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10-Q
SEVEN STARS CLOUD GROUP, INC. filed this Form 10-Q on 11/13/2017
Entire Document
 

  

Seven Stars Cloud Group, Inc., Its Subsidiaries and Variable Interest Entities
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

  

   September 30,   December 31, 
   2017   2016 
Furniture and office equipment  $296,161   $1,063,481 
Vehicle   146,466    267,023 
Office Building   -    3,948,058 
Leasehold improvements   -    939,844 
Total property and equipment   442,627    6,218,406 
Less: accumulated depreciation   (323,323)   (1,254,681)
Property and Equipment, net  $119,304   $4,963,725 

 

The Company recorded depreciation expense of approximately $8,508 and $209,139 for the three and nine months ended September 30, 2017 and $33,000 and $101,000 for the three and nine months ended September 30, 2016, respectively.

 

7.Intangible Assets

 

As of September 30, 2017 and December 31, 2016, the Company’s amortizing and indefinite lived intangible assets consisted of the following:

 

   September 30, 2017   December 31, 2016 
 Amortizing Intangible   Gross
Carrying
   Accumulated   Impairment   Net   Gross
Carrying
   Accumulated   Impairment   Net 
Assets  Amount   Amortization   Loss   Balance   Amount   Amortization   Loss   Balance 
                                        
Charter/Cooperation agreements (iii)  $-   $-   $-   $-   $2,755,821   $(909,257)  $(1,846,564)  $- 
Software and licenses   211,939    (195,160)   -    16,779    267,991    (241,932)   -    26,059 
Patent and trademark (iv)   92,965    (39,943)   (53,022)   -    92,965    (39,943)   -    53,022 
Website and mobile app development (ii)   -    -    -    -    593,193    (421,129)   (172,064)   - 
Workforce (i)   305,694    (152,847)   (152,847)   -    305,694    (76,422)   -    229,272 
Total amortizing intangible assets  $610,598   $(387,950)  $(205,869)  $16,779   $4,015,664   $(1,688,683)  $(2,018,628)  $308,353 
Indefinite lived intangible assets                                        
Website name   134,290    -    -    134,290    134,290    -    -    134,290 
Patent (iv)   10,599    -    (10,599)   -    10,599    -    -    10,599 
Total intangible assets  $755,487   $(387,950)  $(216,468)  $151,069   $4,160,553   $(1,688,683)  $(2,018,628)  $453,242 

 

(i) On April 1, 2016, the Company entered into an agreement with Mr. Changsheng Liu, under which SSC agreed to pay Mr. Changsheng Liu cash consideration of $187,653 and 66,500 shares of restricted shares with a six month restriction period and a fair value of $121,695 in exchange for a workforce of 10 personnel experienced in programing content mobile apps. All 10 personnel entered into three year employment contracts with SSC effective April 1, 2016. The Company also acquired certain laptop and desktop computers with fair value of $3,655. According to the agreement, 30% of the cash consideration is due upon the signing of the agreement, 20% is due 2 months after the signing of the agreement and 50% is due 6 months after the signing of the agreement. All cash consideration has been paid. If any of 3 key staff, as defined, terminated their employment with SSC during the first 12 months of employment, SSC has the right to forfeit the unpaid cash consideration. In addition, Mr. Changsheng Liu would be required to pay a default penalty at minimal of $129,180. SSC has accounted for the transaction as an asset acquisition in which SSC mainly acquired a workforce, which is recognized as an intangible asset at cost. Subsequently, the workforce intangible is amortized over the employment term of three years.

 

The Company recorded amortization expense related to our amortizing intangible assets of approximately $28,000 and $84,522 for the three and nine months ended September 30, 2017 and $90,000 and $243,000 for the three and nine months ended September 30, 2016 respectively, which included the amortization expense of the workforce acquired as stated above.

 

In September, 2017, after evaluating the cost and benefit, Company decided to terminate the service contract with this entire team and therefore Company recognize impairement in the amount of $152,847.

 

(ii) Considering a new mobile app has been developed to be put into market in October 2016, the Company determined that the future cash flows generated from the old mobile app was nil. In accordance with ASC 350, Intangibles – Goodwill and Other, recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the estimated undiscounted future cash flows expected to be generated by the asset. The Company estimated the fair value of this intangible asset to be nil as of December 31, 2016. Fair value was determined using unobservable (Level 3) inputs. In June, 2017, this intangible asset has been disposed of along with other net assets in Zhong Hai Shi Xun.

 

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