SSC Ideanomics (delisted)

See notes to consolidated financial statements.

5

See notes to consolidated financial statements.

6

See notes to consolidated financial statements.

7

See notes to consolidated financial statements.

8

See notes to consolidated financial statements.

9

YOU ON DEMAND HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

10

These conditions raise substantial doubt about the Company’s ability to continue as a going concern. The consolidated financial statements have been prepared assuming that the Company will continue as a going concern and, accordingly, do not include any adjustments that might result from the outcome of this uncertainty.

11

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

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

(e) any changes to, or any expansion or contraction of, the business may be carried out in the exercise of the sole discretion of Sinotop Hong Kong, and in the name of and at the expense of, Sinotop Hong Kong;

provided, however , that none of the foregoing may cause or have the effect of terminating (without being substantially replaced under the name of Sinotop Hong Kong) or adversely affecting any license, permit or regulatory status of Sinotop Beijing.

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

Equity Pledge Agreement

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

Option Agreement

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

Voting Rights Proxy Agreement

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

13

Jinan Broadband

Effective July 31, 2013, we have deconsolidated Jinan Broadband due to the disposition of all of our ownership. See Note 4.

The corporate structure for our broadband business consisted of:

Pursuant to the December 2006 Cooperation Agreement, CB Cayman and Jinan Parent set up a joint venture, Jinan Broadband. CB Cayman contributed in cash and owned a 51% controlling interest, and Jinan Parent contributed the assets in exchange of 49% ownership in Jinan broadband. Jinan Broadband is a corporate joint venture with a term of 20 years. Jinan Broadband was considered as a VIE based on ASC 810-10-25-38 due to the fact that CB Cayman had a controlling financial interest in Jinan Broadband and therefore deemed to be the primary beneficiary based on the terms stipulated in the December 2006 Cooperation Agreement below:

14

The Company has intangible assets primarily relating to the acquisition of Sinotop Hong Kong. The Company amortizes its intangible assets that have finite lives.

A roll forward of our intangible assets activity from January 1, 2014 to March 31, 2014 is as follows:

In accordance with ASC 250, we recorded amortization expense related to our intangible assets of approximately $85,000 and $225,000 for the three months ended March 31, 2014 and 2013, respectively.

The Company’s amortized intangible assets consisted of the following:

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

15

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

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

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

Annually we review the valuation techniques used and determine if the fair value measurements are still appropriate and evaluate and adjust the unobservable inputs used in the fair value measurements based on current market conditions and third party information. There were no changes in the valuation techniques during the current year.

The fair value of the warrant liabilities at March 31, 2014 and December 31, 2013 were valued using the Monte Carlo Simulation method which incorporated the following assumptions:

The fair value of the option portion of our contingent purchase consideration liability March 31, 2014 and December 31, 2013 was valued using the Black-Scholes Merton model which incorporated the following assumptions:

16

The following tables present the fair value hierarchy for those assets and liabilities measured at fair value on a recurring basis at March 31, 2014 and December 31, 2013, respectively:

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

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18

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

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

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

In connection with the Series D Amendment (as discussed below in Note 11), on November 4, 2013, the Company and Mr. McMahon entered into a waiver, pursuant to which (i) Mr. McMahon waived the Company’s obligation to repay the Note on November 10, 2013, (ii) the Company and Mr. McMahon agreed that the principal and all interest on the Note shall become due and payable on the earlier of (a) the closing of the Series E Financing, or (b) if there is no Series E Financing, the date when the Bridge Note (as discussed below in Note 11) is repaid in full or converted into shares of Series D Preferred Stock, and (iii) Mr. McMahon waived the Company’s obligation to repay the Note with the proceeds received from the issuance of the Bridge Note.

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

Short-term Loans

On June 10, 2013, Shane McMahon made a short-term loan in the amount of $40,000 to the Company which was repaid in full on July 11, 2013.

On June 26, 2013, at the Company’s request, Shane McMahon made a loan to the Company in the amount of $150,000 in order for the Company to make certain payments, pending consummation of the Series D investment transaction described in Note 11. In consideration for the loan, the Company issued a Promissory Note to Mr. McMahon in the aggregate principal amount of $150,000 (the “June 2013 Note”). The June 2013 Note was to mature on the earlier of the Series D investment transaction, or, if that transaction was not consummated, six months from the date of issuance. On July 11, 2013, the Company repaid all amounts owed to Mr. McMahon under the June 2013 Note.

