IDEANOMICS, INC. - Quarter Report: 2012 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, 2012

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

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 o

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 x No o

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

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: 10,468,116 shares as of May 14, 2012.

QUARTERLY REPORT ON FORM 10-Q

OF YOU ON DEMAND HOLDINGS, INC.

FOR THE PERIOD ENDED MARCH 31, 2012

TABLE OF CONTENTS

PART I	-	FINANCIAL INFORMATION

Item 1.		Financial Statements	3
Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations	23
Item 3		Quantitative and Qualitative Disclosures About Market Risk	28
Item 4.		Controls and Procedures	28

PART II	-	OTHER INFORMATION

Item 1.		Legal Proceedings	30
Item 1A.		Risk Factors	30
Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds	30
Item 3.		Defaults Upon Senior Securities	30
Item 4.		Mine Safety Disclosures	30
Item 5.		Other Information	30
Item 6.		Exhibits	30
Signatures			31

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.), a Nevada corporation, and its consolidated subsidiaries; (ii) “CB 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) “Jinan Zhong Kuan” are to Jinan Zhong Kuan Information Technology Co. Ltd., a PRC company controlled by CB Cayman through a trust agreement with shareholder(s); (vii) “AdNet” are to our previously controlled subsidiary Wanshi Wangjing Media Technologies (Beijing) Co., Ltd. (a/k/a AdNet Media Technologies (Beijing) Co., Ltd.), a PRC company; (viii) “Sinotop Hong Kong” are to Sinotop Group Limited, a Hong Kong company wholly-owned by CB Cayman; (ix) “YOD WFOE” are to YOU On Demand (Beijing) Technology Co., Ltd., a PRC company wholly-owned by Sinotop Hong Kong; (x) “Sinotop Beijing” or “Sinotop” are to Beijing Sino Top Scope Technology Co., Ltd, a PRC company controlled by Sinotop Hong Kong through contractual arrangements; (xi) “Zhong Hai Video” are to Zhong Hai Shi Xun Information Technology Co., Ltd., a PRC company 80% owned by Sinotop Beijing; (xii) “Hua Cheng” are to Hua Cheng Hu Dong (Beijing) Film and Television Communication Co., Ltd., a PRC company 39% owned by Sinotop Beijing; (xiii) “SEC” are to the United States Securities and Exchange Commission; (xiv) “Securities Act” are to Securities Act of 1933, as amended; (xv) “Exchange Act” are to the Securities Exchange Act of 1934, as amended; (xvi) “PRC” and “China” are to People’s Republic of China; (xvii) “Renminbi” and “RMB” are to the legal currency of China; (xviii) “U.S. dollar,” “$” and “US$” are to United States dollars; and (xix) “VIEs” refers to our variable interest entities, including Jinan Broadband, Shandong Media and Sinotop Beijing.

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PART I — FINANCIAL INFORMATION

Item 1. Financial Statements.

YOU ON DEMAND HOLDINGS, INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE PERIOD ENDED MARCH 31, 2012

	Page
Consolidated Balance Sheets	4
Unaudited Consolidated Statements of Operations	5
Unaudited Consolidated Statements of Comprehensive Loss	6
Unaudited Consolidated Statement of Equity	7
Unaudited Consolidated Statements of Cash Flows	8
Notes to Unaudited Consolidated Financial Statements	9

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YOU On Demand Holdings, Inc. and Subsidiaries

CONSOLIDATED BALANCE SHEETS

	March 31,			December 31,
	2012			2011
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	4,861,502		$	7,519,574
Marketable equity securities, available for sale		2,229			2,229
Accounts receivable, net		393,126			399,791
Inventories		408,731			413,562
Licensed content, current		787,335			150,325
Prepaid expenses		256,075			438,712
Loan receivable from related party		318,665			316,660
Amounts due from shareholders		450,135			414,743
Amount due from non-controlling interest		1,582,655			1,572,699
Other current assets		392,932			340,175
Total current assets		9,453,385			11,568,470

Property and equipment, net		4,555,567			5,099,050
Licensed content, noncurrent		413,394			450,975
Intangible assets, net		6,766,384			7,149,748
Goodwill		6,105,478			6,105,478
Investment in unconsolidated entities		582,156			582,652
Other assets		101,633			101,031
Total assets	$	27,977,997		$	31,057,404

LIABILITIES AND EQUITY
Current liabilities:
Accounts payable	$	3,728,420		$	3,298,041
Accrued expenses and liabilities		1,041,336			862,473
Deferred revenue		1,944,487			1,856,674
Deferred license fees, current		173,599			-
Payable to Jinan Parent		144,194			143,286
Other current liabilities		569,560			543,163
Contingent purchase consideration liability, current		1,324,138			1,091,571
Total current liabilities		8,925,734			7,795,208

Deferred license fees		-			76,670
Contingent purchase consideration liability		2,747,016			2,267,518
Deferred tax and uncertain tax position liabilities		735,178			810,616
Total liabilities		12,407,928			10,950,012

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 at March 31, 2012 and December 31, 2011		1,261,995			1,261,995
Series B - 10,266,825 shares issued and outstanding, liquidation preference of $5,133,400 at March 31, 2012 and December 31, 2011		3,950,358			3,950,358

Equity:
Common stock, $.001 par value; 1,500,000,000 shares authorized, 10,468,116 and 10,467,100 issued and outstanding at March 31, 2012 and December 31, 2011, respectively		10,468			10,467
Additional paid-in capital		54,680,928			54,505,825
Accumulated deficit		(47,924,297	)		(43,704,225	)
Accumulated other comprehensive income		519,539			468,471
Total YOU On Demand equity		7,286,638			11,280,538
Noncontrolling interests		3,071,078			3,614,501

Total equity		10,357,716			14,895,039

Total liabilities and equity	$	27,977,997		$	31,057,404

See notes to consolidated financial statements.

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YOU On Demand Holdings, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF OPERATIONS

	Three Months Ended
	March 31,			March 31,
	2012			2011
	(unaudited)			(unaudited)

Revenue	$	2,037,579		$	1,697,924
Cost of revenue		1,792,021			1,250,070
Gross profit		245,558			447,854

Operating expense:
Selling, general and administrative expenses		2,746,438			1,812,688
Professional fees		412,377			317,680
Depreciation and amortization		1,231,314			1,074,327
Total Operating expense		4,390,129			3,204,695

Loss from operations		(4,144,571	)		(2,756,841	)

Interest & other income / (expense)
Interest income		2,713			2,938
Interest expense		(1,673	)		(555	)
Change in fair value of contingent consideration		(712,065	)		38,609
Loss on investment in unconsolidated entities		(4,192	)		(6,798	)
Other		(179	)		(4	)

Loss before income taxes and noncontrolling interest		(4,859,967	)		(2,722,651	)

Income tax benefit		75,438			75,420

Net loss		(4,784,529	)		(2,647,231	)

Plus: Net loss attributable to noncontrolling interests		564,457			420,625

Net loss attributable to YOU On Demand shareholders	$	(4,220,072	)	$	(2,226,606	)

Net loss per share attributable to YOU On Demand shareholders
Basic	$	(0.40	)	$	(0.25	)
Diluted	$	(0.40	)	$	(0.25	)

Weighted average shares outstanding
Basic		10,467,526			8,810,843
Diluted		10,467,526			8,810,843

See notes to consolidated financial statements.

