2008 and June 2009 in the amount of approximately
  $176,000


·
            the
      loss on the sale of marketable equity securities in the amount of
      $31,000


·
            the
      increase in fair value of warrant liabilities of
  $1,241,000





During
the six months ended June 30, 2008, interest and other income (expense), net, of
approximately $1,157,000, a decrease of $2,599,000 compared to the six month
period ended June 30, 2009 was primarily due to the net gain of $1,301,000
recognized from a Settlement Agreement entered into on January 11,
2008.





Under new authoritative guidance,
effective January 1, 2009, the Company was required to reclassify warrants from
equity to warrant liabilities.  Warrants are fair valued quarterly using
the Black-Scholes Merton Model and changes in fair value are recorded to the
statement of operations.  We recorded a charge of $1,241,000 classified as
a change in fair value of warrants on our statement of operations for the 6
months ended June 30, 2009.





We expect our interest expense to
increase due to additional convertible notes issued in June 2009 in the amount
of $304,902.  Interest on the Notes compounds monthly at the annual rate of
five percent (5%).  The January 2008 Notes mature on January 11,
2013.  The outstanding principal amount of the January 2008 Notes as of
June 30, 2009 was $4,971,250.  The June 2009 Notes mature on May 27,
2010.  The outstanding principal amount on the June 2009 Notes as of June
30, 2009 is $304,902.





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, 2009, $366,000 of our
operating loss from Jinan Broadband was allocated to Jinan Parent, as compared
to $288,000 during the 2008 period.





50% of the operating loss of our
Shandong Media joint venture is allocated to our 50% Shandong Newspaper joint
venture partner.  During the six months ended June 30, 2009, $18,000 of our
operating loss from Shandong Media was allocated to Shandong Newspaper.  We
consolidated the results of Shandong Media effective July 1, 2008. 
Accordingly, there was no allocation for the six months ended June 30,
2008.




20


Net
Income (Loss) Attributable to Shareholders





Net loss
attributable to shareholders for the six months ended June 30, 2009 was
$2,855,000.  For the 2008 period, the company had net income attributable
to shareholders of $59,000, a decrease of $2,914,000, or 4950%.  The
decrease in net income attributable to shareholders is primarily due to (1) the
recognition of a net gain of $1,301,000 from a Settlement Agreement entered into
on January 11, 2008 and (2) the recognition of $1,241,000 charge due to the
increase in the fair value of warrant liabilities.  Other changes
include:





·
            an
      increase in the net loss from Jinan Broadband of $160,000 as compared to
      the six month period of 2008


·
            a
      net loss of $32,000 from the inclusion of our Shandong Media joint
      venture


·
            a
      net loss of $132,000 from the inclusion of our AdNet Media
      acquisition


·
            general
      increases in corporate costs





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





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


Ø
            2009
      includes six months of operations from our Shandong Media company and
      three months of operations from our AdNet Media company as compared to no
      inclusion for either company in
2008.





6 Months Ended
                                            
                                            
                                            6 Months EndedJune 30, 2009
                                            
                                            
                                            June 30, 2008% of
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            % ofTotal
                                            
                                            
                                            Non-
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            Total
                                            
                                            
                                            Non-Operating
                                            
                                            
                                            Revenue
                                            
                                            
                                            Operating
                                            
                                            
                                            Total
                                            
                                            
                                            Operating
                                            
                                            
                                            Revenue
                                            
                                            
                                            Operating
                                            
                                            
                                            TotalRevenue
                                            
                                            $
                                            3,939,000
                                            
                                            
                                            
                                            
                                            
                                            $
                                            -
                                            
                                            
                                            $
                                            3,939,000
                                            
                                            
                                            $
                                            2,057,000
                                            
                                            
                                            
                                            
                                            
                                            $
                                            -
                                            
                                            
                                            $
                                            2,057,000Cost
      of revenue
                                            
                                            
                                            2,277,000
                                            
                                            
                                            
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            2,277,000
                                            
                                            
                                            
                                            896,000
                                            
                                            
                                            
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            896,000Gross
      profit
                                            
                                            
                                            1,662,000
                                            
                                            
                                            
                                            42
                                            %
                                            
                                            
                                            -
                                            
                                            
                                            