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Video On Demand Business

Series D and Series E Preferred Stock

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

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

The Series D Preferred Stock when issued was a hybrid instrument comprised of a (i) a preferred stock and (ii) an option to convert the preferred stock into shares of our common stock (the “Conversion Option”). The Conversion Option derives its value based on the underlying fair value of the shares of our common stock as does the Series D Preferred Stock, and therefore is clearly and closely related to the underlying preferred stock. Since the Series D Preferred Stock may ultimately be redeemed at the option of the holder, the carrying value of the shares, net of unamortized discount and accumulated dividends, has been classified as temporary equity.

The Company paid issuance costs of approximately $849,000 in cash and issued warrants to the placement agent to purchase 228,571 shares of our common stock at $1.75 per share. The fair value of the warrants was calculated using the Black-Scholes model with the following assumptions: expected life of 5 years, expected dividend rate of 0%, volatility of 70% and an interest rate of 1.60% . The exercise price of the warrants was $1.75. The warrants were valued at $247,995 at the date of issuance. The Series D Preferred Stock was recorded net of issuance costs of $1,097,041 at the issuance date, as a charge to additional paid-in capital, due to our deficit in retained earnings during the period ended December 31, 2013.

The Company recognized a beneficial conversion feature discount on the Series D Preferred Stock at its intrinsic value, which was the fair value of the common stock at the commitment date for the Series D Preferred Stock investment, less the effective conversion price. As such, the Company recognized approximately $183,000 of beneficial conversion feature as a deemed dividend and increase in Series D Preferred Stock on the date of issuance since these shares were convertible at the issuance date. Subsequently, the Company converted the Series D Convertible Preferred Stock to Series E Preferred Stock which was binding and legally enforceable by both parties on January 31, 2014 which established a new “commitment date” pursuant to ASC 470-20.  As such the previously recognized beneficial conversion feature of $183,000  related to our Series D Preferred Stock was reversed and the Company recognized $2,651,429 of beneficial conversion feature as a deemed dividend related to the exchange of Series D Preferred Stock to Series E Preferred Stock. Further, the Company was obligated to pay cumulative dividends of 4% per annum. In the first quarter of 2014, we paid in full the total cumulative dividends due of $92,054.

$2.0 Million Convertible Note

On November 4, 2013, the Company issued a convertible note to C Media in $2,000,000 principal amount (the “Bridge Note”). The Bridge Note has an annual interest rate of 4% and matures on January 5, 2015. Upon the closing of a financing pursuant to the terms of the Series D Purchase Agreement by and between the Company and C Media, dated as of July 5, 2013, as amended as of November 4, 2013 (as discussed below) in which C Media invests funds in the Company in exchange for shares of the Series E Preferred Stock, the principal amount and all unpaid interest of the Bridge Note shall automatically be converted into shares of Series E Preferred Stock at a conversion price equal to the per share purchase price paid for the Series E Preferred Stock by C Media. If the Bridge Note is not converted into shares of Series E Preferred Stock within 30 days following the issuance of the Bridge Note (or, in the event that all of the conditions to the Series E Financing contained in the Series E Purchase Agreement (defined below) have been satisfied except the condition set forth in Section 6.1(i)(ii) of the Series E Purchase Agreement, then, at C Media’s option, by January 31, 2014 (the “Optional Extension Date”)), the principal amount and all accrued and unpaid interest under the Bridge Note may, at C Media’s option, be converted into shares of the Company’s Series D Preferred Stock at a conversion price of $1.75 per share. In connection with the issuance of the Bridge Note, we recorded debt issuance costs of $370,008 to current assets to be amortized over the period of the earliest possible conversion date which is January 31, 2014. As such we have recorded interest expense of $128,879 and $241,129 during 2014 and 2013, respectively. The issuance costs included cash paid of $241,936 and the issuance of warrants to the placement agent to purchase 114,285 shares of common stock at $1.75 per share. The fair value of the warrants was calculated using the Black-Scholes model with the following assumptions: expected life of 5 years, expected dividend rate of 0%, volatility of 70% and an interest rate of 1.36% . The exercise price of the warrants was $1.75. The warrants were valued at $128,072 at the date of issuance.

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Amendment to Series D Stock Purchase Agreement

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

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

On December 4, 2013, C Media exercised its Optional Extension Option which extended the date to January 31, 2014.