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YOU On Demand Holdings, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

	Three Months Ended
	March 31,			March 31,
	2012			2011
	(unaudited)			(unaudited)
Net loss	$	(4,784,529	)	$	(2,647,231	)
Other comprehensive income (loss):
Foreign currency translation adjustments		51,068			7,270
Unrealized losses on available for sale securities		-			(2,230	)
Less: Comprehensive loss attributable to non-controlling interest		543,423			447,674
Comprehensive loss attributable to YOU On Demand shareholders	$	(4,190,038	)	$	(2,194,517	)

See notes to consolidated financial statements.

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YOU On Demand Holdings, Inc. and Subsidiaries

CONSOLIDATED STATEMENT OF EQUITY

For the Three Months Ended March 31, 2012 (unaudited)

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

Balance December 31, 2011		10,467,400	$	10,467	$	54,505,825		$	(43,704,225	)	$	468,471	$	11,280,538		$	3,614,501		$	14,895,039

Warrants issued for service		-		-		12,408			-			-		12,408			-			12,408

Stock option compensation expense		-		-		162,696			-			-		162,696			-			162,696

Share adjustment for round lot holders in connection with 75-for-1 reverse split		716		1		(1	)		-			-		-			-			-

Net loss		-		-		-		$	(4,220,072	)		-		(4,220,072	)		(564,457	)		(4,784,529	)

Foreign currency translation adjustments		-		-		-			-			51,068		51,068			21,034			72,102

Balance, March 31, 2012		10,468,116	$	10,468	$	54,680,928		$	(47,924,297	)	$	519,539	$	7,286,638		$	3,071,078		$	10,357,716

See notes to consolidated financial statements.

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YOU On Demand Holdings, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF CASH FLOWS

	Three Months Ended
	March 31,			March 31,
	2012			2011
	(unaudited)			(unaudited)
Cash flows from operating
Net loss	$	(4,784,529	)	$	(2,647,231	)
Adjustments to reconcile net loss to net cash used in operating activities
Stock compensation expense		175,104			156,042
Depreciation and amortization		1,231,314			1,065,073
Amortization of licensed content		37,581			-
Deferred income tax		(75,438	)		(75,420	)
Loss on investment in unconsolidated entities		4,191			-
Provision for bad debt expense		144,877			-
Change in fair value of contingent consideration liability		712,065			(38,609	)
Change in assets and liabilities,
Accounts receivable		(135,666	)		(101,524	)
Inventory		8,028			45,949
Prepaid expenses and other assets		129,068			(6,613	)
Licensed content		(637,989	)		-
Accounts payable		416,948			289,899
Accrued expenses and liabilities		208,857			246,384
Deferred revenue		50,555			6,736
Deferred license fee		96,592			-
Other current liabilities		16,670			(57,763	)
Net cash used in operating activities		(2,401,772	)		(1,117,077	)

Cash flows from investing activities:
Acquisition of property and equipment		(162,127	)		(553,535	)
Investments in intangibles		(103,550	)		-
Loan advances to Shandong Media shareholders		(26,479	)		(210,230	)
Other		-			(156,464	)
Net cash used in investing activities		(292,156	)		(920,229	)

Cash flows from financing activities
Capital contribution from Jinan Parent		-			151,759
Net cash provided by financing activities		-			151,759

Effect of exchange rate changes on cash		35,856			(52,951	)

Net decrease in cash and cash equivalents		(2,658,072	)		(1,938,498	)
Cash and cash equivalents at beginning of period		7,519,574			6,584,396

Cash and cash equivalents at end of period	$	4,861,502		$	4,645,898

Supplemental Cash Flow Information:

Cash paid for taxes	$	325		$	-
Cash paid for interest	$	1,673		$	555

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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.), operates in the Chinese media segment through our Chinese subsidiaries and variable interest entities (“VIEs”) (1) 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, Beijing Sino Top Scope Technology Co., Ltd. (“Sinotop Beijing” or “Sinotop”), (2) a cable broadband business, Jinan Guangdian Jia He Broadband Co. Ltd. ( “Jinan Broadband”), based in the Jinan region of China through which 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 and (3) a print based media and television programming guide publication, Shandong Lushi Media Co., Ltd. (“Shandong Media”).

The unaudited consolidated financial statements include the accounts of YOU On Demand and (a) its wholly-owned subsidiary China Broadband, Ltd., ("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, Sinotop, Zhong Hai Shi Xun Information Technology Co., Ltd. (“Zhong Hai Video”), and YOU On Demand (Beijing) Technology Co., Ltd. (“YOD WFOE”), which are controlled by the Company through contractual arrangements, as if they are wholly-owned subsidiaries of the Company. The unaudited consolidated financial statements included the accounts of AdNet Media Technologies (Beijing) Co. Ltd (“AdNet”). During the third quarter of 2011 AdNet was deconsolidated as a result of the Company’s termination of control. All material intercompany transactions and balances are eliminated in consolidation.

The Company’s Board of Directors authorized a 75:1 reverse stock split on February 9, 2012, which took effect on February 9, 2012. All share and related option information presented in these unaudited consolidated financial statements and related notes has been retroactively adjusted to reflect the reduced number of shares resulting from this reverse stock split.

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 three months ended March 31, 2012 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 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, 2011 filed with the Securities and Exchange Commission on March 30, 2012.

2.	Going Concern and Management’s Plans

For the three months ended March 31, 2012, we had a net loss of approximately $4,800,000 and we used cash for operations of approximately $2,402,000. Our working capital at March 31, 2012 was approximately $528,000. On May 10, 2012, the Company’s Chairman and Chief Executive Officer, Mr. Shane McMahon made a loan to the Company in the amount of $3,000,000. In consideration for the loan, the Company issued a convertible note to Mr. McMahon in $3,000,000 principal amount. The note has an annual interest rate of 4% and matures on the earlier of (i) the date on which the Company closes the next financing of equity or equity-linked securities of the Company in which at least $5,000,000 in gross proceeds is raised, and (ii) May 10, 2013. The note is convertible at any time into shares of the Company’s common stock at a conversion price of $10.00 per share; provided, however, that if the Company raises capital at any time prior to the maturity of the note, the note may be converted into the securities received by the investors in the most recent capital raise (as of the date of conversion) at a price equal to the purchase price paid for the securities by such investors.

The Company incurred significant continuing losses during 2011 along with the first quarter of 2012 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 launched its PPV and VOD business during this quarter which is expected to increase cash inflows. We anticipate that we may need to raise additional funds to fully implement our business model and related strategies.

The unaudited consolidated financial statements have been prepared assuming that the Company will continue as a going concern and, accordingly, do not include any adjustments that might result from the outcome of this uncertainty. The Company's independent registered public accounting firm's report of the financial statements for the year ended December 31, 2011, contained an explanatory paragraph regarding the Company's ability to continue as a going concern.

