SSC Ideanomics (delisted)

ASSETS

Current assets:

     Cash and cash equivalents

     Accounts receivable, net

     Licensed content, current

     Prepaid expenses

     Debt issuance costs, net

     Other current assets

Total current assets

Property and equipment, net

Licensed content, noncurrent

Intangible assets, net

Goodwill

Investment in unconsolidated entities

Other noncurrent assets

Total assets

LIABILITIES, CONVERTIBLE REDEEMABLE PREFERRED STOCK AND EQUITY

Current liabilities:

     Accounts payable

     Deferred revenue

     Accrued expenses and liabilities

     Deferred license fees

     Contingent purchase price consideration liability

     Convertible promissory note

     Warrant liabilities

Total current liabilities

Deferred income tax liability

Convertible promissory note

Total liabilities

Commitments and Contingencies

Convertible redeemable 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, 2014 and December 31, 2013, respectively

     Series C - 0 and 87,500 shares issued and outstanding, liquidation preference of $0 and $350,000 at June 30, 2014 and December 31, 2013, respectively

     Series D 4% - 0 and 2,285,714 shares issued and outstanding, liquidation preference of $0 and $4,000,000 at June 30, 2014 and December 31, 2013, respectively

Equity:

     Preferred Series E stock, $.001 par value; 16,500,000 shares authorized, 13,428,571 and 0 shares issued and outstanding, liquidation preference of $23,500,000 and $0 at June 30, 2014 and December 31, 2013, respectively

     Common stock, $.001 par value; 1,500,000,000 shares authorized, 17,410,220 and 15,794,762 shares issued at June 30, 2014 and December 31, 2013, respectively

     Additional paid-in capital

     Accumulated deficit

     Accumulated other comprehensive loss

Total YOU On Demand equity

Noncontrolling interests

Total equity

Total liabilities, convertible redeemable preferred stock and equity

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

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

Prior to July 31, 2013, the Company held 51% interest in Jinan Guangdian Jia He Broadband Co. ltd. (“Jinan Broadband”), a cable broadband business based in Jinan City, China. Effective July 31, 2013, the Company sold its 51% interest in Jinan Broadband.

In the opinion of management, these 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 consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013 filed with the Securities and Exchange Commission on March 31, 2014 (our “2013 Annual Report”).

Reclassifications

Certain information has been retrospectively reclassified to present the results of the Company’s Jinan Broadband as discontinued operations. This reclassification has no effect on previously reported net loss. See Note 4. In addition, in presenting the Company’s unaudited consolidated statement of operations for the three and six months ended June 30, 2013, we recorded approximately $76,000 and $151,000 of business related expenses as professional fees. In presenting the Company’s unaudited consolidated statement of operations for the three and six months ended June 30, 2014, we reclassified such business related expenses from “professional fees” to “selling, general and administrative expense” to more properly reflect fees paid for recurring operating expenses in the ordinary course of business. The prior year information has been reclassified to be comparable with current year presentation. This reclassification has no effect on previously reported net loss.

The December 31, 2013 consolidated balance sheet was derived from the audited consolidated financial statements of the Company, however, as described below, certain prior year information has been reclassified to be comparable with current year presentation.

Going Concern and Management’s Plans

For the six months ended June 30, 2014, we incurred a net loss from continuing operations of approximately $8.4 million and we used cash for operations of approximately $5.5 million. Further, we had an accumulated deficit of approximately $90.3 million as of June 30, 2014.

The Company must continue to rely on debt and equity to pay for ongoing operating expenses in order to execute its business plan. On July 5, 2013 we completed a Series D Preferred Stock financing in which we raised $4.0 million and closed on a Bridge Loan on November 4, 2013 for $2.0 million. On January 31, 2014, we completed a Series E Preferred Stock financing in which we raised an additional $19.0 million. See Note 11 for additional information.

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

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

WFOE and Jinan Zhong Kuan

Effective March 25, 2014, we sold WFOE, its wholly-owned subsidiary to Linkstar Gloal Investment Limited, whose shareholder is a family member of one of our management personnel (see Note 10) and dissolved Jinan Zhong Kuan, it’s VIE. Both WFOE and Jinan Zhong Kuan were investment holding companies and since the Company sold its interest in Jinan Broadband (see Note 4), these entities were no longer required for our organizational structure. We recorded a note receivable in the amount of $50,000 for the WFOE sale which has been included in other current assets. As of the date of this filing, the note receivable has been collected in full. In accordance with ASC 810-10-40, Deconsolidation of a Subsidiary , we removed the net assets associated with WFOE and Jinan Zhong Kuan.

