IDEANOMICS, INC. - Quarter Report: 2011 March (Form 10-Q)

form10q.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended March 31, 2011

¨	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

YOU On Demand Holdings, Inc.

(Exact name of registrant as specified in its charter)

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

27 Union Square, West Suite 502

New York, New York 10003

(Address of principal executive offices)

212-206-1216

(Registrant's telephone number, including area code)

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

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

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

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

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

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: 660,968,748 shares as of May 20, 2011.

QUARTERLY REPORT ON FORM 10-Q

OF YOU ON DEMAND HOLDINGS, INC.

FOR THE PERIOD ENDED MARCH 31, 2011

TABLE OF CONTENTS

PART I	-	FINANCIAL INFORMATION

Item 1.		Financial Statements	1
Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations	16
Item 3		Quantitative and Qualitative Disclosures About Market Risk	23
Item 4.		Controls and Procedures	23

PART II	-	OTHER INFORMATION

Item 1.		Legal Proceedings	24
Item 1A.		Risk Factors	24
Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds	24
Item 3.		Defaults Upon Senior Securities	24
Item 4.		Removed and Reserved	24
Item 5.		Other Information	24
Item 6.		Exhibits	24
Signatures			25

References

Except as otherwise indicated by the context, references in this report to (i) the “Company,” “we,” “us,” and “our” are to the combined business of YOU On Demand Holdings, Inc. (formerly China Broadband, Inc.), a Nevada corporation, and its consolidated subsidiaries; (ii) “Broadband Cayman” are to our wholly-owned subsidiary China Broadband, Ltd., a Cayman Islands company; (iii) “WFOE” are to our wholly-owned subsidiary Beijing China Broadband Network Technology Co., Ltd., a PRC company; (iv) “Jinan Broadband” are to our 51% owned subsidiary Jinan Guangdian Jia He Broadband Co. Ltd, a PRC company; (v) “Shandong Media” are to our 50% joint venture Shandong Lushi Media Co., Ltd., a PRC company; (vi) “AdNet” are to our wholly-owned subsidiary Wanshi Wangjing Media Technologies (Beijing) Co., Ltd. (a/k/a AdNet Media Technologies (Beijing) Co., Ltd.), a PRC company; (vii) “Sinotop Beijing” refers to Beijing Sino Top Scope Technology Co., Ltd, a PRC company controlled by Sinotop HK through contractual arrangements; (ix) “Sinotop HK” refers to Sinotop Group Limited, a Hong Kong company wholly-owned by CB Cayman; (x) “SEC” are to the United States Securities and Exchange Commission; (xi) “Securities Act” are to Securities Act of 1933, as amended; (xii) “Exchange Act” are to the Securities Exchange Act of 1934, as amended; (xiii) “PRC” and “China” are to People’s Republic of China; (xiv) “Renminbi” and “RMB” are to the legal currency of China; (xv) “U.S. dollar,” “$” and “US$” are to United States dollars; and (xvi) “VIEs” refers to our variable interest entities, including Jinan Broadband, Shandong Publishing and Sinotop Beijing.

Table of Contents

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements.

YOU ON DEMAND HOLDINGS, INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2011 AND 2010

	Page
Consolidated Balance Sheets	2
Unaudited Consolidated Statements of Operations	3
Unaudited Consolidated Statement of Changes in Stockholders’ Equity	4
Unaudited Consolidated Statements of Cash Flows	5
Notes to Unaudited Consolidated Financial Statements	6

Table of Contents

YOU On Demand Holdings, Inc. and Subsidiaries

(Formerly China Broadband, Inc.)

CONSOLIDATED BALANCE SHEETS

	March 31,			December 31,
	2011			2010
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	4,645,898		$	6,584,396
Marketable equity securities, available for sale		7,203			9,433
Accounts receivable, net		324,497			220,926
Inventory		385,321			428,280
Prepaid expenses		779,577			756,461
Loan receivable from related party		306,462			304,529
Amounts due from shareholders		396,819			184,086
Other current assets		588,961			597,362
Total current assets		7,434,738			9,085,473

Property and equipment, net		4,491,905			4,463,920
Intangible assets, net		8,091,171			8,592,244
Goodwill		6,105,478			6,105,478
Amount due from non-controlling interest		1,522,048			1,512,448
Investment in equity investment		571,315			574,486
Other assets		456,041			299,163
Total assets	$	28,672,696		$	30,633,212

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	1,902,477		$	1,620,481
Accrued expenses and liabilities		1,042,822			804,341
Deferred revenue		1,708,724			1,711,796
Loan payable		398,960			398,960
Payable to Jinan Parent		138,672			137,797
Other current liabilities		734,987			792,413
Total current liabilities		5,926,642			5,465,788

Contingent purchase consideration liability		3,323,496			3,362,105
Deferred tax liability and uncertain tax position liability		1,104,903			1,180,323
Total liabilities		10,355,041			10,008,216

Commitments and Contingencies

Convertible reedeemable preferred stock, $.001 par value; 50,000,000 shares authorized
Series A - 7,000,000 shares issued and outstanding, liquidation preference of $3,500,000		1,261,995			1,261,995
Series B - 10,266,800 shares issued and outstanding, liquidation preference of $5,133,400		3,950,358			3,950,358

Shareholders' equity
Common stock, $.001 par value; 1,500,000,000 shares authorized, 660,968,748 and 660,768,748 issued and outstanding		660,969			660,769
Additional paid-in capital		42,410,931			42,255,089
Accumulated deficit		(34,660,930	)		(32,434,324	)
Accumulated other comprehensive income		252,023			246,983
Total YOU On Demand shareholders' equity (deficit)		8,662,993			10,728,517
Noncontrolling interests		4,442,309			4,684,126

Total shareholders' equity		13,105,302			15,412,643

Total liabilities and shareholders' equity	$	28,672,696		$	30,633,212

See notes to consolidated financial statements.

Table of Contents

YOU On Demand Holdings, Inc. and Subsidiaries

(Formerly China Broadband, Inc.)

CONSOLIDATED STATEMENTS OF OPERATIONS

	Three Months Ended
	March 31,			March 31,
	2011 (unaudited)			2010 (unaudited)

Revenue	$	1,697,924		$	1,875,681
Cost of revenue		1,250,070			1,073,808
Gross profit		447,854			801,873

Selling, general and adminstrative expenses		1,812,688			723,270
Professional fees		317,680			168,765
Depreciation and amortization		1,074,327			945,444

Loss from operations		(2,756,841	)		(1,035,606	)

Interest & other income / (expense)
Interest income		2,938			3,109
Interest expense		(555	)		(91,235	)
Change in fair value of warrant liabilities		-			41,814
Change in fair value of contingent consideration		38,609			-
Loss on equity investment		(6,798	)		-
Other		(4	)		26

Net loss before income taxes and noncontrolling interest		(2,722,651	)		(1,081,892	)

Income tax benefit		75,420			13,728

Net loss, net of tax		(2,647,231	)		(1,068,164	)

Plus: Net loss attributable to noncontrolling interests		420,625			263,655

Net loss attributable to YOU On Demand shareholders	$	(2,226,606	)	$	(804,509	)


Net loss per share
Basic	$	-		$	(0.01	)
Diluted	$	-		$	(0.01	)

Weighted average shares outstanding
Basic		660,813,189			64,765,004
Diluted		660,813,189			64,765,004

See notes to consolidated financial statements.

