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8-K/A
SEVEN STARS CLOUD GROUP, INC. filed this Form 8-K/A on 08/14/2017
Entire Document
 

 

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

 

Form 8-K/A

 

CURRENT REPORT
Pursuant to Section 13 OR 15(d) of the Securities Exchange Act of 1934

 

Date of Report (Date of earliest event reported): January 30, 2017

 

SEVEN STARS CLOUD GROUP, INC.

(Exact name of registrant as specified in its charter)

 

Nevada 001-35561 20-1778374
(State or other jurisdiction of (Commission File Number) (IRS Employer Identification No.)
incorporation)    

 

Building B4, Tai Ming International Business Court,

Tai Hu Town, Tongzhou District, Beijing, China 101116 
(Address of principal executive offices) (Zip Code)

 

Registrant’s telephone number, including area code: 212-206-1216

 

Wecast Network, Inc.

(Former name or former address, if changed since last report.)

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

 

¨Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

¨Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a -12)

 

¨Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d -2(b))

 

¨Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e -4(c))

 

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

 

        Emerging growth company ¨

 

 If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

 

 

 

 

 

Item 2.01Completion of Acquisition or Disposition of Assets

 

On February 1, 2017 and February 2, 2017, respectively, Seven Stars Cloud Group, Inc., formerly known as Wecast Network, Inc. (the “Company”), filed a Current Report on Form 8-K (together, the “Original Forms 8-K”) reporting that on January 30, 2017 and January 31, 2017, respectively, the Company acquired all of the outstanding capital stock of Sun Video Group Hong Kong Limited, a Hong Kong corporation (“SVG”)”) and 55% of the outstanding capital of Wide Angle Group Limited, a Hong Kong company (“Wide Angle”).

 

This Form 8-K/A amends the Original Forms 8-K to include this Item 2.01 and to include the historical audited financial statements of SVG and Wide Angle and the pro forma financial statements required by Items 9.01(a) and 9.01(b) of Form 8-K that were excluded from the Original Forms 8-K in reliance on the instructions to such items.  

 

The information in Item 1.01 of the Original Forms 8-K is incorporated herein by reference in its entirety.

 

Item 9.01Financial Statements and Exhibits.

 

(a)Financial Statements of Businesses Acquired

 

The audited financial statements of Wide Angle Group Limited as of December 31, 2016, and for the two years ended December 31, 2016 and 2015, are filed herewith as Exhibit 99.1 and are incorporated by reference herein.

 

The audited financial statements of Wecast Services Group Limited (formerly known as Sun Video Group Hong Kong Limited) as of December 31, 2016, and for the two years ended December 31, 2016 and 2015, are filed herewith as Exhibit 99.2 and are incorporated by reference herein.

 

The consent of Wide Angle Group Limited and Wecast Services Group Limited’s independent auditors is attached hereto as Exhibit 23.1.

 

(b)Pro Forma Financial Information

 

The unaudited pro forma combined balance sheet and unaudited pro forma combined statement of operations of Seven Stars Cloud Group, Inc. (formerly known as Wecast Network, Inc.) as of and for the year ended December 31, 2016 are filed herewith as Exhibit 99.2 and are incorporated by reference herein.

 

Exhibit   Description
   
23.1   Consent of Grant Thornton
     
99.1   Audited consolidated financial statements of Wide Angle Group Limited as of December 31, 2016, and for the two years ended December 31, 2016 and 2015.
     
99.2  

Audited consolidated financial statements of Wecast Services Group Limited (formerly known as Sun Video Group Hong Kong Limited) as of December 31, 2016, and for the two years ended December 31, 2016 and 2015. 

     
99.3  

Unaudited pro forma combined balance sheet and unaudited pro forma combined statement of operations of Seven Stars Cloud Group, Inc. (formerly known as Wecast Network, Inc.) as of and for the year ended December 31, 2016, and the accompanying notes. 

 

 

 

 

SIGNATURES

 

Pursuant to 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 hereunto duly authorized.

 

  SEVEN STARS CLOUD GROUP, INC.
     
     
Date: August 14, 2017 By: /s/ Bing Yang
    Bing Yang
    Chief Executive Officer

 

 

 

 

Exhibit 23.1

  

CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

  

We consent to the incorporation by reference in the Registration Statements (Nos. 333-205043) on Form S-8 of Seven Starts Cloud Group, Inc. of our report dated August 14, 2017, relating to our audit of the consolidated financial statements of Wecast Services Group Limited and its Subsidiary; and Wide Angle Group Limited and its Subsidiary as of and for the year ended December 31, 2016, and 2015, respectively, included in this Current Report on Form 8-K/A.

  

 

/s/ GRANT THORNTON

 

Xiamen, China

August 14, 2017

 

 

 

Exhibit 99.1

 

 

 

 

Consolidated Financial Statements and Report of Independent Certified Public Accountants

 

Wide Angle Group Limited

 

December 31, 2015 and 2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Contents  
   
  Page
   
Report of Independent Certified Public Accountants 1-2
   
Consolidated Balance Sheets 3
   
Consolidated Statements of Comprehensive Income 4
   
Consolidated Statements of Changes in Shareholders’ Equity 5
   
Consolidated Statements of Cash Flows 6
   
Notes to Consolidated Financial Statements 7-23

 

 

 

 

Report of Independent Certified
Public Accountants

 

Board of Directors

Wide Angle Group Limited

 

We have audited the accompanying consolidated financial statements of Wide Angle Group Limited and its subsidiaries (the "Group"), which comprise the consolidated balance sheets as of December 31, 2015 and 2016, and the related consolidated statements of comprehensive income, changes in shareholders’ equity, and cash flows for the years then ended, and the related notes to the consolidated financial statements.

 

Management’s responsibility for the financial statements

Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

 

Auditor’s responsibility

Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.

 

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

 

 1

 

 

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

 

Opinion

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Group as of December 31, 2015 and 2016, and the results of their operations and their cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America.

 

Emphasis of matter

The accompanying consolidated financial statements have been prepared assuming that the Group will continue as a going concern. As discussed in note 2 to the consolidated financial statements, the Group incurred recurring losses from operations, and an accumulated deficit that raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in note 2. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

/s/Grant Thornton

 

Xiamen, China

August 14, 2017 

 2

Wide Angle Group Limited

 

December 31, 2015 and December 31, 2016

 

Consolidated Balance Sheets

(Amounts expressed in U.S. dollars)

 

   December 31, 
   2015   2016 
ASSETS          
Current assets:          
Cash   50,937    1,139,805 
Accounts receivable, net (Note 3)   58,595    8,088,519 
Notes receivable   -    1,749,830 
Amounts due from related parties (Note 11)   2,065,092    191,815 
Prepaid expenses   35,080    45,078 
Other current assets (Note 4)   36,920    15,634 
Total current assets   2,246,624    11,230,681 
           
Property and equipment, net (Note 5)   149,482    128,493 
TOTAL ASSETS   2,396,106    11,359,174 
           
LIABILITIES AND EQUITY          
Current liabilities:          
Accounts payable (Note 6)   54,980    9,874,656 
Deferred revenue   23,314    518,738 
Amounts due to related parties (Note 11)   1,152,866    82,931 
Other current liabilities (Note 7)   4,532,856    92,286 
Total current liabilities and total liabilities   5,764,016    10,568,611 
           
Equity:          
Paid-in capital   624,917    624,917 
Additional paid-in capital   -    3,491,777 
Accumulated deficits   (3,990,929)   (3,326,450)
Accumulated other comprehensive income   (1,898)   319 
Total equity   (3,367,910)   790,563 
           
TOTAL LIABILITIES AND EQUITY   2,396,106    11,359,174 

 

The accompanying notes are an integral part of these consolidated financial statements. 3

Wide Angle Group Limited

 

December 31, 2015 and December 31, 2016

 

Consolidated Statements of Comprehensive Income

(Amounts expressed in U.S. dollars)

 

   December 31, 
   2015   2016 
Revenues from third parties   536,472    70,614,476 
Consultancy revenues from related parties (Note 11)   7,224    72,321 
Total revenues   543,696    70,686,797 
           
Cost of revenues   397,467    71,178,649 
           
Gross profit/(loss)   146,229    (491,852)
           
Selling, general and administrative expenses   798,541    347,982 
Consultancy fees to related parties (Note 11)   -    1,283,902 
Depreciation and amortization   22,190    20,811 
Total operating expenses   820,731    1,652,695 
Loss from operations   (674,502)   (2,144,547)
           
Other income, net (Note 8)   177,124    794,410 
           
Loss before income taxes   (497,378)   (1,350,137)
           
Income tax expense (Note 9)   -    - 
           
Net loss   (497,378)   (1,350,137)
           
Other comprehensive (loss)/income:          
Exchange difference arising on translation   (5,354)   2,217 
Total other comprehensive (loss)/income   (5,354)   2,217 
           
Total comprehensive loss   (502,732)   (1,347,920)

 

The accompanying notes are an integral part of these consolidated financial statements. 4

Wide Angle Group Limited

 

December 31, 2015 and December 31, 2016

 

Consolidated Statements of Changes in Shareholders’ Equity

(Amounts expressed in U.S. dollars)

 

   Paid-in capital   Additional paid-in capital   Accumulated deficit   Accumulated other comprehensive income (losses)   Total shareholders’ equity 
                     
Balance at December 31, 2014   624,917    -    (3,493,551)   3,456    (2,865,178)
                          
Net loss   -    -    (497,378)   -    (497,378)
Foreign currency translation adjustments, net of tax impact of nil   -    -    -    (5,354)   (5,354)
                          
Balance at December 31, 2015   624,917    -    (3,990,929)   (1,898)   (3,367,910)
                          
Capital contribution   -    5,506,393    -    -    5,506,393 
Net loss   -    -    (1,350,137)   -    (1,350,137)
Foreign currency translation adjustments, net of tax impact of nil   -    -    -    2,217    2,217 
Additional paid-in capital makes up for accumulated deficit   -    (2,014,616)   2,014,616    -    - 
Balance at December 31, 2016   624,917    3,491,777    (3,326,450)   319    790,563 

 

The accompanying notes are an integral part of these consolidated financial statements. 5

Wide Angle Group Limited

 

December 31, 2015 and December 31, 2016

 

Consolidated Statements of Cash Flows

(Amounts expressed in U.S. dollars)      

 

   December 31, 
   2015   2016 
Operating activities:          
Net loss   (497,378)   (1,350,138)
Adjustments to reconcile net income to net cash (used)/provided by operating activities:          
Depreciation and amortization   22,190    20,811 
Income from disposal of property, plant and equipment   (177,116)   - 
Income from acquisition of subsidiary   -    (794,384)
Impairment loss from other receivables   407,038    - 
Changes in operating assets and liabilities:          
Accounts receivable   6,466    (7,516,090)
Amounts due from related parties   666,749    1,873,278 
Prepaid expenses and other current assets   6,266    (1,732,546)
Accounts payable   19,941    9,819,676 
Deferred revenue   (635)   495,424 
Amounts due to related parties   (670,591)   (64,092)
Other current liabilities   23,856    34,614 
Net cash provided by / (used in) operating activities   (193,214)   786,553 
           
Investing activities:          
Proceeds from disposal of property, plant and equipment   190,874    - 
Acquisition of subsidiaries   -    299,916 
Net cash provided by investing activities   190,874    299,916 
           
Effect of exchange rate changes on cash and cash equivalents   (5,569)   2,399 
           
Net decrease in cash and cash equivalents   (7,909)   1,088,868 
           
Cash and cash equivalents at the beginning of the year   58,846    50,937 
           
Cash and cash equivalents at the end of the year   50,937    1,139,805 
           
Supplemental cash flow disclosures          
Non-cash financing activities          
Debt waived from related party   -    5,506,393 

 

The accompanying notes are an integral part of these consolidated financial statements. 6

Wide Angle Group Limited

 

December 31, 2015 and December 31, 2016

 

Notes to Consolidated Financial Statements

 

Note 1 - Operations and significant accounting policies

 

Organization and description of business

 

Wide Angle Group Limited (the "Company" or "WAG"), formerly known as Wide Angle Press Limited and Wide Angle Media Limited, was incorporated in Hong Kong in 1986. The Company is engaged in printing and publishing business and primarily involved in producing the "Wide Angle" magazine, school teaching materials and reference books for public examinations. By special resolution passed on May 22, 2015, the Company's name was changed from "Wide Angle Media Limited" to "Wide Angle Press Limited". By special resolution passed on June 24, 2016, the name of the Company was changed from "Wide Angle Press Limited" to "Wide Angle Group Limited".