Conversion to Series E Preferred Stock and Conversion of $2M Convertible Note

On January 31, 2014, the Company entered into a Series E Preferred Stock Purchase Agreement (the “Series E Purchase Agreement”) with C Media and certain other purchasers (collectively, the “Investors”), pursuant to which the Company issued to the Investors an aggregate of 14,285,714 shares of Series E Preferred Stock of the Company for $1.75 per share, or a total purchase price of $25.0 million. Among the 14,285,714 shares of Series E Preferred Stock issued to the Investors, (i) 1,142,857 shares were issued upon the conversion of the Bridge Note issued to C Media in principal amount of $2,000,000, (ii) 10,857,143 shares were issued for an aggregate purchase price of $19 million, and (iii) 2,285,714 shares were issued upon the conversion of 2,285,714 shares of Series D Preferred Stock held by C Media, which constitute all of the issued and outstanding shares of Series D Preferred Stock, into the Series E Preferred Stock pursuant to the Series E Purchase Agreement. In connection with the issuance of the Series E Preferred Stock, we recorded issuance costs of $4,552,347 to additional paid in capital. The issuance costs included cash paid of $2,386,275 and the issuance of warrants to the placement agent to purchase 1,085,714 shares of common stock at $1.75 per share. The fair value of the warrants was calculated using the Black-Scholes model with the following assumptions: expected life of 5 years, expected dividend rate of 0%, volatility of 70% and an interest rate of 1.49% . The exercise price of the warrants was $1.75. The warrants were valued at $2,166,296 at the date of issuance.

In connection with the Series E financing, a total beneficial conversion feature of $16,571,429 was recognized in Additional Paid-in Capital.

21

22

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

23

Effective as of December 3, 2010, 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.

The following table summarizes the number of securities outstanding, granted and available for issuance as of March 31, 2014:

In the first quarter of 2014, the Company granted 22,435 options to board members for services provided in 2013. The weighted average grant-date fair value of options granted during the three months ended March 31, 2014 was $2.91. The total intrinsic value of options exercised during the three months ended March 31, 2014 was $1,577. There were no options granted for the same period in 2013.

The following table summarizes information concerning outstanding and exercisable options as of March 31, 2014:

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The following table summarizes the status of options which contain vesting provisions:

As of March 31, 2014, the Company had total unrecognized compensation expense related to options granted of approximately $740,000 which will be recognized over a remaining service period of 3.5 years. The total fair value of shares vested during the three months ended March 31, 2014, and 2013, was $138,657 and $163,683, respectively.

Warrants

In connection with the Company’s 2012 and 2013 financings, the Warner Brother Agreement and service agreements, the Company issued warrants to investors and service providers to purchase common stock of the Company.

As of March 31, 2014, the weighted average exercise price of the warrants was $2.11 and the weighted average remaining life was 4.05 years. The following table outlines the warrants outstanding and exercisable as of March 31, 2014 and December 31, 2013:

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Other

The Company is committed to paying service fees to certain consultants of $25,000 through the second quarter of 2014.

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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27

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, 2013 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.

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Revenues

Revenues for the three months ended March 31, 2014, totaled $138,000, as compared to $1,000 for 2013. The increase in revenue of approximately $137,000 is attributable to the growth of our VOD business.

Gross Loss

Our gross loss for the three months ended March 31, 2014 was $738,000, as compared to $848,000 during 2013. The decrease in gross loss of approximately $110,000, or 13%, is mainly due to increased revenue related to our VOD business. Our content license agreements with production companies incorporate minimum guaranteed payment levels which, as our operations are just evolving, revenues from operations do not yet meet the threshold at which they exceed those costs.

Selling, General and Administrative Expenses

Our selling, general and administrative expenses for the three months ended March 31, 2014, decreased approximately $343,000 to $1,641,000, as compared to $1,984,000 for the three months ended March 31, 2013.

Salaries and personnel costs are the primary components of selling, general and administrative expenses. For the three months ended March 31, 2014 salaries and personnel costs accounted for 67% of our selling, general and administrative expenses. For the three months ended March 31, 2014, salaries and personnel costs totaled $1,095,000, a decrease of $143,000, or 12%, as compared to $1,239,000 for the same period of 2013 due to staff reductions made as part of our cost savings initiatives.

The other major components of our selling, general and administrative expenses include technology, marketing, business development and rent expenses. For the three months ended March 31, 2014, these costs totaled $370,000, a net increase of $16,000, or 4%, as compared to $354,000 in 2013, due to increases in rent and technology expenses which are partially offset by a decrease in marketing and business development expenses.

Professional Fees

Professional fees are generally related to public company reporting and governance expenses as well as legal fees related to expansion of our VOD business. Our costs for professional fees decreased $66,000, or 26%, to $185,000 for the three months ended March 31, 2014, from $251,000 during 2013. The decrease in professional fees was primarily due to a reduction in consulting and legal fees.

Depreciation and Amortization

Our depreciation expense decreased $3,000, or 4%, to $65,000 in the three months ended March 31, 2014, from $68,000 during 2013.

Our amortization expense decreased $140,000, or 62%, to $85,000 in the three months ended March 31, 2014, from $225,000 during 2013. The decrease is mainly because our non-compete agreement was fully amortized as of January 31, 2013.