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3.	Sinotop Contingent Consideration

In connection with the acquisition of Sinotop Hong Kong 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 403,820 shares of common stock of the Company, (ii) three-year warrants to purchase 571,275 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 July 2010 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 Hong Kong 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 earn-out year (July 1, 2014), at least 30 million homes will have access to the Company’s PPV services

Subsequent to the acquisition of Sinotop, the Company underwent a warrant exchange that converted the three-year warrants to be potentially earned under clause (ii) above to 332,002 shares of common stock. As such, the Earn-Out Securities subject to the achievement of the specified performance milestones are 735,822 shares of common stock and 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 options of the Company granted simultaneous with the adoption of the Stock Incentive Plan to individuals employed by the Company as of September 1, 2010.

The Company recorded a contingent consideration obligation related to the Earn-Out Securities at the time of acquisition which totaled $2,750,966, 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 loss of $712,065 for the three months ended March 31, 2012.

The following is a summary of the estimated fair value of contingent consideration obligation for the acquisition of Sinotop Hong Kong at March 31, 2012 and December 31, 2011.

			December 31,				March 31,
	Number of		2011		Change in		2012
Class of consideration	Instruments		Fair Value		Fair Value		Fair Value
Common shares		735,822	$	3,147,109	$	658,342	$	3,805,451
Stock options		80,000		211,980		53,723		265,703
Total contingent consideration			$	3,359,089	$	712,065	$	4,071,154

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The following table represents the estimated fair value of the current and the noncurrent portion of the contingent consideration liability for the acquisition of Sinotop Hong Kong at March 31, 2012.

	As of March 31,2012
	Number of		Current		Noncurrent		Total
	Instruments		Liability		Liability		Liability
Shares July 2012		245,274	$	1,243,083	$	-	$	1,243,083
Shares July 2013		245,274		-		1,290,805		1,290,805
Shares July 2014		245,274		-		1,271,563		1,271,563
Total Common Shares		735,822	$	1,243,083	$	2,562,368	$	3,805,451

Options July 2012		26,667	$	81,055	$	-	$	81,055
Options July 2013		26,667		-		89,772		89,772
Options July 2014		26,667		-		94,876		94,876
Total Options		80,000	$	81,055	$	184,648	$	265,703

Total Shares and Options		815,822	$	1,324,138	$	2,747,016	$	4,071,154

4.	Deconsolidation of AdNet

We acquired 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. Subsequently, we continued to maintain the technology and assets of AdNet, which we planned to use in our PPV and VOD business.

Due to recent advancements in other advertising technologies, the Company determined that AdNet’s remaining assets would no longer be used to support the PPV and VOD business. As such, on August 3, 2011, the Company provided a thirty-day notice of its termination of the VIE arrangement with AdNet, which served to relinquish the Company’s control and any right to economic benefit, as well as release the Company of any future liability, upon effectiveness of such termination on September 2, 2011. Accordingly, as of June 30, 2011, the Company recognized a loss on the impairment of AdNet’s remaining assets in the amount of $212,180. Upon the effectiveness of termination during the third quarter of 2011, the Company deconsolidated AdNet’s liabilities and recognized a gain of $470,041 in accordance with ASC 810-10-40, Deconsolidation of a Subsidiary.

5.	Shandong Media Joint Venture

In connection with the Shandong Newspaper Cooperation Agreement, based on certain financial performance thresholds we were required to make an additional payment of RMB 5,000,000 (approximately US $791,300) to Shandong Media. In 2008, we recorded the additional payment due as an increase to our Shandong Media non-controlling interest account.

In January 2012, the Company, through Jinan Zhong Kuan, signed a Memorandum of Understanding (“MOU”) with Shandong Broadcast and Modern Movie, our partners in our Shandong Media joint venture company, whereby upon execution of a formal agreement, the Company will be relieved of its obligation to make the additional payment of RMB 5,000,000 (approximately US $791,300) described above in exchange for payment of RMB 1,000,000 (approximately US $158,300) to Shandong Media and the transfer of 20% of the Company’s 50% ownership interest in Shandong Media to Shandong Broadcast and Modern Movie. On April 28, 2012 Jinan Zhong Kuan made payment of RMB 1,000,000 to Shandong Broadcast in connection with the signed MOU. Once all parties execute the equity transfer ownership agreement, Shandong Broadcast will file an application with the PRC State Administration for Industry & Commerce (“AIC”) to effect the changes made in the Articles of Association (“AOA”) and complete the transaction. Upon the effectiveness of such equity transfer ownership during the second quarter of 2012, the Company will deconsolidate Shandong Media’s assets and liabilities.

As of the date of this filing, the formal agreement to transfer 20% of the Company’s 50% ownership interest in Shandong Media to Shandong Broadcast and Modern Movie had not been finalized and the VIE structure under which the Company controls Shandong Media remains in place.

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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 stock is valued at closing price reported on the active market on which the individual securities are traded.

The fair value of the contingent purchase consideration liabilities at March 31, 2012 and December 31, 2011 was valued using the Monte Carlo simulation method, which is based on valuation theories underlying the Black-Scholes Merton model. Estimated probabilities related to achieving the earn-out milestones were incorporated into our valuation. In addition, our valuation incorporates the following assumptions:

	March 31,			December 31,
	2012			2011
Risk-free interest rate		0.538	%		0.410	%
Expected volatility based on the (High - Low) / (High + Low) method		75	%		75	%
Expected life	4 years			4 years
Expected dividend yield		0	%		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, 2012 and December 31, 2011:

	March 31, 2012
	Fair Value Measurements (Unaudited)
	Level 1		Level 2		Level 3		Total Fair Value
Assets
Available-for-sale securities	$	2,229	$	-	$	-	$	2,229
Liabilities
Contingent purchase consideration (see Note 3)	$	-	$	-	$	4,071,154	$	4,071,154

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	December 31, 2011
	Fair Value Measurements
	Level 1		Level 2		Level 3		Total Fair Value
Assets
Available-for-sale securities	$	2,229	$	-	$	-	$	2,229
Liabilities
Contingent purchase consideration (see Note 3)	$	-	$	-	$	3,359,089	$	3,359,089

7.	Related Party Transactions

Shandong Media

Loan Receivable

During the three months ended March 31, 2012, the Company’s loan receivable from Music Magazine increased approximately $2,000, due to currency fluctuations. At March 31, 2012 and December 31, 2011, approximately $319,000 and $317,000, respectively, is due to the Company from Music Magazine. The Company advanced funds 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, 2012. Music Magazine is an affiliate of Modern Movie & TV Biweekly Press, our partner in our Shandong Media joint venture company. Pursuant to the MOU, we will work with our related party to settle this loan.

Prepaid Expense

As of March 31, 2012 and December 31, 2011, Shandong Media prepaid $180,000 and $193,000, respectively, to Modern Movie for rental of space for company functions.

Amounts due from Shareholders

As of March 31, 2012 and December 31, 2011, amounts due from shareholders include approximately $450,000 and $415,000, respectively, representing advances to both Shandong Broadcast and to Modern Movie. All of the parties are our partners in our Shandong Media joint venture company. The amount due of approximately $137,000 and $103,000 at March 31, 2012 and December 31, 2011, respectively, from Shandong Broadcast is unsecured, interest free and has no fixed repayment terms. The amount due of approximately $313,000 and $312,000 at March 31, 2012 and December 31, 2011, respectively, from Modern Movie is unsecured, interest free and is due on December 31, 2012. Pursuant to the MOU, we will work with our related parties to settle this loan.