Table of Contents

YOU On Demand Holdings, Inc. and Subsidiaries

CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY AND COMPREHENSIVE LOSS

For the Periods Ended March 31, 2011 (Unaudited) and December 31, 2010

											Accumulated			YOU On
					Additional						Other			Demand
	Common		Par		Paid-in			Accumulated			Comprehensive			Shareholders'			Noncontrolling			Total			Comprehensive
	Shares		Value		Capital			Deficit			Income(loss)			(Deficit)/Equity			Interest			Equity			Loss

Balance December 31, 2009		64,761,396	$	64,762	$	14,901,493		$	(17,215,041	)	$	331,283		$	(1,917,503	)	$	5,259,427		$	3,341,924		$	(5,428,700	)

Shares issued as payment for convertible note interest		653,119		653		131,982			-			-			132,635			-			132,635

Stock option compensation expense		-		-		503,372			-			-			503,372			-			503,372

Interest expense related to discount and beneficial convertible features in connection with convertible note and warrants issuance		-		-		90,000			-			-			90,000			-			90,000

Common shares issued for services		5,100,000		5,100		249,900			-			-			255,000			-			255,000

Other adjustment		-		-		22,126			-			-			22,126			-			22,126


Common shares issued for cash		62,500,000		62,500		1,997,164			-			-			2,059,664			-			2,059,664

Beneficial conversion feature of Series A and Series B preferred stock issued		-		-		2,315,309			-			-			2,315,309			-			2,315,309

Warrants issued with common stock, Series A and Series B preferred stock		-		-		4,486,383			-			-			4,486,383			-			4,486,383

Common shares and warrants issued and costs related to the conversion of convertible notes		62,855,048		62,855		9,786,038			-			-			9,848,893			-			9,848,893

Warrants issued to placement agent		-		-		135,774			-			-			135,774			-			135,774

Issuance costs related to the issuance of shares and warrants		-		-		(632,503	)		-			-			(632,503	)		-			(632,503	)

Warrant liability reclassified to equity		-		-		150,017			-			-			150,017			-			150,017

Shares issued for Sinotop Group Ltd acquisition		90,859,389		90,859		4,452,110			-			-			4,542,969			-			4,542,969

Warrants and options issued for Sinotop Group Ltd acquisition		-		-		4,039,964			-			-			4,039,964			-			4,039,964

Sinotop Beijing joint venture		-		-		-			-			-			-			1,492,961			1,492,961

Shares issued in warrant exchange		374,039,793		374,040		(374,040	)		-			-			-			-			-

Comprehensive loss:
Net loss		-		-		-			(15,219,283	)		-			(15,219,283	)		(2,616,032	)		(17,835,315	)		(15,219,283	)
Foreign currency translation adjustments		-		-		-			-			(70,489	)		(70,489	)		547,770			477,281			477,281

Unrealized gain on marketable equity securities		-		-		-			-			(13,811	)		(13,811	)		-			(13,811	)		(13,811	)
Balance December 31, 2010		660,768,745	$	660,769	$	42,255,089		$	(32,434,324	)	$	246,983		$	10,728,517		$	4,684,126		$	15,412,643		$	(14,755,813	)


Common shares issued for services		200,000		200		9,800			-			-			10,000			-			10,000

Stock option compensation expense		-		-		146,042			-			-			146,042			-			146,042

Contribution from noncontrolling interest		-		-		-			-			-			-			151,759			151,759

Comprehensive loss:
Net loss		-		-		-			(2,226,606	)		-			(2,226,606	)		(420,625	)		(2,647,231	)		(2,226,606	)
Foreign currency translation adjustments		-		-		-			-			7,270			7,270			27,049			34,319			34,319

Unrealized loss on marketable equity securities		-		-		-			-			(2,230	)		(2,230	)		-			(2,230	)		(2,230	)


Balance March 31, 2011		660,968,745	$	660,969	$	42,410,931		$	(34,660,930	)	$	252,023		$	8,662,993		$	4,442,309		$	13,105,302		$	(2,194,517	)

See notes to consolidated financial statements.

Table of Contents

YOU On Demand Holdings, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF CASH FLOWS

	Three Months Ended
	March 31,			March 31,
	2011 (unaudited)			2010 (unaudited)
Cash flows from operating
Net loss	$	(2,647,231	)	$	(1,068,164	)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities
Stock compensation expense		156,042			74,167
Depreciation and amortization		1,074,327			945,444
Noncash interest expense - original issue discount		-			24,875
Deferred income tax		(75,420	)		(13,728	)
Change in fair value of warrant liabilities		-			(41,814	)
Change in fair value of contingent consideration liability		(38,609	)		-
Change in assets and liabilities,
Accounts receivable		(101,524	)		(18,913	)
Inventory		45,949			(37,963	)
Prepaid expenses and other assets		(6,613	)		(3,582	)
Accounts payable and accrued expenses		478,857			342,005
Deferred revenue		6,736			(113,841	)
Other		(337	)		-
Net cash (used in) provided by operating activities		(1,107,823	)		88,486

Cash flows from investing activities:
Acquisition of property and equipment		(553,535	)		(224,334	)
Loan to Sinotop Group Ltd		-			(580,000	)
Loan advances to Shandong Media shareholders		(210,230	)		(585,111	)
Loan repayments to from Shandong Media shareholders		-			17,203
Other		(156,464	)		-
Net cash used in investing activities		(920,229	)		(1,372,242	)

Cash flows from financing activities
Proceeds from issuance of convertible notes payable		-			600,000
Proceeds from Jinan Parent		151,759			-
Payments to Jinan Parent		-			(18,992	)
Net cash provided by financing activities		151,759			581,008

Effect of exchange rate changes on cash		(62,205	)		26,181

Net decrease in cash and cash equivalents		(1,938,498	)		(676,567	)
Cash and cash equivalents at beginning of period		6,584,396			2,190,494

Cash and cash equivalents at end of period	$	4,645,898		$	1,513,927


Supplemental Cash Flow Information:

Cash paid for taxes	$	-		$	-
Cash paid for interest	$	555		$	413
Value assigned to shares as payment for interest expense	$	-		$	65,951

See notes to consolidated financial statements.