                                            1,662,000
                                            
                                            
                                            
                                            1,161,000
                                            
                                            
                                            
                                            56
                                            %
                                            
                                            
                                            -
                                            
                                            
                                            
                                            1,161,000Selling,
      general and adminstrative expenses
                                            
                                            
                                            1,056,000
                                            
                                            
                                            
                                            27
                                            %
                                            
                                            
                                            403,000
                                            
                                            
                                            
                                            1,459,000
                                            
                                            
                                            
                                            397,000
                                            
                                            
                                            
                                            19
                                            %
                                            
                                            
                                            415,000
                                            
                                            
                                            
                                            812,000Professional
      fees
                                            
                                            
                                            16,000
                                            
                                            
                                            
                                            0
                                            %
                                            
                                            
                                            276,000
                                            
                                            
                                            
                                            292,000
                                            
                                            
                                            
                                            3,000
                                            
                                            
                                            
                                            0
                                            %
                                            
                                            
                                            302,000
                                            
                                            
                                            
                                            305,000Depreciation
      and amortization
                                            
                                            
                                            1,510,000
                                            
                                            
                                            
                                            38
                                            %
                                            
                                            
                                            226,000
                                            
                                            
                                            
                                            1,736,000
                                            
                                            
                                            
                                            1,348,000
                                            
                                            
                                            
                                            66
                                            %
                                            
                                            
                                            94,000
                                            
                                            
                                            
                                            1,442,000Loss
      from operations
                                            
                                            
                                            (920,000
                                            )
                                            
                                            
                                            -23
                                            %
                                            
                                            
                                            (905,000
                                            )
                                            
                                            
                                            (1,825,000
                                            )
                                            
                                            
                                            (587,000
                                            )
                                            
                                            
                                            -29
                                            %
                                            
                                            
                                            (811,000
                                            )
                                            
                                            
                                            (1,398,000
                                            )Interest
      & other income / (expense)Settlement
      gain
                                            
                                            
                                            -
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            1,301,000
                                            
                                            
                                            
                                            1,301,000Interest
      income
                                            
                                            
                                            5,000
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            5,000
                                            
                                            
                                            
                                            4,000
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            15,000
                                            
                                            
                                            
                                            19,000Interest
      expense
                                            
                                            
                                            -
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            (176,000
                                            )
                                            
                                            
                                            (176,000
                                            )
                                            
                                            
                                            -
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            (167,000
                                            )
                                            
                                            
                                            (167,000
                                            )Change
      in fair value of warrant liabilities
                                            
                                            
                                            -
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            (1,241,000
                                            )
                                            
                                            
                                            (1,241,000
                                            )
                                            
                                            
                                            -
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -Loss
      on sale of securities
                                            
                                            
                                            -
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            (31,000
                                            )
                                            
                                            
                                            (31,000
                                            )
                                            
                                            
                                            -
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            17,000
                                            
                                            
                                            
                                            17,000Other
                                            
                                            
                                            -
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            (4,000
                                            )
                                            
                                            
                                            
                                            
                                            
                                            
                                            (10,000
                                            )
                                            
                                            
                                            (14,000
                                            )Loss
      before income taxes and noncontrolling interest
                                            
                                            
                                            (915,000
                                            )
                                            
                                            
                                            
                                            
                                            
                                            
                                            (2,353,000
                                            )
                                            
                                            
                                            (3,268,000
                                            )
                                            
                                            
                                            (587,000
                                            )
                                            
                                            
                                            
                                            
                                            
                                            
                                            345,000
                                            
                                            
                                            
                                            (242,000
                                            )Income
      tax benefit
                                            
                                            
                                            -
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            29,000
                                            
                                            
                                            
                                            29,000
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            13,000
                                            
                                            
                                            
                                            13,000Net
      loss, net of tax
                                            
                                            
                                            (915,000
                                            )
                                            
                                            
                                            
                                            
                                            
                                            
                                            (2,324,000
                                            )
                                            
                                            
                                            (3,239,000
                                            )
                                            
                                            
                                            (587,000
                                            )
                                            
                                            
                                            
                                            
                                            
                                            
                                            358,000
                                            
                                            
                                            