Other Current Liabilities

As of March 31, 2012 and December 31, 2011, Shandong Media had a payable of approximately $95,000 and $89,000, respectively, related to a vehicle usage agreement with Shandong Broadcast & TV Weekly Press, our partner in our Shandong Media joint venture.

Jinan Broadband

Payable to Jinan Parent

During the three months ended March 31, 2012, our payable to Jinan Parent increased approximately $1,000, due to currency fluctuations. At March 31, 2012 and December 31, 2011, approximately $144,000 and $143,000, 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.

Revenue

During the three month periods ended March 31, 2012 and 2011, Jinan Broadband generated $102,000 and $38,000 of value-added service revenue from an affiliate, Jinan Radio and Television Networks Center (“Networks Center”). Networks Center is the owner of Jinan Guangdian Jiahe Digital Television Co., Ltd. (“Jinan Parent”), our partner in our Jinan joint venture company, Jinan Broadband. Jinan Parent has a 49% ownership interest in Jinan Broadband.

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Cost of Revenue

During the three months ended March 31, 2012 and 2011, Jinan Broadband incurred service fees to Networks Center of approximately $12,000 and $9,000, respectively. To minimize administrative fees and maintain a low headcount at Jinan Broadband, Networks Center collects customer payments on behalf of Jinan Broadband and then remits the funds to Jinan Broadband. Networks Center charges Jinan Broadband a 2% service fee on the payments collected.

General and Administrative Expense

During the three month periods ended March 31, 2012 and 2011, Jinan Broadband paid sales agency fees of approximately $22,000 and $11,000 to Networks Center for revenue collection on behalf of Jinan Broadband and network maintenance.

Accounts Payable

As of March 31, 2012 and December 31, 2011, Jinan Broadband had accounts payable to Networks Center of approximately $270,000 and $268,000, respectively, relating to maintenance, network leasing and facility rental fees. Jinan Broadband’s operation is located in a building that is owned by Networks Center. As such, Jinan Broadband shares the cable network usage with Networks Center. Additionally, Jinan Broadband utilizes Networks Center’s staff to provide cable network maintenance support to their customers. As such, Network Center charges Jinan Broadband fees for these services and usage of their facility.

Accrued Expense

Jinan Broadband had accrued network leasing fees to Networks Center of approximately $47,000 as of March 31, 2012 and December 31, 2011.

Amount due from Non-controlling Interest

Subsequent to our acquisition of Sinotop Hong Kong in July 2010, Sinotop and Hua Cheng entered into a variable interest entity agreement to form and operate Zhong Hai Video with equity ownership interests of 80% and 20%, respectively, on total registered capital of RMB 50 million. As of March 31, 2012, Sinotop contributed RMB 10 million while Hua Cheng has not made its capital contribution. Accordingly, we have recorded an amount due from non-controlling interest in the amount of $1,582,655. We are currently in the process of reducing the registered capital from RMB 50 million (USD 7,913,271) to RMB 12.5 million (USD 1,978,318). Thus, Sinotop will have contributed its full amount of RMB 10 million (USD 1,582,654) (80%). After approval of the capital reduction application, Hua Cheng will contribute its RMB 2.5 million (USD 395,664) (20%).

8.	Property and Equipment

During 2011, the Company recorded an impairment charge of $39,000 related to furniture and office equipment at Sinotop and AdNet. After settlement with the vendor we recorded a net impairment expense of approximately $33,000 related to the faulty equipment at Sinotop.

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Property and equipment approximated the following:

	March 31,			December 31,
	2012			2011

Furniture and office equipment	$	3,342,000		$	2,088,000
Headend facilities and machinery		15,863,000			16,724,000
Leasehold improvements		167,000			310,000
Vehicles		67,000			30,000
Total property and equipment		19,439,000			19,152,000
Less: accumulated depreciation		(14,884,000	)		(14,053,000	)
Net carrying value	$	4,555,000		$	5,099,000

We recorded depreciation expense of approximately $744,000 and $564,000 for the three months ended March 31, 2012 and 2011, respectively.

9.	Goodwill and Intangible Assets

The Company has intangible assets primarily relating to the acquisitions of its Jinan Broadband subsidiary, Shandong Media joint venture and Sinotop Hong Kong. The Company amortizes its intangible assets that have finite lives. As discussed in Note 4, the Company determined during 2011 that AdNet’s remaining assets would no longer be used. As such, the Company recognized an impairment loss related to AdNet’s software technology in the amount of $189,241 during the quarter ended June 30, 2011.

A roll forward of our intangible assets activity for the three months ended March 31, 2012 is as follows:

	Balance at									Foreign		Balance at
	December 31,				Amortization			Impairment		Currency		March 31,
	2011		Additions		Expense			Charge		Transl Adj		2012
												(unaudited)
Amortized intangible assets:
Service agreement	$	1,310,892	$	-	$	(21,490	)	$	-	$	-	$	1,289,402
Publication rights		400,953		-		(6,075	)		-		-		394,878
Customer relationships		76,579		-		(2,945	)		-		-		73,634
Operating permits		600,147		-		(9,093	)		-		-		591,054
Charter / Cooperation agreements		2,560,616		-		(34,448	)		-		-		2,526,168
Noncompete agreement		1,576,256		-		(363,751	)		-		-		1,212,505
Software and licenses		240,015		3,456		(19,676	)		-		331		224,126
Website development		250,000		100,000		(29,212	)		-		45		320,833
Total amortized intangible assets	$	7,015,458	$	103,456	$	(486,690	)	$	-	$	376	$	6,632,600

Unamortized intangible assets:
Website name		134,290											134,290
Goodwill		6,105,478		-		-			-		-		6,105,478
Total unamortized intangible assets	$	6,239,768	$	-	$	-		$	-	$	-	$	6,239,768

In accordance with ASC 250, we recorded amortization expense related to our intangible assets of $486,690 and $501,073 for the three months ended March 31, 2011 and 2012.

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

	Jinan		Shandong		Sinotop
Years ending December 31,	Broadband		Media		Hong Kong		Sinotop		Total
2012 (nine months)	$	64,470	$	56,841	$	1,194,597	$	160,708	$	1,476,616
2013		85,961		74,955		259,041		178,630		598,587
2014		85,961		72,454		137,791		155,764		451,970
2015		85,961		72,454		137,791		28,326		324,532
2016		85,961		72,454		137,791		16,524		312,730
Thereafter		881,095		715,408		1,871,662		-		3,468,165
Total amortization to be recognized	$	1,289,409	$	1,064,566	$	3,738,673	$	539,952	$	6,632,600

10.	Accrued Expenses and Liabilities

Accrued expenses and liabilities consist of the following:

	March 31,		December 31,
	2012		2011
	(unaudited)

Accrued expenses and liabilities	$	996,000	$	613,000
Accrued payroll		45,000		249,000
	$	1,041,000	$	862,000

11.	Private Financings, June 2011

On June 3, 2011, we completed a private placement transaction with FIL Investment Management (Hong Kong) Limited (“Fidelity”), professional fiduciary for various accounts from time to time. Pursuant to a securities purchase agreement between us and Fidelity, we issued to funds managed by Fidelity and its affiliates an aggregate of 979,213 shares of our common stock at a per share price of $6.60, resulting in aggregate gross proceeds to the Company of $6,462,806. Pursuant to the securities purchase agreement with Fidelity, we could not, during the six month period following the closing, without the prior written consent of Fidelity, issue any shares of our common stock, including securities that were exercisable or convertible into common stock except for (i) up to 1,958,426 shares of our common stock at a per share price equal to or greater than $6.60, (ii) shares of our common stock upon the exercise, exchange or conversion of our securities which were outstanding prior to the closing, (iii) shares of our common stock upon the exercise, exchange or conversion of callable warrants to purchase up to 666,667 shares of our common stock, with a per share exercise price equal to or greater than $6.60, and (iv) pursuant to our Stock Incentive Plan, options to purchase up to an aggregate of 440,000 shares of our common stock to new and existing employees in the normal course of business.