 

Amer Global Technology Limited ("Amer") was incorporated on September 19, 2011 and is engaged in purchase and selling electronic products. WAG acquired Amer’s 100% equity interest on September 2, 2016 under non-common control.

 

Shanghai Huicang Supply Chain Limited ("Shanghai Huicang") is a wholly foreign-owned enterprise organized under the laws of the People’s Republic of China ("PRC"), which is set up by WAG on September 18, 2016. As of December 31, 2016, Shanghai Huicang has no revenue or operation.

 

Accordingly, the Company’s historical financial statements are those of WAG and its wholly-owned subsidiaries, Amer and Shanghai Huicang.

 

The accompanying notes are an integral part of these consolidated financial statements. 7

Wide Angle Group Limited

 

December 31, 2015 and December 31, 2016

 

Note 1 - Operations and significant accounting policies (continued)

 

The accompanying consolidated financial statements reflect the activities of the Group, including each of the following entities:

 

Entity Name  Registered location  Background  Recent Ownership
Wide Angle Group Limited ("the Company")  HK  ● Incorporated on January21, 1986
● Registered capital of HKD14,350,000, partly paid
● Engaged in printing and publishing business
   
          
Amer Global Technology Limited ("Amer")  HK  ● Incorporated on September 19, 2011
● Registered capital of HKD10,000, not paid
● Acquired on September 2,2016
● Engaged in manufacturing and selling electronic products
  100% hold by Wide Angle Group Limited Non-common control acquired
          
Shanghai Huicang Supply Chain Limited ("Shanghai Huicang")  Shanghai  ● Incorporated on September 18, 2016
● Registered capital of USD 1,000,000, not paid
● Have not commenced its operation
  Set up and 100% hold by Wide Angle Group Limited

 

Presentation and principles of consolidation

The Group prepares and presents its consolidated financial statements in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”). The consolidated financial statements include the financial statements of the Company and its subsidiaries (the "Group"). All inter-company transactions and balances have been eliminated in consolidation.

 

The accompanying notes are an integral part of these consolidated financial statements. 8

Wide Angle Group Limited

 

December 31, 2015 and December 31, 2016

 

Note 1 - Operations and significant accounting policies (continued)

 

Use of estimates

The preparation of the consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Such estimates include, but are not limited to, revenue recognition, impairment and allowances of trade receivable, other receivables, amounts due from related parties, useful life of property, plant and equipment, employee benefit accruals, income taxes and fair value measurements. Actual results could differ materially from those estimates.

 

Cash and cash equivalents

 

Cash and cash equivalents consist primarily of highly liquid investments with an original maturity of three months or less. Cash and cash equivalents are carried at cost which approximates market value.

 

Accounts receivable, net

Accounts receivable are recognized at invoiced amounts and do not bear interest. The Group maintains an allowance for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments. The Group reviews its allowance for doubtful accounts receivable on an ongoing basis. In establishing the required allowance, management considers any historical losses, the customer’s financial condition, the accounts receivable aging, and the customer’s payment patterns. After all attempts to collect a receivable have failed and the potential for recovery is remote, the receivable is written off against the allowance.

 

Property and equipment, net

Property, plant and equipment are stated at cost less accumulated depreciation. Expenditures for major renewals and improvements, which extend the original estimated economic useful lives of applicable assets, are capitalized. Expenditures for normal repairs and maintenance are charged to expense as incurred. The costs and related accumulated depreciation of assets sold or retired are removed from the accounts and any gain or loss thereon is recognized in the consolidated statement of operations. Depreciation is provided for on a straight-line basis method over the estimated useful lives of the respective assets. The estimated useful lives of the assets are as follows:

 

  Useful lives
Furniture and office equipment 5 years
Vehicles 10 years

 

The accompanying notes are an integral part of these consolidated financial statements. 9

Wide Angle Group Limited

 

December 31, 2015 and December 31, 2016

 

Note 1 - Operations and significant accounting policies (continued)

 

 

Impairment of long-lived assets

Long-lived assets such as property and equipment are reviewed for impairment whenever events or changes in the circumstances indicate that the carrying value of an asset may not be recoverable. When these events occur, the Group assesses the recoverability of the long-lived assets by comparing the carrying amount to the estimated future undiscounted cash flows associated from the use of the asset and its eventual disposition, and recognize an impairment of long-lived assets when the carrying value of such assets exceeds the estimated future undiscounted cash flows such assets is expected to generate. If the Group recognizes an impairment, the Group reduces the carrying amount of the assets group to its estimated fair value based on an undiscounted cash flow approach or, when available and appropriate, to comparable market values.

 

There was no impairment charge for long-lived assets recognized as of December 31, 2015 and 2016.

 

Revenue recognition

Revenue is recognized when the following criteria under FASB ASC 605 “Revenue Recognition” are met:

 

1)Persuasive evidence of an arrangement exists;

 

2)Delivery has occurred or services have been rendered (the risks, rewards and ownership of the products are transferred to customers); and

 

3)The seller’s price to the buyer is fixed or determinable; and

 

4)Collectability is reasonably assured.

 

Revenue is measured at the fair value of the consideration received or receivable and is shown net of discounts, rebates, returns and sales-related taxes. Revenue is recognized in profit or loss provided it is probable that the economic benefits will flow to the Group and the revenue and costs, if applicable, can be measured reliably, as follows:

 

Sales of goods are recognized when goods are delivered and the risks and rewards of ownership have transferred to the customer.

 

Advertising income is recognized on relevant publication date.

 

Consultancy fee income is recognized when the services have been rendered. 

 

The accompanying notes are an integral part of these consolidated financial statements. 10

Wide Angle Group Limited

 

December 31, 2015 and December 31, 2016

 

Note 1 - Operations and significant accounting policies (continued)

 

Revenue recognition (continued)

 

The Group generates revenue mainly from sales of goods. Sales orders are confirmed after negotiation on price between the Group and customers. Purchase orders are confirmed after careful selection of suppliers and negotiation on price. The Group purchases finished goods from suppliers in accordance with sales orders from customers. The Group’s suppliers then deliver goods to the Group’s customers directly. When the delivery is completed, the Group recognizes revenue and transfers cost at same time. According to purchase orders with suppliers, the Group, as the owner of the goods, becomes the first responsible party for the goods. The Group is required to bear the direct risk of damage to the goods and the direct default risk that cannot be delivered to the customer.

 

In accordance with ASC 605-45, Revenue Recognition – Principal Agent Consideration, the Group accounts for revenue from sales of goods on a gross basis. The Group is the primary obligor in the arrangements, the Group has the ability to establish prices, the Group has discretion in selecting the independent suppliers and other third-party that will perform the delivery service, the Group is responsible for the defective products and the Group bears credit risk with customer payments. Accordingly, all such revenue billed to customers is classified as revenue and all corresponding payments to suppliers are classified as cost.

 

Income Taxes

The Company and Amer are incorporated in Hong Kong and are subject to statutory income tax on its Hong Kong sourced income (of which there are none). The statutory income tax rate in Hong Kong is 16.5%. Shanghai Huicang is PRC company. The statutory income tax rate applicable to PRC companies is 25%.

 

The Group accounts for income taxes in accordance with the asset and liability method. Deferred taxes are recognized for the future tax consequences attributable to temporary differences between the carrying amounts of assets and liabilities for financial statement purposes and income tax purposes using enacted rates expected to be in effect when such amounts are realized or settled. The effect on deferred taxes of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is established, as needed to reduce the amount of deferred tax assets if it is considered more likely than not that some portion or all of the deferred tax assets will not be realized.

 

The Group recognizes the effect of income tax positions only if those positions are more likely than not of being sustained. Recognized income tax positions are measured at the largest amount that is greater than 50% likely of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs.

 

The accompanying notes are an integral part of these consolidated financial statements. 11

Wide Angle Group Limited

 

December 31, 2015 and December 31, 2016

 

Note 1 - Operations and significant accounting policies (continued)

 

Related Parties

Parties are considered to be related if one party has the ability, directly or indirectly, to control the other party or exercise significant influence over the other party in making financial and operating decisions.

 

Foreign Currency Translation

The financial records of the Group’s subsidiaries are maintained in their local currencies. Monetary assets and liabilities denominated in currencies other than their local currencies are translated into local currencies at the rates of exchange in effect at the balance sheet dates. Transactions denominated in currencies other than their local currencies during the year are converted into local currencies at the applicable rates of exchange prevailing when the transactions occur. Transaction gains and losses are recorded in other income/ (expense), net in the statements of income.

 

The reporting currency of the Group is the United States dollar (“US dollar”). When translating local financial reports of the Group’s subsidiaries into US dollar, assets and liabilities are translated at the exchange rates at the balance sheet date, equity accounts are translated at historical exchange rates and revenue, expenses, gains and losses are translated at the average rate for the period. Translation adjustments are reported as cumulative translation adjustments and are shown as a separate component of other comprehensive income in the statements of income and comprehensive income.

 

Comprehensive loss

 

Comprehensive loss is defined as the change in equity during a period from transactions and other events. Comprehensive loss was the sum of the Company’s net loss and foreign currency translation adjustments for all periods presented.

