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, 2015

[ ] 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)

375 Greenwich Street, Suite 516
New York, New York 10013
(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 [X]     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.

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:
23,835,370 shares as of May 12, 2015.

QUARTERLY REPORT ON FORM 10-Q
OF YOU ON DEMAND HOLDINGS, INC.
FOR THE PERIOD ENDED MARCH 31, 2015

TABLE OF CONTENTS

References

Except as otherwise indicated by the context, references in this report to (i) the “Company,” “YOU On Demand,” “we,” “us,” and “our” are to the business of YOU On Demand Holdings, Inc., a Nevada corporation, and its consolidated subsidiaries and variable interest entities; (ii) “CB Cayman” are to our wholly-owned subsidiary China Broadband, Ltd., a Cayman Islands company; (iii) “YOD Hong Kong” are to YOU On Demand (Asia) Limited (formerly known as Sinotop Group Limited), a Hong Kong company wholly-owned by CB Cayman; (iv) “YOD WFOE” are to YOU On Demand (Beijing) Technology Co., Ltd., a PRC company wholly-owned by YOD Hong Kong; (v) “Sinotop Beijing” or “Sinotop” are to Beijing Sino Top Scope Technology Co., Ltd, a PRC company controlled by YOD Hong Kong through contractual arrangements; (vi) “Zhong Hai Video” are to Zhong Hai Shi Xun Information Technology Co., Ltd., a PRC company 80% owned by Sinotop Beijing; (vii) “Hua Cheng” are to Hua Cheng Hu Dong (Beijing) Film and Television Communication Co., Ltd., a PRC company 39% owned by Sinotop Beijing and 20% owner of Zhong Hai Video; (viii) “WFOE” are to our wholly-owned subsidiary Beijing China Broadband Network Technology Co., Ltd., a PRC company, which was sold effective March 25, 2014; (ix) “Jinan Zhong Kuan” are to Jinan Zhong Kuan Dian Guang Information Technology Co. Ltd., a PRC company controlled through contractual arrangements, which was dissolved effective March 25, 2014; (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) “VIE” refers to our current variable interest entity, Sinotop Beijing.

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements.

YOU ON DEMAND HOLDINGS, INC. AND ITS SUBSIDIARIES
INDEX TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD ENDED MARCH 31, 2015

4

YOU On Demand Holdings, Inc. and Its Subsidiaries
CONSOLIDATED BALANCE SHEET

The accompanying notes are an integral part of these consolidated financial statements.

5

YOU On Demand Holdings, Inc. and Its Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS

The accompanying notes are an integral part of these consolidated financial statements.

6

YOU On Demand Holdings, Inc. and Its Subsidiaries
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

The accompanying notes are an integral part of these consolidated financial statements.

7

YOU On Demand Holdings, Inc. and Its Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS

The accompanying notes are an integral part of these consolidated financial statements.

8

YOU On Demand Holdings, Inc. and Its Subsidiaries
CONSOLIDATED STATEMENTS OF EQUITY
For the Three Months Ended March 31, 2015

The accompanying notes are an integral part of these consolidated financial statements.

9

YOU On Demand Holdings, Inc., is a Nevada corporation that primarily operates in China through our subsidiaries and variable interest entities (“VIEs”). The Company, its subsidiaries and its VIEs are collectively referred to as YOU on Demand (“YOU On Demand”, “we”, “us”, or “the Company”).

YOU on Demand is principally engaged in providing and delivery of video on demand (“VOD”) content through a comprehensive end-to-end secure delivery system. Our services are offered across multiple platforms, including digital cable television, IPTV (“Internet Protocol Television”), mobile and over-the-top (“OTT”) devices.

In the opinion of management, these financial statements reflect all adjustments, which are of a normal and recurring nature that is 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 consolidated 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, 2014 filed with the Securities and Exchange Commission on March 30, 2015 (our “2014 Annual Report”).

For the three months ended March 31, 2015, we incurred a net loss of approximately $2.9 million and we used cash for operations of approximately $2.4 million. Further, we had an accumulated deficit of approximately $81.2 million as of March 31, 2015.

The Company must continue to rely on debt and equity to pay for ongoing operating expenses in order to execute its business plan. On January 31, 2014, we completed a Series E Preferred Stock financing (as discussed below in Note 9) in which we raised an additional $19.0 million. We also have the ability to raise funds by various methods, including utilization of our $50 million shelf registration, of which $47.3 million is remaining, as well as other means of financing such as debt or private investment. However, financing may not be available to the Company on terms acceptable to us or at all or such resources may not be received in a timely manner. Further we may need approval to seek additional financing from the shareholders from the August 2012 private financing in the event we do a public financing.

These conditions raise substantial doubt about the Company’s ability to continue as a going concern. 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.

To comply with PRC laws and regulation that prohibit or restrict foreign ownership of companies that provide value-added telecommunication services, the Company provides its services through Sinotop Beijing and its subsidiary, Zhonghai Video, which holds the licenses and approvals to provide digital distribution and Internet content services in the PRC. The Company has obtained substantial ability to control Sinotop Beijing and Zhonghai Video through a series of contractual agreements entered into among YOD WFOE, YOD Hong Kong, Sinotop Beijing and the legal shareholder of Sinotop Beijing.

Management Services Agreement

Pursuant to a Management Services Agreement, as of March 9, 2010, between Sinotop Beijing and YOD Hong Kong (the “Management Services Agreement”), YOD Hong Kong has the exclusive right to provide to Sinotop Beijing management, financial and other services related to the operation of Sinotop Beijing’s business, and Sinotop Beijing is required to take all commercially reasonable efforts to permit and facilitate the provision of the services by YOD Hong Kong. As compensation for providing the services, YOD Hong Kong is entitled to receive a fee from Sinotop Beijing, upon demand, equal to 100% of the annual net profits of Sinotop Beijing during the term of the Management Services Agreement. YOD Hong Kong may also request ad hoc quarterly payments of the aggregate fee, which payments will be credited against Sinotop Hong Kong’s future payment obligations.