In connection with the private placement transaction with Fidelity, we entered into a registration rights agreement with Fidelity pursuant to which we are obligated to file a registration statement with the U.S. Securities and Exchange Commission within thirty days following the closing to register the shares of common stock issued to Fidelity. The registration statement was filed on June 29, 2011 and declared effective on July 8, 2011.

On June 7, 2011, we completed a private placement transaction with a group of twenty-seven accredited investors. Pursuant to a securities purchase agreement between us and the investors, we issued to the investors an aggregate of 675,000 shares of our common stock at a per share price of $6.60, resulting in aggregate gross proceeds of $4,455,000. The offer and sale of the shares to the accredited investors was made in compliance with the securities purchase agreement with Fidelity.

The Company paid issuance costs of $822,167 related to the June 2011 financings.

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Stock Purchase Right

In connection with the June 3, 2011 private placement, we granted to Fidelity a right of first refusal during the six month period following the closing to purchase up to ten percent of the number of shares of common stock offered to other investors, as permitted in the securities purchase agreement, at a per share price of $6.60 and on identical terms as set forth in the securities purchase agreement.

In connection with the June 7, 2011 private placement, Fidelity had the right to purchase up to 75,000 shares of our common stock, or up to ten percent of the number of shares sold to the accredited investors, at a per share price of $6.60. On June 7, 2011, we agreed to modify the right with Fidelity to extend the right to purchase these shares until December 3, 2011 at a price of $6.60 per share. We valued this right at approximately $155,000 based on the Black-Scholes Merton model and recorded it as a right to purchase shares expense in connection with the placement. On December 4, 2011, we granted Fidelity an extension of this right to purchase for an additional six months. We valued this right at approximately $39,000 based on the Black-Scholes Merton model and recorded it as a right to purchase shares expense in connection with the placement.

12.	Net Loss Per Common Share

Basic net loss per common share attributable to YOU On Demand shareholders is calculated by dividing the net loss attributable to YOU On Demand shareholders 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.

For the three months ended March 31, 2012 and 2011, the number of securities not included in diluted EPS because the effect would have been anti-dilutive was 4,318,786 and 3,734,386,respectively, and consists of the following:

	March 31,		March 31,
	2012		2011
	(unaudited)		(unaudited)
Warrants		361,912		151,912
Stock purchase right		75,000		-
Options		1,579,634		1,280,233
Series A Preferred Stock		933,333		933,333
Series B Preferred Stock		1,368,907		1,368,907
Total		4,318,786		3,734,386

13.	Content Accounting

The Company obtains content through content license agreements and revenue sharing agreements with studios and distributors. The license agreement may or may not be recognized in licensed content.

When the license fee is not known or reasonably determinable for a specific title, the title does not meet the criteria for recognition in licensed content in accordance with ASC 920-350-25-2. We expense as costs of revenues the greater of revenue sharing costs incurred through the end of the reporting period or the proportionate value of total minimum license fees expensed on a straight-line basis over the term of each license agreement. As the Company expenses license fees on a straight-line basis, it may result in deferred or prepaid license fees. Deferred license fees are classified on the consolidated balance sheets as “Deferred license fees”. Commitments for license agreements that do not meet the criteria for recognition in licensed content are included in Note 17 to the consolidated financial statements.

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14.	Warner Bros. License Agreement

On June 15, 2011, the Company, through its Chinese joint ventures Hua Cheng Hu Dong (Beijing) Film and Television Communication Co., Ltd. (“Hua Cheng”) and Zhong Hai Video entered into a Transactional Video on Demand and Pay-Per-View License Agreement (the “WB Agreement”) with CAV Warner Home Entertainment Co., Ltd. (“CAVW”), Warner Bros. Home Entertainment Group’s joint venture in China. Pursuant to the WB Agreement, Hua Cheng was granted a license under copyright for a total term of fifty-four months beginning on July 1, 2011. The contract is subject to annual minimum payments.

In connection with the WB Agreement, the Company issued 200,000 warrants to Warner Bros. Entertainment Inc. exercisable at a price per share of $6.60 for a term of five years beginning on May 12, 2011. These warrants are subject to a right of redemption exercisable by the Company in the event the closing price of the Company's common stock shall equal or exceed $13.20 per share for twenty consecutive trading days. In accordance with ASC 505-50, Equity-based Payments to Non-employees, the fair value of equity instruments issued in the acquisition of goods or services should be recognized in the same manner as if an enterprise had paid cash. As such, the Company estimated the fair value of the warrants granted using the Black-Scholes Merton model at $676,462 and capitalized the amount as licensed content. Further, we initially classified the portion of total licensed content that we expect to amortize over the next twelve months in the amount of $150,325 as current licensed content with the remaining portion classified as non-current licensed content in the amount of $526,137. At March 31, 2012, the non-current licensed content amounted to $413,394. The Black-Scholes Merton model incorporated the following assumptions: risk-free interest rate of 1.89%, expected volatility of 60.0%, expected life of 5.0 years and expected dividend yield of 0%. The Company began amortizing this asset during the third quarter of 2011 and recognized approximately $38,000 during the first quarter of 2012.

15.	Share-Based Payments

Stock Options

Through March 31, 2012, the Company has 1,579,634 options and 436,912 warrants outstanding to purchase shares of our common stock.

The following table provides the details of the approximate total share based payments expense during the three months ended March 31, 2012 and 2011:

	March 31,		March 31,
	2012		2011
	(unaudited)		(unaudited)
Stock option amortization	$	163,000	$	146,000
Stock issued for services		-		10,000
Stock warrants issued for service		12,000		-
	$	175,000	$	156,000

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 Merton 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 Merton model incorporated the following assumptions for the options granted in 2012 and 2011: risk-free interest rate of 1.82% to 3.43%, expected volatility of 60% and 75%, expected life of 10.0 years and expected dividend yield of 0%.

Common shares were also issued to pay for consulting services and were recorded at the closing price of $3.75 per share on the issue date and expensed in an amount of $10,000 during the three months ended March 31, 2011 (none in 2012).

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Effective as of December 3, 2010, our Board of Directors approved the YOU On Demand Holdings, Inc. 2010 Stock Incentive Plan (“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 4,000,000 shares.