 

The accompanying notes are an integral part of these consolidated financial statements. 12

Wide Angle Group Limited

 

December 31, 2015 and December 31, 2016

 

Note 1 - Operations and significant accounting policies (continued)

 

Recent Accounting Pronouncements

In May 2014, Financial Accounting Standards Board (or “FASB”) issued Accounting Standards Updates (or “ASU”) 2014-09, “Revenue from Contracts with Customers” (Topic 606). This guidance supersedes current guidance on revenue recognition in Topic 605, Revenue Recognition. In addition, there are disclosure requirements related to the nature, amount, timing, and uncertainty of revenue recognition. In August 2015, the FASB issued ASU 2015-14 to defer the effective date of ASU 2014-09 for all entities by one year. For public business entities that follow U.S. GAAP, the deferral results in the new revenue standard are being effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017, with early adoption permitted for interim and annual periods beginning after December 15, 2016. In May 2016, the FASB issued ASU 2016-12 Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients. The amendments in this Update do not change the core principle of the guidance in Topic 606. Rather, the amendments in this Update affect only the narrow aspects of Topic 606. The areas improved include: (1) Assessing the Collectability Criterion in Paragraph 606-10-25-1(e) and Accounting for Contracts That Do Not Meet the Criteria for Step 1; (2) Presentation of Sales Taxes and Other Similar Taxes Collected from Customers; (3) Noncash Consideration; (4) Contract Modifications at Transition; (5) Completed Contracts at Transition; and (6) Technical Correction. The effective date and transition requirements for the amendments in this Update are the same as the effective date and transition requirements for Topic 606 (and any other Topic amended by Update 2014-09). The Group is planning to adopt the above standards on January 1, 2018. The Group may use either a full retrospective or a modified retrospective approach to adopt this standard. The Group is currently evaluating this standard and the related updates, including which transition approach to use as well as the impact of adoption on policies, practices and systems. The standard also requires the Group to evaluate whether businesses promise to transfer services to the customer itself (as a principal) or to arrange for services to be provided by another party (as an agent). To make that determination, the standard uses a control model rather than the risks-and-rewards model in current U.S. GAAP. At this stage in the evaluation, the Group does not anticipate that the new guidance will have a material impact on revenue recognition policies, practices or systems. The Group is currently evaluating the impact of this standard to its consolidated financial statements upon adoption.

 

In July 2015, the FASB issued ASU 2015-11 as part of its simplification initiative. The ASU changes the way of measurement on inventory, which currently requires an entity to measure inventory at the lower of cost or market. The amendments in this Update require an entity to measure inventory within the scope of this Update at the lower of cost and net realizable value. Effective for public business entities for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2016, and interim periods within fiscal years beginning after December 15, 2017. A reporting entity should apply the amendments prospectively with earlier application permitted as of the beginning of an interim or annual reporting period. The Group does not expect a material impact on consolidated financial statement upon adoption of this ASU.

 

The accompanying notes are an integral part of these consolidated financial statements. 13

Wide Angle Group Limited

 

December 31, 2015 and December 31, 2016

 

Note 1 - Operations and significant accounting policies (continued)

 

Recent Accounting Pronouncements (continued)

In January 2016, the FASB issued ASU 2016-01 "Financial Instruments-Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities". ASU 2016-01 amends various aspects of the recognition, measurement, presentation, and disclosure for financial instruments. With respect to consolidated financial statements, the most significant impact relates to the recognition and measurement for warrant liabilities. Additionally, ASU 2016-01 will impact the disclosure and presentation of financial assets and liabilities. ASU 2016-01 is effective for annual reporting periods, and interim periods within those years beginning after December 15, 2017. Early adoption by public entities is permitted only for certain provisions. Management is currently evaluating the impact of the adoption of this standard on consolidated financial statements.

 

In February 2016, the FASB issued ASU 2016-02 which amends the FASB Accounting Standards Codification and created Topic 842, "Leases". Under Topic 842, lessees are required to recognize assets and liabilities on the balance sheet for most leases and provides for enhanced disclosures. Leases will continue to be classified as either finance or operating. ASU 2016-02 is effective for annual reporting periods, and interim periods within those years beginning after December 15, 2018. Entities are required to use a modified retrospective approach for leases that exist or are entered into after the beginning of the earliest comparative period in the financial statements. Full retrospective application is prohibited and early adoption by public entities is permitted. Management is currently evaluating the impact of the adoption of this standard on consolidated financial statements.

 

In June 2016, the FASB issued ASU 2016-13, “Financial Instruments—Credit Losses (Topic 326)”. The pronouncement changes the impairment model for most financial assets, and will require the use of an “expected loss” model for instruments measured at amortized cost. Under this model, entities will be required to estimate the lifetime expected credit loss on such instruments and record an allowance to offset the amortized cost basis of the financial asset, resulting in a net presentation of the amount expected to be collected on the financial asset. This pronouncement is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2019. The Group does not expect a material impact to its consolidated financial statement upon adoption of this ASU.

 

In January 2017, FASB issued ASU 2017-01, “Business Combinations (Topic 805): Clarifying the Definition of a Business”. The update affects all companies and other reporting organizations that must determine whether they have acquired or sold a business. The definition of a business affects many areas of accounting including acquisitions, disposals, goodwill, and consolidation. The update is intended to help companies and other organizations evaluate whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The update provides a more robust framework to use in determining when a set of assets and activities is a business, and also provides more consistency in applying the guidance, reduce the costs of application, and make the definition of a business more operable. For public companies, the update is effective for annual periods beginning after December 15, 2017, including interim periods within those periods. The guidance should be applied prospectively upon its effective date. The effect of ASU 2017-01 on the consolidated financial statements will be dependent on any future acquisitions.

 

The accompanying notes are an integral part of these consolidated financial statements. 14

Wide Angle Group Limited

 

December 31, 2015 and December 31, 2016

 

Note 2–Going Concern and Management’s Plans

 

For the years ended December 31, 2015 and 2016, we incurred losses from operations of approximately $0.50 million and $1.35 million, respectively, and we used cash for operations of approximately $0.19 million as of December 31, 2015 and provided by cash for operations of approximately $0.79 million as of December 31, 2016.As of December 31, 2016 net current assets $0.66 million Further, we had accumulated deficits of approximately $3.33 million as of December 31, 2016, due to recurring losses since our inception.

 

In the opinion of the directors of the Group, the Group is able to maintain itself as a going concern in the coming year by taking into consideration of the arrangements which include, but are not limited to, the directors of the Group continue to implement measures to tighten cost controls over various operating costs and expenses of the Group and its shareholders undertake to provide adequate funds to enable the Group to meet in full all their financial obligations as they fall due. Although the Group believes it has the ability to raise funds by issuing debt, additional financing may not be available to the Group on terms acceptable to the Group or at all or such resources may not be received in a timely manner.

 

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

 

Note 3 –  Accounts receivable, net

 

Accounts receivable consist of the following:

 

   December 31, 
   2015   2016 
Accounts receivable, gross:   62,267    8,092,191 
Less: allowance for doubtful accounts   3,672    3,672 
Accounts receivable, net   58,595    8,088,519 

 

Note 4 – Other current assets

 

Other current assets consist of the following:

 

   December 31, 
   2015   2016 
Lease deposits   15,178    15,634 
Other receivable   21,742    - 
Total   36,920    15,634 

 

The accompanying notes are an integral part of these consolidated financial statements. 15

Wide Angle Group Limited

 

December 31, 2015 and December 31, 2016

 

Note 5–Property and equipment, net

 

Property and equipment, net consist of the following:

 

   December 31, 
   2015   2016 
Furniture and office equipment   25,775    25,756 
Vehicles   204,606    204,447 
Total at cost   230,381    230,203 
Less: Accumulated depreciation   80,899    101,710 
Property, plant and equipment, net   149,482    128,493 

 

Depreciation expense was USD 22,190 and USD 20,811 for the years ended December 31, 2015 and 2016, respectively.

           

Note 6–Accounts payable

 

   December 31, 
   2015   2016 
Accounts payable   54,980    9,874,656 

 

The credit term of suppliers is about 2 months, which is in consistent with suppliers’ aging.

 

The accompanying notes are an integral part of these consolidated financial statements. 16

Wide Angle Group Limited

 

December 31, 2015 and December 31, 2016

 

Note 7 –Other current liabilities

 

Other current liabilities consist of the following:        

 

   December 31, 
   2015   2016 
SKY ACE Investments Limited   2,007,722    - 
Mr. He Rong   2,500,018    - 
Other payable   25,116    92,280 
Taxes payable   -    6 
Total   4,532,856    92,286 

 

In 2013, two investors, SKY ACE Investments Limited and Mr. He Rong, contributed $4,507,740 to the Company with Bruno Wu Zheng’s commitment of average annual return not less than 10% within next 3 years. Otherwise the Company would return the capital to these investors. In 2014, the Company was operated at a loss and expected that the commitment may not be achieved, so the capital of $4,507,740 should be returned back to these two investors. In 2016, the group’s parent company BT Capital Global Ltd (“BT”). assumed the liabilities of $4,507,740 and then signed a waiver letter with WAG to waive it.  

 

Note 8 – Other income, net

 

Other income, net consists of the following:      

 

   December 31, 
   2015   2016 
Income on disposal of fixed assets   177,116    - 
Income from acquisition of subsidiary   -    794,384 
Others   8    26 
Total   177,124    794,410 

 

The accompanying notes are an integral part of these consolidated financial statements. 17

Wide Angle Group Limited

 

December 31, 2015 and December 31, 2016

 

Note 9 –Income tax expense

 

The current and deferred portion of income tax expenses included in the consolidated statements of comprehensive income were as follows:

 

   December 31, 
   2015   2016 
Current income tax expenses   -    - 
Deferred income tax expenses   -    - 
    -    - 

  

Reconciliation between the effective income tax rate and the Hong Kong statutory income tax rate was as follows:

 

   December 31, 
   2015   2016 
Hong Kong statutory tax rate   16.5%   16.5%  
Effect of different tax rate of subsidiary operations in other jurisdiction   -    (0.0%)
Net loss that does not recognized deferred tax   (16.5%)   (16.5%)
Effective income tax rate   -    - 

 

The accompanying notes are an integral part of these consolidated financial statements. 18

Wide Angle Group Limited

 

December 31, 2015 and December 31, 2016

 

Note 10 Acquisitions

 

On September 2, 2016, WAG completed the acquisition of Amer’s 100% equity interest and providing WAG control over Amer. Amer became a consolidated subsidiary of WAG on this date. Amer purchases finished goods from suppliers in accordance with sales orders from customers. Amer’s suppliers then deliver goods to Amer’s customers directly. Seven Stars Cloud Group, Inc.’s (“SSC”) former business focused on sales of premium digital content. Now SSC is aiming to be the leading provider of total B2B business solutions for today’s constantly evolving business landscape. SSC is gaining both a M2B or Manufacturer to Business, supply chain management operator as well as a M2C or Manufacturer to Consumer, video commerce operator. Amer's business builds the bridge between manufacturers and consumers. This business helps SSC to expand its M2C business.

 

The acquired business contributed revenues of $70,109,080 and net losses of $754,552 to WAG for the period from September 2, 2016 to December 31, 2016. The following unaudited pro forma summary presents consolidated information of WAG as if the business combination had occurred in June, 2016, when Amer started its business:

 

   Pro forma year ended December 31, 2016 (unaudited) 
Revenue  $104,432,923 
Net loss   1,350,137 

 

WAG did not have any material, nonrecurring pro forma adjustments directly attributable to the business combination included in the pro forma revenue and net loss.