Table of Contents

YOU ON DEMAND HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1.	Basis of Presentation

YOU On Demand Holdings, Inc., a Nevada corporation (“YOU On Demand”, “we”, “us”, or “the Company” formerly China Broadband, Inc.) owns and operates in the media segment through our Chinese subsidiaries and variable interest entities (“VIEs”), (1) a cable broadband business, Beijing China Broadband Network Technology Co. Ltd ( “Jinan Broadband”), (2) a print based media and television programming guide publication, Shandong Lushi Media Co., Ltd. ( “Shandong Media”) and (3) an integrated value-added service solutions business for the delivery of pay-per-view (“PPV”), video-on-demand (“VOD”), and enhanced premium content for cable providers, Sino Top Scope Technology Co., Ltd. (“Sinotop”),

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

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

(3) We provide integrated value-added service solutions for the delivery of PPV, VOD, and enhanced premium content for cable providers.

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

The unaudited consolidated financial statements include the accounts of China Broadband, Inc. and (a) its wholly-owned subsidiary. China Broadband Cayman, ("CB Cayman"), (b) two wholly-owned subsidiaries of CB Cayman: Beijing China Broadband Network Technology Co, Ltd. (“WFOE”) and Sinotop Group Limited (“Sinotop Hong Kong”) and (c) six entities located in the PRC: Jinan Zhong Kuan, Jinan Broadband, Shandong Media, AdNet, Sinotop Scope Technology Co., Ltd (“Sinotop Beijing”). and Zhong Hai Video Information Technology Co., Ltd (“Zhong Hai Video”) which are controlled by the Company through contractual arrangements, as if they are wholly-owned subsidiaries of the Company. All material intercompany transactions and balances are eliminated in consolidation.

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

Certain information and footnote disclosures normally included in the annual consolidated financial statements prepared in accordance with U.S. GAAP have been condensed or omitted. These unaudited condensed financial statements should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010.

The information presented in the accompanying consolidated balance sheet as of December 31, 2010 has been derived from the Company’s audited consolidated financial statements but does not include all disclosures required by U.S. GAAP. All other information has been derived from the Company’s unaudited condensed consolidated financial statements for the three months ended March 31, 2011.

Table of Contents

2.	Going Concern and Management’s Plans

The Company incurred significant continuing losses during 2010 and the quarter ended March 31, 2011 and has relied on debt and equity financings to fund operations. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. The Company believes that the acquisition of Sinotop in 2010 and the expected 2011 launch of its PPV and VOD business will generate positive cash flows for the business.

The 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.

3.	Sinotop Contingent Consideration

In connection with the acquisition of Sinotop on July 30, 2010, if specified performance milestones are achieved, Weicheng Liu (“Mr. Liu” or “the Seller”) will be entitled to earn up to (i) an additional 30,286,464 shares of common stock of the Company, (ii) three-year warrants to purchase 42,845,654 shares of the Company’s common stock, equivalent to 5.0% of the total number of shares of the Company’s common stock underlying all outstanding warrants as of immediately following the closing of the financing and (iii) a four-year option to purchase a number of shares of the Company’s common stock that is equal to 5% of the total number of shares of the Company’s common stock underlying all outstanding options of the Company granted to individuals employed by the Company as of September 1, 2010 (collectively, the securities referred to in clauses (i), (ii) and (iii) are referred to herein as the “Earn-Out Securities”). The milestones are as follows: Sinotop will ensure that (i) at the end of the first earn-out year (July 1, 2012), at least 3 million homes will have access to the Company’s PPV services, (ii) at the end of the second earn-out year (July 1, 2013), at least 11 million homes will have access to the Company’s PPV services, and (iii) at the end of the third earnout year (July 1, 2014), at least 30 million homes will have access to the Company’s PPV services. Although not yet formalized by the Board of the Directors, the intent is for the Seller to receive one-third of the total earn-out each year if the annual performances are achieved.

The amount of contingent consideration recognized as of December 31, 2010 totaled $2,860,978, representing the fair value of the estimated payment of the full earn-out. The contingent consideration is classified as a liability because the earn-out securities do not meet the fixed-for-fixed criteria under ASC 815-40-15 for equity classification. Further ASC 815-40-15 requires us to re-measure the contingent consideration obligation at the end of every reporting period with the change in value reported in the consolidated statements of operations and, accordingly, we reported a gain of $38,609 for the three months ended March 31, 2011.

The following is a summary of the estimated fair value of contingent consideration for the acquisition of Sinotop at December 31, 2010 and March 31, 2011.

	Number of		December 31, 2010		Change in			March 31, 2011
Class of consideration	Instruments		Fair Value		Fair Value			Fair Value
Common stock of the Company		30,286,464	$	1,817,187	$	-		$	1,817,187
Warrants		42,845,654		1,358,715		(34,252	)	$	1,324,463
Stock options		6,000,000		186,203		(4,357	)	$	181,846
Total contingent consideration			$	3,362,105	$	(38,609	)	$	3,323,496

4.	Shandong Media Joint Venture - Cooperation Agreement Additional Payment

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

5.	Variable Interest Entities

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

Table of Contents

Our consolidated VIEs were recorded at fair value on the date we became the primary beneficiary. Our VIEs include Sinotop Beijing, Zhong Hai Video, Jinan Broadband and Shandong Media.

6.	Fair Value Measurements

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

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

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

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

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

Common stocks are valued at closing price reported on the active market on which the individual securities are traded.

The fair value of the liabilities at March 31, 2011 was determined using the Black-Scholes Merton model which incorporates the following assumptions: risk-free interest rate of 0.6% to 1.5%, expected volatility of 60% based on the (High – Low) / (High + Low) method, expected life of 1.75 to 4.25 years and expected dividend yield of 0%.

The fair value of the liabilities at December, 31 2010 was determined using the Black-Scholes Merton model which incorporates the following assumptions: risk-free interest rate of 0.6% to 1.7%, expected volatility of 60% based on the (High – Low) / (High + Low) method, expected life of 2.0 to 4.5 years and expected dividend yield of 0%.

The following tables present the fair value hierarchy for those assets and liabilities measured at fair value on a recurring basis at March 31, 2011 and December 31, 2010 :

	March 31, 2011
	Fair Value Measurements (Unaudited)
	Level 1		Level 2		Level 3		Total Fair Value
Assets
Available-for-sale securities	$	7,203	$	-	$	-	$	7,203
Liabilities
Contingent purchase consideration	$	-	$	-	$	3,323,496	$	3,323,496

	December 31, 2010
	Fair Value Measurements
	Level 1		Level 2		Level 3		Total Fair Value
Assets
Available-for-sale securities	$	9,433	$	-	$	-	$	9,433
Liabilities
Fair value of warrants	$	-	$	-	$	3,362,105	$	3,362,105

Table of Contents

The following table summarizes the activity for financial liabilities utilizing Level 3 fair value measurements:

	March 31, 2011		December 31, 2010
	Contingent Purchase		Contingent Purchase
	Consideration		Consideration		Warrants
	(Unaudited)
Fair value at January 1,	$	3,362,105	$	-	$	819,150
Purchases, Sales and Issuances and Settlements		-		2,860,978		-
Realized Losses		-		-		(669,133)
Unrealized (gains) losses		(38,609)		501,127		-
Transfer to equity		-		-		(150,017)
	$	3,323,496	$	3,362,105	$	-

7.	Related Party Transactions

Loan Receivable

As of March 31, 2011 and December 31, 2010, the Company advanced an aggregate of approximately $305,000 and $305,000, respectively, in the form of a loan to Music Magazine to fund its operations. The loan is unsecured, interest free and is due on December 31, 2011. Music Magazine is an affiliate of Modern Movie & TV Biweekly Press, our partner in our Shandong Media joint venture company.