                                            (229,000
                                            )Plus:
      Net loss attributable to noncontrolling interest
                                            
                                            
                                            384,000
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            384,000
                                            
                                            
                                            
                                            288,000
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            288,000Net
      income (loss) attributable to China Broadband shareholders
                                            
                                            $
                                            (531,000
                                            )
                                            
                                            
                                            
                                            
                                            
                                            $
                                            (2,324,000
                                            )
                                            
                                            $
                                            (2,855,000
                                            )
                                            
                                            $
                                            (299,000
                                            )
                                            
                                            
                                            
                                            
                                            
                                            $
                                            358,000
                                            
                                            
                                            $
                                            59,000





Liquidity
and Capital Resources





As of June 30, 2009 we had $1,875,000
of cash on hand and a working capital deficit of $2,429,000.  As of June
30, 2009, we had total current liabilities of $6,544,000.  Given our
current commitments and working capital, we cannot support our operations for
the next 12 months without additional capital (See “Need for Additional
Capital”, below).





Private
Financings, June 2009





As
described below, during the six months ended June 30, 2009 we completed (i) a
private financing of 5% Convertible Promissory Notes (the “Notes”) for gross
proceeds of $304,902 (the “Note Offering”) and (ii) a private financing of
2,000,000 shares of restricted Common Stock, par value $.001 of the Company (the
“Common Stock”), at a purchase price of $.15 per share, for aggregate proceeds
of $300,000 (the “Equity Financing”).





Issuance
of Convertible Notes, June 2009





During
the six months ended June 30, 2009, the Company completed a private financing of
5% Convertible Promissory Notes (the “Notes) for gross proceeds of $304,902 (the
“Note Offering”).  The Note Offering was pursuant to a Note Purchase
Agreement (the “Note Purchase Agreement”) with nine persons who were existing
holders (the “Note Investors”) of Convertible Promissory Notes issued in January
of 2008 (the “January 2008 Notes”), pursuant to which the Company issued
$304,902 principal amount of Notes to the Note Investors at face value. 
The Notes accrue interest at 5% per year payable quarterly in cash or stock, are
initially convertible at $.20 per share, and become due and payable in full on
May 27, 2010.  The Company did not pay any placement agent or similar fees
in connection with the Note Offering.





Waiver
Letters





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





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




21


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





Equity
Financing; Issuance of Common Stock





During
the six months ended June 30, 2009 and pursuant to a Securities Purchase
Agreement with three investors, the Company completed a private financing of
2,000,000 shares of restricted Common Stock, par value $.001 of the Company (the
“Common Stock”), at a purchase price of $.15 per share, for aggregate gross
proceeds of $300,000 (the “Equity Financing”).  The company did not pay any
placement agent or similar fees in connection with such financing.  As
indicated above, the Existing Note Holders waived, in part, anti dilution rights
with respect to this Equity Financing.





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





Loan
Receivable





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





Amounts
due from Shareholders





Amounts due from shareholders include
$91,000 from Shandong Broadcast & TV Weekly Press and $543,000 from Modern
Movie & TV Biweekly Press as of June 30, 2009.  The amount due from
Shandong Broadcast & TV Weekly Press is unsecured, interest free and has no
fixed repayment terms.  The amount due from Modern Movie & TV Biweekly
Press is unsecured, interest free and the due date for repayment has been
extended from June 30, 2009 to December 31, 2009.  During the period ended
June 30, 2009 the company advanced approximately $552,000 to the
shareholders.





Payable
to Jinan Parent





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





2008
Convertible Note Financing





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





Convertible
Notes and Warrants Interest





During the six months ended June
30, 2009 the Company incurred $176,000 in interest expense related to the
notes and warrants issued in January 2008 and June 2009.  Based on a
predetermined initial presumed value of $.75 per share and effective May 27,
2009 reduced conversion values of $.25 per share and $.20 per share as set forth
in the related documents as described above and with the consent of the Note
holders, the Company issued 260,703 shares to the Note holders in lieu of cash
of approximately $126,000 for interest accrued.  Additional interest
expense of $50,000 was recorded for the warrants.