 

At the acquisition date, Amer’s assets and liabilities were mainly cash, receivables and payables, all of them had almost same book value and fair value. WAG assumes that the fair value of Amer’s net assets is equal to their book value. The following table summarizes the book value of the assets acquired and liabilities assumed based on the acquisition date, purchase price and gain on bargain purchase:

 

The accompanying notes are an integral part of these consolidated financial statements. 19

Wide Angle Group Limited

 

December 31, 2015 and December 31, 2016

 

Note 10 Acquisitions (continued)

 

   September 2, 2016 
Assets acquired:     
Cash  $299,916 
Accounts receivable   21,480,975 
Other current assets   6,000 
Total assets acquired  $21,786,891 
      
Liabilities assumed:     
Accounts payable   20,967,141 
Other current liabilities   25,366 
Net assets acquired   794,384 
Less: purchase price   - 
Gain on bargain purchase  $794,384 

 

At the acquisition date, WAG estimated that there were no intangible assets acquired and recognized gain on bargain purchase of $794,384.

 

The accompanying notes are an integral part of these consolidated financial statements. 20

Wide Angle Group Limited

 

December 31, 2015 and December 31, 2016

 

Note 11 – Related Party Transactions

 

All the following related parties are under common control of SSC’s chairman Bruno Wu Zheng. WAG is a subsidiary of BT Capital Global Ltd., which is controlled by Bruno Wu Zheng.

 

Amounts due from related parties:

 

Type  Name of related party  December 31, 
      2015   2016 
Related parties with common ultimate investors  Wecast Media Group Limited   -    191,207 
Related parties with common ultimate investors  Sun Enterprise Group Limited   1,274,455    608 
Related parties with common ultimate investors  Centres for Wellness Limited   529    - 
Related parties with common ultimate investors  Seven Stars Entertainment Group Limited   6,253    - 
Related parties with common ultimate investors  Seven Starts Film Studios Limited   2,688    - 
Related parties with common ultimate investors  Wide Angle China Operation Holdings Limited   504,151    - 
Related parties with common ultimate investors  Perfect Storm Entertainment Private Limited   191,356    - 
Related parties with common ultimate investors  Sun Media Investment Holdings Limited   634    - 
Related parties with common ultimate investors  Gevicell Global Investment Ltd   742    - 
Related parties with common ultimate investors  Contennial Sun Capital Group Ltd   1,819    - 
Related parties with common ultimate investors  Wide Angle Media Group, LLC   1,819    - 
Related parties with common ultimate investors  Wu Zheng Bruno   67,875    - 
Related parties with common ultimate investors  Yang Lan   12,771    - 
Total      2,065,092    191,815 

 

All the related party payables are related to disbursement fees related parties paid for the Group. The Group does not pay interest to these related parties and all these payables are short-term.

 

The accompanying notes are an integral part of these consolidated financial statements. 21

Wide Angle Group Limited

 

December 31, 2015 and December 31, 2016

 

Note 11 – Related Party Transactions (continued)

 

Amounts due to related parties:

 

Type  Name of related party  December 31, 
      2015   2016 
Ultimate controlling party  Bruno Wu Zheng   -    19,170 
Related parties with common ultimate investors  Sun Media Limited   16,178    - 
Related parties with common ultimate investors  New Ocean Management Limited   56,960    - 
Related parties with common ultimate investors  Seven Star Media Limited   998,653    - 
Related parties with common ultimate investors  Sun News Group Hong Kong Limited   -    1,176 
Related parties with common ultimate investors  Seven Stars Entertainment and Media Limited   79,082    62,585 
Related parties with common ultimate investors  Beijing Wide Angle Culture Communication Co., Limited   1,993    - 
Total      1,152,866    82,931 

 

In 2016, the Group’s parent company BT assumed the liabilities of $998,653 due to Seven Star Media Limited and then signed a waiver letter with WAG to waive it.

 

All the related party receivables are related to disbursement fees the Group paid for related parties. The Group does not charge interest to these related parties and all these receivables are short-term.

 

During the year, the Group entered into the following transactions with related parties:

 

Nature of transactions  2015   2016 
         
New Ocean Management Limited          
- Received consultancy fee income from   -    68,364 
           
Seven Stars Entertainment and Media Limited          
- Received consultancy fee income from   7,224    3,957 
           
Sun News Group Hong Kong Limited          
- Paid consultancy fee to   -    10,053 
           
Yang Lan          
- Paid consultancy fee to   -    1,273,849 

 

The accompanying notes are an integral part of these consolidated financial statements. 22

Wide Angle Group Limited

 

December 31, 2015 and December 31, 2016

 

Note 12 - Commitments and Contingencies

 

Operating leases commitments

 

The Group leases certain office premises under non-cancelable leases. Rental expenses under operating leases for 2015 and 2016 were $33,943 and $ 33,146, respectively. As of December 31, 2016, future minimum lease payments under non-cancelable operating leases agreements were as follows:

 

Year ending December 31,  Leased Property Cost 
     
2017   36,870 
2018   27,652 
Total   64,522 

 

Note 13 - Subsequent events

 

On January 31, 2017, BT entered into a Securities Purchase Agreement with SSC and Beijing Sun Seven Stars Culture Development Limited, as guarantor, pursuant to which SSC agreed to purchase and BT agreed to sell 55% of the outstanding capital stock of WAG.

 

The Group has evaluated subsequent events through August 14, 2017, the date on which the financial statements were available to be issued.

 

The accompanying notes are an integral part of these consolidated financial statements. 23

 

Exhibit 99.2

 

 

Consolidated Financial Statements and Report of Independent Certified Public Accountants

 

Wecast Services Group Limited

 

December 31, 2015 and 2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Contents  
   
  Page
   
Report of Independent Certified Public Accountants 1-2
   
Consolidated Balance Sheets 3
   
Consolidated Statements of Comprehensive income 4
   
Consolidated Statements of Changes in Shareholders’ Equity 5
   
Consolidated Statements of Cash Flows 6-7
   
Notes to Consolidated Financial Statements 8-26

 

 

 

 

Report of Independent Certified
Public Accountants

 

Board of Directors

Wecast Services Group Limited

 

We have audited the accompanying consolidated financial statements of Wecast Services Group Limited and its subsidiaries (the "Group"), which comprise the consolidated balance sheets as of December 31, 2015 and 2016, and the related consolidated statements of Comprehensive income, changes in shareholders’ equity, and cash flows for the years then ended, and the related notes to the consolidated financial statements.

 

Management’s responsibility for the financial statements

Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

 

Auditor’s responsibility

Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.

 

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

 

 1

 

 

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

 

Opinion

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Group as of December 31, 2016 and 2015, and the results of their operations and their cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America.

 

Emphasis of matter

The accompanying consolidated financial statements have been prepared assuming that the Group will continue as a going concern. As discussed in note 2 to the consolidated financial statements, the Group incurred recurring losses from operations, has net current liabilities and an accumulated deficit that raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in note 2. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

/s/Grant Thornton

 

 

Xiamen, China

August 14, 2017

 

 2

Wecast Services Group Limited

 

December 31, 2015 and December 31, 2016

 

Consolidated Balance Sheets

(Amounts expressed in U.S. dollars)

 

   December 31, 
   2015   2016 
ASSETS          
Current assets:          
Cash   2,614    83,033 
Accounts receivable, net (Note 3)   -    173,103 
Inventory (Note 4)   -    203,697 
Amounts due from related parties (Note 12)   -    3,102,669 
Other current assets (Note 5)   -    61,822 
Total current assets   2,614    3,624,324 
           
Property and equipment, net (Note 6)   72    199,043 
Intangible assets, net (Note 7)   -    63,621 
Other non-current assets (Note 8)   -    69,861 
TOTAL ASSETS   2,686    3,956,849 
           
LIABILITIES AND EQUITY          
Current liabilities:          
Accounts payable   -    16,102 
Deferred revenue   -    6,753 
Amounts due to related parties (Note 12)   17,957    4,857,267 
Other current liabilities   18    18,355 
Total current liabilities and total liabilities   17,975    4,898,477 
           
Equity:          
           
Additional paid-in capital   1,041,394    1,041,394 
Accumulated deficits   (1,113,372)   (1,662,416)
Accumulated other comprehensive income   56,689    62,233 
Total (deficit) attribute to Wecast Services Group Limited   (15,289)   (558,789)
Non-controlling interest   -    (382,839)
Total (deficit)   (15,289)   (941,628)
           
TOTAL LIABILITIES AND EQUITY   2,686    3,956,849 

 

The accompanying notes are an integral part of these consolidated financial statements” 3

Wecast Services Group Limited

 

December 31, 2015 and December 31, 2016

 

Consolidated Statements of Comprehensive income

(Amounts expressed in U.S. dollars)

 

   Years ended December 31, 
   2015   2016 
         
Revenues   -    192,205 
Cost of revenue   -    140,333 
Gross profit   -    51,872 
           
Selling, general and administrative expenses   2,891    863,398 
Professional fees   13,688    177,361 
Depreciation and amortization   -    11,820 
Total operating expenses   16,579    1,052,579 
Loss from operations   (16,579)   (1,000,707)
           
Interest expense   -    518 
           
Other income (expense), net (Note 9)   (14,050)   63,843 
           
Loss before income taxes   (30,629)   (937,382)
           
Income tax expense (Note 10)   -    - 
           
Net loss   (30,629)   (937,382)
           
Less: Net loss attributable to Non-controlling interest   -    (388,338)
           
Net loss attributable to controlling shareholders   (30,629)   (549,044)
           
Other comprehensive (loss)/income:          
Foreign currency translation adjustments   (431)   11,043 
           
Total other comprehensive (loss)/income   (431)   11,043 
           
Total comprehensive loss   (31,060)   (538,001)
           
Less: comprehensive income attributable to   -    5,499 
Non-controlling interest          
           
Comprehensive loss attributable to controlling shareholders   (31,060)   (543,500)

 

The accompanying notes are an integral part of these consolidated financial statements” 4

Wecast Services Group Limited

 

December 31, 2015 and December 31, 2016

 

Consolidated Statements of Changes in Shareholders’ Equity

(Amounts expressed in U.S. dollars)

 

               For the Years ended 
               December 31, 2016 and 2015 
   Paid-in
capital
   Additional paid-in capital   Accumulated deficit  

Accumulated other comprehensive income

(losses)

   Wecast Service Group Limited Shareholder’s Equity   Non-controlling interest   Total
shareholders’ equity
 
                             
Balance at December 31, 2014   -    1,041,394    (1,082,743)   57,120    15,771    -    15,771 
                                    
Net loss   -    -    (30,629)   -    (30,629)   -    (30,629)
Foreign currency translation adjustments, net of tax impact of nil   -    -    -    (431)   (431)   -    (431)
Balance at December 31, 2015   -    1,041,394    (1,113,372)   56,689    (15,289)   -    (15,289)
                                    
Net loss   -    -    (549,044)   -    (549,044)   (388,338)   (937,382)
Foreign currency translation adjustments, net of tax impact of nil   -    -    -    5,544    5,544    5,499    11,043 
Balance at December 31, 2016   -    1,041,394    (1,662,416)   62,233    (558,789)   (382,839)   (941,628)

 

The accompanying notes are an integral part of these consolidated financial statements” 5

Wecast Services Group Limited

 

December 31, 2015 and December 31, 2016

 

Consolidated Statements of Cash Flows

(Amounts expressed in U.S. dollars)

 