Amounts due from Shareholders

As of March 31, 2011and December 31, 2010, amounts due from shareholders include approximately $95,000 and $301,000 advanced to Shandong Broadcast & TV Weekly Press and to Modern Movie & TV Biweekly Press, respectively. All of the parties 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, 2011.

Payable to Jinan Parent

During the three months ended March 31, 2011, our payable to Jinan Parent increased approximately $1,000, due to currency fluctuations. At March 31, 2011 and December 31, 2010, approximately $139,000 and $138,000, respectively, remained due to Jinan Parent. This amount represents the remaining balance due from the initial acquisition which is unsecured, interest free and has no fixed repayment terms.

Loan Payable to Beneficial Owner

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

Table of Contents

Pursuant to the Note Purchase Agreement, on March 9, 2010, CB Cayman acquired a Convertible Promissory Note, or Note from Sinotop Hong Kong in consideration of CB Cayman’s US580,000 loan to Sinotop Hong Kong.

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

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

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

Receivable from Trustee

At the time we acquired Sinotop Hong Kong, one of the bank accounts acquired was in Zhang Yan’s name, our PRC trustee in the VIE agreements. At December 31, 2010 this account remained open with a $172,000 balance and the amount was reported in other current assets in the consolidated balance sheet at December 31, 2010. During the first quarter of 2011, the account was settled in full.

8.	Property and Equipment

During 2010, the Company analyzed for impairment the equipment at its Jinan Broadband subsidiary, as the equipment was taken out of service in July 2010 due to changes in customer needs. As of December 31, 2010, the Company determined there were no other uses for the equipment and the equipment cannot be sold. As such, the Company recorded a total equipment impairment charge of $1,505,008 in 2010. For 2011, the impairment from 2010 was allocated to headend facilities and machinery.

Property and equipment approximated the following:

	March 31,			December 31,
	2011			2010
	(Unaudited)
Furniture and office equipment	$	1,630,000		$	1,241,000
Headend facilities and machinery		14,531,000			15,762,000
Vehicles		30,000			30,000
Total property and equipment		16,191,000			17,033,000
Less: accumulated depreciation		(11,700,000	)		(11,064,000	)
Less: impairment charge		-			(1,505,000)
Net carrying value	$	4,491,000		$	4,464,000

Depreciation expense	$	564,000		$	804,000

Table of Contents

9.	Goodwill and Intangible Assets

The Company has intangible assets relating to the acquisitions of its Jinan Broadband subsidiary, Shandong Media joint venture, AdNet Media and Sinotop. The Company amortizes its intangible assets that have finite lives. The service agreement, publication rights, operating permits and charter/cooperation agreements are amortized over 20 years. Customer relationships, non-compete agreement and software technology are amortized over 10 years, 2.5 years and 3 years, respectively.

A roll forward of our intangible assets activity from December 31, 2010 to March 31, 2011 follows:

	Balance at December 31, 2010		Additions			Amortization Expense		Impairment Charge		Other Changes		Balance at March 31, 2011 (Unaudited)
Amortized intangible assets:
Service agreement	$	1,397,042	$	-		$	(21,680)	$	-	$	-	$	1,375,362
Publication rights		425,253		-			(6,075)		-		-		419,178
Customer relationships		88,359		-			(2,945)		-		-		85,414
Operating permits		636,519		-			(9,093)		-		-		627,426
Software technology		315,403		-			(63,081)		-		-		252,322
Charter / Cooperation agreements		2,698,408		-			(34,448)		-		-		2,663,960
Non-compete agreement		3,031,260		-	-		(363,751)		-		-		2,667,509
Total amortized intangible assets	$	8,592,244	$	-		$	(501,073)	$	-	$	-	$	8,091,171

Unamortized intangible assets:
Goodwill	$	6,105,478	$	-		$	-	$	-	$	-	$	6,105,478

In accordance with ASC 250, we recorded amortization expense related to our intangible assets of $501,073 and $117,995 for the three months ended March 31, 2011 and 2010, respectively.

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

	Jinan		Shandong		AdNet
Years ending December 31,	Broadband		Media		Media		Sinotop		Total
2011 (nine months)	$	65,040	$	54,340	$	189,242	$	1,194,597	$	1,503,219
2012		86,720		72,454		63,080		1,592,796		1,815,050
2013		86,720		72,454		-		259,041		418,215
2014		86,720		72,454		-		137,791		296,965
2015		86,720		72,454		-		137,791		296,965
Thereafter		963,442		787,862		-		2,009,453		3,760,757
Total amortization to be recognized	$	1,375,362	$	1,132,018	$	252,322	$	5,331,469	$	8,091,171

10.	Accrued Expenses and Liabilities

Accrued expenses consist of the following:

	March 31, 2011		December 31,
	(Unaudited)		2010

Accrued expenses	$	774,000	$	720,000
Accrued payroll		269,000		84,000
	$	1,043,000	$	804,000

Table of Contents

11.	Private Financings, July 2010

In connection with our July 2010, Private Financing, we entered into a Registration Rights Agreement with the investors under which we agreed to use commercially reasonable efforts to file a registration statement with the Securities and Exchange Commission, registering the shares of common stock and the shares of common stock underlying the Series A and Series B Preferred Stock and the Warrants. The Agreement required us to file the registration statement within 45 days of the closing (by September 13, 2010) and to have it effective within 180 days (by January 26, 2011). The registration statement which was initially filed on October 7, 2010, and amended thereafter on May 10, 2011, became effective on May 13, 2011. The agreement did not provide for any specific penalties for non-performance and we did not record any liability for any penalties.

12.	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, warrants and series preferred stocks.

Potential common shares outstanding are as follows:

	March 31,		March 31,
	2011		2010
	(Unaudited)		(Unaudited)
Warrants		11,393,500		16,874,800
Options		96,017,500		317,500
Series A Preferred Stock		70,000,000		-
Series B Preferred Stock		102,668,000		-
Total		280,079,000		17,192,300

For the three months ended March 31, 2011 and 2010, the number of securities not included in the diluted EPS because the effect would have been anti-dilutive was 280,079,000 and 17,192,300, respectively.