10

The Management Services Agreement also provides YOD Hong Kong, or its designee, with a right of first refusal to acquire all or any portion of the equity of Sinotop Beijing upon any proposal by the sole shareholder of Sinotop Beijing to transfer such equity. In addition, at the sole discretion of YOD Hong Kong, Sinotop Beijing is obligated to transfer to YOD Hong Kong, or its designee, any part or all of the business, personnel, assets and operations of Sinotop Beijing which may be lawfully conducted, employed, owned or operated by YOD Hong Kong, including:

(a) business opportunities presented to, or available to Sinotop Beijing may be pursued and contracted for in the name of YOD Hong Kong rather than Sinotop Beijing, and at its discretion, YOD Hong Kong may employ the resources of Sinotop Beijing to secure such opportunities;

(b) any tangible or intangible property of Sinotop Bejing, any contractual rights, any personnel, and any other items or things of value held by Sinotop Beijing may be transferred to YOD Hong Kong at book value;

(c) real property, personal or intangible property, personnel, services, equipment, supplies and any other items useful for the conduct of the business may be obtained by YOD Hong Kong by acquisition, lease, license or otherwise, and made available to Sinotop Beijing on terms to be determined by agreement between YOD Hong Kong and Sinotop Beijing;

(d) contracts entered into in the name of Sinotop Beijing may be transferred to YOD Hong Kong, or the work under such contracts may be subcontracted, in whole or in part, to YOD Hong Kong, on terms to be determined by agreement between YOD Hong Kong and Sinotop Beijing; and

(e) any changes to, or any expansion or contraction of, the business may be carried out in the exercise of the sole discretion of YOD Hong Kong, and in the name of and at the expense of, YOD Hong Kong; provided, however, that none of the foregoing may cause or have the effect of terminating (without being substantially replaced under the name of YOD Hong Kong) or adversely affecting any license, permit or regulatory status of Sinotop Beijing.

The term of the Management Services Agreement is 20 years, and may not be terminated by Sinotop Beijing, except with the consent of, or a material breach by, YOD Hong Kong.

Equity Pledge Agreement

Pursuant to an Equity Pledge Agreement among YOD Hong Kong, Sinotop Beijing and the sole shareholder of Sinotop Beijing (the “Shareholder”), dated March 9, 2010, the Shareholder pledged all of its equity interests in Sinotop Beijing (the “Collateral”) to YOD Hong Kong as security for the performance of the obligations of Sinotop Beijing to make all of the required management fee payments pursuant to the Management Services Agreement. The term of the Equity Pledge Agreement expires two years from Sinotop Beijing’s satisfaction of all obligations under the Management Services Agreement.

Option Agreement

Pursuant to an Option Agreement among YOD Hong Kong, Sinotop Beijing and the Shareholder, dated March 9, 2010, and entered into in connection with the Management Services Agreement, the Shareholder granted an exclusive option to YOD Hong Kong, or its designee, to purchase, at any time and from time to time, to the extent permitted under PRC law, all or any portion of the Shareholder’s equity in Sinotop Beijing. The aggregate purchase price of the option is equal to the registered paid-in capital of the Shareholder. The term of the agreement is until all of the equity interest in Sinotop Beijing held by the Shareholder is transferred to YOD Hong Kong, or its designee, or until the maximum period allowed by law has run, and may not be terminated by any party to the agreement without the consent of the other parties.

Voting Rights Proxy Agreement

Pursuant to a Voting Rights Proxy Agreement among YOD Hong Kong, Sinotop Beijing and the Shareholder, dated March 9, 2010, the Shareholder granted to YOD Hong Kong an irrevocable proxy, for the maximum period of time permitted by law, all of its voting rights as a shareholder of Sinotop Beijing. The Shareholder may not transfer any of its equity interest in Sinotop Beijing to any party other than YOD Hong Kong. The Voting Rights Proxy Agreement may not be terminated except upon the written consent of all parties, or unilaterally by YOD Hong Kong upon 30 days’ notice.

11

On June 4, 2012, YOD Hong Kong assigned all rights under the above agreement to YOD WFOE, its wholly-owned subsidiary. Accordingly, YOD WFOE may exercise the above agreements in place of YOD Hong Kong.

Under the above contractual agreements, YOD WFOE has the power to direct the activities of the Sinotop Beijing, and can have the assets transferred freely out of Sinotop Beijing without any restrictions. Therefore, YOD WFOE considers that there is no asset of Sinotop Beijing or Zhonghai Video that can be used only to settle obligations of Sinotop Beijing or Zhonghai Video, except for the registered capital of these two entities amounting to RMB17.0 million (approximately $2.6 million) as of March 31, 2015. As Sinotop Beijing and Zhonghai Video are incorporated as limited liability companies under PRC Company Law, creditors of these two entities do not have recourse to the general credit of other entities of the Company.

Financial Information

The following financial information of our VIE, as applicable for the periods presented, affected the Company’s consolidated financial statements.

12

On March 25, 2014, we sold Beijing China Broadband Network Technology Co., Ltd. (“WFOE”), our wholly-owned subsidiary, to Linkstar Global Investment Limited. On the same date, we dissolved Jinan Zhong Kuan Dian Guang Information Technology Co., Ltd. (“Jinan Zhong Kuan”), the VIE of WFOE. Both WFOE and Jinan Zhong Kuan were investment holding companies and were sold or dissolved when we determined that they were no longer required for our organizational structure. Total consideration for the sale of WFOE was US$50,000, which we received in the third quarter of 2014. In accordance with ASC 810-10-40, Deconsolidation of a Subsidiary, we derecognized the net assets associated with WFOE and Jinan Zhong Kuan on March 25, 2014 when we ceased to have controlling financial interest in these entities.

The following is a breakdown of our property and equipment:

We recorded depreciation expense of approximately $51,000 and $65,000, which is included in our operating expense for the three months ended March 31, 2015 and 2014, respectively.

The Company intangible assets primarily arose from the acquisition of YOD Hong Kong.

As of March 31, 2015, the Company’s amortized intangible assets consisted of the following:

We recorded amortization expense related to our finite lived intangible assets of approximately $39,000 and $85,000 during the three months ended March 31, 2015 and 2014, respectively.

13

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

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:

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.

We review the valuation techniques used to determine if the fair value measurements are still appropriate on an annual basis, and evaluate and adjust the unobservable inputs used in the fair value measurements based on current market conditions and third party information.