   For the Years Ended December 31, 
   2015   2016 
Operating activities:          
Net loss   (30,629)   (937,382)
Adjustments to reconcile net income to net cash provided by operating activities:          
Depreciation and amortization   -    11,820 
Loss from disposal of property and equipment   14,059    - 
Interest expenses   -    518 
Income from acquisition of subsidiary   -    (63,703)
Changes in operating assets and liabilities:          
Accounts receivable net   -    (87,386)
Inventory   -    138,740 
Other current assets   -    (60,132)
Accounts payable   -    16,102 
Deferred revenue   -    (15,405)
Amounts due to related parties   17,957    1,322,843 
Accrued expenses and other current liabilities   18    18,337 
Deposit for lease   -    (69,861)
Net cash provided by operating activities   1,405    274,491 
           
Investing activities:          
Purchases of property and equipment   -    (204,881)
Net cash used in investing activities   -    (204,881)

 

The accompanying notes are an integral part of these consolidated financial statements” 6

Wecast Services Group Limited

 

December 31, 2015 and December 31, 2016

 

Consolidated Statements of Cash Flows (Continued)

(Amounts expressed in U.S. dollars)    

 

   For the Year Ended December 31, 
   2015   2016 
         
Effect of exchange rate changes on cash and cash equivalents   4    10,809 
           
Net increase in cash and cash equivalents   1,409    80,419 
           
Cash and cash equivalents at the beginning of the year   1,205    2,614 
           
Cash and cash equivalents at the end of the year   2,614    83,033 

 

The accompanying notes are an integral part of these consolidated financial statements” 7

Wecast Services Group Limited

 

December 31, 2015 and December 31, 2016

 

Notes to Consolidated Financial Statements

 

Note 1 - Operations and significant accounting policies

 

Organization and description of business

 

Wecast Service Group Limited., formerly known as Sun Music Group Hong Kong Holdings Limited., is an investment holding company which was incorporated in Hong Kong on December 23, 2015. The registered capital is 10,000 HKD which was 100% held by Sun Seven Stars Group Ltd.

 

On May 26, 2016, Sun Music Group Hong Kong Holdings Ltd. changed name to Sun Video Group Hong Kong Limited. ("SVG"). On December 22, 2016, BT Capital Global Ltd., a Hong Kong company ("BT"), which was controlled by Seven Stars Cloud Group, Inc.’s ("SSC") chairman Bruno Wu, acquired 100% of SVG’s equity. SSC was formerly known as Wecast Network, Inc. On January 30, 2017, BT transferred all the equity interest of SVG to YOU On Demand (Asia) Ltd., a Hong Kong company and wholly- owned subsidiary of SSC. On March 15, 2017, SVG changed name to Wecast Service Ltd. On April 10, 2017, it renamed as Wecast Service Group Ltd. ("the Company").

 

On July 26, 2016, the Company purchased 100% equity interest of M.Y. Products Global Ltd., which was the wholly-owned subsidiary of Wide Angle Press Limited, a Hong Kong company and wholly- owned subsidiary of BT.

 

Shanghai Blue World Investment Management Consulting Ltd. ("SVG WFOE") was incorporated on October 14, 2004. The registered capital was $0.6 million, which was 100% held by Sun Media Investment Holding Ltd. On June 2, 2005, it was transferred to M.Y. Products Global Holding Ltd., which was incorporated in British Virgin Islands on March 22, 2001. On October 13, 2016, M.Y. Products Global Holding Ltd., along with its subsidiary SVG WFOE became the wholly-owned subsidiary of M.Y. Products Global Ltd.

 

Shanghai Wecast Supply Chain Management Ltd. ("Shanghai Wecast") was founded on March 26, 2015 with CNY 2 million registered capital. It was acquired by SVG WFOE on August 1, 2016.

 

On August 1, 2016, Shanghai Wecast acquired M.Y. Products, LLC ("MYP") through Vaughn Richard Miller and Long Yu. As consideration, Long Yu should maintain at least 49% ownership interest in Shanghai Wecast by contributing 1.92 million CNY capital. Furthermore, Miller would hold 20% out of his 49% equity on behalf of Long Yu as agreed.

 

The Group generates revenue mainly from sales of goods. The Group purchases skateboards from its suppliers and sells them through e-commence platforms, like Amazon, eBay.

 

The accompanying notes are an integral part of these consolidated financial statements” 8

Wecast Services Group Limited

 

December 31, 2015 and December 31, 2016

 

Note 1 - Operations and significant accounting policies (continued)

 

The accompanying consolidated financial statements reflect the activities of the Group, including each of the following entities:

 

Entity Name  Registered location  Background  Recent Ownership
Wecast Service Group Ltd.
("the Company")
  HK  ● Incorporated on December 23, 2015
● Registered capital of HKD 10,000, not paid
   
          
M.Y. Products Global Ltd.("MYP Global")  BVI  ● Incorporated on March 14, 2014
● Registered capital of USD 1, not paid
● Acquired on July 26, 2016
● Investment holding company now
  100% acquired by the Company under
Common control
          
M.Y. Products Global Holdings Ltd.("MYP Holding")  BVI  ● Incorporated on March 22, 2001
● Registered capital of USD 1, not paid
● Acquired on October 13, 2016
● Investment company now
  100% acquired by MYP Global under
common control
          
Shanghai Blue World Investment Management Consulting Ltd. ("SVG WFOE")  China  ● Incorporated on October 14, 2004
● Registered capital of USD 1,000,000, fully paid
● Acquired on July 7, 2005
● Investment company now
  100% acquired by MYP Holding under
common control
          
Shanghai Wecast Supply Chain Management Ltd.(" Shanghai Wecast")  China  ● Incorporated on March 26, 2015
● Registered capital of CNY 3,920,000, not paid
● Acquired on July 22, 2016
● Principally operated in trade services, offering pre-and post-sale services
  51% by SVG WFOE
49% by Long Yu
Acquired under Non-common control
          
Shanghai Wecast Supply Chain Management Ltd. Dalian Branch("Dalian Branch")  China  ● Incorporated on September 20, 2016
● No capital
● Principally operated in trade services, offering pre-and post-sale services, cease operation on February of 2017
  Branch of Shanghai Wecast
          
Shanghai Wecast Supply Chain Management Ltd. Ningbo Branch("Ningbo Branch")  China  ● Incorporated on January 19, 2016
● No capital
● Closed on February 28, 2017
● Principally operated in trade services, offering pre-and post-sale services, cancellation of registration
  Branch of Shanghai Wecast
          
M.Y. Products, LLC("MYP")  US  ● Incorporated on October 31, 2008
●Acquired on August 1, 2016
● Principally operated in sales of commodity
  100% acquired by Shanghai Wecast under
non-common control
          
Wecast Supply Chain Management Hong Kong Ltd.(" Wecast Supply(HK)")  HK  ● Incorporated on August 31, 2016
● Registered capital of HKD 10,000, not paid
● Have not commenced its operation
  Set up and 100% hold by Shanghai Wecast

 

The accompanying notes are an integral part of these consolidated financial statements” 9

Wecast Services Group Limited

 

December 31, 2015 and December 31, 2016

 

Presentation and principles of consolidation

The Company prepares and presents its consolidated financial statements in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”). The consolidated financial statements include the financial statements of the Company and its subsidiaries (the "Group"). All inter-company transactions and balances have been eliminated in consolidation.

 

Since the Company and the acquired subsidiaries, besides Shanghai Wecast and MYP, were commonly controlled by Mr. Wu before acquisition as of December 31, 2014, therefore, although the Company was incorporated on December 23, 2015, in accordance with ASC Subtopic 805-50, the consolidated financial statements of the Company have been prepared as if the acquired subsidiaries had been owned by the Company since inception of common control, which was earlier than December 31, 2014. Results of operations for 2015 thus comprise those of the previously separate subsidiaries combined from the beginning of 2015 to the date the acquisition was completed which was no later than July 31, 2016.

 

Shanghai Wecast and MYP were acquired from third party at August 1, 2016 with no consideration. The consolidated financial statements of the Company include the acquired assets and liabilities of Shanghai Wecast and MYP at their historical carrying amounts and results of operations from August 1 to December 31 of 2016.

 

The accompanying notes are an integral part of these consolidated financial statements” 10

Wecast Services Group Limited

 

December 31, 2015 and December 31, 2016

 

Note 1 - Operations and significant accounting policies (continued)

 

Use of estimates

The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Such estimates include, but are not limited to, revenue recognition, impairment and allowances of trade receivable, inventory valuation, useful life of property and equipment, employee benefit accruals, income taxes and fair value measurements. Actual results could differ materially from those estimates.

 

Cash

Cash consists primarily of highly liquid investments with an original maturity of three months or less. Cash is carried at cost which approximates market value.

 

Accounts receivable, net

Accounts receivable are recognized at invoiced amounts and do not bear interest. The Group maintains an allowance for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments. The Group reviews its allowance for doubtful accounts receivable on an ongoing basis. In establishing the required allowance, management considers any historical losses, the customer’s financial condition, the accounts receivable aging, and the customer’s payment patterns. After all attempts to collect a receivable have failed and the potential for recovery is remote, the receivable is written off against the allowance.

 

There was no allowance for accounts receivable as of December 31, 2015 and 2016.

 

Inventories

Inventories are stated at the lower of cost or market value. Cost of inventories is calculated using FIFO. The Group periodically assesses the recoverability of all inventories to determine whether adjustments are required to record inventory at the lower of cost or market value. Inventory that the Group determines to be obsolete are reduced to its estimated realizable value based on assumptions about future demand and market conditions. If actual demand is lower than the forecasted demand, additional inventory write-downs may be required.

 

There were no write-downs for inventories recognized as of December 31, 2015 and 2016.

 

The accompanying notes are an integral part of these consolidated financial statements” 11

Wecast Services Group Limited

 

December 31, 2015 and December 31, 2016

 

Note 1 - Operations and significant accounting policies (continued)

 

Property and equipment, net

Property and equipment are stated at cost less accumulated depreciation. Expenditures for major renewals and improvements, which extend the original estimated economic useful lives of applicable assets, are capitalized. Expenditures for normal repairs and maintenance are charged to expense as incurred. The costs and related accumulated depreciation of assets sold or retired are removed from the accounts and any gain or loss thereon is recognized in the consolidated statement of operations. Depreciation is provided for on a straight-line basis or double declining balance method over the estimated useful lives of the respective assets. The estimated useful lives of the assets are as follows:

 

   Useful lives
    
Furniture and office equipment  3-10 years
Vehicles    5 years
Leasehold Improvement  35 months

 

Intangible assets, net

 

Intangible assets, which consist primarily of software, patent and trademarks, are valued at cost less accumulated amortization. Amortization is computed using the straight line method over their expected useful lives of 3 (software and others) or 15 years (patent and trademarks).

 

Impairment of long-lived assets

Long-lived assets such as property and equipment and intangible assets subject to amortization are reviewed for impairment whenever events or changes in the circumstances indicate that the carrying value of an asset may not be recoverable. When these events occur, the Group assesses the recoverability of the long-lived assets by comparing the carrying amount to the estimated future undiscounted cash flows associated from the use of the asset and its eventual disposition, and recognize an impairment of long-lived assets when the carrying value of such assets exceeds the estimated future undiscounted cash flows such assets is expected to generate. If the Group recognizes an impairment, the Group reduces the carrying amount of the assets group to its estimated fair value based on a discounted cash flow approach or, when available and appropriate, to comparable market values.

 

There was no impairment charge for long-lived assets recognized as of December 31, 2015 and 2016.