13.	Comprehensive Loss

Comprehensive loss for the 3 months ended March 31, 2011 and 2010:

	March 31,			March 31,
	2011			2010
	(Unaudited)			(Unaudited)
Net loss attributable to shareholders	$	(2,226,606	)	$	(804,509	)
Other comprehensive income (loss):
Currency translation adjustment		34,319			19,617
Unrealized (loss) gain on marketable equity securities		(2,230	)		76,568
Comprehensive loss	$	(2,194,517	)	$	(708,324	)

14.	Interest Expense and Share Issuance

In connection with the Convertible Notes issued in 2008 and 2009, there was no interest expense incurred for the three months ended March 31, 2011 because the note holders converted 100% of the outstanding principal and interest owing on such notes into shares of common stock and warrants in connection with the closing of the financings on July 30, 2010 and pursuant to a Waiver and Agreement to Convert, dated May 20, 2010. The Company incurred $91,000 of interest expense related to the Notes in the three months ended March 31, 2010. Also, as set forth in the related documents and with the consent of the Note holders, we issued 324,576 shares to the Note holders as payment for convertible note interest of approximately $66,000 for the three months ended March 31, 2010 (none in 2011).

Table of Contents

15.	Share Based Payments

Through March 31, 2011, we have 96,017,500 options outstanding to purchase shares of our common stock.

Effective as of December 3, 2010, our board of directors of the company amended our 2008 Stock Incentive Plan and approved the YOU On Demand Holdings, Inc. 2010 Stock Incentive Plan, or the Plan, pursuant to which options or other similar securities may be granted. The maximum aggregate number of shares of our common stock that may be issued under the Plan is 300,000,000 shares.

The following table provides the details of the approximate total share based payments during the three months ended March 31, 2011 and 2010:

	March 31,		March 31,
	2011		2010
	(Unaudited)		(Unaudited)
Stock option amortization	$	146,000	$	8,000
Stock issued as payment for interest		-		66,000
Stock issued for services		10,000		-
	$	156,000	$	74,000

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 mode. 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 incorporated the following assumptions for the options issued in 2011 and 2010: risk-free interest rate of 3.29% to 3.49%, expected volatility of 60.0%, expected life of 10.0 years and expected dividend yield of 0%.

The Company recorded a charge of approximately $146,000 and $8,000 during the three months ended March 31, 2011 and 2010, respectively, in connection with stock option compensation. Common shares were also issued to pay for consulting services and were recorded at the closing price of $.05 per share on the issue date and expensed in an amount of $10,000 for the three months ended March 31, 2011.

Stock option activity at March 31, 2011 and 2010 is summarized as follows:

	March 31,					March 31,
	2011					2010
	(Unaudited)					(Unaudited)
	Shares			Weighted Average Exercise Price		Shares		Weighted Average Exercise Price
Options outstanding at beginning of year		96,417,500		$	0.04		317,500	$	0.66
Granted		600,000			0.05		-		-
Exercised		-			-		-		-
Cancelled/expired		(1,000,000	)		-		-		-
Options outstanding at end of period		96,017,500		$	0.04		317,500	$	0.66

Options exercisable at end of period		39,738,625		$	0.05		255,000	$	0.65

Options available for issuance		203,582,500					2,182,500

As of March 31, 2011, there were 96,017,500 options outstanding with 39,738,625 options exercisable at a weighted average exercise price of $0.05 with a weighted average remaining life of 9.5 years.

As of March 31, 2011 the Company had total unrecognized compensation expense related to options granted of approximately $1,595,000 which will be recognized over a remaining service period of 4 years.

Table of Contents

16.

Warrants

In connection with the Company’s Share Exchange, capital raising efforts in 2007, the Company’s January 2008 Financing of Convertible Notes and Class A Warrants, the April 2010 Convertible Note and the July 2010 financings, the Company issued warrants to investors and service providers to purchase common stock of the Company. As of March 31, 2011, the weighted average exercise price was $1.21 and the weighted average remaining life was 1.75 years. The following table outlines the warrants outstanding as of March 31, 2011 and December 31, 2010:

	March 31,		December 31,
	2011		2010
Warants Outstanding	Number of Warrants Issued		Number of Warrants Issued		Exercise Price		Expiration Date
Share Exchange Consulting Warrants		4,474,800		4,474,800	$	0.60	1/11/2013
2007 Private Placement Broker Warrants		640,000		640,000	$	0.60	1/11/2013
2007 Private Placement Investor Warrants		4,000,000		4,000,000	$	2.00	1/11/2013
July 2010 Sinotop Acquisition Warrants		1,278,700		1,278,700	$	0.60	1/11/2013
July 2010 Sinotop Acquisition Warrants		1,000,000		1,000,000	$	2.00	1/11/2013

		11,393,500		11,393,500

17.	Income Taxes

Deferred taxes are recognized for the future tax consequences attributable to temporary differences between the carrying amounts of assets and liabilities for financial statement purposes and income tax purposes using enacted rates expected to be in effect when such amounts are realized or settled. The effect on deferred taxes of a change in tax rates is recognized in income in the period that includes the enactment date. The income tax benefit for the three month periods ended March 31, 2011 and 2010 results primarily from changes in calculated deferred taxes, particularly liabilities associated with intangible assets. Deferred tax assets associated with net operating losses have a full valuation allowance recorded against them except in those instances in which they can offset deferred tax liabilities. The income tax benefit for the three months ended March 31, 2011 is net of a $456 expense for estimated penalties and interest that would be due on unrecognized tax positions.

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

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

The Company’s United States income tax returns are subject to examination by the Internal Revenue Service (“IRS”) for at least 2006 and later years. Because of the uncertainty regarding the filing of tax returns for earlier years it is possible that the Company is subject to examination by the IRS for earlier years. All of the Chinese tax returns for the Chinese operating companies are subject to examination by the Chinese tax authorities for all periods from the companies’ inceptions in years from 2007 to 2010 as applicable.

China passed a new Enterprise Income Tax Law (“EIT Law”) and implementing rules, both of which became effective January 1, 2008. Under the EIT Law, an enterprise established outside of China with “de facto management bodies” within China is considered a “resident enterprise,” meaning that it can be treated in a manner similar to a Chinese enterprise for enterprise income tax purposes.

Table of Contents

If the EIT Law were to be applied to You On Demand Holdings, Inc., (the Nevada Corporation itself) and/or to CB Cayman those entities would be subject to Chinese corporate income tax, currently at a rate of 25%. To date, these two entities have generated no net income so there would be no Chinese tax liability even if the EIT Law were to apply to them.

Furthermore, we believe that the law does not apply to our non-Chinese entities and have substantial defenses, that we believe would prevail, if the Chinese tax authorities were to try to apply the EIT Law to us. It is, of course reasonably possible that the Chinese tax authorities would successfully make that claim.

18.	Commitments and Contingencies

The Company has employment agreements with certain employees that provide severance payments upon termination of employment under certain circumstances, as defined in the applicable agreements. As of March 31, 2011, the Company's potential minimum cash obligation to these employees was approximately $717,250.

The Company is committed to paying leased property costs related to our Sinotop office during the rest of 2011, 2012 and 2013 in the amounts of RMB 1,423,969 (USD 217,599) , RMB 1,949,391 (USD 297,890), and RMB 1,774,251 (USD 271,126), respectively.

