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 June 30, 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: 10,795,616 shares as of August 13, 2012.

QUARTERLY REPORT ON FORM 10-Q

OF YOU ON DEMAND HOLDINGS, INC.

FOR THE PERIOD ENDED JUNE 30, 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	31
Item 4.		Controls and Procedures	31
PART II	-	OTHER INFORMATION
Item 1.		Legal Proceedings	32
Item 1A.		Risk Factors	32
Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds	32
Item 3.		Defaults Upon Senior Securities	32
Item 4.		Mine Safety Disclosures	32
Item 5.		Other Information	32
Item 6.		Exhibits	32
Signatures			33

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.

2

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements.

YOU ON DEMAND HOLDINGS, INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE PERIOD ENDED JUNE 30, 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

3

YOU On Demand Holdings, Inc. and Subsidiaries

CONSOLIDATED BALANCE SHEETS

	June 30,			December 31,
	2012			2011
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	4,418,101		$	7,519,574
Marketable equity securities, available for sale		2,401			2,229
Accounts receivable, net		421,891			399,791
Inventories		415,986			413,562
Licensed content, current		721,129			150,325
Prepaid expenses		231,988			438,712
Loan receivable from related party		-			316,660
Amounts due from shareholders		265,550			414,743
Amount due from non-controlling interest		1,184,661			1,572,699
Other current assets		366,490			340,175
Total current assets		8,028,197			11,568,470
Property and equipment, net		4,006,226			5,099,050
Licensed content, noncurrent		375,813			450,975
Intangible assets, net		6,817,205			7,149,748
Goodwill		6,105,478			6,105,478
Investment in unconsolidated entities		574,222			582,652
Other assets		101,697			101,031
Total assets	$	26,008,838		$	31,057,404
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable	$	2,786,227		$	3,298,041
Accrued expenses and liabilities		1,141,129			862,473
Deferred revenue		1,870,704			1,856,674
Deferred license fees, current		386,032			-
Payable to Jinan Parent		144,290			143,286
Other current liabilities		541,091			543,163
Contingent purchase price consideration liability, current		1,299,908			1,091,571
Convertible promissory note		3,000,000			-
Total current liabilities		11,169,381			7,795,208
Other long-term payable		17,104			76,670
Contingent purchase price consideration liability		2,522,614			2,267,518
Deferred tax and uncertain tax position liabilities		629,771			810,616
Total liabilities		14,338,870			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 June 30, 2012 and December 31, 2011		1,261,995			1,261,995
Series B - 7,866,800 and 10,266,825 shares issued and outstanding, liquidation preference of $3,933,400 and $5,133,400 at June 30, 2012 and December 31, 2011, respectively		3,223,575			3,950,358
Equity:
Common stock, $.001 par value; 1,500,000,000 shares authorized, 10,795,616 and 10,467,400 issued and outstanding at June 30, 2012 and December 31, 2011, respectively		10,796			10,467
Additional paid-in capital		55,751,606			54,505,825
Accumulated deficit		(51,645,916	)		(43,704,225	)
Accumulated other comprehensive income		524,295			468,471
Total YOU On Demand equity		4,640,781			11,280,538
Noncontrolling interests		2,543,617			3,614,501
Total equity		7,184,398			14,895,039
Total liabilities and equity	$	26,008,838		$	31,057,404

See notes to consolidated financial statements.

4

YOU On Demand Holdings, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF OPERATIONS

	Three Months Ended						Six Months Ended
	June 30,			June 30,			June 30,			June 30,
	2012			2011			2012			2011
	(unaudited)			(unaudited)			(unaudited)			(unaudited)
Revenue	$	2,283,405		$	1,894,396		$	4,320,984		$	3,592,320
Cost of revenue		1,927,150			1,100,675			3,719,171			2,350,745
Gross profit		356,255			793,721			601,813			1,241,575
Operating expense:
Selling, general and administrative expenses		2,582,585			2,283,661			5,329,023			4,096,349
Professional fees		528,415			549,324			940,792			867,004
Depreciation and amortization		1,248,413			1,119,327			2,479,727			2,193,654
Impairment of long-lived assets		-			321,748			-			321,748
Total operating expense		4,359,413			4,274,060			8,749,542			7,478,755
Loss from operations		(4,003,158	)		(3,480,339	)		(8,147,729	)		(6,237,180	)
Interest & other income / (expense)
Interest income		1,677			2,189			4,390			5,127
Interest expense		(18,839	)		(361	)		(20,512	)		(916	)
Stock purchase right		(43,748	)		(155,166	)		(43,748	)		(155,166	)
Change in fair value of contingent consideration		248,632			(2,290,135	)		(463,433	)		(2,251,526	)
Loss on investment in unconsolidated entities		(8,314	)		(6,106	)		(12,506	)		(12,904	)
Loss on write-off of uncollectible loans		(473,698	)		-			(473,698	)		-
Other		(58,383	)		1,786			(58,562	)		1,783
Loss before income taxes and noncontrolling interest		(4,355,831	)		(5,928,132	)		(9,215,798	)		(8,650,782	)
Income tax benefit		105,407			111,512			180,845			186,932
Net loss		(4,250,424	)		(5,816,620	)		(9,034,953	)		(8,463,850	)
Plus:  Net loss attributable to noncontrolling interests		528,805			232,315			1,093,262			652,939
Net loss attributable to YOU On Demand shareholders	$	(3,721,619	)	$	(5,584,305	)	$	(7,941,691	)	$	(7,810,911	)
Net loss per share attributable to YOU On Demand shareholders
Basic	$	(0.35	)	$	(0.01	)	$	(0.76	)	$	(0.01	)
Diluted	$	(0.35	)	$	(0.01	)	$	(0.76	)	$	(0.01	)
Weighted average shares outstanding
Basic		10,530,916			9,266,639			10,499,247			9,040,000
Diluted		10,530,916			9,266,639			10,499,247			9,040,000