Settlement
Agreement





In
April 2008, we received 390,000 shares of Cablecom Holdings, Ltd. (the “Cablecom
Holdings Shares”) from Mr. Clive Ng, the Chairman of our board of directors,
pursuant to a settlement agreement by and among the Company and its
subsidiaries, Stephen P. Cherner, Maxim Financial Corporation, Mark L. Baum,
BCGU, LLC, Mark I. Lev, Wellfleet Partners, Inc., Pu Yue, Clive Ng, Chardan
Capital Markets, LLC, Jaguar Acquisition Corporation, and China Cablecom
Holdings, Ltd (“Cablecom Holdings”).  The value of the Cablecom Holdings
shares has since declined substantially, and may continue to fluctuate and
decline further.  During the six months ended June 30 2009, we sold 136,665
of the Cablecom Holdings shares for total net proceeds of $79,000 and recorded a
net loss on the sales of approximately $31,000.  As of June 30, 2009, we
have 181,455 shares remaining.





As a result of a significant decline in
the price of the Cablecom Holdings Shares we recorded an unrealized loss of
approximately $36,000 on these shares through other comprehensive income (loss)
for the period ended June 30, 2009.  The fair value of the remaining
181,455 Cablecom shares at June 30, 2009 approximates $109,000.




22


Cash
Flows





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





Six Months EndedJune 30,
                    
                    
                    June 30,2009
                    
                    
                    2008Net
      cash provided by operating activities
                    
                    $
                    166,000
                    
                    
                    $
                    388,000Net
      cash used in investing activities
                    
                    $
                    (692,000
                    )
                    
                    $
                    (2,225,000
                    )Net
      cash (used in) provided by financing activities
                    
                    $
                    (2,046,000
                    )
                    
                    $
                    4,977,000Effect
      of exchange rate changes on cash
                    
                    $
                    22,000
                    
                    
                    $
                    448,000





Operating activities for the six months
ended June 30, 2009 and 2008, after adding back non-cash items, (used) provided
cash of approximately $(259,000) and $20,000, respectively.  During such
period other changes in working capital provided cash of approximately $425,000
and $368,000, respectively, resulting in cash being provided by operating
activities of $158,000 and $388,000, respectively.





Investing activities for the six months
ended June 30, 2009 and 2008 used cash of $692,000 and $2,225,000,
respectively.  For 2009, this amount consisted of cash acquired in our
AdNet acquisition of $18,000 and proceeds of $79,000 from the sale of our
Cablecom Shares, offset by (i) $237,000 for additions to property and equipment
and (ii) $552,000 loan to our Shandong Media shareholder.  For 2008 this
amount consisted of additions to property and equipment in the amount of
$1,116,000 and the down payment for the acquisition of Shandong Newspaper in the
amount of $1,449,000 partially offset by the proceeds from the sale of 50,000
Cablecom Holding Shares in the amount of $340,000.




Financing activities for the six months
ended June 30, 2009 and 2008 (used) provided cash of $(2,046,000) and
$4,977,000, respectively.  For 2009, the amount consisted of proceeds from
the sale of equity securities of $300,000 and proceeds from the issuance of
convertible notes of $305,000 offset by payment to Jinan Parent of
$2,644,000.  For 2008, this amount consisted of proceeds from the issuance
of convertible notes of $4,850,000, offset by $105,000 of payments related to
issuance costs associated with the convertible notes and an increase in the
payable to Jinan Parent in the amount of $232,000.





Foreign
Currency Translation





Our WOFE,
Jinan Broadband subsidiary, Shandong Media joint venture and our AdNet Media
acquisition are located in China.  All of their operations are conducted in
the local currency of the Chinese Yuan, also known as Renminbi or RMB.  The
favorable effect of exchange rates on cash between the Chinese Yuan and the
United States dollar, provided cash of $22,000 and $448,000 during the six
months ended June 30, 2009 and 2008, respectively.





Shandong
Media Joint Venture and Shandong Newspaper Cooperation Agreement





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




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




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




23




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




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




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




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


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





Need
for Additional Capital





As
indicated above, management does not believe that the Company has sufficient
capital to sustain its operations beyond 12 months without raising additional
capital.  We presently do not have any available credit, bank financing or
other external sources of liquidity.  Accordingly, we expect that we will
require additional funding through additional equity and/or debt
financings.  However, there can be no assurance that any additional
financing will become available to us, and if available, on terms acceptable to
us.