The fair value of the warrant liabilities at March 31, 2015 were valued using the Black-Scholes Merton method as an estimate for the Monte Carlos Simulation method which was the method used at the year ended December 31, 2014. The following assumptions were incorporated:

The following tables present the fair value hierarchy for those assets and liabilities measured at fair value on a recurring basis at March 31, 2015 and December 31, 2014, respectively:

14

The table below reflects the components effecting the change in fair value for the three months ended March 31, 2015:

The significant unobservable inputs used in the fair value measurement of the Company’s warrant liability includes the risk free interest rate, expected volatility, expected term and expected dividend yield. Significant increases or decreases in any of those inputs in isolation would result in a significantly different fair value measurement.

The carrying amount of cash and cash equivalents, accounts receivable, accounts payable, accrued expenses and other payables and convertible promissory note as of March 31, 2015 and December 31, 2014, approximate fair value because of the short maturity of these instruments.

On May 10, 2012, our Executive Chairman and Principal 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 the aggregate principal amount of $3,000,000 (the “Note”). Upon issuance, the conversion price of the Note was equal to the price per share paid for securities by investors in the most recent financing (as of the date of conversion) of equity or equity-linked securities of the Company. Thereafter, on May 21, 2012, at the Company’s request, the Company and Mr. McMahon entered into Amendment No.1 to the Note, pursuant to which the price per share at which the Note, or any convertible Securities into which the Note is converted, may be converted into shares of the Company’s common stock, shall not be less than $4.75, which amount represents the closing bid price of the Company’s common stock on the trading day immediately prior to the date of the Note in accordance with the rules and regulations of The Nasdaq Stock Market, Inc.

On April 12, 2013, our majority shareholders approved an amendment to the Note, as amended on May 21, 2012, to remove the $4.75 floor to the conversion price of the Note and such approval and such amendment was effective following the expiration of the 20-day period mandated by Rule 14c-2.

15

Effective May 10, 2013, the Company and Mr. McMahon entered into Amendment No. 3 to the note pursuant to which (i) the Note will mature on November 10, 2013, and (ii) the net proceeds of any financing of equity or equity-linked securities of the Company occurring on or before such date will be used to repay the Note until the full amount of the Note, and all accrued interest on the Note is repaid.

In connection with the Series D Amendment (as discussed below in Note 9), on November 4, 2013, the Company and Mr. McMahon entered into a waiver, pursuant to which (i) Mr. McMahon waived the Company’s obligation to repay the Note on November 10, 2013, (ii) the Company and Mr. McMahon agreed that the principal and all interest on the Note shall become due and payable on the earlier of (a) the closing of the Series E Financing, or (b) if there is no Series E Financing, the date when the Bridge Note (as discussed below in Note 9) is repaid in full or converted into shares of Series D Preferred Stock, and (iii) Mr. McMahon waived the Company’s obligation to repay the Note with the proceeds received from the issuance of the Bridge Note.

Effective on January 31, 2014, the Company and Mr. McMahon entered into Amendment No. 4 to the Note pursuant to which the Note will be, at Mr. McMahon’s option, payable on demand or convertible on demand into shares of Series E Preferred Stock of the Company (the “Series E Preferred Stock”) at a conversion price of $1.75, until December 31, 2014. As a result, the Company recognized a beneficial conversion feature discount calculated as the difference between the Series E Preferred Stock at its intrinsic value, which was the fair value of the common stock at the commitment date for the Series E Preferred Stock investment and the effective conversion price. As such, we recognized a beneficial conversion feature of approximately $2,126,000 which was reflected as interest expense and additional paid-in capital since the note was payable upon demand.

Effective December 30, 2014, the Company and Mr. McMahon entered into Amendment No. 5 to the Note pursuant to which the maturity date of the Note was extended to December 31, 2016. The Note remains payable on demand or convertible on demand into shares of Series E Preferred Stock at a conversion price of $1.75 at Mr. McMahon’s option.

For the three months ended March 31, 2015 and 2014, the Company recorded interest expense of $30,000 and $2,156,000, respectively, related to the Note.

In March 2015, Zhong Hai Video entered into an agreement with C Media Limited (“C Media”) to provide video content services via C Media’s proprietary railway Wi-Fi service platform. For the three months ended March 31, 2015, total revenue recognized amounted to $182,000. As of March 31, 2015, total accounts receivable due from C Media amounted to $182,000.

Zhong Hai Video paid licensed content fees of approximately $40,000 and $41,000 for the three months ended March 31, 2015 and 2014, respectively, to Hua Cheng, the minority shareholder of Zhong Hai Video.

Effective March 25, 2014, WFOE, our wholly-owned subsidiary, was sold to Linkstar Global Investment Limited, whose sole shareholder is a family member of one of our management personnel. Total consideration for the sale of WFOE was US$50,000, which was received in the third quarter of 2014.

On July 5, 2013, we entered into a Series D Preferred Stock Purchase Agreement with C Media, pursuant to which we sold to C Media 2,285,714 shares of Series D 4% Convertible Redeemable Preferred Stock of the Company (the “Series D Preferred Stock”) for $1.75 per share, or a total purchase price of $4,000,000.

16

The Series D Preferred Stock and any dividends thereon may be converted into shares of our common stock at any time by C Media at a conversion price of $1.75 per share. The dividends on the Series D Preferred Stock are payable, at our option, in cash, if permissible, or in additional shares of common stock. In the event the Series E Preferred Stock financing transaction is not consummated on or prior to October 31, 2013, the Series D Preferred Stock shall become immediately redeemable at the option of C Media. The redemption may be exercised in whole or in part at $1.75 dollars per share, plus all unpaid and accrued dividends. C Media shall have the right to vote with our stockholders in any matter. C Media shall be entitled to one vote per common stock on an as-converted basis, based on the conversion price of $1.75 per share. Upon any liquidation, dissolution or winding-up of the Company, C Media shall be entitled to receive an amount equal to the then-outstanding Series D Preferred Stock at $1.75 per share, plus any accrued and unpaid dividends, prior to and in preference of holders of common stock or Series A, B or C preferred stock.

