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SEC Filings

SEVEN STARS CLOUD GROUP, INC. filed this Form 10-Q on 11/13/2017
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Seven Stars Cloud Group, Inc., Its Subsidiaries and Variable Interest Entities


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”), the Company 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.


After the acquisition of SVG, the Company changed its name to Wecast Services Group Limited, and is therefore also referred to herein as Wecast Services.


On January 31, 2017, the Company entered into a Securities Purchase Agreement (the “Wide Angle SPA”) with BT and Sun Seven Stars Media Group Limited, a Hong Kong company (“SSS”), one of the Company’s largest shareholders, controlled by our Chairman Bruno Wu, as guarantor, for the purchase by the Company of 55% of the outstanding capital stock of Wide Angle for the sole consideration of the Company adding Wide Angle to the Sun Video Business acquired by the Company under the Sun Video SPA and thereby including 100% of the revenue and gross profit from Wide Angle in the calculation of the SVG Performance Guarantees set forth in the Sun Video SPA considering the Company has consolidated Wide Angle.


Since the Company, Wecast Services and Wide Angle were controlled by our Chairman Bruno Wu since November 10, 2016, as well as both before and after the acquisition, this transaction was accounted for as a business combination between entities under common control by Mr. Wu. Therefore, in accordance with ASC Subtopic 805-50, the consolidated financial statements of the Company include the acquired assets and liabilities of the SVG and Wide Angle at their historical carrying amounts. In addition, the Company’s consolidated financial statements as of December 31, 2016 have been prepared as if the Wecast Services and Wide Angle had been owned by the Company since November 10, 2016 presented and the Company’s consolidated financial statements as of December 31, 2016 has been retrospectively adjusted accordingly.


As of September 30, 2017, the Company recorded the $50 million SVG Note as additional paid in capital, as the Company believes that the Performance Guarantees can be met within 12 months of the closing. Considering the proceeds transferred were larger than carrying amounts of the net assets received, such $50 million was then recognized as a reduction to the Company’s additional paid in capital. The Company has not begun accruing any reserves relating to potential Net Income Threshold earnout payments, since the Sun Video Business is currently not close to exceeding this threshold.


5.Accounts Receivable


Accounts receivable consists of the following:


   September 30,   December 31, 
   2017   2016 
Accounts receivable, gross:  $42,787,928   $12,350,947 
Less: allowance for doubtful accounts   (3,647)   (2,828,796)
Accounts receivable, net  $42,784,281   $9,522,151 


The movement of the allowance for doubtful accounts is as follows:


   September 30,
   December 31,
Balance at the beginning of the period  $(2,828,796)  $(3,672)
Additions charged to bad debt expense   (103,040)   (2,825,124)
Write-off of bad debt allowance   47,378    - 
Disposal of Zhong Hai Shi Xun   2,880,811    - 
Balance at the end of the period  $(3,647)  $(2,828,796)


6.Property and Equipment


The following is a breakdown of the Company’s property and equipment: