UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

~~[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934~~

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period endedJune 30, ~~2016~~2017

~~[ ]~~

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________ to __________

Commission File Number:~~000-19644~~001-35561

~~YOU ON DEMAND HOLDINGS,~~SEVEN STARS CLOUD GROUP, INC.

(Exact name of registrant as specified in its charter)

Nevada	20-1778374
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

~~375 Greenwich Street, Suite 516~~

Building B4, Tai Ming International Business Court,

~~New York, New York 10013~~Tai Hu Town, Tongzhou District, Beijing, China 101116

(Address of principal executive offices)

212-206-1216

(Registrant's telephone number, including area code)

Wecast Network, Inc.

(Former name, former address and former fiscal year if changed since last report.)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. |

Yes ~~[X]~~¨ No ~~[ ]~~x

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes ~~[X]~~x No ~~[ ]~~¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “larger accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ~~[ ]~~¨	Accelerated filer ~~[ ]~~¨
Non-accelerated filer ~~[ ]~~¨	Smaller reporting company ~~[X]~~x

Emerging growth company¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ~~[ ]~~¨ No ~~[X]~~x

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date:
~~40,442,931~~ 62,153,149 shares as of August ~~12, 2016.~~11, 2017.

QUARTERLY REPORT ON FORM 10-Q

OF ~~YOU ON DEMAND HOLDINGS,~~SEVEN STARS CLOUD GROUP, INC.

FOR THE PERIOD ENDED JUNE 30, ~~2016~~
2017

TABLE OF CONTENTS

References

Except as otherwise indicated by the context, references in this report to (i) the “Company,” ~~“YOU On Demand,~~“Seven Stars Cloud,”, “SSC”, “we,” “us,” and “our” are to ~~YOU On Demand Holdings,~~Seven Stars Cloud Group, Inc. (formerly known as Wecast Network, Inc.), a Nevada corporation, and its consolidated subsidiaries and variable interest entities; (ii) “CB Cayman” ~~are~~refers to our wholly-owned subsidiary China Broadband, Ltd., a Cayman Islands company; (iii) “YOD Hong Kong” ~~are~~refers to YOU On Demand (Asia) Limited (formerly known as Sinotop Group Limited), a Hong Kong company wholly-owned by CB Cayman; (iv) “YOD WFOE” ~~are~~refers to YOU On Demand (Beijing) Technology Co., Ltd., a PRC company wholly-owned by YOD Hong Kong; (v) “Sinotop Beijing” or “Sinotop” ~~are~~refers to Beijing Sino Top Scope Technology Co., Ltd, a PRC company controlled by YOD Hong Kong through contractual arrangements; (vi) “Zhong Hai ~~Video” are~~Media” refers to Zhong Hai Shi Xun ~~Information Technology~~Media Co., Ltd., a PRC company 80% owned by Sinotop ~~Beijing;~~Beijing until June 30, 2017; (vii) “SSF” ~~are~~refers to Tianjin Sevenstarflix Network Technology Limited, a PRC company controlled by YOD Hong Kong through contractual arrangements; (viii) “Hua Cheng” ~~are~~refers to Hua Cheng Hu Dong (Beijing) Film and Television Communication Co., Ltd., a PRC company 39% owned by Sinotop Beijing and 20% owner of Zhong Hai ~~Video;~~Media; (ix) ~~“SEC” are~~“Wecast Services” refers to our wholly-owned subsidiary Wecast Services Group Limited (formerly known as Sun Video Group Hong Kong Limited) a Hong Kong company; (x) “Wide Angle” refers to Wide Angle Group Limited, a Hong Kong company 55% owned by the Company; (xi) “Wecast SH” refers to Shanghai Wecast Supply Chain Management Limited, a PRC company 51% owned by the Company; (xii)“SEC” refers to the United States Securities and Exchange Commission; ~~(x)~~(xiii) “Securities Act” ~~are~~refers to Securities Act of 1933, as amended; ~~(xi)~~(xiv) “Exchange Act” ~~are~~refers to the Securities Exchange Act of 1934, as amended; ~~(xii)~~(xv) “PRC” and “China” ~~are~~refer to People’s Republic of China; ~~(xiii)~~(xvi) “Renminbi” and “RMB” ~~are~~refer to the legal currency of China; ~~(xiv)~~(xvii) “U.S. dollar,” “$” and “US$” ~~are~~refer to United States dollars; and ~~(xv)~~(xviii) “VIEs” refers to our current variable interest entities, Sinotop Beijing, and Tianjin Sevenstarflix Network Technology Limited.

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements.

~~YOU ON DEMAND HOLDINGS,~~

SEVEN STARS CLOUD GROUP, INC., ITS SUBSIDIARIES AND VARIABLE INTEREST ENTITIES

INDEX TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE PERIOD ENDED JUNE 30, ~~2016~~2017

	Page
Unaudited Consolidated Balance Sheets	54
Unaudited Consolidated Statements of Operations	65
Unaudited Consolidated Statements of Comprehensive ~~Loss~~Income (Loss)	76
Unaudited Consolidated Statements of Cash Flows	87
Unaudited Consolidated Statements of Equity	98
Notes to Unaudited Consolidated Financial Statements	1110

Table of Contents

~~YOU On Demand Holdings,~~Seven Stars Cloud Group, Inc., Its Subsidiaries and Variable Interest Entities

UNAUDITED CONSOLIDATED BALANCE SHEETS

June 30, December 31,
2016 2015
ASSETS
Current assets:
Cash $ 2,403,761 $ 3,768,897
Restricted cash - 2,994,364
Accounts receivable, net 3,094,770 1,689,415
Licensed content, current 711,683 556,591
Prepaid expenses 512,445 362,421
Deferred issuance cost - 551,218
Other current assets 159,482 157,594
Total current assets 6,882,141 10,080,500
Property and equipment, net 93,589 154,434
Licensed content, non-current 17,726,840 21,085
Intangible assets, net 2,591,122 2,412,591
Goodwill 6,648,911 6,648,911
Long term investments 6,118,445 450,115
Other non-current assets 2,124,417 58,089
Total assets $ 42,185,465 $ 19,825,725

LIABILITIES, CONVERTIBLE REDEEMABLE PREFERRED STOCK ANDEQUITY
Current liabilities:
     Accounts payable (including accounts payable of consolidated variable interest
                       entities (“VIEs”) without recourse to the Company of $651,254 and
                       $44,867 as of June 30, 2016 and December 31, 2015, respectively) $ 651,254 $ 45,788
     Deferred revenue (including deferred revenue of VIEs without recourse to the
                       Company of $1,232 and $15,080 as of June 30, 2016 and December 31,
                       2015, respectively) 1,232 15,080
     Accrued expenses (including accrued expenses of VIEs without recourse to the
                       Company of $390,176 and $280,038 as of June 30, 2016 and December
                       31, 2015, respectively) 1,440,228 1,196,066
     Accrued salaries (including accrued salaries of VIEs without recourse to the
                       Company of nil and $10,861 as of June 30, 2016 and December 31, 2015,
                       respectively) 1,344,883 1,058,124
     Other current liabilities (including other current liabilities of VIEs without recourse
                       to the Company of $361,908 and $298,422, as of June 30,
                       2016 and December 31, 2015, respectively) 521,374 312,170
     Accrued license content fees (including accrued license content fees of VIEs
                       without recourse to the Company of $1,518,112 and $933,532 as of June
                       30, 2016 and December 31, 2015, respectively) 1,518,112 933,532
Convertible promissory notes 3,000,000 3,000,000
Warrant liabilities 251,611 395,217
Deposit payable - 2,994,364
Total current liabilities 8,728,694 9,950,341
Deferred income taxes 312,900 330,124
Total liabilities $ 9,041,594 $ 10,280,465

Commitments and contingencies

Convertible redeemable preferred stock:
     Series A - 7,000,000 shares issued and outstanding, liquidation and deemed
           liquidation preference of $3,500,000 as of June 30, 2016 and December 31,
           2015, respectively 1,261,995 1,261,995
Equity:
     Series E Preferred Stock - $0.001 par value; 16,500,000 shares authorized,
           7,154,997 and 7,254,997 shares issued and outstanding, liquidation preference
           of $12,521,245 and $12,696,245 as of June 30, 2016 and December 31, 2015,
           respectively 7,155 7,255
     Common stock - $0.001 par value; 1,500,000,000 shares authorized, 38,170,204 and
           24,249,109 shares issued and outstanding as of June 30, 2016 and December 31,
           2015, respectively 38,170 24,249
Additional paid-in capital 125,179,330 97,512,542
Accumulated deficit (90,182,400 ) (86,457,840 )
Accumulated other comprehensive loss (632,980 ) (414,910 )
Total YOU On Demand shareholder’s equity 34,409,275 10,671,296
Non-controlling interest (2,527,399 ) (2,388,031 )
Total equity 31,881,876 8,283,265
Total liabilities, convertible redeemable preferred stock and equity $ 42,185,465 $ 19,825,725
June 30, 2017 December 31, 2016