In connection with the sale of WFOE, we recognized a gain of $755,426 of which $661,332 represented the removal of foreign currency translation gain which was previously recognized in other comprehensive income. In connection with the dissolution of Jinan Zhong Kuan, we recognized a loss of $27,463 of which $27,348 represented the removal of foreign currency translation loss which was previously recognized in other comprehensive income.

Discontinued Operations

In order to focus on our core VOD business and help with cash flow needs, the Company sold its 51% ownership of Jinan Broadband to Shandong Broadcast Networks Limited. Total consideration for the sale was RMB 29,000,000, and the sale became finalized on July 31, 2013. The Company received an initial payment of RMB 5,000,000 (approximately $811,000) in the third quarter of 2013 and the final payment of RMB 24,000,000 (approximately $3,920,000) in the fourth quarter of 2013.

Jinan Broadband met the criteria for being reported as a discontinued operation and has been segregated from continuing operations for all periods presented. We do not have any continuing involvement with Jinan Broadband. The related gain on the sale was reported in discontinued operations during the quarter ended September 30, 2013.

The following table summarizes the results from discontinued operations:

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

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

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

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

(c) real property, personal or intangible property, personnel, services, equipment, supplies and any other items useful for the conduct of the business may be obtained by 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.

Property and Equipment

The following is a breakdown of our property and equipment:

We recorded depreciation expense of approximately $60,000 and $126,000 for the three and six months ended June 30, 2014. We recorded depreciation expense of approximately $69,000 and $136,000 for the three and six months ended June 30, 2013.

Intangible Assets

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 finite lived intangible assets activity from January 1, 2014 to June 30, 2014 is as follows:

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:

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 term and expected dividend yield. Significant increases or decreases in any of those inputs in isolation would result in a significantly different fair value measurement.

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, and (iii) a four-year option to purchase 80,000 shares of the Company’s common stock (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 VOD 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 VOD 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 VOD services. The shares, warrants, and options are earned at a rate of one third for each milestone achieved.

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 were 735,822 shares of common stock and a four-year option to purchase 80,000 shares of common stock.

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, since the achievement of the milestones is not solely based on the operations of the Company. Further ASC 815-40-15 requires us to re- measure the contingent consideration obligation at the end of every reporting period with the change in value reported in the consolidated statements of operations and, accordingly, we reported a gain of $589,994 and a loss of $113,132, for the three and six months ended June 30, 2014, respectively. We reported a loss of $42,046 and $83,694 for the three and six months ended June 30, 2013, respectively.

As of the end of the second earn-out year (July 1, 2013), the second milestone was achieved with over 11 million homes having access to our VOD services. As such, we issued in total 490,548 shares of our common stock and 53,334 options to Mr. Liu for achieving the first two year milestones. As of June 30, 2014, we recorded a purchase price consideration liability in the amount of $691,876 related to the remaining earn-out.

The number of instruments remaining to be earned consists of 245,274 common shares and 26,666 options.

Related Party Transactions

$3.0 Million Convertible Note

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 $4.00 for 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 is repaid.

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 Preferred Stock at its intrinsic value, which was the fair value of the common stock at the commitment date for the Series E Preferred Stock investment and the effective conversion price. As such, we recognized a beneficial conversion feature of approximately $2,126,000 which was reflected as interest expense 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.

Video On Demand Business

Cost of Revenue

Zhong Hai Video paid licensed content fees of approximately $42,000 and $40,000 for the three months ended  June 30, 2014 and 2013, and $81,000 and $80,000 for the six months ended June 30, 2014 and 2013, respectively, to Hua Cheng Hu Dong (Beijing) Film and Television Communication Co., Ltd., the minority shareholder of Zhong Hai Video.

Sale of WFOE

Effective March 25, 2014, WFOE, our wholly-owned subsidiary, was sold to Linkstar Global Investment Limited (see Note 3), whose shareholder is a family member of one of our management personnel. We recorded a note receivable in the amount of $50,000 for the WFOE sale which has been included in other current assets. Our chief executive officer, Mr. Liu Weicheng, is the legal representative of WFOE after the sale. In addition, $100,728 due from WFOE is included in our accounts receivable as of June 30, 2014.