 

The accompanying notes are an integral part of these consolidated financial statements” 12

Wecast Services Group Limited

 

December 31, 2015 and December 31, 2016

 

Note 1 - Operations and significant accounting policies (continued)

 

Revenue recognition

 

Revenue is recognized when the following criteria under FASB ASC 605 “Revenue Recognition” are met:

 

1)Persuasive evidence of an arrangement exists;

 

2)Delivery has occurred or services have been rendered (the risks, rewards and ownership of the products are transferred to customers); and

 

3)The seller’s price to the buyer is fixed or determinable; and

 

4)Collectability is reasonably assured.

 

Revenue is measured at the fair value of the consideration received or receivable and is shown net of discounts, rebates, returns and sales-related taxes. Revenue is recognized in profit or loss provided it is probable that the economic benefits will flow to the Group and the revenue and costs, if applicable, can be measured reliably, as follows:

 

For goods sale, the Group’s revenues are recognized when goods are received and accepted by customers.

 

Consultancy fee income is recognized when the services have been rendered.

 

The Group generates revenue mainly from sales of goods. The Group purchases skateboards from its suppliers and sells them through e-commence platforms, like Amazon, eBay. After receiving the skateboards, the Group becomes the first responsible party for the goods. The Group is required to bear the direct risk of damage to the goods and the direct default risk that cannot be delivered to the customer.

 

In accordance with ASC 605-45, Revenue Recognition – Principal Agent Consideration, the Group accounts for revenue from sales of goods on a gross basis. The Group is the primary obligor in the arrangements, the Group has the ability to establish prices, the Group has discretion in selecting the independent suppliers, and the Group bears credit risk with customer payments. Accordingly, all such revenue billed to customers is classified as revenue and all corresponding payments to suppliers are classified as cost.

 

The accompanying notes are an integral part of these consolidated financial statements” 13

Wecast Services Group Limited

 

December 31, 2015 and December 31, 2016

 

Note 1 - Operations and significant accounting policies (continued)

 

Income Taxes

 

The Company and Wecast Supply(HK) are incorporated in Hong Kong and are subject to statutory income tax on its Hong Kong sourced income (of which there are none). The statutory income tax rate in Hong Kong is 16.5%. MYP Global and MYP Holding are incorporated in the British Virgin Islands and are not subject to tax in this jurisdiction. MYP is incorporated in the US and is subject to statutory income tax on its worldwide sourced income. SVG WFOE and Shanghai Wecast are PRC companies. The statutory income tax rate applicable to PRC companies is 25%.

 

The Group accounts for income taxes in accordance with the asset and liability method. Deferred taxes are recognized for the future tax consequences attributable to temporary differences between the carrying amounts of assets and liabilities for financial statement purposes and income tax purposes using enacted rates expected to be in effect when such amounts are realized or settled. The effect on deferred taxes of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is established, as needed to reduce the amount of deferred tax assets if it is considered more likely than not that some portion or all of the deferred tax assets will not be realized.

 

The Group recognizes the effect of income tax positions only if those positions are more likely than not of being sustained. Recognized income tax positions are measured at the largest amount that is greater than 50% likely of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs.

 

Foreign Currency Translation

 

The financial records of the Group’s subsidiaries are maintained in their local currencies. Monetary assets and liabilities denominated in currencies other than their local currencies are translated into local currencies at the rates of exchange in effect at the balance sheet dates. Transactions denominated in currencies other than their local currencies during the year are converted into local currencies at the applicable rates of exchange prevailing when the transactions occur. Transaction gains and losses are recorded in other income/ (expense), net in the statements of income.

 

The reporting currency of the Group is the United States dollar (“US dollar”). When translating local financial reports of the Group’s subsidiaries into US dollar, assets and liabilities are translated at the exchange rates at the balance sheet date, equity accounts are translated at historical exchange rates and revenue, expenses, gains and losses are translated at the average rate for the period. Translation adjustments are reported as cumulative translation adjustments and are shown as a separate component of other comprehensive income in the statements of income and comprehensive income.

 

Comprehensive income (loss)

 

Comprehensive income (loss) is defined as the change in equity during a period from transactions and other events and circumstances from non-owner sources. Comprehensive loss was the sum of the Group’s net loss and exchange difference arising on translation for all periods presented.

 

The accompanying notes are an integral part of these consolidated financial statements” 14

Wecast Services Group Limited

 

December 31, 2015 and December 31, 2016

 

Note 1 - Operations and significant accounting policies (continued)

 

Recent Accounting Pronouncements

 

In May 2014, Financial Accounting Standards Board (or “FASB”) issued Accounting Standards Updates (or “ASU”) 2014-09, “Revenue from Contracts with Customers” (Topic 606). This guidance supersedes current guidance on revenue recognition in Topic 605, Revenue Recognition. In addition, there are disclosure requirements related to the nature, amount, timing, and uncertainty of revenue recognition. In August 2015, the FASB issued ASU 2015-14 to defer the effective date of ASU 2014-09 for all entities by one year. For public business entities that follow U.S. GAAP, the deferral results in the new revenue standard are being effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017, with early adoption permitted for interim and annual periods beginning after December 15, 2016. In May 2016, the FASB issued ASU 2016-12 Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients. The amendments in this Update do not change the core principle of the guidance in Topic 606. Rather, the amendments in this Update affect only the narrow aspects of Topic 606. The areas improved include: (1) Assessing the Collectability Criterion in Paragraph 606-10-25-1(e) and Accounting for Contracts That Do Not Meet the Criteria for Step 1; (2) Presentation of Sales Taxes and Other Similar Taxes Collected from Customers; (3) Noncash Consideration; (4) Contract Modifications at Transition; (5) Completed Contracts at Transition; and (6) Technical Correction. The effective date and transition requirements for the amendments in this Update are the same as the effective date and transition requirements for Topic 606 (and any other Topic amended by Update 2014-09). The Group is planning to adopt the above standards on January 1, 2018. The Group may use either a full retrospective or a modified retrospective approach to adopt this standard. The Group is currently evaluating this standard and the related updates, including which transition approach to use as well as the impact of adoption on policies, practices and systems. The standard also requires the Group to evaluate whether businesses promise to transfer services to the customer itself (as a principal) or to arrange for services to be provided by another party (as an agent). To make that determination, the standard uses a control model rather than the risks-and-rewards model in current U.S. GAAP. At this stage in the evaluation, the Group does not anticipate that the new guidance will have a material impact on revenue recognition policies, practices or systems. The Group is currently evaluating the impact of this standard to its consolidated financial statements upon adoption.

 

In July 2015, the FASB issued ASU 2015-11 as part of its simplification initiative. The ASU changes the way of measurement on inventory, which currently requires an entity to measure inventory at the lower of cost or market. The amendments in this Update require an entity to measure inventory within the scope of this Update at the lower of cost and net realizable value. Effective for public business entities for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2016, and interim periods within fiscal years beginning after December 15, 2017. A reporting entity should apply the amendments prospectively with earlier application permitted as of the beginning of an interim or annual reporting period. The Group does not expect a material impact on consolidated financial statement upon adoption of this ASU.

 

The accompanying notes are an integral part of these consolidated financial statements” 15

Wecast Services Group Limited

 

December 31, 2015 and December 31, 2016

 

Note 1 - Operations and significant accounting policies (continued)

 

Recent Accounting Pronouncements (continued)

 

In January 2016, the FASB issued ASU 2016-01 "Financial Instruments-Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities". ASU 2016-01 amends various aspects of the recognition, measurement, presentation, and disclosure for financial instruments. With respect to consolidated financial statements, the most significant impact relates to the recognition and measurement for warrant liabilities. Additionally, ASU 2016-01 will impact the disclosure and presentation of financial assets and liabilities. ASU 2016-01 is effective for annual reporting periods, and interim periods within those years beginning after December 15, 2017. Early adoption by public entities is permitted only for certain provisions. Management is currently evaluating the impact of the adoption of this standard on consolidated financial statements.

 

In February 2016, the FASB issued ASU 2016-02 which amends the FASB Accounting Standards Codification and created Topic 842, "Leases". Under Topic 842, lessees are required to recognize assets and liabilities on the balance sheet for most leases and provides for enhanced disclosures. Leases will continue to be classified as either finance or operating. ASU 2016-02 is effective for annual reporting periods, and interim periods within those years beginning after December 15, 2018. Entities are required to use a modified retrospective approach for leases that exist or are entered into after the beginning of the earliest comparative period in the financial statements. Full retrospective application is prohibited and early adoption by public entities is permitted. Management is currently evaluating the impact of the adoption of this standard on consolidated financial statements.

 

In June 2016, the FASB issued ASU 2016-13, “Financial Instruments—Credit Losses (Topic 326)”. The pronouncement changes the impairment model for most financial assets, and will require the use of an “expected loss” model for instruments measured at amortized cost. Under this model, entities will be required to estimate the lifetime expected credit loss on such instruments and record an allowance to offset the amortized cost basis of the financial asset, resulting in a net presentation of the amount expected to be collected on the financial asset. This pronouncement is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2019. The Group does not expect a material impact to its consolidated financial statement upon adoption of this ASU.

 

The accompanying notes are an integral part of these consolidated financial statements” 16

Wecast Services Group Limited

 

December 31, 2015 and December 31, 2016

 

Note 1 - Operations and significant accounting policies (continued)

 

Recent Accounting Pronouncements (continued)

 

In January 2017, FASB issued ASU 2017-01, “Business Combinations (Topic 805): Clarifying the Definition of a Business”. The update affects all companies and other reporting organizations that must determine whether they have acquired or sold a business. The definition of a business affects many areas of accounting including acquisitions, disposals, goodwill, and consolidation. The update is intended to help companies and other organizations evaluate whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The update provides a more robust framework to use in determining when a set of assets and activities is a business, and also provides more consistency in applying the guidance, reduce the costs of application, and make the definition of a business more operable. For public companies, the update is effective for annual periods beginning after December 15, 2017, including interim periods within those periods. The guidance should be applied prospectively upon its effective date. The effect of ASU 2017-01 on the consolidated financial statements will be dependent on any future acquisitions.

 

Note 2 – Going Concern and Management’s Plans

 

For the years ended December 31, 2015 and 2016, the Group incurred losses from operations of approximately $0.03 million and $0.94 million, respectively, and we used cash for operations of approximately $0.00 million and $0.27 million, respectively. As of December 31, 2016, the Group had net current liabilities (current assets less current liabilities) of $1.27 million. Further, the Group had accumulated deficits of approximately $1.66 million as of December 31, 2016, respectively, due to recurring losses since our inception.

 

In the opinion of the directors of the Group, the Group is able to maintain itself as a going concern in the coming year by taking into consideration of the arrangements which include, but are not limited to, the directors of the Group continue to implement measures to tighten cost controls over various operating costs and expenses of the Group and its shareholders undertake to provide adequate funds to enable the Group to meet in full all their financial obligations as they fall due. Although the Group believes it has the ability to raise funds by issuing debt, additional financing may not be available to the Group on terms acceptable to the Group or at all or such resources may not be received in a timely manner.