ASSETS
Current assets:
Cash $ 3,163,470 $ 3,761,814
Accounts receivable, net 41,967,360 9,522,151
Licensed content, current 883,015 124,319
Notes receivable - 1,749,830
Inventory 216,453 203,697
Prepaid expenses 534,573 375,944
Other current assets 4,318,995 3,581,822
Total current assets
51,083,866
19,319,577
Property and equipment, net 117,389 4,963,725
Licensed content, non-current 16,075,134 17,593,528
Intangible assets, net 331,564 453,242
Goodwill - 6,648,911
Long term investments
6,664,547
6,654,664
Other non-current assets 1,239 112,643
Total assets $
74,273,739
$ 55,746,290
LIABILITIES, CONVERTIBLE REDEEMABLE PREFERRED STOCK AND EQUITY
Current liabilities: (including amounts of the consolidated VIEs without recourse to Seven Stars Cloud Group, Inc. See note 3)
Accounts payable $ 42,536,415 $ 13,341,680
Advance from customers 720,073 1,350,054
Accrued interest due to a related party 617,605 557,918
Accrued other expenses 327,958 708,987
Accrued salaries 760,848 766,957
Payable for purchase of building - 987,015
Amount due to related parties 106,813 1,060,817
Other current liabilities 151,019 934,480
Accrued license content fees - 1,236,661
Convertible promissory note due to a related party 3,000,000 3,000,000
Warrant liabilities 137,587 70,785
Total current liabilities 48,358,318 24,015,354
Total liabilities $ 48,358,318 $ 24,015,354
Commitments and contingencies (Note 17)
Convertible redeemable preferred stock:
Series A - 7,000,000 shares issued and outstanding, liquidation and deemed liquidation preference of $3,500,000 as of June 30, 2017 and December 31, 2016, respectively $ 1,261,995 $ 1,261,995
Equity:
Series E Preferred Stock - $0.001 par value; 16,500,000 shares authorized, Nil and 7,154,997 shares issued and outstanding, liquidation preference of Nil and $12,521,245 as of June 30, 2017 and December 31, 2016, respectively - 7,155
Common stock - $0.001 par value; 1,500,000,000 shares authorized,  61,964,057 and 53,918,523 shares issued and outstanding as of June 30, 2017 and December 31, 2016, respectively 61,963 53,918
Additional paid-in capital 144,952,445 152,755,919
Accumulated deficit (117,477,132 ) (115,669,268 )
Accumulated other comprehensive loss (841,255 ) (1,353,302 )
Total Seven Stars Cloud shareholders’ equity
26,696,021
35,794,422
Non-controlling interest (2,042,595 ) (5,325,481 )
Total equity
24,653,426
30,468,941
Total liabilities, convertible redeemable preferred stock and equity $
74,273,739
$ 55,746,290
The accompanying notes are an integral part of these consolidated financial statements.
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Table of Contents
~~YOU On Demand Holdings,~~Seven Stars Cloud Group, Inc., Its Subsidiaries and Variable Interest Entities

UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended Six Months Ended
June 30, June 30, June 30, June 30,
2016 2015 2016 2015

Revenue $ 1,480,464 $ 1,479,648 $ 2,750,190 $ 2,507,576
Cost of revenue 800,399 829,039 1,716,179 1,872,038
Gross profit 680,065 650,609 1,034,011 635,538

Operating expenses:
Selling, general and administrative expense 1,808,906 1,658,814 3,973,959 4,107,116
Professional fees 270,491 151,363 637,937 440,081
Depreciation and amortization 123,343 95,082 220,806 184,825
Total operating expense 2,202,740 1,905,259 4,832,702 4,732,022

Loss from operations (1,522,675 ) (1,254,650 ) (3,798,691 ) (4,096,484 )

Interest and other income/(expense)
Interest expense, net (166,710 ) (30,232 ) (200,183 ) (58,555 )
Change in fair value of warrant liabilities 106,583 49,344 143,606 34,049
Equity in losses of equity method investees (27,001 ) (60,621 ) (37,349 ) (93,024 )
      Other (5,258 ) (36,576 ) (5,096 ) (46,343 )
Loss before income taxes and non-controlling interest (1,615,061 ) (1,332,735 ) (3,897,713 ) (4,260,357 )

Income tax benefit 8,612 8,612 17,224 17,224

Net loss (1,606,449 ) (1,324,123 ) (3,880,489 ) (4,243,133 )

Net loss attributable to non-controlling interest 18,360 7,303 155,929 127,524

Net loss attributable to YOU On Demand shareholders $ (1,588,089 ) $ (1,316,820 ) $ (3,724,560 ) $ (4,115,609 )

Basic and diluted loss per share $ (0.05 ) $ (0.06 ) $ (0.14 ) $ (0.17 )

Weighted average shares outstanding:
Basic and diluted 29,197,899 23,851,602 26,815,888 23,833,760
Three Months Ended Six Months Ended
June 30, June 30, June 30, June 30,
2017 2016 2017 2016

Revenue $ 43,324,439 $ 1,480,464 $ 76,488,790 $ 2,750,190
Cost of revenue 43,272,723 800,399 72,615,102 1,716,179
Gross profit 51,716 680,065 3,873,688 1,034,011

Operating expenses:
Selling, general and administrative expense 2,875,440 1,808,906 4,140,612 3,973,959
Professional fees 747,418 270,491 1,014,551 637,937
Depreciation and amortization 60,942 123,343 257,153 220,806
Impairment of other intangible assets 63,621 - 63,621 -
Total operating expense 3,747,421 2,202,740 5,475,937 4,832,702

Loss from operations (3,695,705 ) (1,522,675 ) (1,602,249 ) (3,798,691 )

Interest and other income (expense)
Interest expense, net (3,696 ) (166,710 ) (45,253 ) (200,183 )
Change in fair value of warrant liabilities 26,117 106,583 (243,999 ) 143,606
Equity in loss of equity method investees (33,090 ) (27,001 ) (76,836 ) (37,349 )
Other (11,072 ) (5,258 ) (110,642 ) (5,096 )
Loss before income taxes (3,717,446 ) (1,615,061 ) (2,078,979 ) (3,897,713 )

Income tax benefit - 8,612 - 17,224

Net loss (3,717,446 ) (1,606,449 ) (2,078,979 ) (3,880,489 )

Net loss attributable to non-controlling interest 57,221 18,360 631,633 155,929

Net loss attributable to Seven Stars Cloud shareholders $ (3,660,225 ) $ (1,588,089 ) $ (1,447,346 ) $ (3,724,560 )

Basic  loss per share $ (0.06 ) $ (0.05 ) $ (0.02 ) $ (0.14 )
Diluted loss per share $ (0.06 ) $ (0.05 ) $ (0.02 ) $ (0.14 )

Weighted average shares outstanding:
Basic 61,180,365 29,197,899 58,297,202 26,815,888
Diluted 61,180,365 29,197,899 58,297,202 26,815,888
The accompanying notes are an integral part of these consolidated financial statements.
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Table of Contents
~~YOU On Demand Holdings,~~Seven Stars Cloud Group, Inc., Its Subsidiaries and Variable Interest Entities

UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
Three Months Ended Six Months Ended
June 30, June 30, June 30, June 30,
2016 2015 2016 2015
Net loss $ (1,606,449 ) $ (1,324,123 ) $ (3,880,489 ) $ (4,243,133 )
Other comprehensive loss, net of nil tax

Foreign currency translation adjustments (214,641 ) (1,683 ) (201,509 ) (722 )
Comprehensive loss (1,821,090 ) (1,325,806 ) (4,081,998 ) (4,243,855 )
       Comprehensive loss (gain) attributable to non-controlling interest (3,588 ) 7,196 139,368 128,641
Comprehensive loss attributable to YOU On Demandshareholders $ (1,824,678 ) $ (1,318,610 ) $ (3,942,630 ) $ (4,115,214 )
Three Months Ended Six Months Ended
June 30, June 30, June 30, June 30,
2017 2016 2017 2016

Net loss $
(3,717,446
) $ (1,606,449 ) $ (2,078,979 ) $ (3,880,489 )

Other comprehensive income (loss), net of nil tax
Foreign currency translation adjustments (819,036 ) (214,641 ) 699,806 (201,509 )
Comprehensive loss (4,536,482 ) (1,821,090 )
(1,379,173
) (4,081,998 )

Comprehensive income (loss) attributable to non-controlling interest 259,001 (3,588 ) 664,591 139,368
Comprehensive loss attributable to Seven Stars Cloud shareholders $
(4,277,481)
$ (1,824,678 ) $
(714,582
) $ (3,942,630 )
The accompanying notes are an integral part of these consolidated financial statements.
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Table of Contents
~~YOU On Demand Holdings,~~Seven Stars Cloud Group, Inc., Its Subsidiaries and Variable Interest Entities

