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

Commission File Number: 000-19644

China Broadband, Inc.  

(Exact name of registrant as specified in its charter)

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

1900 Ninth Street, 3rd Floor

Boulder, Colorado 80302

 (Address of principal executive offices)  

(303) 449-7733

 (Registrant's telephone number, including area code)

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

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

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

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

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

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

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: 64,433,033 shares as of November 20, 2009.  

Explanatory Note

China Broadband, Inc. (the “Company”) is filing this Amendment No. 1 to its Quarterly Report on Form 10-Q for the quarter ended September 30, 2009, which was originally filed with the Securities and Exchange Commission (the “Commission”) on November 23, 2009 (the “Original Filing”).

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

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

	Additional			Accumulated		Warrant
	Paid-in Capital			Deficit		Liabilities
Warrants	$	(731,000	)	$	424,000	$	307,000

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

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

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

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

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

For the convenience of the reader, this Form 10-Q/A sets forth the entire filing which was prepared and relates to the Company as of and for the quarter ended September 30, 2009.  Accordingly, except for the foregoing amended information, this Form 10-Q/A continues to speak as of the date of the Original Filing and does not reflect events occurring after the Original Filing, and does not modify or update those disclosures affected by subsequent events.  Forward looking statements made in the Original Filing have not been revised to reflect events, results or developments that have become known to us after the date of the Original Filing (other than the current restatements described above), and such forward looking statements should be read in their historical context.  Unless otherwise stated, the information in this Form 10-Q/A not affect by such current restatements is unchanged and reflects the disclosures made at the time of the Original Filing.  Accordingly, in conjunction with reading this amendment to the Original Filing, you should also read all other filings we have made with the Securities and Exchange Commission since November 23, 2009.

 

QUARTERLY REPORT ON FORM 10-Q/A

OF CHINA BROADBAND, INC.

FOR THE PERIOD ENDED SEPTEMBER 30, 2009

TABLE OF CONTENTS

PART I	-	FINANCIAL INFORMATION	3
Item 1.		Financial Statements	3
Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations	16
Item 3		Quantitative and Qualitative Disclosures About Market Risk	24
Item 4.		Controls and Procedures	24
PART II	-	OTHER INFORMATION	25
Item 1.		Legal Proceedings	25
Item 1A.		Risk Factors	25
Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds	25
Item 3.		Defaults Upon Senior Securities	25
Item 4.		Submission of Matters to a Vote of Security Holders	25
Item 5.		Other Information	25
Item 6.		Exhibits	25
Signatures			26

Cautionary Note Regarding Forward Looking Statements

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

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

References

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

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

 

2

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements.

China Broadband, Inc. and Subsidiaries

CONSOLIDATED BALANCE SHEETS

	September 30,			December 31,
	2009			2008
	(Unaudited)
	(Restated)
ASSETS
Current assets:
Cash and cash equivalents	$	1,941,266		$	4,425,529
Marketable equity securities		67,608			254,496
Accounts receivable		168,710			136,709
Inventory		778,674			877,309
Prepaid expense		118,144			46,380
Loan receivable		280,033			-
Amounts due from shareholders		634,687			-
Other current assets		68,509			153,277
Total current assets		4,057,631			5,893,700
Property and equipment, net		7,786,070			9,299,473
Intangible assets, net		4,394,225			4,218,758
Goodwill		1,239,291			-
Other assets		455,093			692,911
Total assets	$	17,932,310		$	20,104,842
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	1,250,452		$	1,237,251
Accrued expenses		1,562,637			936,134
Deferred revenue		1,646,868			1,382,103
Convertible notes payable		304,853			-
Loan payable		398,937			-
Payable to Shandong Media		145,679			145,679
Payable to Jinan Parent		152,259			2,795,472
Warrant liabilities		1,417,335			-
Other current liabilities		130,194			72,013
Total current liabilities		7,009,214			6,568,652
Convertible notes payable		4,639,879			4,564,427
Deferred tax liability		935,819			790,617
Total liabilities		12,584,912			11,923,696
Commitments and Contingencies
Shareholders' equity
Preferred stock, $.001 par value; 5,000,000 shares authorized, no shares issued and outstanding		-			-
Common stock, $.001 par value; 95,000,000 shares authorized, 64,433,033 and 50,585,455 issued and outstanding		64,434			50,586
Additional paid-in capital		14,835,135			13,372,358
Accumulated deficit		(15,546,470	)		(12,200,287	)
Accumulated other comprehensive income		351,428			320,858
Total shareholders' (deficit) equity		(295,473	)		1,543,515
Noncontrolling interests		5,642,871			6,637,631
Total China Broadband shareholders' equity		5,347,398			8,181,146
Total liabilities and shareholders' equity	$	17,932,310		$	20,104,842