From time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business. We are currently not aware of any such legal proceedings or claims that we believe will have a material adverse effect on our business, financial condition or operating results.

Table of Contents

Cautionary Note Regarding Forward Looking Statements

This Form 10-Q contains “forward-looking” statements that involve risks and uncertainties. You can identify these statements by the use of forward-looking words such as "may", "will", "expect", "anticipate", "estimate", "believe", "continue", or other similar words. You should read statements that contain these words carefully because they discuss our future expectations, contain projections of our future results of operations or financial condition or state other "forward-looking" information. We believe that it is important to communicate our future expectations to our investors. However, these forward-looking statements are not guarantees of future performance and actual results may differ materially from the expectations that are expressed, implied or forecasted in any such forward-looking statements. There may be events in the future that we are unable to accurately predict or control, including weather conditions and other natural disasters which may affect demand for our products, and the product–development and marketing efforts of our competitors. Examples of these events are more fully described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010 under Part I. Item 1A. Risk Factors.

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

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

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

Overview

We operate in the media segment, through our Chinese subsidiaries and VIEs, (1) a business which provides integrated value-added service solutions for the delivery of PPV, VOD, and enhanced premium content for cable providers, (2) a cable broadband business based in the Jinan region of China and (3) a television program guide, newspaper and magazine publishing business based in the Shandong region of China.

Through our VIE, Sinotop Beijing, we provide integrated value-added service solutions for the delivery of PPV, VOD, and enhanced premium content for cable providers. Sinotop Beijing’s revenue will be derived primarily from a pay-TV model, consisting of a one-time fee to view movies, popular titles and live events.

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

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

We acquired AdNet, a business that provided internet content advertising in cafes, during the first half of 2009. Due to the shift of our business model to the PPV and VOD business, as of December 31, 2009, we permanently suspended the day-to-day operations of AdNet. We have maintained our technology and other assets of AdNet for future use in our new pay-per-view business.

Principal Factors Affecting Our Financial Performance

Our operating results are primarily affected by the following factors:

Growth in the Chinese Economy. We operate in China and derive almost all of our revenues from sales to customers in China. Economic conditions in China, therefore, affect virtually all aspects of our operations, including the demand for our products, the availability and prices of our raw materials and our other expenses. China has experienced significant economic growth, achieving a compound annual growth rate of over 10% in gross domestic product from 1996 through 2008. China is expected to experience continued growth in all areas of investment and consumption, even in the face of a global economic recession. However, China has not been entirely immune to the global economic slowdown and is experiencing a slowing of its growth rate.

Table of Contents

PRC Economic Stimulus Plans. The PRC government has issued a policy entitled “Central Government Policy On Stimulating Domestic Consumption To Counter The Damage Result From Export Business Of The Country,” pursuant to which the PRC Central Government is dedicating approximately $580 billion to stimulate domestic consumption. Companies that are either directly or indirectly related to construction, and to the manufacture and sale of building materials, electrical household appliances and telecommunication equipment, are expected to benefit. We could potentially benefit if the stimulus plan injects funds into cable infrastructure allowing access to our PPV network.

Deployment of Value-added Services. To augment our product offerings and create other revenue sources, we work with strategic partners to deploy value-added services to our cable broadband customers. Value-added services, including but not limited to the synergies created by the additions of our new assets, will become a focus of revenue generation for our company. No assurance can be made that we will add other value-added services, or if added, that they will succeed.

Taxation

United States

YOU On Demand Holdings, Inc. is subject to United States tax at a tax rate of 34%. No provision for income taxes in the United States has been made as YOU On Demand Holdings, Inc. had no income taxable in the United States.

Cayman Islands

CB Cayman was incorporated in the Cayman Islands. Under the current law of the Cayman Islands, it is not subject to income or capital gains tax. In addition, dividend payments are not subject to withholding tax in the Cayman Islands.

Hong Kong

Our indirect subsidiary, Sinotop Hong Kong, was incorporated in Hong Kong and under the current laws of Hong Kong, is subject to Profits Tax of 16.5%. No provision for Hong Kong Profits Tax has been made as Sinotop Hong Kong has no taxable income.

The People’s Republic of China

Under the EIT Law, our Chinese subsidiaries and VIEs are subject to an earned income tax of 25.0%.

Our future effective income tax rate depends on various factors, such as tax legislation, the geographic composition of our pre-tax income and non-tax deductible expenses incurred. Our management carefully monitors these legal developments to determine if there will be any change in the statutory income tax rate.

Consolidated Results of Operations

Comparison of Three Months Ended March 31, 2011 and 2010

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

	Three Months Ended				Amount		%
	March 31,		March 31,		Increase /		Increase /
	2011		2010		(Decrease)		(Decrease)

Revenue	$	1,698,000	$	1,876,000	$	(178,000)		-9	%
Cost of revenue		1,250,000		1,074,000		176,000		16	%
Gross profit		448,000		802,000		(354,000)		-44	%

Selling, general and administrative expenses		1,813,000		723,000		1,090,000		151	%
Professional fees		318,000		169,000		149,000		88	%
Depreciation and amortization		1,074,000		946,000		128,000		14	%

Loss from operations		(2,757,000)		(1,036,000)		(1,721,000)		166	%

Interest & other income / (expense)
Interest income		3,000		3,000		-		0	%
Interest expense		(1,000)		(91,000)		90,000		-99	%
Change in fair value of warrant liabilities		-		42,000		(42,000)		-
Change in fair value of contingent consideration		39,000		-		39,000		-
Loss on equity investment		(7,000)		-		(7,000)		-

Loss before income taxes and non-controlling interests		(2,723,000)		(1,082,000)		(1,641,000)		152	%

Income tax benefit		75,000		14,000		61,000		436	%

Net loss, net of tax		(2,648,000)		(1,068,000)		(1,580,000)		148	%

Net loss attributable to non-controlling interests		421,000		263,000		158,000		60	%

Net loss attributable to YOU On Demand shareholders	$	(2,227,000)	$	(805,000)	$	1,422,000		177	%

Table of Contents

The following table breaks down the results of operations for the three months ended March 31, 2011 and 2010 between our VIE operating companies and our non-operating companies. Our VIE operating companies include Jinan Broadband, Shandong Media and Sinotop.

