|SEVEN STARS CLOUD GROUP, INC. filed this Form 10-Q on 11/13/2017|
On January 30, 2017, the Company completed the acquisition of Sun Video Group HK Limited ("SVG"), which has a 51% ownership stake in Shanghai Wecast Supply Chain Management Limited ("Wecast SH"). On January 31, 2017, the Company acquired 55% of the outstanding capital stock of Wide Angle Group Limited (“Wide Angle”). The holdings and businesses from both these acquisitions now reside under “Wecast Services”, our wholly-owned subsidiary Wecast Services Limited. Wecast Services (which resides under the Product Sales Cloud) business unit, is currently primarily engaged with consumer electronics and smart supply chain management operations. Our end customers include British Telecom, Micromax and about 15 to 20 other corporations across the world.
Revenue for the three months ended September 30, 2017 was $30.2 million as compared to $1.6 million for the same period in 2016, an increase of approximately $28.6 million, or 1,758%. The increase was mainly due to our new business line acquired in January 2017. This increase was partially offset by a decrease of our legacy YOD business in the amount of $1.6 million, as the legacy YOD business shifts to a new exclusive distribution agreement with Zhejiang Yanhua Culture Media Co., Ltd. ("Yanhua ") which was announced in Q4 2016. As revenue generated by Yanhua did not exceed the revenue sharing threshold, no additional revenue was recorded in the quarter ended September 30, 2017.
Cost of revenues
Cost of revenues was approximately $28.3 million for the three months ended September 30, 2017, as compared to $0.9 million for the three months ended September 30, 2016. Our cost of revenues increased by $27.4 million which is in line with our increase in revenues. Our cost of revenues is primarily comprised of cost to purchase electronics products from suppliers.
Gross profit ratio for the three months ended September 30, 2017 decreased by 38.61% from 45.06% to 6.45%, as the Wecast Services business, which currently is engaged mostly in lower margin electronics, is still in its relative infancy and the business service offerings as well as profit-sharing arrangements with a growing range of suppliers are in transition.
Selling, general and administrative expenses
Selling, general and administrative expense for the three months ended September 30, 2017 was $3.6 million as compared to $2.3 million for the same period in 2016, an increase of approximately $1.3 million or 56%. The majority of the increase was due to 1) the increase of our sales and marketing expense to introduce and promote our business models to various potential investors and business partners, as well as promote Wecast Services, which was acquired in January, 2017; and 2) financial advisory expenses that were paid to independent professional financial advisory companies to assist us being able to contact and negotiate with more business partners. The Company is also continuing to focus on more cost saving activities to reduce daily operating expenses.