See notes to consolidated financial statements.

 

3

China Broadband, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

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

See notes to consolidated financial statements.

 

4

China Broadband, Inc. and Subsidiaries

CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY AND COMPREHENSIVE LOSS

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

											Accumulated			China
					Additional						Other			Broadband
	Common		Par		Paid-in			Accumulated			Comprehensive			Shareholders'			Noncontrolling			Total			Comprehensive
	Shares		Value		Capital			Deficit			Income (loss)			(Deficit)/Equity			Interest			Equity			Loss
Balance December 31, 2007		50,048,000	$	50,048	$	10,485,874		$	(8,845,424	)	$	331,768		$	2,022,266		$	4,879,802		$	6,902,068
Warrant valuation associated with convertible notes payable & other		-		-		745,694			-			-			745,694			-			745,694
Option valuation associated with employment agreeement		-		-		44,898			-			-			44,898			-			44,898
Shares issued for penalty of non-registration		207,599		208		421,970			-			-			422,178			-			422,178
Warrant valuation associated with extension from settlement agreement		-		-		1,426,862			-			-			1,426,862			-			1,426,862
Shares issued as payment for convertible note interest		329,856		330		247,061			-			-			247,391			-			247,391
Shandong Media joint venture		-		-		-			-			-			-			2,367,459			2,367,459
Comprehensive 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		$	8,181,149
Cumulative 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			-			126,454
Stock option compensation expense		-		-		33,656			-			-			33,656			-			33,656
Shares issued for AdNet acquisition		11,254,898		11,255		1,676,980			-			-			1,688,235			-			1,688,235
Costs 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			-			300,000
Costs 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			21,720
Unrealized loss on marketable equity securities		-		-		-			-			(36,293	)		(36,293	)		-			(36,293	)		(36,293	)
Balance June 30, 2009		64,101,056	$	64,102	$	14,768,049		$	(14,630,874	)	$	306,289		$	507,566		$	5,977,937		$	6,485,503		$	(2,869,531	)

See notes to consolidated financial statements.

5

China Broadband, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	Nine Months Ended
	September 30,			September 30,
	2009			2008
	(Restated)
Cash flows from operating
Net loss	$	(4,489,866	)	$	(856,236	)
Adjustments to reconcile net loss to net cash provided by operating activities
Stock compensation expense		227,528			218,137
Depreciation and amortization		2,451,400			2,210,481
Noncash interest expense		75,452			72,688
Deferred income tax		(44,040	)		(19,299	)
Loss (gain) on sale of marketable equity securities		14,828			(17,498	)
Change in fair value of warrant liabilities		1,110,212			-
Settlement gain		-			(1,300,692	)
Change in assets and liabilities, net of amounts assumed in AdNet acquisition:
Accounts receivable		(32,000	)		105,992
Inventory		98,635			(239,660	)
Prepaid expenses and other assets		(62,192	)		33,763
Accounts payable and accrued expenses		834,550			431,247
Deferred revenue		264,765			98,824
Other		(9	)		(73,580	)
Net cash provided by operating activities		449,263			664,167
Cash flows from investing activities:
Cash acquired in AdNet acquisition		17,568			-
Proceeds from sale of marketable equity securities		174,513			339,998
Acquisition of property and equipment		(554,727	)		(1,566,948	)
Loans to Shandong Media shareholders		(553,004	)		(242,155	)
Net cash used in investing activities		(915,650	)		(1,469,105	)
Cash flows from financing activities
Proceeds from sale of equity securities		300,000			-
Proceeds from issuance of convertible notes payable		304,853			4,850,000
Legal fees associated with AdNet Acquisition and share issuance		(7,643	)		-
Issuance costs associated with private placement and convertible notes		-			(104,500	)
Receipts from (payments to) Jinan Parent		(2,643,213	)		240,489
Net cash (used in) provided by financing activities		(2,046,003	)		4,985,989
Effect of exchange rate changes on cash		28,124			478,094
Net increase (decrease) in cash and cash equivalents		(2,484,263	)		4,659,145
Cash and cash equivalents at beginning of period		4,425,529			472,670
Cash and cash equivalents at end of period	$	1,941,266		$	5,131,815
Supplemental Cash Flow Information:
Cash paid for taxes	$	-		$	-
Cash paid for interest	$	792		$	490
Value assigned to shares as payment for interest expense	$	193,873		$	183,598
Shandong Media valuation adjustment	$	275,448		$	-
Convertible notes issued as payment for debt issuance costs	$	-		$	121,250
Value assigned to shares issued as penalty for non-registration of 7% convertible notes	$	-		$	12,125
Cumulative effect of change in accounting principle upon adoption of new accounting pronouncement on January 1, 2009, reclassification of warrants from equity to warrant liabilities	$	424,373		$	-