Stock option activity for the three months ended March 31, 2012 is summarized as follows:

	March 31, 2012
			Weighted		Aggregate
			Average		Intrinsic
	Shares		Exercise Price		Value
Options outstanding at beginning of year		1,386,234	$	3.32	$	3,203,967
Granted		193,400		4.91		175,813
Exercised		-		-		-
Cancelled/expired		-		3.00		(32,667	)
Options outstanding at end of period		1,579,634	$	3.48	$	3,347,113

Options exercisable at end of period		805,386	$	3.27	$	1,946,492

Options available for issuance		2,420,366

As of March 31, 2012, there were 1,579,634 options outstanding with 805,386 options exercisable at a weighted average exercise price of $3.22 with a weighted average remaining contractual life of 8.63 years.

As of March 31, 2012 the Company had total unrecognized compensation expense related to options granted of approximately $2,058,427 which will be recognized over a remaining service period of 4.0 years.

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, the July 2010 and June 2011 financings, the WB Agreement and a service agreement, the Company issued warrants to investors and service providers to purchase common stock of the Company. As of March 31, 2012, the weighted average exercise price was $35.99 and the weighted average remaining life was 2.29 years. The following table outlines the warrants outstanding as of March 31, 2012 and December 31, 2011:

	March 31,		December 31,
	2012		2011
	(unaudited)
	Number of		Number of
	Warrants		Warrants		Exercise		Expiration
Warants Outstanding	Outstanding		Outstanding		Price		Date
Share Exchange Consulting Warrants ($45.00 exercise price)		59,664		59,664	$	45.00	1/11/2013
2007 Private Placement Broker Warrants ($45.00 exercise price)		8,533		8,533	$	45.00	1/11/2013
2007 Private Placement Investor Warrants ($150.00 exercise price)		53,333		53,333	$	150.00	1/11/2013
July 2010 Sinotop Acquisition Warrants ($45.00 exercise price)		17,049		17,049	$	45.00	1/11/2013
July 2010 Sinotop Acquisition Warrants ($150.00 exercise price)		13,333		13,333	$	150.00	1/11/2013
May 2011 Warner Brothers Warrants ($6.60 excercise price)		200,000		200,000	$	6.60	5/11/2016
June 2011 Fidelity Right to Purchase ($6.60 exercise price)		75,000		75,000	$	6.60	6/3/2012
2011 Service Agreement Warrants ($7.20 exercise price)		10,000		6,667	$	7.20	6/15/2016
		436,912		433,579

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The Company accounts for its stock warrant issuances pursuant to the provisions of ASC 505-50, Equity-based Payments to Nonemployees. The fair value of each warrant issued is estimated on the date of grant using the Black-Scholes Merton valuation model. The Black-Scholes Merton model incorporated the following assumptions for the warrants issued in 2011: risk-free interest rate of 0.05% to 1.89%, expected volatility of 60.0% to 75%, expected life of 6 months to 5.0 years and expected dividend yield of 0%.

16.	Income Taxes

The Company files a U.S. federal income tax return and also is subject to income tax in those foreign jurisdictions in which the subsidiaries and operate with the exception of China Broadband, Ltd., it British Virgin Islands subsidiary, which is not subject to income tax. Amounts provided for income taxes are based on income reported for financial statement purposes and do not necessarily represent amounts currently payable. 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 realization of deferred tax assets is assessed and a valuation allowance is recorded to the extent that it is more likely than not that any portion of the deferred tax asset will not be realized. The income tax benefit for the three month periods ended March 31, 2012 and 2011 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, 2012 and 2011 is net of a $438 and $456 expense for estimated penalties and interest that would be due on unrecognized tax positions.

As of March 31, 2012, the Company’s Chinese and Hong Kong subsidiaries have not had any net earnings and consequently the Company does not have any undistributed earnings from those subsidiaries. Under existing laws, such earnings will not be subject to U.S. tax until distributed as dividends. Once the Company’s subsidiaries have earnings, any such earnings that are distributed to the Company will be subject to a withholding tax at a rate of 5% in accordance with the PRC and Hong Kong Taxation Arrangement. Such distributions will also be taxable in the United States but such U.S. taxation will likely be partially offset by credits for the PRC and Hong Kong taxes paid on the income. For any earnings of the Chinese and Hong Kong subsidiaries that are not distributed, deferred tax liabilities for the 5% withholding tax and U.S. taxes in excess of the foreign tax credit will be recognized to the extent that such undistributed earnings are expected to be distributed. No deferred income tax liability will be recognized on undistributed earnings of the Chinese and Hong Kong subsidiaries if they are deemed to have been permanently invested outside the U.S., and it is not practicable to estimate the deferred tax liability related to such undistributed earnings.

China passed an 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.

If the EIT Law were to be applied to YOU On Demand Holdings, Inc., (the Nevada Corporation itself) and/or to China Broadband, Ltd., those entities would be subject to Chinese corporate income tax, currently at a rate of 25%. It would also be possible that the Company would not be able to claim a credit against is U.S. income taxes for those Chinese corporate income taxes. 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.

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The Company’s United States income tax returns are subject to examination by the Internal Revenue Service (“IRS”) for at least 2007 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 2011 as applicable. The Company is not aware of any income tax audits in any of the jurisdictions to which it is subject.

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

Management believes that it has $6,706,453 of net operating loss carryovers from prior to 2006. These carryovers expire in various years through 2025. Since Management has not been able to determine whether income tax returns were filed for this period and may not be able to recreate the records to file them if they have not they may be unable to claim the pre-exchange transaction net operating loss carryovers. In addition, even if the net operating loss carryovers were to be properly established, the future use of any pre-exchange transaction net operating loss carryovers will be significantly limited under section 382 of the internal revenue code because of the change of control in January 2007 as well as by previous changes in the control of the Corporate entity. The extent of these limitations has not yet been determined.

As of March 31, 2012, the Company has available additional U.S. net operating loss carryovers of $11,170,451, and will expire in the years 2027 through 2032. The non-recognition of the tax benefits, while reducing the net operating loss carryovers, gives rise to a capital loss carryover of $1,420,289 and an AMT credit of $17,952. The Company also has a charitable contributions carryover of $2,000 at March 31, 2012.

In addition to the U.S. net operating losses, Jinan Broadband, Shandong Media, Sinotop Hong Kong, Zhong Hai Video and the YOD WFOE have the following estimated Chinese (Hong Kong in the case of Sinotop) net operating loss carryovers at March 31, 2012 with the expiration dates as shown:

	Jinan		Shandong		Sinotop		Zhong Hai		YOD				Total
Expiring	Broadband		Media		Hong Kong		Video		WFOE		Other		Foreign
2012	$	-	$	-	$	-	$	-	$	55,726	$	-	$	55,726
2013		-		14,659		-		-		41,560		-		56,219
2014		-		92,581		-		-		35,013		-		127,594
2015		-		465,215		322,921		385,417		18,460		-		1,192,013
2016		76,654		339,218		417,358		1,799,062		994		395,314		3,028,600
2017		78,312		226,191		85,048		185,025		965		711,739		1,287,280
Total	$	154,966	$	1,137,864	$	825,327	$	2,369,504	$	152,718	$	1,107,053	$	5,747,432

The Company has established a valuation allowance against its net deferred tax assets in the amount of $10,058,886 and $9,057,657 as of March 31, 2012 and December 31, 2011, respectively, due to the Company’s history of pre-tax losses and the resulting likelihood that deferred tax assets are not realizable.

