|SEVEN STARS CLOUD GROUP, INC. filed this Form 10-Q on 08/14/2017|
outstanding capital stock of Wide Angle Group Limited (“Wide Angle”). The holdings and businesses from both of these aforementioned acquisitions now reside under “Wecast Services”, our wholly-owned subsidiary Wecast Services Limited. Wecast Services (which resides under the Product Sales Cloud) business unit, is currently primarily engaged with consumer electronics e-commerce and smart supply chain management operations. Our ending customers include British Telecom, Micromax and about 15 to 20 other corporations across the world.
Revenue for the three months ended June 30, 2017 was $43.3 million as compared to $1.5 million for the same period in 2016, an increase of approximately $41.8 million, or 2,826%. The increase was mainly due to our new business line acquired in January 2017. This was partially offset by a decrease of our legacy YOD business in the amount of $1.5 million, as the legacy YOD business shifts to a new exclusive distribution agreement with Zhejiang Yanhua Culture Media Co., Ltd. ("Yanhua ") which was announced in Q4 2016. As revenue generated by Yanhua was not over revenue sharing threshold yet, no additional revenue was recorded in the quarter ended June 30, 2017.
Cost of revenues
Cost of revenues was approximately $43.3 million for the three months ended June 30, 2017, as compared to $0.8 million for the three months ended June 30, 2016. Our cost of revenues increased by $42.5 million which is in line with our increase in revenues. Our cost of revenues is primarily comprised of electronics products purchasing cost from Wecast Services.
Gross profit ratio for the three months ended June 30, 2017 decreased by 45.82% from 45.94% to 0.12%, as the Wecast Services business, which currently is engaged mostly in lower margin electronics e-commerce, is still in its relative infancy and the business service offerings as well as profit-sharing arrangements with a growing range of suppliers are in transition.
Selling, general and administrative expenses
Selling, general and administrative expense for the three months ended June 30, 2017 was $2.9 million as compared to $1.8 million for the same period in 2016, an increase of approximately $1.1 million or 59%. The increase was primarily attributed to the recent business transformation and headcount expansion during the first and second quarter as well as an increase in share based compensation due to recently vested restricted share units granted to our management. In second quarter of 2017, the Company terminated one of our office leases in Shanghai, which resulted in an approximate $0.5 million impairment of leasehold improvements. In addition, there was an approximate $0.2 million increase in D&O insurance expenses.
Professional fees for the three months ended June 30, 2017 were $0.7 million as compared to $0.3 million for the same period in 2016, an increase of approximately $0.4 million. This increase was mainly due to audit and valuation fees that were incurred in the second quarter for additional audit services rendered in relation to our January acquisitions of Wide Angle and Wecast Services and therefore increased review service fees charged by our external auditor.
Change in fair value of warrant liabilities
Certain of our warrants are recognized as derivative liabilities and re-measured at the end of every reporting period and upon settlement, with the change in value reported in the statement of operations. We reported a loss of approximately $0.03 million and a gain of approximately $0.1 million for the three months ended June 30, 2017 and 2016, respectively. The changes are primarily due to fluctuations in our closing stock price.