See notes to consolidated financial statements.

5

YOU On Demand Holdings, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

	Three Months Ended						Six Months Ended
	June 30,			June 30,			June 30,			June 30,
	2012			2011			2012			2011
	(unaudited)			(unaudited)			(unaudited)			(unaudited)
Net loss	$	(4,250,424	)	$	(5,816,620	)	$	(9,034,953	)	$	(8,463,850	)
Other comprehensive loss:
Foreign currency translation adjustments		4,584			(35,974	)		55,652			(1,656	)
Unrealized losses on available for sale securities		172			(2,916	)		172			(5,146	)
Less:  Comprehensive loss attributable to non-controlling interest		527,461			232,315			1,070,884			652,939
Comprehensive loss attributable to YOU On Demand shareholders	$	(3,718,207	)	$	(5,623,195	)	$	(7,908,245	)	$	(7,817,713	)

See notes to consolidated financial statements.

6

YOU On Demand Holdings, Inc. and Subsidiaries

CONSOLIDATED STATEMENT OF EQUITY

For the Six Months Ended June 30, 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		-		-		26,450			-			-		26,450			-			26,450
Common shares issued for service		7,500		8		39,368			-			-		39,376			-			39,376
Stock option compensation expense		-		-		409,753			-			-		409,753			-			409,753
Stock purchase right		-		-		43,748			-			-		43,748			-			43,748
Conversion of Series B preferred shares into common		320,000		320		726,463			-			-		726,783			-			726,783
Share adjustment for round lot holders in connection with 75-for-1 reverse split		716		1		(1	)		-			-		-			-			-
Net loss		-		-		-		$	(7,941,691	)		-		(7,941,691	)		(1,093,262	)		(9,034,953	)
Foreign currency translation adjustments		-		-		-			-			55,652		55,652			22,378			78,030
Unrealized losses on marketable securities		-		-		-			-			172		172			-			172
Balance, June 30, 2012		10,795,616	$	10,796	$	55,751,606		$	(51,645,916	)	$	524,295	$	4,640,781		$	2,543,617		$	7,184,398

See notes to consolidated financial statements.

7

YOU On Demand Holdings, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF CASH FLOWS

	Six Months Ended
	June 30,			June 30,
	2012			2011
	(unaudited)			(unaudited)
Cash flows from operating
Net loss	$	(9,034,953	)	$	(8,463,850	)
Adjustments to reconcile net loss to net cash used in operating activities
Stock compensation expense		475,579			313,734
Depreciation and amortization		2,479,727			2,193,654
Amortization of licensed content		75,162			-
Deferred income tax		(180,845	)		(186,932	)
Loss on investment in unconsolidated entities		12,506			-
Provision for bad debt expense		162,969			-
Change in fair value of contingent purchase price consideration liability		463,433			2,251,526
Value of right to purchase shares		43,748			155,166
Impairment charge to Sinotop equipment		-			110,303
Impairment charge to AdNet assets, net of cash		-			208,496
Loss on uncollectible shareholder loan and related party loan		473,698			-
Change in assets and liabilities,
Accounts receivable		(182,270	)		(234,240	)
Inventory		1,098			(31,953	)
Prepaid expenses and other assets		179,921			215,284
Licensed content		(570,822	)		-
Accounts payable		(527,939	)		457,643
Accrued expenses and liabilities		273,760			843,979
Deferred revenue		9,674			2,695
Deferred license fee		308,835			-
Other current liabilities		(5,858	)		-
Other		17,105			(2,505	)
Net cash used in operating activities		(5,525,472	)		(2,167,000	)
Cash flows from investing activities:
Acquisition of property and equipment		(496,986	)		(1,227,392	)
Investments in intangibles		(111,172	)		(296,342	)
Leasehold improvements		(4,109	)		-
Loan advances to Shandong Media shareholders		(32,792	)		(210,230	)
Loan repayments from Shandong Media shareholders		29,682			-
Other		-			(64,566	)
Net cash used in investing activities		(615,377	)		(1,798,530	)
Cash flows from financing activities
Proceeds from issuance of convertible note		3,000,000			-
Proceeds from sale of equity securities		-			10,917,806
Costs associated with financings and share issuances		-			(822,167	)
Capital contribution from Jinan Parent		-			151,759
Net cash provided by financing activities		3,000,000			10,247,398
Effect of exchange rate changes on cash		39,376			(352,195	)
Net (decrease) increase in cash and cash equivalents		(3,101,473	)		5,929,673
Cash and cash equivalents at beginning of period		7,519,574			6,584,396
Cash and cash equivalents at end of period	$	4,418,101		$	12,514,069
Supplemental Cash Flow Information:
Cash paid for taxes	$	-		$	-
Cash paid for interest	$	20,512		$	916
Software contributed in lieu of issued capital included in intangibles	$	398,183		$	-
Value of warrants issued for licensed content	$	-		$	676,462

See notes to consolidated financial statements.