	Three Months Ended												Three Months Ended
	March 31, 2011												March 31, 2010
				% of												% of
				Total			Non-									Total			Non-
	Operating			Revenue			Operating			Total			Operating			Revenue			Operating			Total

Revenue	$	1,698,000					$	-		$	1,698,000		$	1,876,000					$	-		$	1,876,000
Cost of revenue		1,250,000						-			1,250,000			1,074,000						-			1,074,000
Gross profit		448,000			26	%		-			448,000			802,000			43	%		-			802,000

Selling, general and administrative expenses		935,000			55	%		878,000			1,813,000			532,000			28	%		191,000			723,000
Professional fees		15,000			1	%		303,000			318,000			1,000			0	%		168,000			169,000
Depreciation and amortization		610,000			36	%		464,000			1,074,00			805,000			43	%		141,000			946,000

Loss from operations		(1,112,000	)		-65	%		(1,645,000	)		(2,757,000	)		(536,000	)		-29	%		(500,000	)		(1,036,000	)

Interest & other income / (expense)
Interest income		3,000						-			3,000			1,000						2,000			3,000
Interest expense		(1,000	)					-			(1,000	)		-						(91,000	)		(91,000	)
Change in fair value of warrant liabilities		-						-			-			-						42,000			42,000
Change in fair value of contingent consideration		-						39,000			39,000			-						-			-
Loss on equity investment		-						(7,000	)		(7,000	)		-						-			-

Loss before income taxes and non-controlling interest		(1,110,000	)					(1,613,000	)		(2,723,000	)		(535,000	)					(547,000	)		(1,082,000	)

Income tax benefit		10,000						65,000			75,000			-						14,000			14,000

Net income (loss)		(1,100,000	)					(1,548,000	)		(2,648,000	)		(535,000	)					(533,000	)		(1,068,000	)

Net loss attributable to non-controlling interest		421,000						-			421,000			263,000						-			263,000

Net loss attributable to shareholders	$	(679,000	)				$	(1,548,000	)	$	(2,227,000	)	$	(272,000	)				$	(533,000	)	$	(805,000	)

Table of Contents

Revenues

Our revenues are generated by our operating companies in the PRC, primarily Jinan Broadband and Shandong Publishing. As of March 31, 2011, Sinotop Hong Kong had not fully commenced operations and, therefore, had no revenues through March 31, 2011.

Revenues for the three months ended March 31, 2011 totaled $1,698,000, as compared to $1,876,000 for the same period of 2010. The decrease in revenue of approximately $178,000, or 9%, is attributable to decreases in revenue from Jinan Broadband as discussed below.

For the three months ended March 31, 2011, Jinan Broadband’s revenue consisted primarily of sales to our PRC based Internet consumers, cable modem consumers, business customers and other internet and cable services of $1,043,000, a decrease of $187,000, or 15%, as compared to revenues of $1,230,000 for 2010. The decrease is attributable to a decrease in our value-added services.

For the three months ended March 31, 2011, Shandong Publishing’s revenue consisted primarily of sales of publications and advertising revenue of $655,000, an increase of $9,000, or 1%, as compared to $646,000 in 2010. The increase is mainly attributable to increases in our advertising revenues.

Gross Profit

Our gross profit for the three months ended March 31, 2011 was $448,000, as compared to $802,000 for the same period of 2010. The decrease in gross profit of approximately $354,000, or 44%, is due to both a decrease in Jinan Broadband revenue and increased costs at both Jinan Broadband and Shandong Media. The increase in costs attributable to Jinan Broadband was due to increases in HDMI and telecom bandwidth fees. The increase in costs attributable to Shandong Media was due to increases in printing costs.

Gross profit as a percentage of revenue was 27% for the three months ended March 31, 2011, as compared to 43% for same period in 2010. The decrease is due to both decreased revenue and increased costs.

Selling, General and Administrative Expenses

Our selling, general and administrative expenses for the three months ended March 31, 2011 increased approximately $1,090,000 to $1,813,000, as compared to $723,000 for the three months ended March 31, 2010. The increase is mainly due to increased costs related to the development of our new PPV and VOD business (Sinotop).

Salaries and personnel costs are the primary components of selling, general and administrative expenses. For the three months ended March 31, 2011, salaries and personnel costs accounted for 64% of our selling, general and administrative expenses. During the three months ended March 31, 2011, salaries and personnel costs totaled $1,088,000, an increase of $627,000, or 136%, as compared to $461,000 for the same period of 2010. The increase in salaries and personnel costs is primarily attributable to corporate costs related to our new Sinotop operation.

Table of Contents

The other major components of our selling, general and administrative expenses include marketing and promotion, rent, sales tax and travel. For the three months ended March 31, 2011, these costs totaled $333,000, an increase of $210,000, or 170% as compared to $123,000 for the same period of 2010.

As we continue to grow our new PPV and VOD business, other expenses that have increased include employment services, investor relations, licenses and fees, maintenance, office and telephone.

Professional Fees

Professional fees are generally related to public company reporting and governance expenses as well as costs related to our acquisitions. Our costs for professional fees increased $149,000, or 88%, to $318,000 in the three months ended March 31, 2011, from $169,000 during the same period of 2010, primarily due to our new Sinotop operation.

Depreciation and Amortization

Our depreciation expense decreased $240,000, or 30%, to $564,000 in the three months ended March 31, 2011 from $804,000 during the same period of 2010. The decrease is due to equipment at Jinan Broadband being taken out of service due to changes in customer needs. As such, the Company ceased depreciating such equipment as of July 2010.

Our amortization expense increased $368,000, or 261%, to $510,000 in the three months ended March 31, 2011 from $141,000 during the same period of 2010. The increase is mainly attributable to $398,000 amortization costs related to intangible assets acquired in our Sinotop acquisition.

Interest and Other Income (Expense), net

Interest income

Our interest income remained constant at $3,000 for the three months ended March 31, 2011 and 2010.

Interest expense

Interest expense was primarily related to our 5% Convertible Notes issued in January 2008 and June 2009. All convertible notes were converted to common stock in 2010 and therefore interest expense decreased $90,000, or 99%, to $1,000 for the three months ended March 31, 2011 from $91,000 during the same period of 2010. Interest expense in 2010 included amortization of the original issue discount on the notes resulting from the allocation of fair value to the warrants issued in the financing. Interest on the Notes compounded monthly at the annual rate of five percent (5%).

Change in fair value of warrant liabilities

We recorded a gain of $42,000 classified as a change in fair value of warrants on our statement of operations for the three months ended March 31, 2010.

There was no gain or charge recorded in 2011 because in connection with the July 2010 financings, the Company and the investors agreed to amend the warrants to remove the non-standard anti-dilution protection. As a result, the warrants were fair valued at July 30, 2010 and were then re-classified to equity.

Change in fair value of contingent consideration

Our contingent consideration related to our acquisition of Sinotop is classified as a liability because the earn-out securities do not meet the fixed-for-fixed criteria under ASC 815-40-15. Further ASC 815-40-15 requires us to re-measure at the end of every reporting period with the change in value reported in the statement of operations and accordingly we reported a gain of approximately $39,000 for the three months ended March 31, 2011 (none in 2010).

Loss on equity investment

In July 2010, our VIE, Sinotop Beijing, acquired a 39% equity interest in Huacheng Interactive. We account for this investment under the equity method. In accordance with this method, where investments in affiliates, which are not controlled by the Company but where the Company has the ability to exercise significant influence, are accounted for using the equity-method where the earnings and losses attributable to the investment are recorded in the accompanying consolidated statements of operations. Accordingly, for the three months ended March 31, 2011 we recorded a loss on equity investment of approximately $7,000 (none in 2010).