Subsequently, the Company exchanged the Series D Preferred Stock to Series E Preferred Stock, effective as of  January 31, 2014. Previously recognized beneficial conversion feature of $183,000 related to the Series D Preferred Stock was reversed and the Company recognized approximately $2,651,000 of beneficial conversion feature as a deemed dividend related to the exchange of Series D Preferred Stock to Series E Preferred Stock. Further, in accordance with the terms of the Series D Preferred Stock Purchase Agreement, the Company paid the full cumulative dividends of $92,000 upon the exchange of the Series D Preferred Stock to Series E Preferred Stock.

On November 4, 2013, the Company issued a convertible note to C Media in $2,000,000 principal amount (the “Bridge Note”). The Bridge Note had an annual interest rate of 4% and a maturity date of January 5, 2015. Upon the closing of a financing pursuant to the terms of the Series D Preferred Stock Purchase Agreement by and between the Company and C Media, dated as of July 5, 2013, as amended as of November 4, 2013 (as discussed below) in which C Media would invest funds in the Company in exchange for shares of the Series E Preferred Stock, the principal amount and all unpaid interest of the Bridge Note would be automatically converted into shares of Series E Preferred Stock at a conversion price equal to the per share purchase price paid for the Series E Preferred Stock by C Media. If the Bridge Note was not converted into shares of Series E Preferred Stock within 30 days following the issuance of the Bridge Note (or, in the event that all of the conditions to the Series E Financing contained in the Series E Purchase Agreement (defined below) would have been satisfied except the condition set forth in Section 6.1(i)(ii) of the Series E Purchase Agreement, then, at C Media’s option, by January 31, 2014 (the “Optional Extension Date”)), the principal amount and all accrued and unpaid interest under the Bridge Note would, at C Media’s option, be converted into shares of the Company’s Series D Preferred Stock at a conversion price of $1.75 per share. In connection with the issuance of the Bridge Note, the Company recorded debt issuance costs of approximately $370,000 that was to be amortized over the period of the earliest possible conversion date of January 31, 2014, of which $129,000 was recognized during the three months ended March 31, 2014. The issuance costs included cash paid of $241,936 and the issuance of warrants to the placement agent to purchase 114,285 shares of common stock at $1.75 per share. The fair value of the warrants was calculated using the Black-Scholes model with the following assumptions: expected term of 5 years, expected dividend rate of 0%, volatility of 70% and an interest rate of 1.36% . The exercise price of the warrants was $1.75. The warrants were valued at $128,072 at the date of issuance.

On November 4, 2013, in connection with the issuance of the Bridge Note, the Company and C Media entered into Amendment No. 1 to the Series D Purchase Agreement (the “Series D Amendment”). Pursuant to the original Series D Purchase Agreement, dated July 5, 2013, the Company and C Media agreed, among other things, that each party would act in good faith and with fair dealing to finalize an agreement for the purchase and sale of shares of Series E Preferred Stock pursuant to the terms of a Series E Purchase Agreement on or before October 31, 2013. Pursuant to the Series D Amendment, the parties agreed that each party would act in good faith and with fair dealing to finalize the Series E Purchase Agreement on or before the 30th day following the issuance of the Bridge Note.

Also in connection with the Series D Amendment, C Media executed a waiver and consent with the Company as of October 31, 2013 agreeing, among other things, to waive its right to redeem its Series D Preferred Stock as of October 31, 2013 until the 30th day following the issuance of the Bridge Note.

On December 4, 2013, C Media exercised its extension option which extended such date to January 31, 2014.

17

On January 31, 2014, the Company entered into a Series E Preferred Stock Purchase Agreement (the “Series E Purchase Agreement”) with C Media and certain other purchasers (collectively, the “Investors”), pursuant to which the Company issued to the Investors an aggregate of 14,285,714 shares of Series E Preferred Stock of the Company for $1.75 per share, or a total purchase price of $25.0 million. Among the 14,285,714 shares of Series E Preferred Stock issued to the Investors, (i) 1,142,857 shares were issued upon the conversion of the Bridge Note issued to C Media in principal amount of $2,000,000, (ii) 10,857,143 shares were issued for an aggregate purchase price of $19 million, and (iii) 2,285,714 shares were issued upon the conversion of 2,285,714 shares of Series D Preferred Stock held by C Media, which constitute all of the issued and outstanding shares of Series D Preferred Stock, into the Series E Preferred Stock pursuant to the Series E Purchase Agreement. In connection with the issuance of the Series E Preferred Stock, we recorded issuance costs of $4,552,347 to additional paid in capital. The issuance costs included cash paid of approximately $2,386,000 and the issuance of warrants to the placement agent to purchase 1,085,714 shares of common stock at $1.75 per share. The fair value of the warrants was calculated using the Black-Scholes model with the following assumptions: expected term of 5 years, expected dividend rate of 0%, volatility of 70% and an interest rate of 1.49% . The exercise price of the warrants was $1.75. The warrants were valued at $2,166,296 at the date of issuance.

In connection with the Series E financing, the Company recognized a beneficial conversion feature discount on the Series E Preferred Stock at its intrinsic value, which was the fair value of the common stock at commitment date for the Series E Preferred Stock investment, less the effective conversion price. As such, the Company recognized a total beneficial conversion feature of approximately $16,402,000 as deemed dividend on Series E Preferred Stock.

In connection with our August 30, 2012 private financing, we issued 977,063 warrants to investors and the broker. In accordance with FASB ASC 815-40-15-5, Determining Whether an Instrument (or Embedded Feature) is Indexed to an Entity’s Own Stock, the warrants have been accounted as derivative liabilities to be re- measured at the end of every reporting period with the change in value reported in the consolidated statement of operations. On August 30, 2012, such warrants were valued at $1,525,000 utilizing a valuation model and were initially recorded as a liability. The warrants are revalued at each year end based on the Monte Carlo valuation.

As of March 31, 2015 and December 31, 2014, the warrant liability was re-valued as disclosed in Note 7, and was adjusted to its current fair value of approximately $600,000 and $585,000, respectively, as determined by the Company, resulting in a loss of approximately $15,000 for the three months ended March 31, 2015. There were no warrants exercised during three months ended March 31, 2015.

As of March 31, 2015, the Company had 1,764,447 options and 2,191,487 warrants outstanding to purchase shares of our common stock.

The Company awards common stock and stock options to employees and directors as compensation for their services, and accounts for its stock option awards to employees and directors 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.

