|SEVEN STARS CLOUD GROUP, INC. filed this Form 10-Q on 11/13/2017|
Seven Stars Cloud Group, Inc., Its Subsidiaries
and Variable Interest Entities
Media into the Company’s Common Stock (pursuant to which all Series E Preferred Stock will be automatically converted) but then convertible only into Common Stock at a conversion price of $1.50, until December 31, 2018.
For the three and nine months ended September 30, 2017, the Company recorded interest expense of $30,247 and $89,753, respectively, related to the Note; For the three and nine months ended September 30, 2016, the Company recorded interest expense of $30,000 and $90,000, respectively, related to the Note. In August, 2017, Company has paid $250,000 interest related to the Note.
Hua Cheng, in which the Company holds 39% of the equity shares, charged the Company licensed content fees of approximately Nil and $55,000 for the three months ended September 30, 2017 and 2016, and approximately Nil and $148,000 for the nine months ended September 30, 2017 and 2016, respectively.
On April 13, 2016, SSF entered into a Game Right Assignment Agreement with SSS for the acquisition of certain Game IP Rights for cash of $2.7 million (RMB 18 million), which was paid in full in 2016. The Game IP Rights was recorded at cost and then subsequently transferred in exchange for the investment in Topsgame as disclosed in Note 8 above.
On September 19, 2016, the Company signed a non-binding term sheet with Sun Video Group HK Limited ("SVG") in purchase for its 51% ownership of M.Y. Products, LLC ("MYP"), a video commerce and supply chain management operator, in exchange for $50 million worth of Wecast Network common stock and $800,000 cash.
In accordance with the Term Sheet, the Company wired $800,000 (or its RMB equivalent) to MYP upon signing the term sheet as Good Faith Deposit. The transaction has already been closed, and all of the deposit paid to MYP has been transferred into liability due to BT, which is the former shareholder of SVG, and as of September 30, 2017, Company still owed to BT in the amount of $58,567.
On June 30, 2017, the Company entered into a Securities Purchase Agreement (the BT SPA) with BT, pursuant to which the issued and outstanding stock that SSC holds in three separate non-core assets were sold to BT in exchange for RMB100 million (approximately $14.75 million at current exchange rate) in a combination of cash and publicly traded stock to be paid to SSC within one year of closing. A minimum of 20% of the total consideration to SSC will be paid in cash (approximately $2.95 million). A portion of the consideration may be paid in the form of publicly traded stock at the discretion of BT, and in that case the securities will represent a public company affiliated with BT, in an industry related to SSC’s and with an average daily trading value of at least $146,000.
These three separate non-core assets that sold to BT included 80% equity interest in Zhong Hai Shi Xun Media for zero, 13% equity interest in Nanjing Tops Game and 25% share capital investment right in Pantaflix JV in consideration of RMB100 million. As Zhong Hai Shi Xun Media is the Company’s subsidiary, sale of a subsidiary to a related party under common control would cause the Company to derecognize the net assets transferred at its carrying amounts and recognize no gains or losses. The difference between proceeds received and the carrying amount of the net assets transferred is recognized in additional paid in capital. At the same time, the Goodwill in the amount of $6.6 million has been pushed down to Zhong Hai Shi Xun Media along with the disposal.
Meanwhile, considering the payment term is one year, there is uncertainty with respect to collectability and required legal transfer process of Nanjing Tops Game was not completed, Company did not account for the transaction of disposal of 13% equity interest in Nanjing Tops Game and 25% share capital investment right in Pantaflix JV as of September 30, 2017 until the collectability is reasonably assured.
On November 23, 2015, the Company entered into a series of agreements for a strategic investment by SSS, a PRC company in the media and entertainment industry that is controlled by the Company’s Chairman, Bruno Wu. The strategic investment by SSS included a private placement of equity securities of the Company, a content licensing agreement, and the potential for Tianjin Enternet Network Technology Limited (“Tianjin Enternet”), an affiliate of SSS, to earn additional shares of the Company’s common stock contingent on