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended
June 30, June 30,
2016 2015
Cash flows from operating activities:
Net loss $ (3,880,489 ) $ (4,243,133 )
Adjustments to reconcile net loss to net cash used in operating activities
Share-based compensation expense 211,840 681,376
Provision for doubtful accounts - 9,087
Depreciation and amortization 220,806 184,825
Amortization of debt issuance costs 122,696 -
Income tax benefit (17,224 ) (17,224 )
Equity in losses of equity method investees 37,349 93,024
Loss on disposal of assets - 2,421
Change in fair value of warrant liabilities (143,606 ) (34,049 )
Foreign currency exchange losses (153,334 ) -

Change in assets and liabilities:
Accounts receivable (1,405,355 ) (1,598,494 )
Licensed content (143,000 ) 328,164
Prepaid expenses and other assets (116,540 ) (447,411 )
Accounts payable 605,466 (80,200 )
Accrued expenses, salary and other current liabilities (6,084 ) 375,847
Deferred revenue (13,848 ) 317,746
Accrued license content fees 584,580 547,792
Net cash used in operating activities (4,096,743 ) (3,880,229 )

Cash flows from investing activities:
Acquisition of property and equipment (2,070,672 ) (30,116 )
Investments in intangibles and research and development (2,163,872 ) (35,202 )
          Investment in long term investments (3,000,000 ) -
Net cash used in investing activities (7,234,544 ) (65,318 )

Cash flows from financing activities
Proceeds from issuance of shares and warrant (Note 9) 10,000,000 -
Net cash provided by financing activities 10,000,000 -
Effect of exchange rate changes on cash (33,849 ) (1,314 )
Net decrease in cash (1,365,136 ) (3,946,861 )

Cash at beginning of period 3,768,897 10,812,371

Cash at end of period $ 2,403,761 $ 6,865,510

Supplemental Cash Flow Information:

Cash paid for income taxes $ - $ -
Cash paid for interest $ - $ -
Exchange of Series E Preferred Stock for common stock $ 100 $ 39
Issuance of convertible note for licensed content (Note 9) $ 17,717,847 $ -
Issuance of shares for the settlement of liability $ 75,000 $ -
Issuance of shares upon conversion of convertible note, including accrued interest and debt issuance cost (Note 9) $ 17,733,297 $ -
Acquisition of long term investment through transfer of Game IP rights (Note 6) $ 2,714,441 $ -
Payable for Game IP rights acquired (Note 6) $ 603,209 $ -
Payable for workforce acquired (Note 5) $ 131,358 $ -
Six Months Ended
June 30, 2017 June 30, 2016

Cash flows from operating activities:
Net loss $ (2,078,979 ) $ (3,880,489 )
Adjustments to reconcile net loss to net cash used in operating activities
Share-based compensation expense 147,652 211,840
Provision for doubtful accounts 103,043 -
Depreciation and amortization 257,153 220,806
Income tax benefit - (17,224 )
Equity in  loss of equity method investees 76,836 37,349
Loss on disposal of assets 679,091 -
Change in fair value of warrant liabilities 243,999 (143,606 )
Foreign currency exchange losses - (153,334 )
Impairment of intangible assets 63,621 -
Amortization of debt issuance costs - 122,696

Change in assets and liabilities:
Accounts receivable (33,765,572 ) (1,405,355 )
Licensed content 759,698 (143,000 )
Prepaid expenses and other assets 3,713,053 (116,540 )
Accounts payable 29,200,687 605,466
Accrued expenses, salary and other current liabilities (209,478 ) (6,084 )
Deferred revenue (626,396 ) (13,848 )
Accrued license content fees - 584,580
Net cash used in operating activities (1,435,592 ) (4,096,743 )

Cash flows from investing activities:
Acquisition of property and equipment (38,326 ) (2,070,672 )
Proceeds from disposal of property and equipment 743 -
Disposal of Zhong Hai Shi Xun, net of cash disposed (115,060 ) -
Cash paid for the acquisition of SVG (693,187 ) -
Investments in intangibles - (2,163,872 )
Investment in long term investments - (3,000,000 )
Net cash used in investing activities (845,830 ) (7,234,544 )

Cash flows from financing activities
Proceeds from private placement 1,866,301 -
Repayment of amounts due to related parties (215,951 ) -
Proceeds from issuance of warrant and shares - 10,000,000
Net cash provided by financing activities 1,650,350 10,000,000
Effect of exchange rate changes on cash 32,728 (33,849 )
Net increase (decrease) in cash (598,344 ) (1,365,136 )

Cash at beginning of period 3,761,814 3,768,897

Cash at end of period $ 3,163,470 $ 2,403,761

Supplemental Cash Flow Information:

Exchange of Series E Preferred Stock for common stock $ 7,155 $ 100
Issuance of convertible note for licensed content (Note 12) $ - $ 17,717,847
Issuance of shares for the settlement of liability $ - $ 75,000
Issuance of shares upon conversion of convertible note, including accrued interest and debt issuance cost $ - $ 17,733,297
Acquisition of long term investment through transfer of Game IP rights $ - $ 2,714,441
Payable for Game IP rights acquired $ - $ 603,209
Payable for workforce acquired $ - $ 131,358
The accompanying notes are an integral part of these consolidated financial statements.
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~~YOU On Demand Holdings,~~Seven Stars Cloud Group, Inc., Its Subsidiaries and Variable Interest Entities
UNAUDITED CONSOLIDATED STATEMENTS OF EQUITY
For the Six Months Ended June 30, ~~2015~~2016
Accumulated YOU On
Series E Series E Additional Other Demand Non-
Preferred Par Common Par Paid-in Accumulated Comprehensive Shareholders' controlling Total
Stock Value Stock Value Capital Deficit Loss Equity Interest Equity
Balance,January 1, 2015 7,365,283 $ 7,365 23,793,702 $ 23,794 $ 96,347,272 $ (78,356,567) $ (66,032 ) $ 17,955,832 $ (1,982,119) $ 15,973,713
Share-based compensation - - - - 251,356 - - 251,356 - 251,356
Common stock issued for services - - 24,999 25 92,495 - - 92,520 - 92,520
Conversion of Series E Preferred Stock into common stock (38,857 ) (39 ) 38,857 39 - - - - - -
Exercise of options 2,811 3 (3 )
Net loss attributable to YOU On Demand shareholders - - - - - (4,115,609 ) - (4,115,609 ) (127,524 ) (4,243,133 )
Foreign currency translation adjustments - - - - - - 395 395 (1,117 ) (722 )
Balance,June 30, 2015 7,326,426 $ 7,326 23,860,369 $ 23,861 $ 96,691,120 $ (82,472,176) $ (65,637 ) $ 14,184,494 $ (2,110,760) $ 12,073,734
Series E
Preferred
Stock Series E
Par
Value Common
Stock Par
Value Additional
Paid-in
Capital Accumulated
Deficit Accumulated
Other
Comprehensive
Loss Seven Stars Cloud
Shareholders'
Equity Non-
controlling
Interest Total
Equity
Balance,
January 1, 2016
7,254,997 $ 7,255 24,249,109 $ 24,249 $ 97,512,542 $ (86,457,840 ) $ (414,910 ) $ 10,671,296 $ (2,388,031 ) $ 8,283,265
Share-based compensation - - 25,000 25 161,815 - - 161,840 - 161,840
Common stock issuance - - 4,545,455 4,545 9,273,029 - - 9,277,574 - 9,277,574
Warrants issued in connection with common stock issuance - - - - 722,426 - - 722,426 - 722,426
Issuance cost in connection with the issuance of common stock and warrants - - - - (411,223 ) - - (411,223 ) - (411,223 )
Common stock issued from conversion of convertible note - - 9,208,860 9,209 17,724,088 - - 17,733,297 - 17,733,297
Restricted Shares granted in connection with acquisition - - 121,695 - - 121,695 - 121,695
Common stock issued for settlement of liability - - 41,780 42 74,958 - - 75,000 - 75,000
Common stock issued from series E preferred stock (100,000 ) (100 ) 100,000 100 - - - - - -
Net loss - - - - - (3,724,560 ) - (3,724,560 ) (155,929 ) (3,880,489 )
Foreign currency translation adjustments, net of nil tax - - - - - - (218,070 ) (218,070 ) 16,561 (201,509 )
Balance,
June 30, 2016
7,154,997 $ 7,155 38,170,204 $ 38,170 $ 125,179,330 $ (90,182,400 ) $ (632,980 ) $ 34,409,275 $ (2,527,399 ) $ 31,881,876
The accompanying notes are an integral part of these consolidated financial statements.
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Table of Contents
~~YOU On Demand Holdings,~~
Seven Stars Cloud Group, Inc., Its Subsidiaries and Variable Interest Entities