 

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

 

The accompanying notes are an integral part of these consolidated financial statements” 17

Wecast Services Group Limited

 

December 31, 2015 and December 31, 2016

 

Note 3 –  Accounts receivable, net

 

Accounts receivable consist of the following:

 

   December 31, 
   2015   2016 
Accounts receivable, gross:   -    173,103 
Less: allowance for doubtful accounts   -    - 
Accounts receivable, net   -    173,103 

 

All the accounts receivable at December 31, 2016 were within the Group’s credit term and there was no allowance for doubtful accounts recognized as of December 31, 2016.

 

Note 4 – Inventory

 

Inventories consist of the following:

 

   December 31, 
   2015   2016 
Finished goods   -     203,697 
Total   -    203,697 

 

There was no written down for inventories recognized as of December 31, 2015 and 2016.

 

The accompanying notes are an integral part of these consolidated financial statements” 18

Wecast Services Group Limited

 

December 31, 2015 and December 31, 2016

 

Note 5 –Other current assets

 

Prepaid expense and other current assets consist of the following:

 

   December 31, 
   2015   2016 
Prepaid expense (i)   -     45,710 
Others   -     16,112 
Total   -    61,822 

 

(i)This mainly represents the prepaid rental cost of Dalian branch and Ningbo branch offices, which amount to $31,971.

 

Note 6 – Property and equipment, net

 

Property and equipment, net consist of the following:

 

   December 31, 
   2015   2016 
Furniture and office equipment   725    135,193 
Vehicles   -     62,575 
Leasehold Improvement   -    89,321 
Total at cost   725    287,089 
           
Less: Accumulated depreciation   653    88,046 
Property and equipment, net   72    199,043 

 

The Group acquired MYP under non-common control in 2016. At acquisition date, there was accumulated depreciation of $78,154 related to property and equipment acquired. Depreciation expense was $nil and $9,239 for the years ended December 31, 2015 and 2016, respectively.

 

The accompanying notes are an integral part of these consolidated financial statements” 19

Wecast Services Group Limited

 

December 31, 2015 and December 31, 2016

 

Note 7 – Intangible assets, net

 

Intangible assets consist of the following:

 

   December 31, 
   2015   2016 
Software   -     7,408 
Patent and trademark   -     103,564 
Total at cost   -     110,972 
Less: Accumulated amortization   -     47,351 
Intangible asset, net   -     63,621 

 

The Group acquired MYP under non-common control in 2016. At acquisition date, there was accumulated amortization of $44,770 related to intangible assets acquired. Amortization expense was $nil and $2,581 for the years ended December 31, 2015 and 2016, respectively.

 

Note 8 – Other non-current assets

 

Other non-current assets consist of the following:

 

   December 31, 
   2015   2016 
Office rental deposit   -    69,861 
Total   -    69,861 

 

Shanghai Wecast signed lease agreements with Dalian Wanda Commercial Real Estate Co., Ltd. and Ningbo Zhengteng Zhongchuang Investment Management Co., Ltd. in 2016 with 3 yeas lease term, and the rental deposit will be refund after lease terminated.

 

Note 9 – Other income (expense), net  

 

Other income (expense), net consists of the following:        

 

   December 31, 
   2015   2016 
Loss on disposal of fixed assets   (14,059)   -  
Income from acquisition of subsidiaries   -    63,703 
Others   9    140 
Total   (14,050)   63,843 

 

The accompanying notes are an integral part of these consolidated financial statements” 20

Wecast Services Group Limited

 

December 31, 2015 and December 31, 2016

 

 

Note 10 –Income tax expense

 

The current and deferred portion of income tax expenses included in the consolidated statements of comprehensive income were as follows:

 

   December 31, 
   2015   2016 
Current income tax expenses   -    - 
Deferred income tax expenses   -    - 
    -    - 

 

Reconciliation between the effective income tax rate and the Hong Kong statutory income tax rate was as follows:

 

   December 31, 
   2015   2016 
Hong Kong statutory tax rate   16.5%   16.5%  
Expenses not deductible for tax purposes   (7.6%)   (0.0%)
Expiration of net operating loss   -    0.1%
Effect of different tax rate of subsidiary operations in other jurisdiction   (4.1%)   (2.2%)
Net loss that does not recognized deferred tax   (4.8%)   (14.5%)
Effective income tax rate   -    - 

 

The accompanying notes are an integral part of these consolidated financial statements” 21

Wecast Services Group Limited

 

December 31, 2015 and December 31, 2016

 

Note 11 – Purchase consideration and related allocation

 

On August 1, 2016, SVG WFOE completed the acquisition of Shanghai Wecast. At the same day, Shanghai Wecast completed the acquisition of MYP. Shanghai Wecast became a consolidated subsidiary of SVG WFOE and MYP became a consolidated subsidiary of Shanghai Wecast. Shanghai Wecast provides consulting services related to supply chain management. MYP generates revenue mainly from sales of goods. MYP purchases skateboards from its suppliers and sells them through e-commence platforms, like Amazon, eBay. SSC former business focused on sales of premium digital content. Now SSC is aiming to be the leading provider of total B2B business solutions for today’s constantly evolving business landscape. SSC is gaining both a M2B or Manufacturer to Business, supply chain management operator as well as a M2C or Manufacturer to Consumer, video commerce operator. Shanghai Wecast’s and MYP's business builds the bridge between manufacturers and consumers. This business helps SSC to expand its M2C business.

 

The acquired businesses contributed revenues of $180,667 and net losses of $852,254 to the Group for the period from August 1, 2016 to December 31, 2016. The following unaudited pro forma summary presents consolidated information of Shanghai Wecast and MYP as if the business combination had occurred on January 1, 2015:

 

   Pro forma year ended December 31, 2016 (unaudited) 
Revenue  $270,572 
Net loss   937,382 

 

   Pro forma year ended December 31, 2015 (unaudited) 
Revenue  $444,473 
Net loss   386,201 

 

The Group did not have any material, nonrecurring pro forma adjustments directly attributable to the business combination included in the pro forma revenue and net loss.

 

At the acquisition date, Shanghai Wecast’s and MYP’s assets and liabilities were mainly cash, receivables and payables, all of them had almost same book value and fair value. The Group assumes that the fair value of these two companies’ net assets is equal to their book value. The following table summarizes the book value of the assets acquired and liabilities assumed based on the acquisition date, purchase price and gain on bargain purchase:

 

The accompanying notes are an integral part of these consolidated financial statements” 22

Wecast Services Group Limited

 

December 31, 2015 and December 31, 2016

 

Note 11 – Purchase consideration and related allocation (continued)

 

   August 1, 2016 
Assets acquired:     
Cash   33,175 
Accounts receivable, net   85,718 
Inventory   342,437 
Other current assets   3,104,359 
Property and equipment, net   3,329 
Intangible assets, net   66,202 
Total assets acquired   3,635,220 
      
Liabilities assumed:     
Deferred revenue   22,158 
Amounts due to related parties   3,452,774 
Other current liabilities   96,585 
Net assets acquired   63,703 
Less: purchase price   - 
Gain on bargain purchase   63,703 

 

At the acquisition date, the Group estimated that there were no intangible assets acquired and recognized Gain on bargain purchase of $63,703.

 

Note 12 – Related Party Transactions

 

Amounts due from related parties:

 

Type  Name of related party  December 31, 
      2015   2016 
Former owner of MYP  Dillon   -    3,102,669  

 

The Group acquired MYP on August 1, 2016. The amount totaled $3,102,669 due to the vender, L.F.T.E. Inc., before the effective date should be charged with the former owner of MYP, Dillon.

 

The accompanying notes are an integral part of these consolidated financial statements” 23

Wecast Services Group Limited

 

December 31, 2015 and December 31, 2016

 

Note 12 – Related Party Transactions (continued)

 

Amounts due to related parties:

 

Type  Name of related party  December 31, 
      2015   2016 
Holding company  BT Capital Global Ltd.   -    800,000 
Related parties with common ultimate investors  YOU On Demand (Asia) Limited("YOD Hong Kong")   -     90,150 
Related parties with common ultimate investors  Seven Stars Entertainment and Media Limited   13,058    161,657 
Related parties with common ultimate investors  Shanghai Wide Angle Printing Technology Co., Ltd.   3,080    132,622 
Related parties with common ultimate investors  Beijing Sino Top Scope Technology Co., Ltd("Sinotop Beijing")   -    72,077 
Related parties with common ultimate investors  Shanghai Sun Seven Stars Cultural Development Limited   -    58,164 
Related parties with common ultimate investors  Beijing Perfect Storm Film Limited   -    5,910 
Related parties with common ultimate investors  Sun News Group Hong Kong Limited   -    4,952 
Related parties with common ultimate investors  Sun Entreprises Group Ltd.   -    4,855 
Related parties with common ultimate investors  Tianjin Sun Seven Stars Culture Development Limited   -    1,442 
Related parties with common ultimate investors  Wide Angle Enterprise Management Limited   -    100 
Related parties with common ultimate investors  Wide Angle Group Limited   1,819     - 
Former owner of MYP  Miller & Dillon   -    80,232 
Sub-Total      17,957    1,412,161 

 

The accompanying notes are an integral part of these consolidated financial statements” 24

Wecast Services Group Limited

 

December 31, 2015 and December 31, 2016

 

Note 12 – Related Party Transactions (continued)

 

Type  Name of related party  December 31, 
      2015   2016 
Controlled by MYP’s former owner, Dillon  L.F.T.E. Inc.   -    3,445,106 
Total      17,957    4,857,267 

 

On January 30, 2017, BT entered into a Securities Purchase Agreement with SSC, pursuant to which SSC agreed to purchase and BT agreed to sell all of the outstanding capital stock of SVG for an aggregate purchase price of (i) $800,000; and (ii) a Promissory Note. SSC wired $800,000 (or its RMB equivalent) to MYP and Shanghai Wecast upon signing the term sheet as Good Faith Deposit. As of December 31, 2016, the transaction has not yet been closed, and $800,000 of the deposit has been paid to MYP and Shanghai Wecast. According to the SVG Purchase Agreement, the amount of $800,000 MYP and Shanghai Wecast received in 2016 is due to BT.

 

L.F.T.E. Inc. is controlled by MYP’s former owner, who is now a minority shareholder of the group. At December 31, 2016, there was about $3,445,106 account payable due to MYP’s vender, L.F.T.E. Inc., recorded at MYP’s balance sheet.

 

Other related party payables are related to disbursement fees related parties paid for the Group. The Group does not pay interest to these related parties and all these payables are short-term.

 

Note 13 - Commitments and Contingencies

 

The Group leases certain office premises under non-cancelable leases. Rental expenses under operating leases for 2015 and 2016 were nil and $ 97,729, respectively. As of December 31, 2016, future minimum lease payments under non-cancelable operating leases agreements were as follows:

 

Year ending December 31,  Leased Property Cost 
2017   48,642 
2018   30,566 
Total   79,208 

 

The accompanying notes are an integral part of these consolidated financial statements” 25

Wecast Services Group Limited

 

December 31, 2015 and December 31, 2016

 

Note 14 - Subsequent events

 

(a)On January 30, 2017, BT entered into a Securities Purchase Agreement with SSC, pursuant to which SSC agreed to purchase and BT agreed to sell all of the outstanding capital stock of SVG for an aggregate purchase price of (i) $800,000; and (ii) a Promissory Note.

