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SEC Filings

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

 

   Monte Carlo 
   December 31, 
   2016 
Risk-free interest rate   0.70%
Expected volatility   55%
Expected term   0.67 year 
Expected dividend yield   0%

 

The following tables present the fair value hierarchy for those assets and liabilities measured at fair value on a recurring basis as of December 31, 2016:

 

   December 31, 2016     
   Fair Value Measurements     
   Level 1   Level 2   Level 3   Total Fair Value 
Liabilities                
Warrant liabilities (see Note 13)  $-   $-   $70,785   $70,785 

 

The table below reflects the components effecting the change in fair value for the nine months ended September 30, 2017:

 

   Level 3 Assets and Liabilities     
   For the Nine  Months Ended September 30 , 2017     
    January 1,       Change in   September 30, 
   2017   Settlements   Fair Value   2017 
Liabilities:                
Warrant liabilities (see Note 13)  $70,785   $(183,427)  $112,642   $- 

 

The significant unobservable inputs used in the fair value measurement of the Company’s warrant includes the risk free interest rate, expected volatility, expected term and expected dividend yield. Significant increases or decreases in any of those inputs in isolation would result in a significantly different fair value measurement.

 

The carrying amount of cash, accounts receivable, notes receivable, accounts payable, accrued other expenses, other current liabilities and convertible promissory note as of September 30, 2017 and December 31, 2016, approximate fair value because of the short maturity of these instruments.

 

11.Related Party Transactions

 

(a)$3.0 Million Convertible Note

 

On May 10, 2012, the Executive Chairman and Principal Executive Officer, Mr. Shane McMahon, made a loan to the Company in the amount of $3,000,000. In consideration for the loan, the Company issued a convertible note to Mr. McMahon in the aggregate principal amount of $3,000,000 (the “Note”) at a 4% interest rate computed on the basis of a 365 day year. Upon issuance, the conversion price of the Note was equal to the price per share paid for securities by investors in the most recent financing (as of the date of conversion) of equity or equity-linked securities of the Company.

 

Effective on January 31, 2014, the Company and Mr. McMahon entered into Amendment No. 4 to the Note pursuant to which the Note is at Mr. McMahon’s option, payable on demand or convertible on demand into shares of Series E Preferred Stock of the Company (the “Series E Preferred Stock”) at a conversion price of $1.75, until December 31, 2015. As a result, in 2014, the Company recognized a beneficial conversion feature discount calculated as the difference between the Series E Preferred Stock at its intrinsic value, which was the fair value of the common stock at the commitment date for the Series E Preferred Stock investment and the effective conversion price. As such, we recognized a beneficial conversion feature of approximately $2,126,000 in 2014 which was reflected as interest expense and additional paid-in capital since the note was payable upon demand.

 

Effective December 30, 2014, the Company and Mr. McMahon entered into Amendment No. 5 pursuant to which the maturity date of the Note was extended to December 31, 2016. The Note remains payable on demand or convertible on demand into shares of Series E Preferred Stock at a conversion price of $1.75 at Mr. McMahon’s option.

 

On December 31, 2016, the Company and Mr. McMahon entered into an amendment pursuant to which the Note will be at Mr. McMahon’s option, payable on demand or convertible on demand into shares of the Company’s Series E Preferred Stock, provided that the Note will no longer be convertible into Series E Preferred Stock upon the conversion of the Series E Preferred stock owned by C

 

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