8

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 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 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 six months ended June 30, 2012, we had a net loss of approximately $7,942,000 and we used cash for operations of approximately $5,525,000.   We had a working capital deficit at June 30, 2012 of approximately $3,141,000. 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 not less than $4.75, which represents the closing bid price of the Company’s common stock on the trading day immediately prior to the date of the Note.

9

The Company has incurred significant recurring losses from operations 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.  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.

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 $463,433 for the six months ended June 30, 2012 and a gain of $248,632 for the three months ended June 30, 2012.

As of July 1, 2012, the first milestone has been achieved with over 3 million homes having access to our PPV services.  As of June 30, 2012, we have recorded a purchase price consideration liability in the amount of $1,299,907 related to the shares and options Mr. Liu has earned as of July 1, 2012.

10

The following is a summary of the earned purchase price consideration and the estimated fair value of the contingent consideration obligation for the acquisition of Sinotop Hong Kong at June 30, 2012 and December 31, 2011.

			December 31,				June 30,
	Number of		2011		Change in		2012
Class of consideration	Instruments		Fair Value		Fair Value		Fair Value
Common shares		735,822	$	3,147,109	$	438,579	$	3,585,688
Stock options		80,000		211,980		24,854		236,834
Total earned and contingent consideration			$	3,359,089	$	463,433	$	3,822,522

The following table represents the earned purchase price consideration and the estimated fair value of the current and the noncurrent portion of the consideration liability for the acquisition of Sinotop Hong Kong at June 30, 2012.

	As of June 30,2012
	Number of		Current		Noncurrent		Total
	Instruments		Liability		Liability		Liability
Shares July 2012 (earned)		245,274	$	1,226,369	$	-	$	1,226,369
Shares July 2013 (contingent)		245,274		-		1,191,484		1,191,484
Shares July 2014 (contingent)		245,274		-		1,167,835		1,167,835
Total Common Shares		735,822	$	1,226,369	$	2,359,319	$	3,585,688
Options July 2012 (earned)		26,667	$	73,539	$	-	$	73,539
Options July 2013 (contingent)		26,667		-		79,350		79,350
Options July 2014 (contingent)		26,666		-		83,945		83,945
Total Options		80,000	$	73,539	$	163,295	$	236,834
Total Shares and Options		815,822	$	1,299,908	$	2,522,614	$	3,822,522

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.

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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 $791,900) 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 $791,900) 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. In April 2012, Jinan Zhong Kuan made payment of RMB 1,000,000 to Shandong Broadcast in connection with the signed MOU. Shandong Media has filed 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, the Company is no longer the primary beneficiary of Shandong Media and will deconsolidate Shandong Media’s assets and liabilities and account for remaining 30% interest in Shandong Media by the equity method.

As of the date of this filing, the application with the AIC has not been approved and the VIE structure under which the Company controls Shandong Media remains in place.

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 common stock portion of the earned purchase consideration liability at June 30, 2012 was valued at the closing price of $5.00 on July 1, 2012 and the fair value of the option portion was valued using the Black-Scholes Merton model which incorporated the following assumptions:  risk-free rate of interest .53%, expected volatility of 75%, expected life of 4 years and expected dividend yield of 0%.

The fair value of the contingent purchase consideration liabilities at June 30, 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:

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	June 30,			December 31,
	2012			2011
Risk-free interest rate		0.337	%		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 June 30, 2012 and December 31, 2011:

	June 30, 2012
	Fair Value Measurements
	Level 1		Level 2		Level 3		Total Fair Value
Assets
Available-for-sale securities	$	2,401	$	-	$	-	$	2,401
Liabilities
Contingent purchase price consideration, current (see Note 3)	$	-	$	-	$	1,299,908	$	1,299,908
Contingent purchase price consideration, noncurrent (see Note 3)		-		-		2,522,614		2,522,614

	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 price consideration (see Note 3)	$	-	$	-	$	3,359,089	$	3,359,089

7. Related Party Transactions

Shandong Media

Loan Receivable

The Company advanced funds in the form of a loan to Music Magazine, an affiliate of our partner in Shandong Media, to fund its operations.  As of June 30, 2012, we determined this loan to be uncollectible and wrote off the loan in full in the amount of $319,000.

Prepaid Expense

As of June 30, 2012 and December 31, 2011, Shandong Media prepaid $166,000 and $193,000, respectively, to Modern Movie for rental of space for company functions.