 

(b) At the end of March in 2017, Shanghai Wecast closed Ningbo branch, and cease the operation of Dalian branch at the end of February. They ended the lease contracts with total penalty of $41,254.

 

(c) On June 9, 2017, Seven Stars Cloud Group, Inc. entered into a Securities Purchase Agreement with Redrock Capital Group Limited, a Cayman Islands company (“Redrock”) and affiliate of the SSC’s chairman Bruno Wu, and Sun Seven Stars Media Group Limited, a Hong Kong company, one of the Group’s largest shareholders, controlled by the SSC’s chairman Bruno Wu, as guarantor, pursuant to which SSC agreed to purchase and Redrock agreed to sell 51% of the outstanding capital stock (the “NextGen Common Shares”) of NextGen Exchange Group Inc., a Cayman Islands company (“NextGen”) for the sole consideration of SSC adding NextGen to the Sun Video Business acquired by SSC under that certain Securities Purchase Agreement entered into with BT Capital Global Limited on January 30, 2017 (the “Sun Video SPA”) and thereby including the revenue and gross profit from NextGen in the calculation of the SVG Performance Guarantees set forth in the Sun Video SPA.

 

(d) The Group is expending its consulting business in 2017. On March 17, 2017, SVG WFOE entered into a consulting service contract with Guizhou Sun Seven Stars Technology Trading Platform Limited, pursuant to which SVG WFOE provided consulting service to Guizhou Sun Seven Stars Technology Trading Platform Limited’s Platform-as-a-Service project utilizing SVG WFOE’s resources and related consulting service fee is RMB 7,500,000 ($1,084,105).

 

The Group has evaluated subsequent events through August 14, 2017, the date on which the financial statements were available to be issued.

 

The accompanying notes are an integral part of these consolidated financial statements” 26

& nbsp;

 

Exhibit 99.3

 

UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION

 

Seven Stars Cloud Group, Inc. and Subsidiaries

 

December 31, 2016

 

 

 

 

 

Contents  
   
  Page
   
Basis of pro forma presentation 1
   
Unaudited Pro Forma Combined Statement of Income 2
   
Notes to Unaudited Pro Forma Combined Financial Information 3-5

 

 

 

Basis of pro forma presentation

 

The following unaudited pro forma combined financial information and related notes present the historical combined financial information of Seven Stars Cloud Group, Inc. and its subsidiaries (hereinafter referred to as "SSC", "we," "our," "us" and similar terms unless the context indicates otherwise), Wecast Services Group Limited("SVG") and Wide Angle Group Limited ("WAG") after giving effect to SSC's acquisitions of SVG and WAG that were completed on January 30, 2017 and January 31, 2017, respectively (the "Acquisition Date"). The unaudited pro forma combined financial information gives effect to our acquisitions of SVG and WAG based on the assumptions, reclassifications and adjustments described in the accompanying notes to the unaudited pro forma combined financial information.

 

The unaudited pro forma combined statements of income for the year ended December 31, 2016 are presented as if the acquisition had occurred on January 1, 2016. The historical financial information is adjusted in the unaudited pro forma combined financial information to give effect to pro forma events that are (1) directly attributable to the proposed acquisition, (2) factually supportable, and (3) with respect to the combined statements of income, expected to have a continuing impact on the combined results.

 

The unaudited pro forma adjustments are not necessarily indicative of or intended to represent the results that would have been achieved had the transaction been consummated as of the dates indicated or that may be achieved in the future. The actual results reported by the combined company in periods following the acquisition may differ significantly from those reflected in these unaudited pro forma combined financial information for a number of reasons, including cost saving synergies from operating efficiencies and the effect of the incremental costs incurred to integrate the three companies.

 

The unaudited pro forma combined financial information should be read in conjunction with our historical consolidated financial statements and accompanying notes included in our Annual Report on Form 10-K for the year ended December 31, 2016, our Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2017 and the historical financial statements of SVG and WAG for the year ended December 31, 2016 and 2015 contained in this Form 8-K/A.

 

1 

 

Seven Stars Cloud Group, Inc.

Unaudited Pro Forma Combined Statement of Income

For the year ended December 31, 2016

   Historical        
   SSC   WAG   Amer’s inception to acquisition results   MYP   Pro Forma Adjustments   Pro Forma Combined 
Revenue  $4,543,616   $70,686,797   $33,746,126   $192,205    -   $109,168,744 
Cost of revenue   4,434,260    71,178,649    32,950,919    140,333    -    108,704,161 
Gross profit/(Loss)   109,356    (491,852)   795,207    51,872    -    464,583 
Operating expenses:                              
Selling, general and administrative expense   10,370,548    1,631,884    824    863,398    -    12,866,654 
Professional fees   1,357,454    -    -    177,361    -    1,534,815 
Depreciation and amortization   489,308    20,811    -    11,820    -    521,939 
Impairment of other intangible assets   2,018,628    -    -    -    -    2,018,628 
Earn-out share award expense   13,700,000    -    -    -    -    13,700,000 
Total operating expense   27,935,938    1,652,695    824    1,052,579    -    30,642,036 
Loss from operations   (27,826,582)   (2,144,547)   794,383    (1,000,707)   -    (30,177,453)
Interest and other income/(expense)                              
Interest expense, net   (254,292)   -    -    (518)   -    (254,810)
Change in fair value of warrant liabilities   324,432    -    -    -    -    324,432 
Equity in loss of equity method investees   (31,557)   -    -    -    -    (31,557)
Impairment of equity method investments   (38,448)   -    -    -    -    (38,448)
Non-operating income   58,621    794,410    -    63,843    (794,383)   122,491 
Loss before income taxes and non-controlling interest   (27,767,826)   (1,350,137)   794,383    (937,382)   (794,383)(a)   (30,055,345)
Income tax benefit   330,124    -    -    -    -    330,124 
Net loss   (27,437,702)   (1,350,137)   794,383    (937,382)   (794,383)   (29,725,221)
Net loss attributable to non-controlling interest   1,601,761    -    -    388,338    607,562(b)   2,597,661 
Net loss attributable to parent company’s shareholders   (25,835,941)   (1,350,137)   794,383    (549,044)   (186,821)   (27,127,560)
Basic and diluted loss per share (in dollars per share)   (0.72)   -    -    -    -    (0.75)

Weighted average shares outstanding:

Basic and diluted (in shares)

   35,998,001    -    -    -    -    35,998,001 

 

2 

 

Notes to Unaudited Pro Forma Combined Financial Information

 

1.Basis of pro forma presentation

 

An unaudited pro forma combined balance sheet as of December 31, 2016 is not presented for the acquisition of SVG and WAG because the balance sheets of SVG and WAG, including related acquisition adjustments, is included in our consolidated balance sheet presented in our quarterly report on Form 10-Q as of March 31, 2017. The unaudited pro forma combined statements of income for the year ended December 31, 2016 combine our historical consolidated statements of income with SVG’s and WAG’s historical statements of operations and have been prepared as if the acquisition had occurred on January 1, 2016. WAG acquired Amer Global Technology Limited ("Amer")’s 100% equity interest on September 2, 2016 under non-common control. According to FRM Section 3110.2, the unaudited pro forma also included Amer’s unaudited results from inception to the acquisition by WAG. The historical financial information is adjusted in the unaudited pro forma combined financial information to give effect to pro forma events that are (1) directly attributable to the proposed acquisition, (2) factually supportable, and (3) with respect to the combined statements of income, expected to have a continuing impact on the combined results.

 

We have accounted for the acquisition in this unaudited pro forma combined financial information using the “Transactions between Entities under Common Control” subsections of ASC 805-50.

 

The unaudited pro forma combined financial information is provided for illustrative purposes only and does not purport to represent what the actual consolidated results of operations or the consolidated financial position of the combined company would have been had the acquisition occurred on the dates assumed, nor are they necessarily indicative of future consolidated results of operations or financial position.

 

The unaudited pro forma combined financial information does not reflect any integration activities or cost savings from operating efficiencies, synergies, asset dispositions or other restructurings that could result from the acquisition.

 

3 

 

2.Description of Transaction

 

(a)On January 30, 2017, BT Capital Global Ltd.(“BT”) entered into a Securities Purchase Agreement (the “SVG Purchase Agreement”) with SSC, pursuant to which SSC agreed to purchase and BT agreed to sell all of the outstanding capital stock (the “SVG Common Shares”) of SVG for an aggregate purchase price of (i) $800,000; and (ii) a Promissory Note (the “SVG Note”) with the principal and interest thereon convertible into shares of SSC’s Common Stock, par value $0.001 per share (the “SSC Common Shares”) at a conversion rate of $1.50 per SSC Common Share. The consideration payable is contingent on SVG achieving certain financial goals within 12 months of the closing, as described further below. 

 

BT has guaranteed that the business of the SVG and its subsidiaries shall achieve (i) revenue $250 million (the “Revenue Performance Guarantee”), and (ii) $15 million of gross profit (the “Profit Performance Guarantee”, and together with the Revenue Performance Guarantee the “Performance Guarantees”), within 12 months of closing the transaction (the “Performance Guarantee Time”). If SVG fails to meet either of the Revenue Performance Guarantee or the Profit Performance Guarantee within the Performance Guarantee Time, then BT shall forfeit back to SSC the SSC’s Common Stock or the “SVG” Note, on a pro-rata basis based on the Performance Guarantee for which the Sun Video Business achieves the lowest percentage of the respective amount guaranteed.

 

In addition, if the Sun Video Business achieves more than $50 million in cumulative net income within 3 years of closing, (the “Net Income Threshold”), we shall pay BT 50% of the amount of any cumulative net income above the Net Income Threshold. Profit share payments shall be made on an annual basis, in either cash or stock at the discretion of our Board of Directors. If the Board decides to make the payment in stock, the number of our shares of common stock to be awarded shall be calculated based on the market price of such shares.

 

(b)

On January 31, 2017, BT entered into a Securities Purchase Agreement (the “WAG Purchase Agreement”) with SSC and Beijing Sun Seven Stars Culture Development Limited, as guarantor, pursuant to which SSC agreed to purchase and BT agreed to sell 55% of the outstanding capital stock (the “Wide Angle Common Shares”) of Wide Angle Group Ltd., a Hong Kong company (“Wide Angle”) for the sole consideration of SSC adding Wide Angle to the Sun Video Business acquired by SSC under SVG Purchase Agreement entered into with BT on January 30, 2017 and thereby including the revenue and gross profit from Wide Angle in the calculation of the SVG Performance Guarantees set forth in the SVG Purchase Agreement as described in Note (a) above.

 

4 

 

3.Pro forma adjustment

 

The pro forma adjustments included in the unaudited pro forma combined financial information are as follows:

 

a)WAG acquired Amer’s 100% equity interest on September 2, 2016 with no consideration under non-common control. Amer became a consolidated subsidiary of WAG on this date. At the acquisition date, WAG recognized gain on bargain purchase of $794,384, which comes wholly from Amer’s net profit in 2016 before the acquisition.

 

b)In accordance with the WAG Purchase Agreement, SSC agreed to purchase and BT agreed to sell 55% of the outstanding capital stock of WAG. The unaudited pro forma combined statements of income has been prepared as if the acquisition had occurred on January 1, 2016 and we calculated net loss attributable to non-controlling interest at consolidated level.

 

5