Total share based payments expense recorded by the Company during the three months ended March 31, 2015 and 2014 is as follows:

18

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. As of March 31, 2015, options available for issuance are 2,039,076 shares.

Stock option activity for the three months ended March 31, 2015 is summarized as follows:

The weighted average grant-date fair value of options granted during the three months ended March 31, 2014 was $2.23. The total intrinsic value of options exercised during the three months ended March 31, 2014 was $1,577.

As of March 31, 2015, approximately $163,000 of total unrecognized compensation expense related to non-vested share options is expected to be recognized over a weighted average period of approximately 1.90 years. The total fair value of shares vested during the three months ended March 31, 2015 and 2014 was approximately $214,000 and $139,000, respectively.

In connection with the Company’s financings, the Warner Brother Agreement and the service agreements, the Company issued warrants to investors and service providers to purchase common stock of the Company.

As of March 31, 2015, the weighted average exercise price of the warrants was $2.20 and the weighted average remaining life was 3.14 years. The following table outlines the warrants outstanding and exercisable as of March 31, 2015 and December 31, 2014:

19

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 applicable period. Diluted net loss per share equals basic net loss per share because the effect of securities convertible into common shares is anti-dilutive.

For the three months ended March 31, 2015 and 2014, the number of securities convertible into common shares not included in diluted loss per common share because the effect would have been anti-dilutive consists of the following:

The Company has reserved its authorized but unissued common stock for possible future issuance in connection with the following:

			March 31,			March 31,
			2015			2014
	Exercise of stock warrants		2,191,487			2,507,300
	Exercise and future grants of stock options		3,986,074			4,023,455
	Conversion of preferred stock		8,259,759			15,359,047
	Contingent issuable shares in connection with YOD Hong Kong acquisition		-			245,274
	Issuable shares from conversion of promissory notes payable		1,912,673			1,844,102
	Total		16,349,993			23,979,178

13.	Income Taxes

As of March 31, 2015, the Company had approximately $22.1 million of the U.S domestic cumulative tax loss carryforwards (which excludes the NOL carryforwards of approximately $1.7 million because of the uncertainty of the position being sustained) and approximately $11.4 million of the foreign cumulative tax loss carryforwards, which may be available to reduce future income tax liabilities in certain jurisdictions. These U.S. and foreign tax loss carryforwards will expire beginning year 2028 through 2034 and year 2015 to year 2019, respectively. We have established a 100% valuation allowance against our net deferred tax assets due to our history of pre-tax losses and the likelihood that the deferred tax assets will not be realizable, therefore a net deferred tax liability arises from one jurisdiction. The valuation allowance increased approximately $1.3 million during the three months ended March 31, 2015.

We are not aware of any unrecorded tax liabilities which would impact our financial position or our results of operations.

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, 2015, the Company's potential minimum cash obligation to these employees was approximately $1,328,000.

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The Company is committed to paying leased property costs related to our offices in New York and China through 2017 as follows:

The Company is committed to paying content costs through 2016 as follows:

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.

The PRC market in which the Company operates poses certain macro-economic and regulatory risks and uncertainties. These uncertainties extend to the ability of the Company to conduct wireless telecommunication services through contractual arrangements in the PRC since the industry remains highly regulated. The Company conducts all of its operations in China through its Zhonghai Video, which  is consolidated in the Company's financial statements as a result of a series of contractual arrangements enacted among YOD WFOE, Sinotop Beijing as the parent company of Zhonghai Video and the legal shareholder of Sinotop Beijing. The Company believes that these contractual arrangements are in compliance with PRC laws and are legally enforceable. If Sinotop Beijing or its legal shareholder fails to perform the obligations under the contractual arrangements or any dispute relating to these contracts remains unresolved, YOD WFOE or YOD HK can enforce its rights under the VIE contracts through the operations of PRC laws and courts. However, uncertainties in the PRC legal system could limit the Company’s ability to enforce these contractual arrangements. In particular, the interpretation and enforcement of these laws, rules and regulations involve uncertainties. If YOD WFOE had direct ownership of Sinotop Beijing, it would be able to exercise its rights as a shareholder to effect changes in the board of directors of Sinotop Beijing, which in turn could effect changes at the management level, subject to any applicable fiduciary obligations. However, under the current contractual arrangements, the Company relies on Sinotop Beijing and its legal shareholder to perform their contractual obligations to exercise effective control.

In addition, the telecommunications, information and media industries remain highly regulated. Restrictions are currently in place and are unclear with respect to which segments of these industries foreign owned entities, like YOD WFOE, may operate. The PRC government may issue from time to time new laws or new interpretations on existing laws to regulate areas such as telecommunications, information and media, some of which are not published on a timely basis or may have retroactive effect. Administrative and court proceedings in China may also be protracted, resulting in substantial costs and diversion of resources and management attention. Regulatory risk also encompasses the interpretation by the tax authorities of current tax laws, and the Company’s legal structure and scope of operations in the PRC, which could be subject to further restrictions resulting in limitations on the Company’s ability to conduct business in the PRC.

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The Company relies on agreements with distribution partners, including digital cable operators, IPTV operators, OTT streaming operators and mobile smartphone manufacturers and operators, during the course of its business. A distribution partner that individually generates more than 10% of the Company’s revenue is considered a major customer.

For the three months ended March 31, 2015, four customers individually accounted for more than 10% of the Company’s revenue. Four customers individually accounted for 10% of the Company’s net accounts receivables as of March 31, 2015.

For the three months ended March 31, 2014, three customers individually accounted for more than 10% of the Company’s revenue. Two customers individually accounted for 10% of the Company’s net accounts receivables as of March 31, 2014.

The Company relies on agreements with studio content partners to acquire video contents. A content partner that accounts for more than 10% of the Company’s cost of revenues is considered a major supplier.

For the three months ended March 31, 2015, four suppliers individually accounted for more than 10% of the Company’s cost of revenues. Two suppliers individually accounted for 10% of the Company’s accounts payable as of March 31, 2015.

For the three months ended March 31, 2014, four suppliers individually accounted for more than 10% of the Company’s cost of revenues. Two suppliers individually accounted for 10% of the Company’s accounts payable as of March 31, 2014.