UNAUDITED CONSOLIDATED STATEMENTS OF EQUITY
For the Six Months Ended June 30, ~~2016~~2017
Accumulated YOU On
Series E Series E Additional Other Demand Non-
Preferred Par Common Par Paid-in Accumulated Comprehensive Shareholders' controlling Total
Stock Value Stock Value Capital Deficit Loss Equity Interest Equity
Balance,January 1, 2016 7,254,997 $ 7,255 24,249,109 $ 24,249 $ 97,512,542 $ (86,457,840 ) $ (414,910 ) $ 10,671,296 $ (2,388,031 ) $ 8,283,265
Share-based compensation - - 25,000 25 161,815 - - 161,840 - 161,840
Common stock issuance - - 4,545,455 4,545 9,273,029 - - 9,277,574 - 9,277,574
Warrants issued in connection with common stock issuance - - - - 722,426 - - 722,426 - 722,426
Issuance cost in connection with the issuance of common stock and warrants - - - - (411,223 ) - - (411,223 ) - (411,223 )
Common stock issued from conversion of convertible note - - 9,208,860 9,209 17,724,088 - - 17,733,297 - 17,733,297
Restricted Shares granted in connection with acquisition - - - - 121,695 - - 121,695 - 121,695
Common stock issued for settlement of liability - - 41,780 42 74,958 - - 75,000 - 75,000
Common stock issued from conversion of series E preferred stock (100,000 ) (100 ) 100,000 100 - - - - - -
Net loss attributable to YOU On Demand shareholders - - - - - (3,724,560 ) - (3,724,560 ) (155,929 ) (3,880,489 )
Foreign currency translation adjustments, net of nil tax - - - - - - (218,070 ) (218,070 ) 16,561 (201,509 )
Balance,June 30, 2016 7,154,997 $ 7,155 38,170,204 $ 38,170 $ 125,179,330 $ (90,182,400 ) $ (632,980 ) $ 34,409,275 $ (2,527,399 ) $ 31,881,876
Series E
Preferred
Stock Series E
Par
Value Common
Stock Par
Value Additional
Paid-in
Capital Accumulated
Deficit Accumulated
Other
Comprehensive
Income (Loss) Seven Stars Cloud
Shareholders'
Equity Non-
controlling
Interest Total
Equity
Balance,
January 1, 2017
7,154,997 $ 7,155 53,918,523 $ 53,918 $ 152,755,919 $ (115,669,268 ) $ (1,353,302 ) $ 35,794,422 $ (5,325,481 ) $ 30,468,941
Share-based compensation - - - - 147,652 - - 147,652 - 147,652
Common stock issuance - - 538,182 538 1,479,463 - - 1,480,001 - 1,480,001
Common stock issuance for RSU vested - - 105,215 105 (105 ) - - - - -
Common stock issuance for option exercised - - 11,035 11 (11 ) - - - - -
Common stock issued for warrant exercised - - 236,105 236 563,261 - - 563,497 - 563,497
Common stock issued from conversion of series E preferred stock (7,154,997 ) (7,155 ) 7,154,997 7,155 - - - - - -
Disposal of Zhong Hai Shi Xun - - - - (9,993,734 ) (360,518 ) (220,717 ) (10,574,969 ) 3,947,477 (6,627,492 )
Net loss - - - - - (1,447,346 ) - (1,447,346 ) (631,633 ) (2,078,979 )
Foreign currency translation adjustments, net of nil tax - - - - - - 732,764 732,764 (32,958 ) 699,806
Balance,
June 30, 2017
- $ - 61,964,057 $ 61,963 $ 144,952,445 $ (117,477,132 ) $ (841,255 ) $ 26,696,021 $ (2,042,595 ) $ 24,653,426
The accompanying notes are an integral part of these consolidated financial statements.
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1. 9
Table of Contents
Seven Stars Cloud Group, Inc., Its Subsidiaries and Variable Interest Entities
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Organization and Principal Activities
~~YOU On Demand Holdings,~~
Seven Stars Cloud Group, Inc. (the “Company”), formerly known as Wecast Network, Inc., is a Nevada corporation that primarily operates in China (“PRC”) through its subsidiaries and consolidated variable interest entities (“VIEs”). The Company, its subsidiaries and consolidated VIEs are collectively referred to as ~~YOU On Demand~~Seven Stars Cloud (“~~YOU On Demand”~~SSC”, “we”, “us”, or “the Company”).
~~YOU~~
SSC is aiming to be a leading Intelligent Industrial Internet company with solutions designed to provide operational efficiencies in today’s constantly evolving business landscape. With a focus on “BASE” technology and infrastructure (Blockchain, Artificial Intelligence, Supply Chain & Exchanges) to power our Virtual Platform as a Service or “VPaaS”, SSC is creating a closed trade ecosystem for buyers and sellers designed to eliminate supply chain and transactional middlemen and create a more direct and margin-expanding trading path for principals. SSC is applying BASE plus VPaaS to focus on three Core Cloud Areas, including Intellectual Property Cloud, Product Sales Cloud, and the Finance Services Cloud. With the three clouds functioning both independently and interdependently, SSC is creating a vertical, transactional and flexible platform for today’s global enterprises. SSC is also still leveraging its legacy operations as a premium content Video On Demand ~~provides premium content~~(“VOD”) service provider in China.
The Company’s mission and ~~integrated value-added service solutions~~vision is to be the world’s leading cloud-based, total B2B enterprise solution and platform provider that empowers businesses to grow with Big Data technology.
On January 30, 2017, the Company entered into a Securities Purchase Agreement (the “Sun Video SPA”) with BT Capital Global Limited, a British Virgin Islands company (“BT”) and affiliate of the Company’s Chairman Bruno Wu, for the ~~delivery~~purchase by the Company of ~~Video-on-Demand~~all of the outstanding capital stock of Sun Video Group Hong Kong Limited. On January 31, 2017, the Company entered into another Securities Purchase Agreement (the “Wide Angle SPA”) with BT and Sun Seven Stars Media Group Limited, one of the Company’s largest shareholders, controlled by Mr. Wu, as guarantor, for the purchase by us of 55% of the outstanding capital stock of Wide Angle Group Limited (“~~VOD”~~Wide Angle”). Details of these two acquisitions are in Note 4. After acquiring these two entities, other than Company’s legacy You On Demand (“YOD”) business, the Company became engaged in consumer electronics e-commerce and smart supply chain management operations.
On June 30, 2017, the Company entered into another 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 rates) in a combination of cash and publicly traded stock to be paid ~~video programming~~ to ~~digital cable providers, Internet Protocol Television (“IPTV”) providers, Over-the-Top (“OTT”) streaming providers, mobile manufacturers~~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 ~~operators.~~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. The detail of this transaction has been disclosed in Note 11.
In the opinion of management, all adjustments (which include normal recurring adjustments) necessary to present a fair ~~statements~~statement of the financial position as of June 30, ~~2016,~~2017, results of operations for the three and six months ended June 30, ~~2016~~2017 and ~~2015,~~2016, and cash flows for the six months ended June 30, ~~2016~~2017 and ~~2015,~~2016, have been made. All significant intercompany transactions and balances are eliminated on consolidation.
Certain information and footnote disclosures normally included in the annual consolidated financial statements prepared in accordance with U.S. GAAP have been condensed or omitted. These unaudited consolidated financial statements should be read in conjunction with the Company's audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2015~~2016 filed with the Securities and Exchange Commission on March ~~30,~~ 31, 2017 (“2016 ~~(our “2015~~ Annual Report”).
~~In 2016, the Company adopted the Accounting Standards Update ("ASU") No. 2015-03,~~~~Simplifying the Presentation of Debt Issuance Costs~~, which requires the debt issuance costs be presented on the balance sheet as a direct deduction from the carrying amount of the related debt liability, instead of reported on the balance sheet as an asset. When the cost is incurred before receipt of the debt or funding, entities will continue to record the cost of issuing debt as separate asset. The costs will continue to be amortized as interest expense using the effective interest method. The adoption of ASU 2015-03 did not have any impact on prior period financial statements as no debt issuance cost were incurred for the debt that was outstanding as of December 31, 2015.
2.
Going Concern and Management’s Plans
For the six months ended June 30, ~~2016~~2017 and ~~2015,~~2016, the Company incurred ~~net losses~~loss from operations of approximately ~~$3.9~~$1.6 million and ~~$4.2~~$3.8 million, respectively, and incurred net loss of $2.1 million and of $3.9 million, respectively, and cash used in operations was approximately ~~$4.1~~$1.4 million and ~~$3.9~~$4.1 million, respectively. Further, the Company had ~~net current liabilities~~accumulated deficit of ~~$8.7~~approximately $117.5 million and $115.7 million as of June 30, ~~2016~~2017 and ~~accumulated deficit of approximately $90.2 million and $82.5 million as of June 30,~~December 31, 2016, ~~and 2015,~~ respectively, due to recurring losses since the inception of ~~our~~its business.
The Company must continue to rely on proceeds from debt and equity issuances to pay for ongoing operating expenses in order to execute its business plan. On March 28, 2016, the Company completed a common stock financing for $10.0 million. ~~On July 6, 2016,~~In addition, the Company ~~entered into a Common Stock Purchase Agreement~~completed four separate common stock financings with Seven Star Works Co. Ltd. (“SSW”) for ~~a common stock financing of~~ $4.0 million ~~and~~ on ~~August 11,~~July 19, 2016, ~~the Company entered into a Common Stock Purchase Agreement~~ with Harvest Alternative Investment Opportunities SPC (“Harvest”) for $4.0 million on August 12, 2016, with Sun Seven Stars Hong Kong Cultural Development Limited (“SSSHK”) for $2.0 million on November 17, 2016 and with certain investors, officers & directors and affiliates in a ~~common stock financing of $4.0 million.~~private placement for $2.0 million on May 19, 2017, respectively. Although the Company believes it has the ability to
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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
raise funds by issuing debt or equity ~~instruments. Additional~~instruments, additional financing may not be available to the Company on terms acceptable to the Company or at all or such resources may not be received in a timely manner.
These conditions raise substantial doubt about the Company’s ability to continue as a going concern. The consolidated financial statements have been prepared assuming that the Company will continue as a going concern and, accordingly, do not include any adjustments that might result from the outcome of this uncertainty.
3.
VIE Structure and Arrangements