Series D and Series E Preferred Stock Financing and Convertible Note

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 could 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 were 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) was not consummated on or prior to October 31, 2013, the Series D Preferred Stock would become immediately redeemable at the option of the Investor. The redemption would be exercised in whole or in part at $1.75 dollars per share, plus all unpaid and accrued dividends. The Investor would have the right to vote with our stockholders in any matter. The Investor would 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 would 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.

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 Preferred Stock 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 $2,386,051 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.

Warrant Liabilities

In connection with our August 30, 2012 private financing, we issued 977,063 warrants to investors and the broker. In accordance with FASB ASC 815-40-15-5, “Determining Whether an Instrument (or Embedded Feature) is Indexed to an Entity’s Own Stock”, the warrants have been characterized as derivative liabilities to be re- measured at the end of every reporting period with the change in value reported in the consolidated statement of operations. On August 30, 2012, such warrants were valued at $1,525,000 utilizing a valuation model and were initially recorded as a liability. The warrants are revalued each quarter based on the Monte Carlo valuation, however, as of June 30, 2014, we utilize the Black-Scholes Merton model as an estimate of the Monte Carlo valuation. As of June 30, 2014 and December 31, 2013, the warrant liability was re-valued as disclosed in Note 8, Fair Value Measurement, and was adjusted to its current fair value of approximately $901,000 and $1,344,000 as determined by the Company, resulting in a loss of approximately $937,000 for the six months ended June 30, 2014. During the six months ended June 30, 2014, 440,813 warrants were exercised at an exercise price $1.50 for gross proceeds received of $661,220.

Net Loss Per Common Share

Share-Based Payments

As of June 30, 2014, the Company has 1,896,744 options and 2,191,487 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, 2014 and 2013:

The Company accounts for its stock option awards to employees and Directors pursuant to the provisions of ASC 718, Stock Compensation . The fair value of each option award is estimated on the date of grant using the Black-Scholes Merton valuation model. The Company recognizes the fair value of each option as compensation expense ratably using the straight-line attribution method over the service period, which is generally the vesting period.

During the six months ended June 30, 2013, 60,500 shares were issued to certain consultants and directors for services vested. We recorded the common shares at the closing price on the issue date. We expensed to consulting and marketing services $85,000 and $164,000 for the three and six months ended, June 30, 2013. No shares were issued for services in 2014.

During the six months ended June 30, 2013, we issued 166,677 consulting warrants and 6,667 warrants vested during the period. The fair value of the warrants was estimated on the date of grant using the Black-Scholes Merton valuation model. We expensed to marketing $1,000 for the three months ended June 30, 2013 and $45,000 for the six months ended June 30, 2013. We recorded $64,000 to prepaid expense during the six months ended June 30, 2013 to be recognized for services provided in the remainder of 2013. No warrants were issued for services in 2014.

During the six months ended June 30, 2014, we recorded $292,000 to board compensation expense for shares and options that have not yet been issued to certain executives and board members.

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 June 30, 2014:

Income Taxes

As of June 30, 2014, the Company had approximately $24.0 million of the U.S domestic cumulative tax loss carryforwards (which excludes the NOL carryforwards of approximately $1.7 million because of the uncertainty of the position being sustained) and approximately $13.9 million of the foreign cumulative tax loss carryforwards which may be available to reduce future income tax liabilities in certain jurisdictions. These U.S. and foreign tax loss carryforwards will expire beginning year 2027 through 2034 and year 2015 to year 2019, respectively. We have established a 100% valuation allowance against our net deferred tax assets due to our history of pre-tax losses and the likelihood that the deferred tax assets will not be realizable. Further, a net deferred tax liability arises from one jurisdiction. The valuation allowance increased approximately $1.1and $2.5 million during the three and six months ended June 30, 2014, respectively.

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

Commitments and Contingencies

Severance Commitment

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, 2014, the Company's potential minimum cash obligation to these employees was approximately $1,812,000.

Operating Lease Commitment

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

Other

As of June 30, 2014, the Company was committed to paying service fees to certain consultants of $25,000.

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.

Subsequent Events

In connection with the acquisition of Sinotop Hong Kong as discussed in Note 9, on July 1, 2014 we issued 245,274 shares of our common stock to Mr. Liu for achieving the specified performance milestones. As of the date of this filing, the Company has converted 5,828,572 shares of Series E Preferred Stock into 5,828,572 shares of our common stock.