Financial instruments that potentially subject the Company to significant concentration of credit risk primarily consist of cash and cash equivalents, accounts receivable and other receivables. As of March 31, 2015 and 2014, the Company’s cash and cash equivalents were held by financial institutions located in the PRC, Hong Kong and the United States that management believes are of high-credit ratings and quality. Accounts receivable are typically unsecured and are mainly derived from revenues from the Company’s VOD content distribution partners. The risk with respect to accounts receivable is mitigated by regular credit evaluations that the Company performs on its distribution partners and its ongoing monitoring of outstanding balances.

A majority of the Company’s operating transactions are denominated in RMB and a significant portion of the Company’s assets and liabilities is denominated in RMB. RMB is not freely convertible into foreign currencies. The value of the RMB is subject to changes in the central government policies and to international economic and political developments. In the PRC, certain foreign exchange transactions are required by laws to be transacted only by authorized financial institutions at exchange rates set by the People’s Bank of China (“PBOC”). Remittances in currencies other than RMB by the Company in China must be processed through PBOC or other China foreign exchange regulatory bodies which require certain supporting documentation in order to complete the remittance.

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 $5,000 and $10,000 for the three months ended March 31, 2015 and 2014, respectively.

Management evaluated subsequent events after March 31, 2015 through the latest practicable date, and concluded that no subsequent event has occurred that would require recognition or disclosure in the unaudited consolidated financial statements.

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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 2014 Annual Report 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 “Special Note Regarding Forward Looking Statements” above for certain information concerning those forward-looking statements.

Overview

YOU On Demand Holdings, Inc. is a corporation formed in the State of Nevada on October 19, 2004.

We operate in the Chinese media industry and provide integrated value-added service solutions business for the delivery of video-on-demand (“VOD”) and enhanced premium content to digital cable providers, Internet Protocol Television (“IPTV”) providers, Over-the-Top (“OTT”) streaming providers, mobile manufacturers and operators, as well as direct customers.

On July 30, 2010, we acquired YOD Hong Kong, formerly Sinotop Group Limited, through our subsidiary China CB Cayman. Through a series of contractual arrangements, YOD Hong Kong and its subsidiary, YOD WFOE, controls Beijing Sino Top Scope Technology Co., Ltd. (“Sinotop Beijing”), a corporation established in the People’s Republic of China (“PRC”). Sinotop Beijing is the 80% owner of Zhong Hai Shi Xun Information Technology Co., Ltd. (“Zhong Hai Video”), though which we provide: 1) integrated value-added business-to-business (“B2B”) service solutions for the delivery of VOD and enhanced premium content for digital cable; 2) integrated value-added business-to-business-to-customer (“B2B2C”) service solutions for the delivery of VOD and enhanced premium content for IPTV and OTT providers and; 3) a direct to user, or B2C, mobile video service app. As a result of the contractual arrangements with Sinotop Beijing, we have the right to control management decisions and direct the economic activities that most significantly impact Sinotop Beijing and Zhong Hai Video, and accordingly, under generally accepted accounting principles in the United States (“U.S. GAAP”), we consolidate these operating entities in our consolidated financial statements.

Our Unconsolidated Equity Investment

Shandong Media operates a 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. We hold 30% ownership interest in Shandong Media and account for our investment using the equity method.

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Principal Factors Affecting Our Financial Performance

Our operating results are primarily affected by the following factors:

Taxation

United States

YOU On Demand Holdings, Inc. is subject to United States tax. 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 since inception.

Cayman Islands

CB Cayman was incorporated in the Cayman Islands. Under the current laws 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, YOD 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 YOD Hong Kong has no taxable income.

The People’s Republic of China

Under the Enterprise Income Tax 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, 2015 and 2014

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Revenues

Revenue for the three months ended March 31, 2015 was $1,028,000, as compared to $138,000 for the same period in 2014. The increase in revenue of approximately $890,000 was attributable to the growth of our VOD business.

Gross loss

Our gross loss for the three months ended March 31, 2015 was $15,000, as compared to $738,000 gross loss during the same period in 2014. The decrease in gross loss of approximately $723,000 was mainly due to the increased revenue related to our VOD business. Our cost of revenue is primarily comprised of content licensing fees. Our content license agreements with production companies incorporate minimum guaranteed payment levels. As our operations are just evolving, revenues from operations do not yet meet the threshold at which they exceed those costs.

Selling, general and administrative expenses

Our selling, general and administrative expenses for the three months ended March 31, 2015 increased approximately $807,000, to $2,448,000, as compared to $1,641,000 for the three months ended March 31, 2014.  The increase was primarily due to severance costs of $706,000, resulting from resource shifts to China as part of our long-term cost savings and operations enhancement initiatives.

Salaries and personnel costs are the primary components of selling, general and administrative expenses, accounting for 35% of our selling, general and administrative expenses for the three months ended March 31, 2015. For the first quarter of 2015, salaries and personnel costs totaled $855,000, a decrease of $240,000, or 22%, as compared to $1,095,000 for the same period of 2014, due to staff reductions made as part of the above mentioned cost savings initiatives.

The other major components of our selling, general and administrative expenses include marketing and promoting, technology and severance expense. For the three months ended March 31, 2015, these costs totaled $1,593,000, a net increase of $1,047,000, or 192%, as compared to $546,000 for the same period in 2014, primarily due to growth in our business, including development of new products and services, as well as promotion of these services.

Professional fees

Professional fees are generally related to public company reporting and governance expenses as well as legal fees related to expansion of our VOD business. Our costs for professional fees increased $104,000, or 56%, to $289,000 for the three months ended March 31, 2015, from $185,000 for the same period in 2014. The increase in professional fees was related to our transition to a new audit firm and timing of in audit services performed.

Depreciation and amortization

Our depreciation and amortization expense decreased by $60,000, or 40%, to $90,000 in the three months ended March 31, 2015, from $150,000 during the three months ended March 31, 2014.The decrease was mainly due to full amortization of website development and certain software in 2014.

Interest expense, net

Our interest expense decreased by $2,261,000 to $28,000 for the three months ended March 31, 2015, from $2,289,000 during the same period in 2014. Interest expense incurred during 2014 was primarily related to (1) the amortization of debt issuance costs related to the issuance of the $2.0 million convertible note and (2) the recognition of the beneficial conversion feature of $2,126,000 related to the modification of the $3.0 million convertible note as discussed in Note 8 (a) of the consolidated financial statements included in this report.