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





Any
financing, if available, may involve restrictive covenants that may impact our
ability to conduct our business or raise additional funds on acceptable
terms.  If we are unable to raise additional capital when required or on
acceptable terms, we may have to delay, scale back or discontinue our expansion
plans.





In the
event we are unable to raise additional capital we will not be able to sustain
any growth or continue to operate.





Critical
Accounting Policies




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




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




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




Revenue
Recognition





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




24


Accounts
Receivable





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





Inventory





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





Property
and Equipment





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





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





Intangible
Assets





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





Income
Taxes





The
Company is subject to a 5% business tax on the business income of our Jinan
Broadband subsidiary. The Company accounts for income taxes in accordance with
the asset and liability method.  Deferred taxes are recognized for the
future tax consequences attributable to temporary differences between the
carrying amounts of assets and liabilities for financial statement purposes and
income tax purposes using enacted rates expected to be in effect when such
amounts are realized or settled. The effect on deferred taxes of a change in tax
rates is recognized in income in the period that includes the enactment
date.  A tax valuation allowance is established, as needed to reduce net
deferred tax assets to the amount expected to be realized.  The Company
also follows applicable guidance for accounting for uncertainty in income
taxes.





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





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





Warrant
Liabilities





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




25


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





Foreign
Currency Translation





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




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




Recent
Accounting Pronouncements








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




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




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





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





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




26


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





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





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





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





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





Off-Balance Sheet
Arrangements





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





Item
3. Quantitative and Qualitative Disclosures about Market Risk





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





Item
4. Controls and Procedures





a.
Evaluation of Disclosure Controls and Procedures





Based on
an evaluation under the supervision and with the participation of the Company's
management, the Company's principal executive officer and principal financial
officer have concluded that the Company's disclosure controls and procedures as
defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act
of 1934, as amended ("Exchange Act") were ineffective as of June 30, 2009 to
ensure that information required to be disclosed by the Company in reports that
it files or submits under the Exchange Act is (i) recorded, processed,
summarized and reported within the time periods specified in the Securities and
Exchange Commission rules and forms and (ii) accumulated and communicated
to the Company's management, including its principal executive officer and
principal financial officer, as appropriate to allow timely decisions regarding
required disclosure.





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





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





1)  In
connection with the preparation and audit of our 2009 financial statements and
notes, we were informed by our auditor, UHY LLP (“UHY”) of certain deficiencies
in our internal controls that UHY considered to be material weaknesses. 
These deficiencies related to our financial closing procedures and errors in
classification of warrants.  After discussions between management, our
audit committee and UHY, we concluded that the Company had not properly adopted
FASB ASC Topic 815-40 “Derivatives and Hedging:  Contracts in Entity’s
Own Equity” (“ASC 815”) and as a result had not reclassified warrants from
equity to liabilities as of January 1, 2009.  As a result of the change in
accounting, the Company recognized a charge of $627,000 and $1,241,000 during
the three months and six months ended June 30, 2009, respectively.




27


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





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





b.
Changes in Internal Control over Financial Reporting





There
were no changes in the Company’s internal controls over financial reporting
identified in connection with the evaluation required by paragraph (d) of Rule
13a-15 or Rule 15d-15 under the Exchange Act that occurred during the period
ended June 30, 2009 that have materially affected or are reasonably likely to
materially affect the Company’s internal controls over financial
reporting.




28




PART
II - OTHER INFORMATION





Item
1. Legal Proceedings.





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





Item
1A. Risk Factors


The
discussion of our business and operations should be read together with the risk
factors contained in Part I, Item 1A of our Annual Report on Form 10-K/A for the
year ended December 31, 2008, which describes the various risks and
uncertainties to which we are or may become subject to.





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





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





See “Issuance of Restricted Shares to
AdNet Shareholders” under Item 2, above.





Item
3. Defaults Upon Senior Securities.





None.





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




None.




Item
5. Other Information.




None.





Item 6. Exhibits.




EXHIBIT
INDEX




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





29




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)





30