See notes to consolidated financial statements.

 

6

CHINA BROADBAND, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1. Basis of Presentation

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

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

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

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

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

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

2. Restatement

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

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

	Additional			Accumulated		Warrant
	Paid-in Capital			Deficit		Liabilities
Warrants	$	(731,000	)	$	424,000	$	307,000

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

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

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

7

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

3.  Accounting Policy Changes

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

On January 1, 2009, the Company adopted ASC 805, Business Combinations, and ASC 810, Consolidation.  ASC 805 requires an acquirer to measure the identifiable assets acquired, the liabilities assumed and any noncontrolling interest in the acquiree at their fair values on the acquisition date, with goodwill being the excess value over the net identifiable assets acquired.  Further, it requires transaction costs to be expensed.  These costs were previously treated as costs of the acquisition.

ASC 810 requires us to classify noncontrolling interests in a subsidiary as part of consolidated net income and to include the accumulated amount of noncontrolling interests as part of total equity.  The net loss amounts we have previously reported are now presented as “Net loss attributable to shareholders”.  The calculation of earnings per share continues to be based on income amounts attributable only to shareholders.  Similarly, in our presentation of total equity, we distinguish between equity amounts attributable to shareholders and amounts attributable to the noncontrolling interests (previously classified as minority interest outside of shareholders’ equity).

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

4. Going Concern and Management’s Plans

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

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

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

5.  Acquisition of AdNet

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

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

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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.

Adnet
Cash	$	17,568
Due from former AdNet shareholders		100,000
Property and equipment		6,986
Other assets		18,935
Software technology		756,969
Loan 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	$	448,944
Goodwill		1,239,291
Consideration paid	$	1,688,235

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

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

6.  Variable Interest Entities

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

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

7.  Fair Value Measurements

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

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

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

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

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

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

	September 30, 2009
	Fair Value Measurements
	Level 1		Level 2		Level 3		Total Fair Value
Assets
Available-for-sale securities	$	67,608	$	-	$	-	$	67,608
Liabilities
Fair value of warrants	$	-	$	-	$	1,417,335	$	1,417,335

	December 31, 2008
	Fair Value Measurements
	Level 1		Level 2		Level 3		Total Fair Value
Assets
Available-for-sale securities	$	254,496	$	-	$	-	$	254,496

8.  Related Party Transactions

Loan Receivable

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

Amounts due from Shareholders

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

Payable to Jinan Parent

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

9.  Goodwill and Other Intangible Assets

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

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

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

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

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

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

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

	Jinan		Shandong		AdNet
	Broadband		Media		Media		Total
2009 (three months)	$	21,680	$	33,234	$	63,080	$	117,994
2010		86,720		132,934		252,323		471,977
2011		86,720		132,934		252,323		471,977
2012		86,720		132,934		63,081		282,735
2013		86,720		132,934		-		219,654
Thereafter		1,136,882		1,693,006		-		2,829,888
Total amortization to be recognized	$	1,505,442	$	2,257,976	$	630,807	$	4,394,225