Change in fair value of warrant liabilities

Certain of our warrants are recognized as derivative liabilities and re-measured at the end of every reporting period and upon settlement, with the change in value reported in the statement of operations. We reported a loss of $15,000 and $2,439,000 for the three months ended March 31, 2015 and 2014, respectively. The changes are primarily due to fluctuation in our closing stock price.

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Loss from disposal of consolidated entities

Effective March 25, 2014, we deconsolidated our ownership in WFOE and Jinan Zhong Kuan as these entities were investment holding companies, and we determined that they were no longer required for our organizational structure on a going forward basis. We recorded a gain of $728,000 from disposal of these consolidated entities as discussed in Note 4 of our consolidated financial statements included in this report.

Net loss attributable to non-controlling interest

Hua Cheng has a 20% non-controlling interest in Zhong Hai Video and as such we allocate 20% of the operating loss of Zhong Hai Video to Hua Cheng. During the three months ended March 31, 2015, $120,000 of our operating loss from Zhong Hai Video was allocated to Hua Cheng. For the three months ended March 31, 2014, operating loss attributable to non-controlling interest was $235,000.

Dividends on preferred stock

For the three months ended March 31, 2014, in connection with the issuance of Series E Preferred Stock, we recorded dividends of approximately $16,402,000, which was primarily comprised of the recognition of a deemed dividend for a beneficial conversion feature discount of $16,571,000.

Liquidity and Capital Resources

As of March 31, 2015, we had cash and cash equivalents of approximately $8,395,000. Approximately $2,232,000 was held in our Hong Kong entity and $5,977,000 was held in our China entities. The Company has no plans to repatriate these funds. As of March 31, 2015, we had working capital of approximately $4,493,000.

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

Operating Activities

Cash used in operating activities decreased for the three months ended March 31, 2015 compared to 2014 primarily due to the expansion of our VOD business. Although our content license payments and operational costs increased year-over-year, the increase in our costs and expenses was partially offset by our significant revenue growth.

Investing Activities

Cash used in investing activities for the three months ended March 31, 2015 was primarily due to additions to property and equipment of $21,000. Cash used in investing activities for the three months ended March 31, 2014 was primarily due to (i) the sale of subsidiary of $57,000, and (ii) additions to property and equipment of $3,000.

Financing Activities

The Company must continue to rely on debt and equity to pay for ongoing operating expenses in order to execute its business plan.

In January 2014, we received investment net proceeds of approximately $16,614,000 from the sale of the Series E Preferred Stock and we received approximately $522,000 from the exercise of warrants and options from certain investors and employees.

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The fact that we have incurred significant continuing losses and continue to rely on debt and equity financings to fund our operations to date, could raise substantial doubt about our ability to continue as a going concern. As of March 31, 2015 and 2014, the Company has accumulated deficits of approximately $81.2 million and $89.6 million, respectively. The consolidated financial statements included in this report 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.

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

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires our management to make assumptions, estimates, and judgments that affect the amounts reported, including the notes thereto, and related disclosures of commitments and contingencies, if any. We have identified certain accounting policies that are significant to the preparation of our financial statements. These accounting policies are important for an understanding of our financial condition and results of operations. Critical accounting policies are those that are most important to the portrayal of our financial condition and results of operations and require management’s difficult, subjective, or complex judgment, often as a result of the need to make estimates about the effect of matters that are inherently uncertain and may change in subsequent periods. Certain accounting estimates are particularly sensitive because of their significance to financial statements and because of the possibility that future events affecting the estimate may differ significantly from management’s current judgments. We believe the following critical accounting policies involve the most significant estimates and judgments used in the preparation of our financial statements.

Variable Interest Entities

We account for entities qualifying as variable interest entities (VIEs) in accordance with Financial Accounting Standards Boards (“FASB”) Accounting Standards Codification (“ASC”) Topic 810, Consolidation. For our consolidated VIEs, management has made evaluations of the relationships between our VIEs and the economic benefit flow of contractual arrangement with VIEs. In connection with such evaluation, management also took into account the fact that, as a result of such contractual arrangements, we control the legal shareholders’ voting interests and have power of attorney in the VIEs, and therefore we are able to direct all business activities of the VIEs. As a result of such evaluation, management concluded that we are the primary beneficiary of our consolidated VIEs.

We have consulted our PRC legal counsel in assessing our ability to control our PRC VIEs. Any changes in PRC laws and regulations that affect our ability to control our PRC VIEs may preclude us from consolidating these companies in the future.

Revenue Recognition

When persuasive evidence of an arrangement exists, the sales price is fixed or determinable and collectability is reasonably assured, we recognize revenue as services are performed. For certain contracts that involve sub-licensing content within the specified license period, revenue is recognized in accordance with ASC Subtopic 926-605, Entertainment – Films – Revenue Recognition, whereby revenue is recognized upon delivery of films when the arrangement includes a nonrefundable minimum guarantee, delivery is complete and we have no substantive future obligations to provide future additional services. Payments received from customers for the performance of future services are recognized as deferred revenue, and subsequently recognized as revenue in the period that the service obligations are completed.

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In accordance with ASC 605-25, Revenue Recognition – Multiple Element Arrangements, contracts with multiple element deliverables are separated into individual units for accounting purposes when the unit determined to have standalone value to the customer and performance of service is considered probable. Since the contract price is for all deliverables, we allocated the arrangement consideration to all deliverables at the inception of the arrangement based on their relative selling price. We use (a) vendor-specific objective evidence of selling price, if it exists, or, (b) the management’s best estimate of the selling price for that deliverable to determine the relative selling price of each individual unit.

The recognition of revenue involves certain judgments and changes in our assumptions, judgments or estimations may have a material impact on the amount and timing of our revenue recognition.