a)
Sinotop VIE structure and arrangement
To comply with PRC laws and regulations that prohibit or restrict foreign ownership of companies that provides value-added telecommunication services, the Company provides its services through Sinotop ~~Beijing and its subsidiary, Zhong Hai Video, which holds the licenses and approvals to provide digital distribution and Internet content services in the PRC.~~Beijing. The Company has the ability to control Sinotop Beijing ~~and Zhong Hai Video~~ through a series of contractual agreements entered into among YOD WFOE, YOD Hong Kong, Sinotop Beijing and the legal shareholders of Sinotop Beijing.
Prior to January 2016, wethe Company entered into a series of contractual agreements to give usit the ability to control Sinotop Beijing with Zhang Yan, the former legal shareholder of Sinotop Beijing (the spouse of ~~our~~its then-CEO). In January 2016, in connection with the appointment of ~~our~~a new CEO and in accordance with ~~our~~its rights under the contractual agreements, (1) the legal ownership of Sinotop Beijing was transferred from Zhang Yan to Bing Wu, the brother of ~~our~~its current Chairman and Yun Zhu, ~~our Vice President and~~the former Vice President of Beijing Sun Seven Stars Culture Development Limited (“SSS”), (2) the Company terminated the series of contractual arrangements with Zhang Yan, and (3) the Company entered into new contractual agreements with Bing Wu and Yun Zhu (collectively, the “Former Sinotop VIE Agreements”). In October 2016, in accordance with its rights under contractual agreements, (1) the legal ownership of Sinotop Beijing was transferred from Bing Wu to Mei Chen, the former CFO of the Company, (2) the Company terminated the series of contractual arrangements with Bing Wu, and (3) the Company entered into new contractual agreements with Mei Chen (collectively, the “New Sinotop VIE Agreements”). Although the Former Sinotop VIE Agreements and New Sinotop VIE Agreements resulted in changes to the legal shareholders of Sinotop Beijing, there was no change in the Company’s ability to control Sinotop Beijing or the Company’s rights to 100% of the economic benefits of Sinotop Beijing. The Company was the primary beneficiary of Sinotop Beijing prior to the signing of the Former Sinotop VIE Agreements and New Sinotop VIE Agreements and the Company remained the primary beneficiary of Sinotop Beijing after the signing of the former Sinotop VIE Agreements and the New Sinotop VIE Agreements. Accordingly, the change in legal ownership of Sinotop Beijing did not have any impact to the Company’s consolidation of Sinotop Beijing. The key terms of the New Sinotop VIE Agreements are summarized as follows:
11
Equity Pledge Agreement
Pursuant to the Equity Pledge Agreement among YOD WFOE, Sinotop Beijing, ~~Bing Wu~~Mei Chen and Yun Zhu (collectively, the “Nominee Shareholders”), the Nominee Shareholders pledged all of their equity interests in Sinotop Beijing (the “Collateral”) to YOD WFOE as security for the performance of the obligations of Sinotop Beijing to make all the required technical service fee payments pursuant to the Technical Services Agreement and for performance of the Nominee Shareholders’ obligation under the Call Option Agreement. The terms of the Equity Pledge Agreement expire upon satisfaction of all obligations under the Technical Services Agreement and Call Option Agreement.
Call Option Agreement
Pursuant to the Call Option Agreement among YOD WFOE, Sinotop Beijing and the Nominee Shareholders, the Nominee Shareholders granted an exclusive option to YOD WFOE, or its designee, to purchase, at any time and from time to time, to the extent permitted under PRC law, all or any portion of the Nominee Shareholders’ equity in Sinotop Beijing. The exercise price of the option shall be determined by YOD WFOE at its sole discretion, subject to any restrictions imposed by PRC law. The term of the agreement is until all of the equity interest in Sinotop Beijing held by the Nominee Shareholders are transferred to YOD WFOE, or its designee and may not be terminated by any part to the agreement without consent of the other parties.
Power of Attorney
Pursuant to the Power of Attorney agreements among YOD WFOE, Sinotop Beijing and each of the respective Nominee Shareholders, each of the Nominee Shareholders granted YOD WFOE the irrevocable right, for the maximum period permitted by law, all of its voting rights as shareholders of Sinotop Beijing. The Nominee Shareholders may not transfer any of its equity interest in Sinotop Beijing to any party other than YOD WFOE. The Power of Attorney agreements may not be terminated except until all of the equity in Sinotop Beijing has been transferred to YOD WFOE or its designee.
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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Technical Service Agreement
Pursuant to the Technical Service Agreement between YOD WFOE and Sinotop Beijing, YOD WFOE has the exclusive right to provide technical service, marketing and management consulting service, financial support service and human resource support services to Sinotop Beijing, and Sinotop Beijing is required to take all commercially reasonable efforts to permit and facilitate the provision of the services by YOD WFOE. As compensation for providing the services, YOD WFOE is entitled to receive service fees from Sinotop Beijing equivalent to YOD WFOE’s cost plus 30% of such costs as calculated on accounting policies generally accepted in the PRC. YOD WFOE and Sinotop Beijing agree to periodically review the service fee and make adjustments as deemed appropriate. The term of the Technical Services Agreement is perpetual, and may only be terminated upon written consent of both parties.
Spousal Consent
Pursuant to the Spousal Consent, undersigned by the respective spouse of Nominee Shareholders (collectively, the “Spouses”), the Spouses unconditionally and irrevocably agreed to the execution of the Equity Pledge Agreement, Call Option Agreement and Power of Attorney agreement. The Spouses agreed to not make any assertions in connection with the equity interest of Sinotop Beijing and to waived consent on further amendment or termination of the Equity Pledge Agreement, Call Option Agreement and Power of Attorney agreement. The Spouses further pledge to execute all necessary documents and take all necessary actions to ensure appropriate performance under these agreements upon YOD WFOE’s request. In the event the Spouses obtain any equity interests of Sinotop Beijing which are held by the Nominee Shareholders, the Spouses agreed to be bound by the New Sinotop VIE Agreements, including the Technical Services Agreement, and comply with the obligations thereunder, including sign a series of written documents in substantially the same format and content as the New Sinotop VIE Agreements.
12
Letter of Indemnification
Pursuant to the Letter of Indemnification among YOD WFOE and ~~Bing Wu~~Mei Chen and YOD WFOE and Yun Zhu, YOD WFOE agreed to indemnify Nominee Shareholders against any personal, tax or other liabilities incurred in connection with their role in equity transfer to the greatest extent permitted under PRC law. YOD WFOE further waived and released Nominee Shareholders from any claims arising from, or related to, their role as the legal shareholder of Sinotop Beijing, provided that their actions as a nominee shareholder are taken in good faith and are not opposed to YOD WFOE’s best interests. Conversely, the Nominee Shareholders will not be entitled to dividends or other benefits generated therefrom, or receive any compensation in connection with this arrangement. The Letter of Indemnification will remain valid until either Nominee Shareholders or YOD WFOE terminates the agreement by giving the other party hereto ~~sixty (60)~~60 days’ prior written notice.
In addition to the New Sinotop VIE Agreements, the Management Service Agreement between Sinotop Beijing and YOD Hong Kong continued to remain in effect, the key terms of which are as follows:
Management Services Agreement
Pursuant to a Management Services Agreement, as of March 9, 2010, YOD Hong Kong has the exclusive right to provide to Sinotop Beijing management, financial and other services related to the operation of Sinotop Beijing’s business, and Sinotop Beijing is required to take all commercially reasonable efforts to permit and facilitate the provision of the services by YOD Hong Kong. As compensation for providing the services, YOD Hong Kong is entitled to receive a fee from Sinotop Beijing, upon demand, equal to 100% of the annual net profits as calculated on accounting policies generally accepted in the PRC of Sinotop Beijing during the term of the Management Services Agreement. YOD Hong Kong may also request ad hoc quarterly payments of the aggregate fee, which payments will be credited against Sinotop Beijing’s future payment obligations.
The Management Services Agreement also provides YOD Hong Kong, or its designee, with a right of first refusal to acquire all or any portion of the equity of Sinotop Beijing upon any proposal by the sole shareholder of Sinotop Beijing to transfer such equity. In addition, at the sole discretion of YOD Hong Kong, Sinotop Beijing is obligated to transfer to YOD Hong Kong, or its designee, any part or all of the business, personnel, assets and operations of Sinotop Beijing which may be lawfully conducted, employed, owned or operated by YOD Hong Kong, including:
(a)         business opportunities presented to, or available to Sinotop Beijing may be pursued and contracted for in the name of YOD Hong Kong rather than Sinotop Beijing, and at its discretion, YOD Hong Kong may employ the resources of Sinotop Beijing to secure such opportunities;
(b)        any tangible or intangible property of Sinotop Beijing, any contractual rights, any personnel, and any other items or things of value held by Sinotop Beijing may be transferred to YOD Hong Kong at book value;
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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(c)        real property, personal or intangible property, personnel, services, equipment, supplies and any other items useful for the conduct of the business may be obtained by YOD Hong Kong by acquisition, lease, license or otherwise, and made available to Sinotop Beijing on terms to be determined by agreement between YOD Hong Kong and Sinotop Beijing;
(d)       contracts entered into in the name of Sinotop Beijing may be transferred to YOD Hong Kong, or the work under such contracts may be subcontracted, in whole or in part, to YOD Hong Kong, on terms to be determined by agreement between YOD Hong Kong and Sinotop Beijing; and
(e)        any changes to, or any expansion or contraction of, the business may be carried out at the sole discretion of YOD Hong Kong, and in the name of and at the expense of, YOD Hong Kong; provided, however, that none of the foregoing may cause or have the effect of terminating (without being substantially replaced under the name of YOD Hong Kong) or adversely affecting any license, permit or regulatory status of Sinotop Beijing.
The term of the Management Services Agreement is 20 years, and may not be terminated by Sinotop Beijing, except with the consent of, or a material breach by, YOD Hong Kong.
Pursuant to the above contractual agreements, YOD WFOE can have the assets transferred freely out of Sinotop Beijing without any restrictions. Therefore, YOD WFOE considers that there is no asset of Sinotop Beijing ~~or Zhong Hai Video~~ that can be used only to settle obligations of Sinotop Beijing, ~~or Zhong Hai Video,~~ except for the registered capital of ~~these two entities~~the entity amounting to ~~RMB17.0~~RMB10.6 million (approximately ~~$2.6~~$1.6 million) as of June 30, ~~2016.~~2017. As Sinotop Beijing ~~and Zhong Hai Video are~~is incorporated as limited liability ~~companies~~company under PRC Company Law, creditors of ~~these two entities~~this entity do not have recourse to the general credit of other entities of the Company.
13