10.  Private Financings, June 2009

Issuance of Convertible Notes, June 2009

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

Equity Financing; Issuance of Common Stock

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

Waiver Letters

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

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

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

11. Convertible Notes, January 2008

On January 11, 2008 the Company entered into and consummated the Subscription Agreement with ten accredited investors with respect to the issuance of an aggregate of $4,971,250 principal amount of Convertible Notes due January 11, 2013, and Class A Warrants to purchase an aggregate of 6,628,333 shares of common stock of the Company at $.60 per share expiring on June 11, 2013.  The conversion price of these January 2008 Notes was originally $.75 per share and, in June of 2009 in connection with a subsequent filing with these investors, reduced to $.20 per share (see “Private Financings; June 2009 – Waiver Letters” above).

12.  Settlement Agreement

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

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

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

13.  Warrant Liabilities

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

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

	September 30,			January 1,
	2009			2009
Risk-free interest rate		1.93	%		1.30	%
Expected volatility		302.02	%		311.69	%
Expected life (in years)	3.7 years			4.4 years
Expected dividend yield		0			0

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

	Additional			Accumulated		Warrant
	Paid-in Capital			Deficit		Liabilities
Warrants	$	(731,000	)	$	424,000	$	307,000

 

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

14.  Net Loss Per Common Share

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

Potential common shares outstanding for the three and nine months ended September 30, 2009 and 2008:

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

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

15.  Comprehensive Loss

Comprehensive loss consists of the following:

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

16. Stock Based Compensation

In March 2008, the board of directors of the company approved the China Broadband, Inc. 2008 Stock Incentive Plan (the “Plan”), pursuant to which options or other similar securities may be granted. Qualified or Non-qualified Options to purchase up to 2,500,000 shares of the Company’s common stock may be issued under the Plan. The Plan may also be administered by an independent committee of the board of directors.  Through September 30, 2009, 317,500 options have been issued under the plan.

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

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

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

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

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

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

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

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

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

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

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

17. Warrants

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

	Number of
	Warrants		Exercise		Expiration
Name	Issued		Price		Date
Share Exchange Consulting Warrants		4,474,800	$	0.60	1/11/2013
2007 Private Placement Broker Warrants		640,000	$	0.60	1/11/2013
2007 Private Placement Investor Warrants		4,000,000	$	2.00	1/11/2013
January 2008 Financing Class A Warrants		6,628,333	$	0.60	6/11/2013
January 2008 Financing Broker Warrants		1,131,667	$	0.50	6/11/2013
		16,874,800

18. Interest Expense and Share Issuance

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

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

19. Income Taxes

In June 2006, the FASB issued ASC 740, Income Taxes.  ASC 740 is intended to clarify the accounting for uncertainty in income taxes recognized in a company’s financial statements and prescribes the recognition and measurement of a tax position taken or expected to be taken in a tax return.  ASC 740 also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition.

Under ASC 740, evaluation of a tax position is a two-step process. The first step is to determine whether it is more-likely-than-not that a tax position will be sustained upon examination, including the resolution of any related appeals or litigation based on the technical merits of that position. The second step is to measure a tax position that meets the more-likely-than-not threshold to determine the amount of benefit to be recognized in the financial statements. A tax position is measured at the largest amount of benefit that is greater than 50% likely of being realized upon ultimate settlement.

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

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

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

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

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20.  Reclassifications

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

21.  Recent Accounting Pronouncements

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

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

22.  Subsequent Events

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

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

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

Overview

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

Recent Developments

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

Laketune

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

Completion of Acquisition of AdNet

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

AdNet holds an Internet Content Provider (“ICP”) license and is in the business of providing delivery of multimedia advertising content to internet cafés in China.  AdNet currently services over 39,000 cafés and is licensed to operate in 28 provinces in the PRC. AdNet maintains servers in five data centers located in the Chinese cities of Wuhan, Wenzhou, Yantai, Yunan, with a master distribution server in Tongshan.  Partnering with a local advertisement agency, AdNet provides a network for tens of thousands of daily video advertisement insertions to entertainment content traffic (movies, music, video, and games).