Amounts due from Shareholders

As of June 30, 2012 and December 31, 2011, amounts due from shareholders include approximately $266,000 and $415,000, respectively, representing advances to both Shandong Broadcast and to Modern Movie, our partners in Shandong Media.  The amount due of approximately $107,000 and $103,000 at June 30, 2012 and December 31, 2011, respectively, from Shandong Broadcast is unsecured, interest fee and has no fixed repayment terms.  As of June 30, 2012, we determined a portion of our loan to Modern Movie to be uncollectible and wrote off $155,000 related to this loan.  The amount due of $159,000 and $312,000 at June 30, 2012 and December 31, 2011, respectively, from Modern Movie is unsecured, interest free and is due on December 31, 2012.

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Other Current Liabilities

As of June 30, 2012 and December 31, 2011, Shandong Media had a payable of approximately $102,000 and $89,000, respectively, related to a vehicle usage agreement with Shandong Broadcast & TV Weekly Press.

Jinan Broadband

Payable to Jinan Parent

During the six months ended June 30, 2012, our payable to Jinan Guangdian Jiahe Digital Television Co., Ltd. (“Jinan Parent”) increased approximately $1,000, due to currency fluctuations. At June 30, 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 and six months ended June 30, 2012, Jinan Broadband generated $22,000 and $124,000, respectively, and during the three and six months ended June 30, 2011, generated $32,000 and $70,000, respectively, of value-added service revenue from an affiliate, Jinan Radio and Television Networks Center (“Networks Center”).   Networks Center is the owner of Jinan Parent who has a 49% ownership interest in Jinan Broadband.

Cost of Revenue

During the three and six months ended June 30, 2012, Jinan Broadband incurred service fees to Networks Center of approximately $11,000 and $23,000, respectively, and during the three and six months ended June 30, 2011, incurred service fees of approximately $15,000 and $25,000, 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 and six months ended June 30, 2012, Jinan Broadband paid sales agency fees of approximately $14,000 and $36,000, respectively, and during the three and six months ended June 30, 2011, paid sales agency fees of approximately $10,000 and $21,000,  respectively, to Networks Center for revenue collection on behalf of Jinan Broadband and network maintenance.

Accounts Payable

As of June 30, 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 $12,000 and $47,000 as of June 30, 2012 and December 31, 2011.

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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. We are currently in the process of  reducing the registered capital from RMB 50 million (USD 7,918,534) to RMB 12.5 million (USD 1,979,634).  As of June 30, 2012, Sinotop contributed RMB 10 million (USD 1,473,166) in cash and Hua Cheng has contributed a software management system valued at RMB 2,519,700 (USD 398,183).  Until we receive final approval which is expected in the third quarter, we have recorded an amount due from non-controlling interest in the amount of $1,184,661 based on total registered capital of RMB 50 million.

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.

Property and equipment approximated the following:

	June 30,			December 31,
	2012			2011
Furniture and office equipment	$	3,313,000		$	2,088,000
Headend facilities and machinery		16,007,000			16,724,000
Leasehold improvements		171,000			310,000
Vehicles		108,000			30,000
Total property and equipment		19,599,000			19,152,000
Less:  accumulated depreciation		(15,593,000	)		(14,053,000	)
Net carrying value	$	4,006,000		$	5,099,000

We recorded depreciation expense of approximately $733,000 and $1,477,000 for the three and six months ended June 30, 2012 and we recorded depreciation expense of approximately $604,000 and $1,168,000 for the three and six months ended June 30, 2011.

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.  At Jinan Broadband, we reclassified $159,132 from fixed assets to software and licenses during the quarter ended June 30, 2012.

A roll forward of our intangible assets activity for the six months ended June 30, 2012 is as follows:

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	Balance at									Foreign		Balance at
	December 31,				Amortization			Impairment		Currency		June 30,
	2011		Additions		Expense			Charge		Transl Adj		2012
												(unaudited)
Amortized intangible assets:
Service agreement	$	1,310,892	$	-	$	(42,980	)	$	-	$	-	$	1,267,912
Publication rights		400,953		-		(12,150	)		-		-		388,803
Customer relationships		76,579		-		(5,890	)		-		-		70,689
Operating permits		600,147		-		(18,186	)		-		-		581,961
Charter / Cooperation agreements		2,560,616		-		(68,896	)		-		-		2,491,720
Noncompete agreement		1,576,256		-		(727,502	)		-		-		848,754
Software and licenses		240,015		569,106		(68,753	)		-		847		741,215
Website development		250,000		100,000		(58,372	)		-		233		291,861
Total amortized intangible assets	$	7,015,458	$	669,106	$	(1,002,729	)	$	-	$	1,080	$	6,682,915
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 approximately $515,000 and $1,003,000 for the three and six months ended June 30, 2012 and $516,000 and $1,026,000 for the three and six months ended June 30, 2011.

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 (six months)		72,663		38,104		796,398		111,531		1,018,696
2013		134,396		74,644		259,041		276,386		744,467
2014		127,905		72,454		137,791		240,954		579,104
2015		112,961		72,454		137,791		97,307		420,513
2016		93,499		72,454		137,791		94,910		398,654
Thereafter		881,094		715,407		1,871,662		53,318		3,521,481
Total amortization to be recognized	$	1,422,518	$	1,045,517	$	3,340,474	$	874,406	$	6,682,915

10. Accrued Expenses and Liabilities

Accrued expenses and liabilities consist of the following:

	June 30,		December 31,
	2012		2011
	(unaudited)
Accrued expenses and liabilities (a)	$	1,081,000	$	613,000
Accrued payroll		60,000		249,000
	$	1,141,000	$	862,000

(a) Including payable for telecom bandwidth cost of sales, deferred rent, marketing costs, accounting and legal fees.