17.	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, 2012, the Company's potential minimum cash obligation to these employees was approximately $934,000.

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The Company is committed to paying leased property costs related to our China offices through 2015 as follows:

Years ending December 31,	Leased Property Costs
2012 (nine months)	$	281,974
2013	$	337,777
2014	$	56,976
2015	$	18,992

The Company is committed to paying product related costs through 2015 as follows:

Years ending December 31,	Product Related Costs
2012 (nine months)	$	349,819
2013	$	978,389
2014	$	1,514,778
2015	$	926,778

According to the purchase agreement with “Shandong Fu Ren”, Zhong Hai Video was obligated to pay RMB 1,000,000 (USD 157,270) to acquire 51% ownership of Shanghai Tianduo, of which RMB 700,000 (USD 110,089) remains.

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.

18.	Defined Contribution Plan

During 2011, the Company began sponsoring a 401(k) defined contribution plan ("401(k) Plan") that provides for a 100% employer matching contribution of the first 3% and a 50% employer matching contribution of each additional percent contributed by an employee up to 5% of each employee’s pay. Employees become fully vested in employer matching contributions after six months of employment. Company 401(k) matching contributions were approximately $20,000 and $9,000 for the three months ended March 31, 2012 and 2011, respectively. In 2011 employees were able to defer up to $16,500 (plus $5,500 for employees over the age of 50) of their yearly pay as a pre-tax investment in the 401(k) Plan, in accordance with limits set by the IRS. In 2012 the limits will increase to $17,000 (plus an additional $5,500 for employees over the age of 50).

19.	Subsequent Events

On May 10, 2012, our Chairman and Chief Executive Officer, Mr. Shane McMahon, made a loan to the Company in the amount of $3,000,000. In consideration for the loan, the Company issued a convertible note to Mr. McMahon in $3,000,000 principal amount. The note has an annual interest rate of 4% and matures on the earlier of (i) the date on which the Company closes the next financing of equity or equity-linked securities of the Company in which at least $5,000,000 in gross proceeds is raised, and (ii) May 10, 2013. The note is convertible at any time into shares of the Company’s common stock at a conversion price of $10.00 per share; provided, however, that if the Company raises capital at any time prior to the maturity of the note, the note may be converted into the securities received by the investors in the most recent capital raise (as of the date of conversion) at a price equal to the purchase price paid for the securities by such investors.

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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, 2011 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 unaudited consolidated 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 Chinese 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, and it’s 80% owned operating joint venture Zhong Hai Video, we provide integrated value-added service solutions for the delivery of PPV, VOD, and enhanced premium content for cable providers. Zhong Hai Video's revenue will be derived primarily from a VOD model, consisting of a 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 Media, we operate our publishing business, which includes the distribution of periodicals, the publication of advertising, the organization of public relations events, the provision of information related services, copyright transactions, the production of audio and video products, and the provision of audio value added communication services. Shandong Media's revenue consists primarily of sales of publications and advertising revenues.

We acquired AdNet, a business that provided internet content advertising in cafés, 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. Effective September 2, 2011, we terminated the VIE arrangement with AdNet, which served to relinquish our control and any right to economic benefit with respect to AdNet, as well as release us of any future liability.

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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 an average annual growth rate of approximately 10% in gross domestic product from 1996 through 2011. 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.

●

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 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 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.

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Consolidated Results of Operations

Comparison of Three Months Ended March 31, 2012 and 2011

The following table sets forth key components of our results of operations (unaudited).

	Three Months Ended
	March 31,			March 31,			Amount			%
	2012			2011			Change			Change

Revenue	$	2,038,000		$	1,698,000		$	340,000			20	%
Cost of revenue		1,792,000			1,250,000			542,000			43	%
Gross profit		246,000			448,000			(202,000	)		-45	%

Operating expense:
Selling, general and administrative expenses		2,747,000			1,813,000			934,000			52	%
Professional fees		412,000			318,000			94,000			30	%
Depreciation and amortization		1,231,000			1,074,000			157,000			15	%
Total operating expense		4,390,000			3,205,000			1,185,000			37	%

Loss from operations		(4,144,000	)		(2,757,000	)		(1,387,000	)		50	%

Interest & other income / (expense)
Interest income		3,000			3,000			-			0	%
Interest expense		(2,000	)		(1,000	)		(1,000	)		100	%
Change in fair value of contingent consideration		(712,000	)		39,000			(751,000	)		-1926	%
Loss on investment in unconsolidated entities		(4,000	)		(7,000	)		3,000			-

Loss before income taxes and noncontrolling interests		(4,859,000	)		(2,723,000	)		(2,136,000	)		78	%

Income tax benefit		75,000			75,000			-			0	%

Net loss		(4,784,000	)		(2,648,000	)		(2,136,000	)		81	%

Net loss attributable to noncontrolling interests		564,000			421,000			143,000			34	%

Net loss attributable to YOU On Demand shareholders		(4,220,000	)		(2,227,000	)		(1,993,000	)		89	%

Revenues

Revenues for the three months ended March 31, 2012 totaled $2,038,000, as compared to $1,698,000 for the same period of 2011. The increase in revenue of approximately $340,000, or 20%, is attributable to increases in revenue from both Jinan Broadband and Shandong Media, as discussed below.

For the three months ended March 31, 2012, 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 $1,274,000, an increase of $231,000, or 22%, as compared to $1,043,000 for the same period in 2011. The increase is primarily related to sales to our business customers and internet income.

For the three months ended March 31, 2012, Shandong Media’s revenue consisted of publication sales and advertising revenue of $764,000, an increase of $109,000, or 17%, as compared to $655,000 for the same period in 2011. The increase is mainly attributable to increases in advertising revenue.

Gross Profit

Our gross profit for the three months ended March 31, 2012 was $246,000, as compared to $448,000 for the same period in 2011. The decrease in gross profit of approximately $202,000, or 45%, is mainly due to content acquisition costs related to our PPV and VOD business.

Gross profit as a percentage of revenue was 12% for the three months ended March 31, 2012, as compared to 26% for the same period in 2011. The decrease is mainly due to content acquisition costs related to our PPV and VOD business while none in 2011.

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Selling, General and Administrative Expenses

Our selling, general and administrative expenses for the three months ended March 31, 2012 increased approximately $934,000 to $2,747,000, as compared to $1,813,000 for the three months ended March 31, 2011. The increase is mainly due to increased costs related to the development of our PPV and VOD business.

Salaries and personnel costs are the primary components of selling, general and administrative expenses. For the three months ended March 31, 2012, salaries and personnel costs accounted for 60% of our selling, general and administrative expenses. For the three months ended March 31, 2012, salaries and personnel costs totaled $1,660,000, an increase of $572,000, or 53%, as compared to $1,088,000 for the same period of 2011. The increase in salaries and personnel costs is primarily attributable to the development our PPV and VOD business.