b)
Tianjin Sevenstarflix Network Technology Limited (“SSF”) VIE structure and arrangements
To comply with PRC laws and regulations that prohibit or restrict foreign ownership of companies that provides value-added telecommunication services, the Company plans to also provide its services through SSF, which is applying to hold the licenses and approvals to provide digital distribution and Internet content services in the PRC. The Company has the ability to control SSF through a series of contractual agreements, as described below, entered into among YOD WFOE, YOD Hong Kong, SSF and the legal shareholders of SSF.
On April 5, 2016, YOD WFOE entered into variable interest entity agreements with SSF and its nominee shareholders pursuant to the Amended Tianjin Agreement dated December 21, 2015 (see Note ~~9 (c)~~12(c)) (the “SSF VIE Agreements”). Lan Yang, holder of 99% equity ownership in SSF and a party to certain of the SSF VIE Agreements, is the spouse of Bruno Zheng Wu, the Company’s Chairman. Yun Zhu, holder of 1% equity ownership in SSF and a party to certain of the SSF VIE Agreements, is the Vice President of SSS.
The terms of the SSF VIE Agreements are as follows:
Equity Pledge Agreement
Pursuant to the Equity Pledge Agreement among YOD WFOE, Lan Yang and Yun Zhu (the “Nominee Shareholders”), dated April 5, 2016, the Nominee Shareholders pledged all of their capital contribution rights in SSF to YOD WFOE as security for the performance of the obligations of SSF to make all the required technical service fee payments pursuant to the Technical Services Agreement and for performance of the Nominee Shareholders’ obligation under the Call Option Agreement. The terms of the Equity Pledge Agreement expire upon satisfaction of all obligations under the Technical Services Agreement and Call Option Agreement.
Call Option Agreement
Pursuant to the Call Option Agreement among YOD WFOE, SSF and the Nominee Shareholders, dated April 5, 2016, the Nominee Shareholders granted an exclusive option to YOD WFOE, or its designee, to purchase, at any time and from time to time, to the extent permitted under PRC law, all or any portion of the Nominee Shareholders’ equity in SSF. The exercise price of the option shall be determined by YOD WFOE at its sole discretion, subject to any restrictions imposed by PRC law. The term of the agreement is until all of the equity interest in SSF held by the Nominee Shareholders is transferred to YOD WFOE, or its designee and may not be terminated by any party to the agreement without consent of the other parties.
Power of Attorney
Pursuant to the Power of Attorney agreements among YOD WFOE, SSF and each of the respective Nominee Shareholders, dated April 5, 2016, each of the Nominee Shareholders granted YOD WFOE the irrevocable right, for the maximum period permitted by law, to all of its voting rights as shareholders of SSF. The Nominee Shareholders may not transfer any of their equity interest in SSF to any party other
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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
than YOD WFOE. The Power of Attorney agreements may not be terminated except until all of the equity in SSF has been transferred to YOD WFOE or its designee.
Technical Service Agreement
Pursuant to the Technical Service Agreement, dated April 5, 2016, between YOD WFOE and SSF, YOD WFOE has the exclusive right to provide technical service, marketing and management consulting service, financial support service and human resource support services to SSF, and SSF is required to take all commercially reasonable efforts to permit and facilitate the provision of the services by YOD WFOE. As compensation for providing the services, YOD WFOE is entitled to receive service fees from SSF equivalent to YOD WFOE’s cost plus 20-30% of such costs as calculated on accounting policies generally accepted in the PRC. YOD WFOE and SSF agree to periodically review the service fee and make adjustments as deemed appropriate. The term of the Technical Services Agreement is perpetual, and may only be terminated upon written consent of both parties.
Spousal Consent
Pursuant to the Spousal Consent, dated April 5, 2016, undersigned by the respective spouse of the Nominee Shareholders (collectively, the “Spouses”), the Spouses unconditionally and irrevocably agreed to the execution of the Equity Pledge Agreement, Call Option Agreement and Power of Attorney agreement. The Spouses agreed to not make any assertions in connection with the equity interest of SSF and to waive consent on further amendment or termination of the Equity Pledge Agreement, Call Option Agreement and Power of Attorney agreement. The Spouses further pledge to execute all necessary documents and take all necessary actions to ensure appropriate performance under these agreements upon YOD WFOE’s request. In the event the Spouses obtain any equity interests of SSF which are held by the Nominee Shareholders, the Spouses agreed to be bound by the SSF VIE Agreements, including the Technical Services Agreement, and comply with the obligations thereunder, including sign a series of written documents in substantially the same format and content as the SSF VIE Agreements.
14
Letter of Indemnification
Pursuant to the Letter of Indemnification among YOD WFOE and Lan Yang and YOD WFOE and Yun Zhu, both dated as of April 5, 2016, YOD WFOE agreed to indemnify Nominee Shareholders against any personal, tax or other liabilities incurred in connection with their role in equity transfer to the greatest extent permitted under PRC law. YOD WFOE further waived and released the Nominee Shareholders from any claims arising from, or related to, their role as the legal shareholder of SSF, provided that their actions as a nominee shareholder are taken in good faith and are not opposed to YOD WFOE’s best interests. The Nominee Shareholders will not be entitled to dividends or other benefits generated therefrom, or receive any compensation in connection with this arrangement. The Letter of Indemnification will remain valid until either the Nominee Shareholders or YOD WFOE terminates the agreement by giving the other party hereto ~~sixty (60)~~60 days’ prior written notice.
Loan Agreement
Pursuant to the Loan Agreement among YOD WFOE and the Nominee Shareholders, dated April 5, 2016, YOD WFOE agrees to lend RMB 19.8 million and RMB 0.2 million, respectively, to the Nominee Shareholders for the purpose of establishing SSF and for development of its business. As of ~~June 30,~~December 31, 2016, RMB ~~17.8~~27.6 million (US ~~$2.7~~$4.2 million) and RMB nil have been lent to Lan Yang and Yun Zhu, respectively. Lan Yang has contributed all of the RMB ~~17.8~~27.6 million (US ~~$2.7~~$4.2 million) in the form of capital ~~contribution and accordingly the loan is eliminated with the capital of SSF upon consolidation.~~contribution. The loan can only be repaid by a transfer by the Nominee Shareholders of their equity interests in SSF to YOD WFOE or YOD WFOE’s designated persons, through (i) YOD WFOE having the right, but not the obligation to at any time purchase, or authorize a designated person to purchase, all or part of the Nominee Shareholders’ equity interests in SSF at such price as YOD WFOE shall determine (the “Transfer Price”), (ii) all monies received by the Nominee Shareholders through the payment of the Transfer Price being used solely to repay YOD WFOE for the loans, and (iii) if the Transfer Price exceeds the principal amount of the loans, the amount in excess of the principal amount of the loans being deemed as interest payable on the loans, and to be payable to YOD WFOE in cash. Otherwise, the loans shall be deemed to be interest-free. The term of the Loan Agreement is perpetual, and may only be terminated upon the Nominee Shareholders receiving repayment notice, or upon the occurrence of an event of default under the terms of the agreement. The loan extended to the Nominee Shareholders and the capital of SSF are fully eliminated in the consolidated financial statements.
Management Services Agreement
In addition to the SSF VIE Agreements, the Company’s subsidiary and the parent company of YOD WFOE, YOU On Demand (Asia) Limited, a company incorporated under the laws of Hong Kong (“YOD Hong Kong”) entered into a Management Services Agreement with SSF, dated as of April 6, 2016 (the “Management Services Agreement”). Pursuant to a Management Services Agreement, YOD Hong Kong has the exclusive right to provide to SSF management, financial and other services related to the operation of SSF’s business, and SSF is required to take all commercially reasonable efforts to permit and facilitate the provision of the services by YOD Hong Kong.
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As compensation for providing the services, YOD Hong Kong is entitled to receive a fee from SSF, upon demand, equal to 100% of the annual net profits as calculated on accounting policies generally accepted in the PRC of SSF during the term of the Management Services Agreement. YOD Hong Kong may also request ad hoc quarterly payments of the aggregate fee, which payments will be credited against SSF’s future payment obligations.
In addition, at the sole discretion of YOD Hong Kong, SSF is obligated to transfer to YOD Hong Kong, or its designee, any part or all of the business, personnel, assets and operations of SSF which may be lawfully conducted, employed, owned or operated by YOD Hong Kong, including:
(a)         business opportunities presented to, or available to SSF may be pursued and contracted for in the name of YOD Hong Kong rather than SSF, and at its discretion, YOD Hong Kong may employ the resources of SSF to secure such opportunities;
(b)         any tangible or intangible property of SSF, any contractual rights, any personnel, and any other items or things of value held by SSF may be transferred to YOD Hong Kong at book value;
(c)         real property, personal or intangible property, personnel, services, equipment, supplies and any other items useful for the conduct of the business may be obtained by YOD Hong Kong by acquisition, lease, license or otherwise, and made available to SSF on terms to be determined by agreement between YOD Hong Kong and SSF;
(d)         contracts entered into in the name of SSF may be transferred to YOD Hong Kong, or the work under such contracts may be subcontracted, in whole or in part, to YOD Hong Kong, on terms to be determined by agreement between YOD Hong Kong and SSF; and
15
(e)         any changes to, or any expansion or contraction of, the business may be carried out in the exercise of the sole discretion of YOD Hong Kong, and in the name of and at the expense of, YOD Hong Kong;
provided, however, that none of the foregoing may cause or have the effect of terminating (without being substantially replaced under the name of YOD Hong Kong) or adversely affecting any license, permit or regulatory status of SSF.
The term of the Management Services Agreement is 20 years, and may not be terminated by SSF, except with the consent of, or a material breach by, YOD Hong Kong.
Pursuant to the above contractual agreements, YOD WFOE can have the assets transferred freely out of SSF without any restrictions. Therefore, YOD WFOE considers that there is no asset of SSF that can be used only to settle obligation of YOD WFOE, except for the registered capital of SSF amounting to RMB 50.0 million (approximately $7.5 million), among which RMB ~~17.8~~27.6 million (approximately ~~$2.8~~$4.2 million) has been injected as of June 30, ~~2016.~~2017. As SSF is incorporated as limited liability company under PRC Company Law, creditors of ~~these two entities~~this entity do not have recourse to the general credit of other entities of the Company.
Financial Information
On June 30, 2017, Company entered into BT SPA, under which Zhong Hai Shi Xun Media, which was formerly 80% owned by Sinotop Beijing, was sold to BT. The details of this transaction are disclosed in Note 11.
The following financial information of our VIEs, as applicable for the periods presented, affected the Company's consolidated financial statements.