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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.

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 and valued this right at approximately $39,000 and in June 2012, we granted another six month extension and valued this right at approximately $44,000.  Both valuations were based on the Black-Scholes Merton model and were recorded 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.

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In June 2012, 2.4 million Series B Preferred Shares were converted to 320,000 shares of common stock.

For the three and six month periods ended June 30, 2012 and 2011, the number of securities not included in diluted EPS because the effect would have been anti-dilutive consists of the following:

	3 Months Ended				6 Months Ended
	June 30,				June 30,
	2012		2011		2012		2011
	(unaudited)		(unaudited)		(unaudited)		(unaudited)
Warrants		365,245		355,247		365,245		355,247
Stock purchase right		75,000		75,000		75,000		75,000
Options		1,580,981		1,320,233		1,580,981		1,320,233
Series A Preferred Stock		933,333		933,333		933,333		933,333
Series B Preferred Stock		1,048,907		1,368,907		1,048,907		1,368,907
Total		4,003,466		4,052,720		4,003,466		4,052,720

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.

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 June 30, 2012, the non-current licensed content amounted to $375,813. 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 $75,000 during the six months ended June 30, 2012.

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15. Share-Based Payments

Stock Options

Through June 30, 2012, the Company has 1,580,981 options and 440,245 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 and six months ended June 30, 2012 and 2011:

	3 Months Ended				6 Months Ended
	June 30,				June 30,
	2012		2011		2012		2011
	(unaudited)		(unaudited)		(unaudited)		(unaudited)
Stock option amortization	$	247,000	$	145,000	$	410,000	$	291,000	(a)
Stock issued for services		39,000		-		39,000		10,000	(b)
Stock warrants issued for service		14,000		12,000		26,000		12,000
Right to purchase shares		44,000		155,000		44,000		155,000	(see note 11)
	$	344,000	$	312,000	$	519,000	$	468,000

(a) 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 1.73% to 3.43%, expected volatility of 60% and 75%, expected life of 10.0 years and expected dividend yield of 0%.

(b) In the second quarter of 2012, the Company appointed two new “independent” (as defined under the NASDAQ listing requirements) members to the Board of Directors.  In connection with the appointment we granted each of our three “independent” directors 10,000 restricted shares to be vested quarterly over one year.  We recorded the common shares at the closing price on the issue date and expensed to consulting services the amount of $39,000 during the three and six months ended June 30, 2012.  During the three and six months ended June 30, 2011, we recorded $10,000 for other consulting services.

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 six months ended June 30, 2012 is summarized as follows:

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	June 30, 2012
				Weighted		Aggregate
				Average		Intrinsic
	Shares			Exercise Price		Value
Options outstanding at beginning of year		1,383,567		$	3.32	$	2,600,000
Granted		200,900			4.58		93,058
Exercised		-			-		-
Cancelled/expired		(3,486	)		3.77		(4,295	)
Options outstanding at end of period		1,580,981		$	3.49	$	2,688,763
Options exercisable at end of period		902,620		$	3.30	$	1,729,103
Options available for issuance		2,416,352

As of June 30, 2012, there were 1,580,981 options outstanding with 902,620 options exercisable at a weighted average exercise price of $3.30 with a weighted average remaining contractual life of 8.43 years.

As of June 30, 2012 the Company had total unrecognized compensation expense related to options granted of approximately $1,828,619 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 June 30, 2012, the weighted average exercise price was $35.77 and the weighted average remaining life was 2.12 years. The following table outlines the warrants outstanding as of June 30, 2012 and December 31, 2011:

	June 30,		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	12/3/2012
2011 Service Agreement Warrants ($7.20 exercise price)		13,333		6,667	$	7.20	6/15/2016
		440,245		433,579

16. Income Taxes

As of June 30, 2012, the Company had net operating tax losses carried forward of approximately $17.2 million, which includes $12.5 million and $4.7 million in the US and PRC, respectively.  Those losses carried forward in the US and PRC will expire between years 2012 and 2025.  

As of June 30, 2012 and December 31, 2011, the Company has the following deferred tax assets and liabilities:

	June 30,			December 31,
	2012			2011
	(unaudited)
Deferred tax assets	$	11,683,887			9,548,645
Less valuation allowance		(11,093,231	)		(9,057,657	)
Deferred tax liabilites		(1,197,668	)		(1,279,729	)
Net deferred tax liability	$	(607,012	)		(788,741	)

The Company has established a valuation allowance against its net deferred tax assets due to the Company’s history of pre-tax losses and the resulting likelihood that deferred tax assets are not realizable.  As of June 30, 2012 and December 31, 2011, the Company accrued penalties and interest on unrecognized tax position in the amount of $22,759 and $21,875, respectively.

The Company is not aware of any income tax audits in various jurisdictions, including the United States. The tax periods open to examination by the major taxing jurisdictions to which the Company, subsidiaries and joint ventures are subject include fiscal years 1997 through 2011.  Management does not anticipate any potential future adjustments in the next twelve months which would result in a material change to its financial tax position.