The other major components of our selling, general and administrative expenses include bad debt, office, marketing and promotions, rent and travel. For the three months ended March 31, 2012, these costs totaled $596,000, an increase of $220,000, or 59% as compared to $376,000 for the same period of 2011, mainly due to the increase of bad debt allowance of $145,000 at Shandong Media.

Professional Fees

Professional fees are generally related to public company reporting and governance expenses as well as legal fees related to our PPV and VOD business. Our costs for professional fees increased $94,000, or 30%, to $412,000 for the three months ended March 31, 2012, from $318,000 during 2011, primarily due to legal fees related to our PPV and VOD business.

Depreciation and Amortization

Our depreciation expense increased $180,000, or 32%, to $744,000 in the three months ended March 31, 2012 from $564,000 during 2011 due to new acquisitions primarily at Jinan Broadband, but also from the new PPV and VOD business.

Our amortization expense decreased $23,000, or 5%, to $487,000 in the three months ended March 31, 2012 from $510,000 during the same period of 2011. The decrease is mainly because we no longer have amortization related to the AdNet software technology that was determined to be no longer useful to support our PPV and VOD business due to other advancements. This decrease was offset by recent software purchases for the PPV and VOD business.

Change in Fair Value of Contingent Consideration

Our contingent consideration related to our acquisition of Sinotop Hong Kong 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 loss of approximately $712,000 for the three months ended March 31, 2012 and a gain of approximately $39,000 for the three months ended March 31, 2011. The main reason for the change in fair value is because for the 2012 period our closing stock price increased from $4.50 at December 31, 2011 to $5.45 at March 31, 2012, while during the same period in 2011our stock price remained constant with a closing stock price of $4.50 at December 31, 2010 and March 31, 2011.

Net Loss Attributable to Non-controlling Interest

49% of the operating loss of our Jinan Broadband entity is allocated to Jinan Parent, the 49% co-owner of this business. During the three months ended March 31, 2012, $283,000 of our operating losses from Jinan Broadband was allocated to Jinan Parent, as compared to $221,000 during the same period of 2011.

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, 2012, $200,000 of our operating loss from Shandong Media was allocated to Shandong Newspaper, as compared to $117,000 during the same period of 2011.

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20% of the operating loss of our Zhong Hai Video joint venture is allocated to Hua Cheng, our 20% joint venture partner. During the three months ended March 31, 2012, $81,000 of our operating loss from Zhong Hai Video was allocated to Hua Cheng, as compared to $83,000 during 2010.

Liquidity and Capital Resources

As of March 31, 2012 we had cash and cash equivalents of approximately $4,862,000. Approximately $4,400,000 is held in our Chinese subsidiaries. The company has no plans to repatriate these funds. Our working capital at March 31, 2012 was approximately $528,000.

The following table provides a summary of our net cash flows from operating, investing, and financing activities.

	Three Months Ended
	March 31,			March, 31,
	2012			2011
	(Unaudited)			(Unaudited)
Net cash used in operating activities	$	(2,402,000	)	$	(1,117,000	)
Net cash used in investing activities		(292,000	)		(920,000	)
Net cash provided by financing activities		-			152,000
Effect of exchange rate changes on cash		36,000			(53,000	)
Net decrease in cash and cash equivalents		(2,658,000	)		(1,938,000	)
Cash and cash equivalents at beginning of period		7,520,000			6,584,000
Cash and cash equivalents at end of period		4,862,000			4,646,000

Operating Activities

Net cash used in operating activities for the three months ended March 31, 2012 and 2011 was $2,402,000 and $1,117,000, 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, 2012 and 2011 used cash of $292,000 and $920,000, respectively. For 2012, this amount consisted primarily of (i) $162,000 for additions to property and equipment and (ii) investments in intangibles of $104,000. For 2011, this amount consisted of (i) $554,000 for additions to property and equipment and (ii) $210,000 loan to our Shandong Media shareholder.

Financing activities

There was no cash used in or cash provided by financing activities for the three months ended March 31, 2012. Cash provided by financing activities for the same period of 2011was $152,000 from proceeds advanced from Jinan Parent.

On May 10, 2012, the Company’s Chairman and Chief Executive Officer, Mr. Shane McMahon made a loan to the Company in the amount of $3,000,000. In consideration for the loan, the Company issued a convertible note to Mr. McMahon in $3,000,000 principal amount. The note has an annual interest rate of 4% and matures on the earlier of (i) the date on which the Company closes the next financing of equity or equity-linked securities of the Company in which at least $5,000,000 in gross proceeds is raised, and (ii) May 10, 2013. The note is convertible at any time into shares of the Company’s common stock at a conversion price of $10.00 per share; provided, however, that if the Company raises capital at any time prior to the maturity of the note, the note may be converted into the securities received by the investors in the most recent capital raise (as of the date of conversion) at a price equal to the purchase price paid for the securities by such investors.

We anticipate that we may need to raise additional funds to fully implement our business model and related strategies. 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.

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Effects of Inflation

Inflation and changing prices have had an effect on our business and we expect that inflation or changing prices could materially affect our business in the foreseeable future. Our management will closely monitor the price change and make efforts to 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 unaudited 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, 2011 includes a summary of our most significant accounting policies. 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, income taxes, stock-based compensation and contingent 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 2011 Form 10-K are applicable.

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, 2012. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that as of March 31, 2012, 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. However, during 2011, the Company hired two US GAAP and SEC qualified internal personnel, one in the US and one in China, to oversee its financial reporting operations. Subsequent to March 31, 2012, our US based employee resigned from the company to pursue another opportunity. During the interim period, another internal employee with US GAAP and SEC experience temporarily filled the position on a full time basis. The company anticipates hiring a permanent replacement during the second quarter. The interim employee will remain in a supporting role to provide additional control support. With these individuals in place and with the additional personnel to be added, we expect that within the next quarter our internal controls will be effective.

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Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting identified in connection with the evaluation performed that occurred during the period covered by this report that have materially affected or are reasonably likely to materially affect, our internal control 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

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, 2011, 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, 2012.

Item 3. Defaults Upon Senior Securities.

There were no defaults upon senior securities during the fiscal quarter ended March 31, 2012.

Item 4. Mine Safety Disclosures.

Item 5. Other Information.

The note contains standard events of default, including nonpayment of principal or interest, or insolvency, winding up and other market standard analogous events. The issuance of the note was not registered under the Securities Act of 1933, as amended, as such issuance was exempt from registration under Section 4(2) of the Securities Act

The foregoing description of the note is qualified in its entirety by reference to the actual note, a copy of which is filed as Exhibit 10.1 hereto and incorporated herein by reference.

Item 6. Exhibits.

EXHIBIT INDEX

10.1	Convertible Promissory Note in $3,000,000 principal amount issued to Shane McMahon.
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.
101.INS	Instance Document
101.SCH	XBRL Taxonomy Extension Schema Document
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB	XBRL Taxonomy Extension Label Linkbase Document
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document

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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 May 15, 2012.

	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)

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Exhibit Index

Exhibit No.	Description
10.1	Convertible Promissory Note in $3,000,000 principal amount issued to Shane McMahon.
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.
101.INS	Instance Document
101.SCH	XBRL Taxonomy Extension Schema Document
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB	XBRL Taxonomy Extension Label Linkbase Document
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document