June 30, December 31,
2016 2015
ASSETS
Current assets:
              Cash $ 736,240 $ 1,001,094
              Accounts receivable, net 3,094,770 1,689,415
              Licensed content, current 711,683 556,591
              Prepaid expenses 219,242 98,893
              Other current assets 130,810 133,582
              Intercompany receivables due from the Company's subsidiaries⁽ⁱ⁾ 157,676 161,017
Total current assets 5,050,421 3,640,592
Property and equipment, net 88,776 149,880
Licensed content, non-current 8,993 21,085
Intangible assets, net 200,098 253,771
Long term investments 3,118,445 450,115
Other non-current assets 59,355 58,026
Total assets $ 8,526,088 $ 4,573,469

LIABILITIES
Current liabilities:
Accounts payable $ 651,254 $ 44,867
Deferred revenue 1,232 15,080
Accrued expenses 390,176 280,038
Other current liabilities 361,908 298,422
Accrued salaries - 10,861
Accrued license content fees 1,518,112 933,532
Intercompany payables due to the Company's subsidiaries⁽ⁱ⁾ 12,904,733 12,512,954
Total current liabilities 15,827,415 14,095,754
Total liabilities $ 15,827,415 $ 14,095,754

Six Months Ended
June 30, June 30,
2016 2015
Revenue $ 2,750,190 $ 2,507,576
Net loss $ (671,644 ) $ (731,763 )

Six Months Ended
June 30, June 30,
2016 2015
Net cash used in operating activities $ (730,019 ) $ 329,740
Net cash used in investing activities $ (2,165,477 ) $ (64,002 )
Net cash provided by intercompany financing activities⁽ⁱ⁾ $ 2,630,642 $ -
16