Table of Contents

Net Loss Attributable to Non-controlling Interest

49% of the operating loss of our Jinan Broadband subsidiary is allocated to Jinan Parent, the 49% co-owner of this business. During the three months ended March 31, 2011, $221,000 of our operating losses from Jinan Broadband was allocated to Jinan Parent, as compared to $203,000 during the same period of 2010.

50% of the operating loss of our Shandong Media joint venture is allocated to our 50% Shandong Newspaper joint venture partner. During the three months ended March 31, 2011, $117,000 of our operating loss from Shandong Media was allocated to Shandong Newspaper, as compared to $60,000 during the same period of 2010.

20% of the operating loss of our Zhong Hai Video joint venture is allocated to Huacheng Interactive (Beijing) TV, our 20% joint venture partner. During the three months ended March 31, 2011, $83,000 of our operating loss from Zhong Hai Video was allocated to Huacheng Interactive (Beijing) TV (none in 2010).

Net Loss Attributable to Common Shareholders

Net loss attributable to common shareholders for the three months ended March 31, 2011 was $2,227,000, an increase of $1,422,000, or 177%, as compared to $805,000 for the three months ended March 31, 2010. The increase is mainly due to increases in selling, general and administrative expenses associated with our new Sinotop operation as well as a decreased gross profit at both Jinan Broadband and Shandong Media.

Liquidity and Capital Resources

As of March 31, 2011 we had cash and cash equivalents of approximately $4,646,000. The following table provides a summary of our net cash flows from operating, investing, and financing activities.

	Three Months Ended
	March 31,			March 31,
	2011			2010
	(Unaudited)			(Unaudited)
Net cash (used in) provided by operating activities	$	(1,108,000	)	$	89,000
Net cash used in investing activities		(920,000	)		(1,372,000	)
Net cash provided by financing activities		152,000			581,000
Effect of exchange rate change in cash		(62,000	)		26,000
Net decrease in cash and cash equivalents		(1,938,000	)		(676,000	)
Cash and cash equivalents at beginning of the period		6,584,000			2,190,000
Cash and cash equivalents at end of the period		4,646,000			1,514,000

Operating Activities

Net cash (used in) provided by operating activities for the three months ended March 31, 2011 and 2010 was $(1,108,000) and $89,000, respectively. The increased cash used relates to corporate and Sinotop operation costs incurred in the development of our new PPV and VOD business.

Investing Activities

Investing activities for the three months ended March 31, 2011 and 2010 used cash of $920,000 and $1,372,000, respectively. For 2011, this amount consisted primarily of $554,000 for additions to property and equipment and (ii) $210,000 loan to our Shandong Media shareholder. For 2010, this amount consisted of (i) $224,000 for additions to property and equipment, (ii) $580,000 loan for our Sinotop acquisition and (iii) $568,000 net loan to our Shandong Media shareholders.

Table of Contents

Financing activities

Cash provided by financing activities for the three months ended March 31, 2011and 2010 was $152,000 and $581,000 respectively. For 2011, the amount was from proceeds advanced from our Jinan Parent. For 2010, the amount was from the issuance of a convertible note payable of $600,000 offset by a $19,000 decrease in the payable to Jinan Parent.

As previously disclosed, the Company consummated financings on July 30, 2010 which resulted in gross proceeds of $9.625 million. While we believe that our current cash balance in addition to anticipated cash inflows will sustain our present level of business operations for the next twelve months, we anticipate that we will need to raise additional funds to fully implement our business model and related strategies. We are actively seeking additional investment. The fact that we have incurred significant continuing losses and have relied on debt and equity financings to fund our operations to date, could raise substantial doubt about our ability to continue as a going concern.

Obligations Under Material Contracts

On March 7, 2008, we entered into a cooperation agreement with Shandong Broadcast and Modern Movie, pursuant to which Shandong Broadcast and Modern Movie contributed their entire businesses and transferred certain employees to Shandong Publishing in exchange for a 50% stake in Shandong Publishing. In exchange, we were required to pay 10 million RMB (approximately $1.5 million), which was contributed to Shandong Publishing as working and acquisition capital. Based on certain financial performance requirements, we were required to make an additional payment of 5 million RMB (approximately US $730,000). In 2008, we recorded the additional payment due as an increase to our Shandong Publishing noncontrolling interest account. We are currently in discussions with Shandong Broadcast and Modern Movie with regards to the outstanding $730,000 payment.

Effects of Inflation

Inflation and changing prices have not had a material effect on our business and we do not expect that inflation or changing prices will materially affect our business in the foreseeable future. However, our management will closely monitor the price change and continually maintain effective cost control in operations.

Off Balance Sheet Arrangements

We do not have any off balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity or capital expenditures or capital resources that is material to an investor in our securities.

Seasonality

Our operating results and operating cash flows historically have not been subject to seasonal variations. This pattern may change, however, as a result of new market opportunities or new product introductions.

Critical Accounting Policies and Significant Judgments and Estimates

The discussion and analysis of our financial condition and results of operation are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. Note 2 to the consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2010 includes a summary of our most significant accounting policies. There have been no material changes to the critical accounting policies previously disclosed in our 2010 Annual Report on Form 10-K. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of assets and liabilities. On an ongoing basis, we evaluate our estimates and judgments, including those related to revenue recognition, inventories, securities available for sale, income taxes, stock-based compensation and warrant liabilities. Management bases its estimates on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. Periodically, we review our critical accounting estimates with the Audit Committee of our Board of Directors.

Recent Accounting Pronouncements

We do not believe any recent accounting pronouncements since the filing of our 2010 Form 10-K are applicable.

Table of Contents

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

Evaluation of Disclosure Controls and Procedures

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

As required by Rule 13a-15 under the Exchange Act, our management, including our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of March 31, 2011. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that as of March 31, 2011, and as of the date that the evaluation of the effectiveness of our disclosure controls and procedures was completed, our disclosure controls and procedures were not effective to satisfy the objectives for which they are intended.

Changes in Internal Control over Financial Reporting

The Company is in the process of improving its internal controls over financial reporting as demonstrated by the addition of U.S. GAAP-experienced professionals to its financial reporting operations. During the period covered by this report, these changes did not materially affect our internal control over financial reporting.

Table of Contents

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

In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, "Item 1A. Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2010, which could materially affect our business, financial condition or future results. The risks described in our Annual Report on Form 10-K are not the only risks facing our Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition or future results.

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

There were no unregistered sales of equity securities during the fiscal quarter ended March 31, 2011.

Item 3. Defaults Upon Senior Securities.

There were no defaults upon senior securities during the fiscal quarter ended March 31, 2011.

Item 4. [Removed and Reserved]

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.

Table of Contents

SIGNATURES

In accordance with the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized on May 23, 2011.

	YOU ON DEMAND HOLDINGS, INC

	By:	/s/ Marc Urbach
		Name: Marc Urbach
		Title: President and Chief Financial Officer (Principal Accounting Officer and Principal Financial Officer)

Table of Contents

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.