Licensed Content

We obtain content through content license agreements and revenue sharing agreements with studios and distributors. When the license fee is known or reasonably determinable for a specified title in the content license agreements, we recognize the greater of: (i) revenue sharing costs incurred through the end of the reporting period, or (ii) the proportionate value of total minimum license fees over the term of each license agreement. Prepaid license fees are classified as an asset on our consolidated balance sheets as licensed content and accrued license fees payable to licensors are classified as a liability on our consolidated balance sheets. When the license fee is not known or reasonably determinable for a specific title, the title is not recognized in licensed content asset or liability in accordance with the relevant guidance. Commitments for license agreements that do not meet the criteria for recognition in licensed content are included in Note 14 to the consolidated financial statements.

Intangible Assets and Goodwill

We account for intangible assets and goodwill, in accordance with ASC 350, Intangibles – Goodwill and Other. ASC 350 requires that goodwill and intangible assets with indefinite useful lives no longer be amortized, but instead be evaluated for impairment at least annually. ASC 350 also requires that intangible assets with estimable useful lives be amortized over their respective estimated useful lives and reviewed for impairment whenever events indicate the carrying amount may not be recoverable. In accordance with ASC 350, goodwill is allocated to reporting units, which are either the operating segment or one reporting level below the operating segment. On an annual basis, we review goodwill for impairment by first assessing qualitative factors to determine whether the existence of events or circumstances makes it more-likely-than-not that the fair value of a reporting unit is less than its carrying amount. If we determine that it is more-likely-than-not that the fair value of a reporting unit is less than its carrying amount, goodwill is further tested for impairment by comparing the carrying value to the estimated fair value of its reporting units, determined using externally quoted prices (if available) or a discounted cash flow model and, when deemed necessary, a market approach.

Application of goodwill impairment tests requires significant management judgment, including the identification of reporting units, assigning assets, liabilities and goodwill to reporting units and determination of fair value of each reporting unit. Judgment applied when performing the qualitative analysis includes consideration of macroeconomic, industry and market conditions, overall financial performance of the reporting unit, composition, personnel or strategy changes affecting the reporting unit and recoverability of asset groups within a reporting unit. Judgments applied when performing the quantitative analysis includes estimating future cash flows, determining appropriate discount rates and making other assumptions. Changes in these judgments, estimates and assumptions could materially affect the determination of fair value for each reporting unit.

Foreign Currency Translation

An entity’s functional currency is the currency of the primary economic environment in which it operates, normally that is the currency of the environment in which the entity primarily generates and expends cash. Management’s judgment is essential to determine the functional currency by assessing various indicators, such as cash flows, sales price and market, expenses, financing and inter-company transactions and arrangements. The functional currency of YOU On Demand Holdings, Inc., CB Cayman and YOD Hong Kong is the U.S. dollar. The functional currency of YOD WFOE, Sinotop Beijing and Zhong Hai Video is the RMB.

Assets and liabilities of our subsidiaries and VIEs whose functional currencies are not the U.S. dollar are translated into U.S. dollars, our reporting currency, at the exchange rate in effect at the balance sheet date, and revenues and expenses are translated at the average exchange rates in effect during the reporting period. Foreign currency translation adjustments are not included in determining net income for the period but are accumulated in a separate component of equity in our consolidated balance sheets.

Foreign currency transactions denominated in currencies other than the functional currency are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are re-measured at the applicable rates of exchange in effect at that date. Gains and losses resulting from foreign currency re-measurement are included in the consolidated statements of comprehensive loss.

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Recent Accounting Pronouncements

In April 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2015-05, Customer Accounting for Fees Paid in Cloud Computing Arrangement, under ASC 350-40, Intangibles – Goodwill and Other – Internal-Use Software. This amendment provides guidance to customers about whether a cloud computing arrangement includes a software license. If a cloud computing arrangement includes a software license, then the customer should account for the software license element of the arrangement consistent with the acquisition of other software licenses. If a cloud computing arrangement does not include a software license, the customer should account for the arrangement as a service contract. This amendment is effective for annual and interim periods beginning after December 15, 2015, and early adoption is permitted. Management is currently evaluating the impact of this amendment on our financial position, statement of operations or cash flow.

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 Vice President of Finance, 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 Vice President of Finance, evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of March 31, 2015. Based on that evaluation, our Chief Executive Officer and Vice President of Finance concluded that as of March 31, 2015, 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  based on the following reason:

• Management identified one material weakness in our internal control over financial reporting as of December 31, 2014. The material weakness was related to insufficiently complete and comprehensive controls to ensure that accounting for complex and non-routine transactions were complete.

The Company is in the process of taking additional measures to address the material weakness, including:

• continuous formalization and implementation of internal control over financial reporting, including formalization of policies and procedures on entity-level controls, enhanced effectiveness of finance department involvement during business transactions;

• performing formal assessments and documentation on complex and non-routine transactions, including evaluation of transactions and contractual terms under the appropriate accounting guidance, selection of new accounting policies, updating assessments on critical accounting judgments and estimates for new transactions; and

• investing in additional resources in the finance department to evaluate the appropriate accounting for complex and non-routine transactions

We consider that the actions we are taking, as listed above, will help remedy the material weakness referred to above, and help strengthen our general internal controls and procedures over financial reporting. However, the process of designing and implementing an effective financial reporting system represents a continuous effort that requires us to anticipate and react to changes in our business and the economic and regulatory environments and to expend significant resources to maintain a financial reporting system that is adequate to satisfy our reporting obligations. While we have developed a remediation plan to address the material weakness identified in 2014, this remediation plan or any additional plan we plan to implement may be insufficient to address our material weakness and additional material weaknesses may be discovered in the future. We plan to continue to address and remediate additional control deficiencies we may identify during our evaluation process in 2015.

Changes in Internal Control Over Financial Reporting

There have been no changes in internal control for the quarter ended March 31, 2015, which have materially affected or would likely materially affect our internal control over financial reporting. The Company continues to invest resources in order to upgrade internal controls.

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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 2014 Annual Report which could materially affect our business, financial condition or future results. The risks described in our Annual Report on Form 10-K is 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 Sales of Equity Securities and Use of Proceeds

There were no unregistered sales of equity securities during the fiscal quarter ended March 31, 2015.

Item 3. Defaults Upon Senior Securities

There were no defaults upon senior securities during the fiscal quarter ended March 31, 2015.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

Not applicable.

Item 6. Exhibits

See Exhibit Index.

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EXHIBIT INDEX

* Indicates confidential treatment has been requested for portions of this exhibit

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 14, 2015.