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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 June 30, 2012, the Company's potential minimum cash obligation to these employees was approximately $933,000.

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

	Leased
	Property
Years ending December 31,	Costs
2012 (six months)	$	177,692
2013		338,002
2014		57,013
2015		19,004
Total	$	591,711

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

	Product
	Related
Years ending December 31,	Costs
2012 (six months)	$	387,319
2013		978,389
2014		1,514,778
2015		926,778
Total	$	3,807,264

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 110,859) remains.

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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.

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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.  As discussed in note 5 to the unaudited consolidated financial statements, upon governmental approval of equity transfer ownership, the Company will deconsolidate Shandong Media’s assets and liabilities and account for remaining 30% interest in Shandong Media by the equity method.

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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.

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  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 supplies 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%.

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

Consolidated Results of Operations

Comparison of Three Months Ended June 30, 2012 and 2011

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

	Three Months Ended
	June 30,			June 30,			Amount			%
	2012			2011			Change			Change
Revenue	$	2,283,000		$	1,894,000		$	389,000			21	%
Cost of revenue		1,927,000			1,101,000			826,000			75	%
Gross profit		356,000			793,000			(437,000	)		-55	%
Operating expense:
Selling, general and administrative expenses		2,583,000			2,284,000			299,000			13	%
Professional fees		528,000			549,000			(21,000	)		-4	%
Depreciation and amortization		1,248,000			1,119,000			129,000			12	%
Impairments of long-lived assets		-			322,000			(322,000	)		-100	%
Total operating expense		4,359,000			4,274,000			85,000			2	%
Loss from operations		(4,003,000	)		(3,481,000	)		(522,000	)		15	%
Interest & other income / (expense)
Interest income		1,000			2,000			(1,000	)		-50	%
Interest expense		(19,000	)		-			(19,000	)		-
Right to purchase expense		(44,000	)		(155,000	)		111,000			-72	%
Change in fair value of contingent consideration		249,000			(2,290,000	)		2,539,000			-111	%
Loss on investment in unconsolidated entities		(8,000	)		(6,000	)		(2,000	)		33	%
Loss on write-off of uncollectible loans		(474,000	)		-			(474,000	)		100	%
Other		(58,000	)		2,000			(60,000	)		-3000	%
Loss before income taxes and noncontrolling interests		(4,356,000	)		(5,928,000	)		1,572,000			-27	%
Income tax benefit		105,000			112,000			(7,000	)		-6	%
Net loss		(4,251,000	)		(5,816,000	)		1,565,000			-27	%
Net loss attributable to noncontrolling interests		529,000			232,000			297,000			128	%
Net loss attributable to YOU On Demand shareholders		(3,722,000	)		(5,584,000	)		1,862,000			-33	%

Revenues

Revenues for the three months ended June 30, 2012 totaled $2,283,000, as compared to $1,894,000 for the same period of 2011. The increase in revenue of approximately $389,000, or 21%, is attributable to increases in revenue from both Jinan Broadband and Shandong Media, as discussed below.

For the three months ended June 30, 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 $1,352,000, an increase of $189,000, or 16%, as compared to $1,163,000 for the same period in 2011. The increase is primarily related to sales to our business customers and internet income.

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For the three months ended June 30, 2012, Shandong Media’s revenue consisted of publication sales and advertising revenue of $931,000, an increase of $200,000, or 27%, as compared to $731,000 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 June 30, 2012 was $356,000, as compared to $793,000 for the same period in 2011. The decrease in gross profit of approximately $437,000, or 55%, is mainly due to content acquisition costs related to our PPV and VOD business.

Gross profit as a percentage of revenue was 16% for the three months ended June 30, 2012, as compared to 42% 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

Selling, General and Administrative Expenses

Our selling, general and administrative expenses for the three months ended June 30, 2012 increased approximately $299,000 to $2,583,000, as compared to $2,284,000 for the three months ended June 30, 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 June 30, 2012, salaries and personnel costs accounted for 62% of our selling, general and administrative expenses. For the three months ended June 30, 2012, salaries and personnel costs totaled $1,603,000, an increase of $417,000, or 35%, as compared to $1,186,000 for the same period of 2011. The increase in salaries and personnel costs is primarily attributable to the development of our PPV and VOD business.

The other major components of our selling, general and administrative expenses include marketing and promotions, rent and travel. For the three months ended June 30, 2012, these costs totaled $424,000, a decrease of $229,000, or 35% as compared to $653,000 for the same period of 2011, due to decreased marketing and travel expenditures.

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 decreased $21,000, or 4%, to $528,000 for the three months ended June 30, 2012, from $549,000 during 2011.

Depreciation and Amortization

Our depreciation expense increased $129,000, or 12%, to $733,000 in the three months ended June 30, 2012 from $604,000 during 2011 due to new acquisitions primarily at Jinan Broadband, but also from the new PPV and VOD business.

Our amortization expense remained constant at $515,000 in the three months ended June 30, 2012 and during the same period of 2011.