Results of Operations

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

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

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

 

16

Comparison of Three Months Ended September 30, 2009 and 2008

Revenues

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

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

Jinan Broadband’s revenue consists primarily of sales to our PRC based Internet consumers, cable modem consumers, business customers and other internet and cable services of $1,170,000, an increase of $9,000, or 1% as compared to revenues of $1,161,000 for the three months ended 2008.

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

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

Gross Profit

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

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

Selling, General and Administrative Expenses

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

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

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

Professional Fees

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

17

Depreciation and Amortization

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

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

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

Interest and Other Income (Expense), net

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

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

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

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

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

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

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

Net Loss Attributable to Noncontrolling Interest

49% of the operating loss of our Jinan Broadband subsidiary is allocated to Jinan Parent, the 49% co-owner of this business.  During the three months ended September 30, 2009, $304,000 of our operating loss from Jinan Broadband was allocated to Jinan Parent, as compared to $69,000 during the third quarter of 2008.

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

Net Loss Attributable to Shareholders

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

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

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

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

18

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

Comparison of Nine Months Ended September 30, 2009 and 2008

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

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

Revenues

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

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

Jinan Broadband’s revenue consists primarily of sales to our PRC based Internet consumers, cable modem consumers, business customers and other internet and cable services of $3,393,000, an increase of $175,000, or 6% as compared to revenues of $3,218,000 for the nine months ended 2008. The increase is attributable to increases in our network leasing sales and value-added services.

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

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

Gross Profit

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

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

.

Selling, General and Administrative Expenses

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

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

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

19

Professional Fees

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

Depreciation and Amortization

	2009		2008
Depreciation	$	2,281,000	$	2,067,000
Amortization		372,000		143,000
Total	$	2,653,000	$	2,210,000

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

Interest and Other Income (Expense), net

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

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

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

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

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

Under new authoritative guidance, effective January 1, 2009, the Company was required to reclassify warrants from equity to warrant liabilities.  Warrants are fair valued quarterly using the Black-Scholes Merton Model and changes in fair value are recorded to the statement of operations.  We recorded a charge of $1,110,000 classified as a change in fair value of warrants on our statement of operations for the 9 months ended September 30, 2009.

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

Net Loss Attributable to Noncontrolling Interest

49% of the operating loss of our Jinan Broadband subsidiary is allocated to Jinan Parent, the 49% co-owner of this business.  During the nine months ended September 30, 2009, $670,000 of our operating loss from Jinan Broadband was allocated to Jinan Parent, as compared to $356,000 during the 2008 period.

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

Net Income (Loss) Attributable to Shareholders

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

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

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

20

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

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

Liquidity and Capital Resources

As of September 30, 2009 we had $1,941,000 of cash on hand and a working capital deficit of $2,952,000.  As of September 30, 2009, we had total current liabilities of $7,009,000.  Given our current commitments and working capital, we cannot support our operations for the next 12 months without additional capital (See “Need for Additional Capital”, below).

Private Financings, June 2009

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

Issuance of Convertible Notes, June 2009

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

Equity Financing; Issuance of Common Stock

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

Waiver Letters

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

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

Loan Receivable

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

Amounts due from Shareholders

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

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Payable to Jinan Parent

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

2008 Convertible Note Financing

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

Convertible Notes Interest

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

Cablecom Holding Shares

In April 2008, we received 390,000 shares of Cablecom Holdings, Ltd. (the “Cablecom Holdings Shares”) from Mr. Clive Ng, the Chairman of our board of directors, pursuant to a settlement agreement by and among the Company and its subsidiaries, Stephen P. Cherner, Maxim Financial Corporation, Mark L. Baum, BCGU, LLC, Mark I. Lev, Wellfleet Partners, Inc., Pu Yue, Clive Ng, Chardan Capital Markets, LLC, Jaguar Acquisition Corporation, and China Cablecom Holdings, Ltd (“Cablecom Holdings”).  The value of the Cablecom Holdings shares has since declined substantially, and may continue to fluctuate and decline further.  During the nine months ended September 30, 2009, we sold 236,665 of the Cablecom Holdings shares for total net proceeds of $175,000 and recorded a net loss on the sales of approximately $15,000.  As of September 30, 2009, we hold 81,455 shares of Cablecom Holdings.  The fair value of the remaining 81,455 Cablecom shares at September 30, 2009 approximates $68,000.