Interest Expense

Our interest expense increased $2,262,000 to $2,292,000 for the three months ended March 31, 2014, from $30,000 during 2013, primarily due to (1) the amortization of debt issuance costs related to the issuance of the $2.0 million convertible note and (2) the recognition of the beneficial conversion feature related to the modification of the $3.0 million convertible note as discussed in Note 10 of the consolidated financial statements included in this report.

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Change in Fair value of Warrant Liabilities

Our warrants are characterized as derivative liabilities to be re-measured at the end of every reporting period with the change in value reported in the statement of operations and, accordingly, we reported a loss of $2,439,000 and $25,000 for the three months ended March 31, 2014 and 2013, respectively. The changes are primarily due to the increase in our closing stock price.

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 $703,000 and $41,000 for the three months ended March 31, 2014 and 2013, respectively. The changes are primarily due to the increase in our closing stock price.

Gain on Sale of Subsidiary and Loss on Dissolution of Variable Interest Entity

Effective March 25, 2014, we deconsolidated our ownership in WFOE and Jinan Zhong Kuan. As such, we recorded a gain of $755,000 on the sale of WFOE and a loss of $27,000 on dissolution of Jinan Zhong Kuan as discussed in Note 3 of our consolidated financial statements included in this report.

Discontinued Operations

Effective July 31, 2013, we sold our 51% interest in Jinan Broadband to Shandong Broadcast Network Limited in order to focus on our core VOD business and help with cash flow needs. As such, Jinan Broadband is accounted for as discontinued operations in our consolidated financial statements included in this report.

Net Loss Attributable to Non-controlling Interest

Hua Cheng is a 20% non-controlling interest in Zhong Hai Video and as such we allocate 20% of the operating loss of Zhong Hai Video to Hua Cheng. During the three months ended March 31, 2014, $235,000 of our operating loss from Zhong Hai Video was allocated to Hua Cheng, as compared to $217,000 during the same period of 2013.

49% of the operating loss of our Jinan Broadband subsidiary was allocated to Shandong Cable (previously Jinan Parent), the 49% co-owner of this business. During the three months ended March 31, 2013, $113,000 of our operating losses from Jinan Broadband was allocated to Jinan Parent. Effective July 31, 2013, the Company sold its 51% interest in Jinan Broadband. See Note 4 to our consolidated financial statements included in this report.

Dividends on Preferred Stock

For three months ended March 31, 2014, in connection with the issuance of Series E Preferred Stock, we recorded dividends of approximately $16,402,000. This amount is comprised of (1) recognition of a deemed dividend for a beneficial conversion feature discount of $16,571,000, (2) reversal of a deemed dividend for the beneficial conversion feature discount of $183,000 related to the extinguishment of the Series D Preferred Stock and (3) cash dividends paid of $14,000 for January 2014, which is part of the total cash dividend paid, amounting to $92,054, in the three months ended March 31,2014.

Liquidity and Capital Resources

As of March 31, 2014, we had cash and cash equivalents of approximately $17,955,000. Approximately $16,449,000 is held in our China and Hong Kong entities. The Company has no plans to repatriate these funds. We had working capital at March 31, 2014, of approximately $9,108,000.

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

Operating Activities

Cash used in operating activities increased for the three months ended March 31, 2014 compared to 2013 primarily due to increased content license payments and increased operational costs arising from our transition into our VOD business. Our content license agreements with production companies incorporate minimum guarantee payments, most of which increase year-over-year.

Investing Activities

Cash used in investing activities for the three months ended March 31, 2014 was used for (i) the sale of subsidiary of $57,000, and (ii) additions to property and equipment of $3,000. Cash used in investing activities for the three months ended March 31, 2013 was used for (i) additions to property and equipment of $242,000 and (ii) investments in intangibles of $21,000.

Financing Activities

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

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

In addition, we have the ability to raise funds by various methods including utilization of our $50 million shelf registration of which $47.3 million is remaining as well as other means of financing such as debt or private investment. However, financing may not be available to the Company on terms acceptable to us or at all or such resources will be received in a timely manner. Further we may need approval to seek additional financing from the shareholders from the August 2012 private financing in the event we do a public financing.

The fact that we have incurred significant continuing losses and continue to rely on debt and equity financings to fund our operations to date, could raise substantial doubt about our ability to continue as a going concern. As of March 31, 2014, the Company has an accumulated operating loss of approximately $89.6 million. The consolidated financial statements included in this report have been prepared assuming that the Company will continue as a going concern and, accordingly, do not include any adjustments that might result from the outcome of this uncertainty.

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Effects of Inflation

Inflation and changing prices could have 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, 2013 includes a summary of our most significant accounting policies.

The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of assets and liabilities. On an ongoing basis, we evaluate our estimates and judgments, including those related to revenue recognition, inventories, income taxes, interest expenses, deemed dividend, 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.