Right to Purchase Expense

We recorded a charge of $44,000 for the three months ended June 30, 2012 as compared to $155,000 for the same period of 2011, related to Fidelity’s right to purchase up to 5,625,000 shares of our common stock pursuant to the June 7, 2011 private placement, as discussed in Note 11 to the unaudited consolidated financial statements.

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 gain of approximately $249,000 for the three months ended June 30, 2012 mainly because our closing price decreased from $5.45 at March 31, 2012 to $5.00 at June 30, 2012.  We reported a loss of approximately $2,290,000 for the three months ended June 30, 2011 mainly because our closing stock price increased to $9.00 at June 30, 2011 from $4.50 at March 31, 2011.

Loss on Write-off of Uncollectible Loans

During the second quarter of 2012, the Company determined our loan to Music Magazine was uncollectible and we wrote off the full amount of $319,000.  Music Magazine is an affiliate of our partner in Shandong Media.  Also, we determined a portion of our loan to Modern Movie, our partner in Shandong Media, was uncollectible and wrote off $155,000 related to this loan.

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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 June 30, 2012, $195,000 of our operating losses from Jinan Broadband was allocated to Jinan Parent, as compared to $93,000 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 June 30, 2012, $185,000 of our operating loss from Shandong Media was allocated to Shandong Newspaper, as compared to $4,000 operating income during the same period of 2011.

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 June 30, 2012, $149,000 of our operating loss from Zhong Hai Video was allocated to Hua Cheng, as compared to $143,000during the same period of 2011.

Comparison of Six Months Ended June 30, 2012 and 2011

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

	Six Months Ended
	June 30,			June 30,			Amount			%
	2012			2011			Change			Change
Revenue	$	4,321,000		$	3,593,000		$	728,000			20	%
Cost of revenue		3,719,000			2,351,000			1,368,000			58	%
Gross profit		602,000			1,242,000			(640,000	)		-52	%
Operating expense:
Selling, general and administrative expenses		5,329,000			4,096,000			1,233,000			30	%
Professional fees		941,000			867,000			74,000			9	%
Depreciation and amortization		2,480,000			2,194,000			286,000			13	%
Impairments of long-lived assets		-			322,000			(322,000	)		-100	%
Total operating expense		8,750,000			7,479,000			1,271,000			17	%
Loss from operations		(8,148,000	)		(6,237,000	)		(1,911,000	)		31	%
Interest & other income / (expense)
Interest income		4,000			5,000			(1,000	)		-20	%
Interest expense		(20,000	)		(1,000	)		(19,000	)		-
Right to purchase expense		(44,000	)		(155,000	)		111,000			-72	%
Change in fair value of contingent consideration		(463,000	)		(2,252,000	)		1,789,000			-79	%
Loss on investment in unconsolidated entities		(13,000	)		(13,000	)		-			0	%
Loss on write-off of uncollectible loans		(474,000	)		-			(474,000	)		100	%
Other		(58,000	)		2,000			(60,000	)		-3000	%
Loss before income taxes and noncontrolling interests		(9,216,000	)		(8,651,000	)		(565,000	)		7	%
Income tax benefit		181,000			187,000			(6,000	)		-3	%
Net loss		(9,035,000	)		(8,464,000	)		(571,000	)		7	%
Net loss attributable to noncontrolling interests		1,093,000			653,000			440,000			67	%
Net loss attributable to YOU On Demand shareholders		(7,942,000	)		(7,811,000	)		(131,000	)		2	%

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Revenues

Revenues for the six months ended June 30, 2012 totaled $4,321,000, as compared to $3,593,000 for the same period of 2011. The increase in revenue of approximately $728,000, or 20%, is attributable to increases in revenue from both Jinan Broadband and Shandong Media, as discussed below.

For the six months ended June 30, 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 $2,626,000, an increase of $420,000, or 19%, as compared to $2,206,000 for the same period in 2011. The increase is primarily related to sales to our business customers.

For the six months ended June 30, 2012, Shandong Media’s revenue consisted of publication sales and advertising revenue of $1,695,000, an increase of $308,000, or 22%, as compared to $1,387,000 for the same period in 2011. The increase is mainly attributable to increases in advertising revenue.

Gross Profit

Our gross profit for the six months ended June 30, 2012 was $602,000, as compared to $1,242,000 for the same period in 2011. The decrease in gross profit of approximately $640,000, or 52%, is mainly due to content acquisition costs related to our PPV and VOD business.

Gross profit as a percentage of revenue was 14% for the six months ended June 30, 2012, as compared to 35% 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

Selling, General and Administrative Expenses

Our selling, general and administrative expenses for the six months ended June 30, 2012 increased approximately $1,233,000 to $5,329,000, as compared to $4,096,000 for the six months ended June 30, 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 six months ended June 30, 2012, salaries and personnel costs accounted for 61% of our selling, general and administrative expenses. For the six months ended June 30, 2012, salaries and personnel costs totaled $3,263,000, an increase of $990,000, or 44%, as compared to $2,273,000 for the same period of 2011. The increase in salaries and personnel costs is primarily attributable to the development of our PPV and VOD business.

The other major components of our selling, general and administrative expenses include marketing and promotions, rent and travel. For the six months ended June 30, 2012, these costs totaled $760,000, a decrease of $227,000, or 23% as compared to $987,000 for the same period of 2011, due to decreased marketing and travel expenditures.