Cash Flows

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

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

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

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

Financing activities for the nine months ended September 30, 2009 and 2008 (used) provided cash of $(2,046,000) and $4,986,000, respectively.  For 2009, the amount consisted of proceeds from the sale of equity securities of $300,000 and proceeds from the issuance of convertible notes of $305,000 offset by payment to Jinan Parent of $2,643,000.  For 2008, this amount consisted of proceeds from the issuance of convertible notes of $4,850,000, offset by $105,000 of payments related to issuance costs associated with the convertible notes and an increase in the payable to Jinan Parent in the amount of $241,000.

Foreign Currency Translation

Our WOFE, Jinan Broadband subsidiary, Shandong Media joint venture and our AdNet Media acquisition are located in China.  All of their operations are conducted in the local currency of the Chinese Yuan, also known as Renminbi or RMB.  The favorable effect of exchange rates on cash between the Chinese Yuan and the United States dollar, provided cash of $28,000 and $478,000 during the nine months ended September 30, 2009 and 2008, respectively.

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Shandong Media Joint Venture and Shandong Newspaper Cooperation Agreement

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

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

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

Specifically, in the event that audited annual net profits during the first year after closing of the transaction relating to the Shandong Newspaper Cooperation Agreement:

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

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

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

Based on financial performance we will be required to make the additional minimum payment of 5 million RMB (approximately US $730,000).  The due date of the additional payment has been extended to December 31, 2009.

The Shandong Newspaper Cooperation Agreement resulted in the creation of a Variable Interest Entity (“VIE”) as defined under Financial Accounting Standards Board (“FASB”) ASC 810, Consolidation.  The intended result of the contractual arrangements is that, as of July 1, 2008 the economic risks and benefits of the Shandong Newspaper Business operations are being primarily borne by the Company.  The Company has contributed more capital to date and is required to make further capital contributions based upon performance targets.  The contractual arrangements in addition to the service agreements the Company has with the Shandong Newspaper parent companies, provide under the relevant principles of United States Generally Accepted Accounting Principles (“US GAAP”) for the consolidation of the results of operations of Shandong Newspaper, with 50% of the Shandong Newspaper net income included in the accompanying financial statements of the Company.

Need for Additional Capital

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

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

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

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

Critical Accounting Policies and Assumptions

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

Recent Accounting Pronouncements

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

Off-Balance Sheet Arrangements

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

Item 3. Quantitative and Qualitative Disclosures about Market Risk

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

Item 4. Controls and Procedures

a. Evaluation of Disclosure Controls and Procedures

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

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

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

1)  In connection with the preparation and audit of our 2009 financial statements and notes, we were informed by our auditor, UHY LLP (“UHY”) of certain deficiencies in our internal controls that UHY considered to be material weaknesses.  These deficiencies related to our financial closing procedures and errors in classification of warrants.  After discussions between management, our audit committee and UHY, we concluded that the Company had not properly adopted FASB ASC Topic 815-40 “Derivatives and Hedging:  Contracts in Entity’s Own Equity” (“ASC 815”) and as a result had not reclassified warrants from equity to liabilities as of January 1, 2009.  As a result of the change in accounting, the Company recognized a gain of $131,000 and a charge of $1,111,000 during the three months and nine months ended September 30, 2009, respectively.

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

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

b. Changes in Internal Control over Financial Reporting

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

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PART II - OTHER INFORMATION

Item 1. Legal Proceedings.

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

Item 1A. Risk Factors

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

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

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

Item 3. Defaults Upon Senior Securities.

None.

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

None.

Item 5. Other Information.

None.

Item 6. Exhibits.   

EXHIBIT INDEX

Exhibit No.	Description
31.1	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.

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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, INC
By:	/s/ Marc Urbach
	Name: Marc Urbach
	Title: President (Principal Executive Officer, Principal Accounting Officer, Principal Financial Officer)

   

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