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 $74,000, or 9%, to $941,000 for the six months ended June 30, 2012, from $867,000 during 2011.

Depreciation and Amortization

Our depreciation expense increased $309,000, or 26%, to $1,477,000 in the six months ended June 30, 2012 from $1,168,000 during 2011 due to new acquisitions primarily at Jinan Broadband, but also from the new PPV and VOD business.

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Our amortization expense decreased $23,000, or 2%, to $1,003,000 in the six months ended June 30, 2012 from $1,026,000 during the same period of 2011.

Right to Purchase Expense

We recorded a charge of $44,000 for the six months ended June 30, 2012 as compared to $155,000 for the same period of 2011, related to Fidelity’s right to purchase up to 5,625,000 shares of our common stock pursuant to the June 7, 2011 private placement, as discussed in Note 11 to the unaudited consolidated financial statements.

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 $463,000 for the six months ended June 30, 2012 mainly because our closing price increased from $4.50 at December 30, 2011 to $5.00 at June 30, 2012.  We reported a loss of approximately $2,252,000 for the six months ended June 30, 2011 mainly because our closing stock price increased to $9.00 at June 30, 2011 from $4.50 at December 31, 2010.

Loss on Write-off of Uncollectible Loans

During the second quarter of 2012, the Company determined our loan to Music Magazine was uncollectible and we wrote off the full amount of $319,000.  Music Magazine is an affiliate of our partner in Shandong Media.  Also, we determined a portion of our loan to Modern Movie, our partner in Shandong Media, was uncollectible and wrote off $155,000 related to this loan.

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 six months ended June 30, 2012, $477,000 of our operating losses from Jinan Broadband was allocated to Jinan Parent, as compared to $314,000 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 six months ended June 30, 2012, $386,000 of our operating loss from Shandong Media was allocated to Shandong Newspaper, as compared to $113,000 during the same period of 2011.

20% of the operating loss of our Zhong Hai Video joint venture is allocated to Hua Cheng, our 20% joint venture partner.  During the six months ended June 30, 2012, $230,000 of our operating loss from Zhong Hai Video was allocated to Hua Cheng, as compared to $226,000during the same period of 2011.

Liquidity and Capital Resources

As of June 30, 2012 we had cash and cash equivalents of approximately $4,418,000. Approximately $3,330,000 is held in our Chinese subsidiaries. The company has no plans to repatriate these funds. We had a working capital deficit at June 30, 2012 of approximately $3,141,000.

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

	Six Months Ended
	June 30,			June 30,
	2012			2011
	(Unaudited)			(Unaudited)
Net cash used in operating activities	$	(5,525,000	)	$	(2,167,000	)
Net cash used in investing activities		(615,000	)		(1,798,000	)
Net cash provided by financing activities		3,000,000			10,247,000
Effect of exchange rate changes on cash		39,000			(352,000	)
Net (decrease) increase in cash and cash equivalents		(3,101,000	)		5,930,000
Cash and cash equivalents at beginning of period		7,519,000			6,584,000
Cash and cash equivalents at end of period		4,418,000			12,514,000

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Operating Activities

Net cash used in operating activities for the six months ended June 30, 2012 and 2011 was $5,525,000 and $2,167,000, 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 six months ended June 30, 2012 and 2011 used cash of $615,000 and $1,798,000, respectively. For 2012, this amount consisted primarily of (i) $497,000 for additions to property and equipment and (ii) investments in intangibles of $111,000. For 2011, this amount consisted of (i) $1,227,000 for additions to property and equipment, (ii) $296,000 for investments in intangibles and (iii) $210,000 loan to our Shandong Media shareholder.

Financing activities

Cash provided by financing activities for the six months ended June 30, 2012 and 2011 was $3,000,000 and $10,247,000, respectively.  In the second quarter of 2012, the Company received a $3,000,000 loan from our Chairman and Chief Executive Officer, Mr. Shane McMahon as discussed in Note 2 to the unaudited consolidated financial statements.  For 2011, the amount consisted primarily of proceeds received from the sale of our equity securities from our June 2011 financings.

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.

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.

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.

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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.

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 June 30, 2012. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that as of June 30, 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, the Company hired three additional US GAAP and SEC qualified internal personnel, two in the US and one in China, to oversee its financial reporting operations. The Company has also invested in external consultants to perform regular internal control reviews. With these individuals and processes in place, we expect to improve our internal controls in the near future.

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 June 30, 2012.

Item 3. Defaults Upon Senior Securities.

There were no defaults upon senior securities during the fiscal quarter ended June 30, 2012.

Item 4. Mine Safety Disclosures.

Item 5. Other Information.

Item 6. Exhibits.

EXHIBIT INDEX

10.1	Convertible Promissory Note in $3,000,000 principal amount issued to Shane McMahon on May 10, 2012 (Incorporated by reference to the Company’s Quarterly Report on Form 10-Q filed on May 15, 2012).
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 August 14, 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 on May 10, 2012 (Incorporated by reference to the Company’s Quarterly Report on Form 10-Q filed on May 15, 2012).
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

34