June 30, December 31,
2017 2016
ASSETS
Current assets:
Cash $ 8,416 $ 1,519,125
Accounts receivable, net - 1,260,529
Prepaid expenses 2,596 30,455
Other current assets 1,475 191,427
Intercompany receivables due from the Company's subsidiaries⁽ⁱ⁾ 2,733,143 150,725
Total current assets 2,745,630 3,152,261
Property and equipment, net - 196,677
Intangible assets, net - 2,570
Long term investments 3,584,639 3,654,664
Other non-current assets - 442,782
Total assets $ 6,330,269 $ 7,448,954
LIABILITIES 　
Current liabilities:
Accounts payable $ - $ 5,817
Deferred revenue - 824,563
Accrued expenses 1,943 268,074
Other current liabilities 40 394,314
Accrued license content fees - 1,236,661
Intercompany payables due to the Company's subsidiaries⁽ⁱ⁾ 4,069,514 14,752,338
Total current liabilities 4,071,497 17,481,767
Total liabilities $ 4,071,497 $ 17,481,767
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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Six Months Ended
June 30, June 30,
2017 2016
Revenue $ 794,273 $ 2,750,190
Net income (loss) $ 132,231 $ (671,644 )
Six Months Ended
June 30, June 30,
2017 2016
Net cash used in operating activities $ (1,558,586 ) $ (730,019 )
Net cash used in investing activities $ (141,639 ) $ (2,165,477 )
Net cash provided by financing activities⁽ⁱ⁾ $ 189,515 $ 2,630,642
(i)
Intercompany receivables and payables are eliminated upon ~~consolidation~~
consolidation. The intercompany financing activities include the capital injection of $0.2 million to Sinotop Beijing in the six months period ended June 30, 2017.
After the disposal of Zhong Hai Shi Xun Media as of June 30, 2017, the total assets consisted of receivables and long term investments. The Company expects that a lower percentage of its total revenue ~~producing assets~~will be generated from its VIEs in the foreseeable future.
4. Acquisition
On January 30, 2017, the Company entered into a Securities Purchase Agreement (the “Sun Video SPA”) with BT Capital Global Limited, a British Virgin Islands company (“BT”) which is controlled by Company’s Chairman Bruno Wu, for the purchase by SSC of all of the outstanding capital stock of Sun Video Group Hong Kong Limited, a Hong Kong corporation (“SVG”), for an aggregate purchase price of $800,000 and a $50 million Promissory Note (the “SVG Note”) with the principal and interest thereon convertible into shares of the Company’s common stock at a conversion rate of $1.50 per share. BT has guaranteed that ~~are held~~SVG will achieve certain financial goals within 12 months of the closing. Until receipt of necessary shareholder approvals, the SVG Note is not convertible into shares of our common stock, but once the necessary shareholder approval is received, the unpaid principal and interest thereon will automatically convert. Under the terms of the Sun Video SPA, BT has guaranteed that the business of SVG and its subsidiaries (the “Sun Video Business”) shall achieve revenue of $250 million and $15 million of gross profit (collectively the “Performance Guarantees”) within 12 months of the closing. If the Sun Video Business fails to meet either of the Performance Guarantees within such time, BT shall forfeit back to the Company the shares of the Company’s common stock or the SVG Note, on a pro rata basis based on the Performance Guarantee for which the Sun Video Business achieves the lowest percentage of the respective amount guaranteed.
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 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 ~~VIEs~~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
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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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 ~~VIE’s subsidiary comprise~~business combination between entities under common control by Mr. Wu. Therefore, in accordance with ASC Subtopic 805-50, the consolidated financial statements of ~~licensed content, network equipment, charter/cooperation agreements, software~~the Company include the acquired assets and ~~licenses~~liabilities of the SVG and ~~website and mobile app development. Substantially all of such assets are recognized in~~Wide Angle at their historical carrying amounts. In addition, the Company’s consolidated financial statements ~~except for certain Internet Content Provider licenses, internally developed software, trademarks~~as of December 31, 2016 have been prepared as if the Wecast Services and ~~patent applications which were not recorded on~~Wide Angle had been owned by the Company since November 10, 2016 presented and the Company’s consolidated ~~balance sheets~~financial statements as ~~they do~~of December 31, 2016 has been retrospectively adjusted accordingly.
As of June 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 ~~meet all~~begun accruing any reserves relating to potential Net Income Threshold earnout payments, since the ~~capitalization criteria. The VIEs also have assembled work force for sales, marketing and operations.~~Sun Video Business is currently not close to exceeding this threshold.
4. 5. Accounts Receivable
Accounts receivable consists of the following:
June 30, December 31,
2017 2016
Accounts receivable, gross: $ 42,018,388 $ 12,350,947
Less: allowance for doubtful accounts (51,028 ) (2,828,796 )
Accounts receivable, net $ 41,967,360 $ 9,522,151
The movement of the allowance for doubtful accounts is as follows:
June 30, 2017 December 31, 2016
Balance at the beginning of the period $ (2,828,796 ) $ (3,672 )
Additions charged to bad debt expense (103,043 ) (2,825,124 )
Disposal of Zhong Hai Shi Xun 2,880,811 -
Balance at the end of the period $ (51,028 ) $ (2,828,796 )
6. Property and Equipment
The following is a breakdown of ~~our~~the Company’s property and equipment:
June 30, December 31,
2016 2015

Furniture and office equipment $ 919,685 $ 910,420
Leasehold improvements 190,722 190,722
Total property and equipment 1,110,407 1,101,142
Less: accumulated depreciation (1,016,818 ) (946,708 )
Property and Equipment, net $ 93,589 $ 154,434
We
June 30, December 31,
2017 2016
Furniture and office equipment $ 286,143 $ 1,063,481
Vehicle 145,311 267,023
Office Building - 3,948,058
Leasehold improvements 3,827 939,844 　
Total property and equipment 435,281 6,218,406
Less: accumulated depreciation (317,892 ) (1,254,681 )
Property and Equipment, net $ 117,389 $ 4,963,725 　
The Company recorded depreciation expense of approximately $32,549 and $200,631 for the three and six months ended June 30, 2017 and $34,000 and $68,000 for the three and six months ended June 30, 2016 respectively.
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Seven Stars Cloud Group, Inc., Its Subsidiaries and ~~$49,000 and $100,000 for the three and six months ended June 30, 2015 respectively.~~Variable Interest Entities
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
5.
7.
Intangible Assets
As of June 30, ~~2016~~2017 and December 31, ~~2015,~~2016, the Company’s amortizing and indefinite lived intangible assets consisted of the following:
June 30, 2016 December 31, 2015
Amortizing Intangible Gross Carrying Accumulated Net Gross Carrying Accumulated Net
Assets Amount Amortization Balance Amount Amortization Balance
Charter/ Cooperation agreements $ 2,755,821 (815,268 ) 1,940,553 $ 2,755,821 $ (746,372 ) $ 2,009,449
Software and licenses 284,233 (245,016 ) 39,217 253,930 (234,947 ) 18,983
Website and mobile app development 653,830 (456,987 ) 196,843 653,830 (403,961 ) 249,869
Workforce 305,693 (25,474 ) 280,219 - - -
Total amortizingintangible assets $ 3,999,577 (1,542,745 ) 2,456,832 $ 3,663,581 $ (1,385,280 ) $ 2,278,301
Indefinite lived intangibleassets
Website name 134,290 - 134,290 134,290 - 134,290
Total intangible assets $ 4,133,867 (1,542,745 ) 2,591,122 $ 3,797,871 $ (1,385,280 ) $ 2,412,591
June 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 210,070 (191,118 ) - 18,952 267,991 (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 (127,372 ) - 178,322 305,694 (76,422 ) - 229,272
Total amortizing intangible assets $ 608,729 $ (358,433 ) $ (53,022 ) $ 197,274 $ 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 $ 753,618 $ (358,433 ) $ (63,621 ) $ 331,564 $ 4,160,553 $ (1,688,683 ) $ (2,018,628 ) $ 453,242
(i) On April 1, 2016, ~~YOD~~the Company entered into an agreement with Mr. Liu Changsheng, under which ~~YOD~~SSC agreed to pay Mr. Liu Changsheng 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 to enter~~apps. All 10 personnel entered into three year employment contracts with ~~YOD~~SSC effective ~~from~~ April 1, ~~2016, as well as~~2016. The Company also acquired certain ~~laptops~~laptop and ~~desktops~~desktop computers with fair value of $3,655. According to the agreement, 30% of the cash consideration is due ~~right after~~upon the signing of the agreement, 20% is due in 2 months after the signing of the agreement and ~~the rest of~~ 50% is due in 6 months after the signing of the agreement. ~~Cash~~All cash consideration ~~of $59,295~~ has been ~~paid as of June 30, 2016, and $37,530 was paid on July 4, 2016.~~paid. If any of ~~three~~3 key staff, as defined, terminated their employment with ~~YOD~~SSC during the first 12 months of employment, ~~YOD~~SSC has the right to forfeit the unpaid cash consideration. In addition, Mr. Liu Changsheng would be required to pay a default penalty at minimal of $129,180. ~~YOD~~SSC has accounted for the transaction as an asset acquisition in which ~~YOD~~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.
We
The Company recorded amortization expense related to our amortizing intangible assets of approximately $28,393 and $56,522 for the three and six months ended June 30, 2017 and $90,000 and $153,000 for the three and six months ended June 30, 2016 ~~and $46,000 and $85,000 for the three and six months ended June 30, 2015~~ respectively, which included the amortization expense of the workforce acquired as stated above.
(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.
(iii) During the fourth quarter of 2016, the Company determined that the Charter/Cooperation agreements will not serve the business or generate future cash flow. As no future cash flows will be generated from the Charter/Cooperation agreements, the Company estimated the fair value of the Charter/Cooperation agreements to be nil as of December 31, 2016. Fair value was determined using unobservable (Level 3) inputs. Impairment loss from Charter/Cooperation agreements of $1,846,000 was recognized in 2016 to write off the entire book value of the Charter/Cooperation agreements. In June, 2017, this intangible asset has been disposed of along with other net assets in Zhong Hai Shi Xun.
(iv) During the second quarter of 2017, the Company determined that one of its subsidiaries in the US will not serve the non-core business or generate future cash flow. As no future cash flows will be generated from using the patent owned by this subsidiary, the Company estimated the fair value of those patent to be nil as of June 30, 2017. Fair value was determined using unobservable (Level 3) inputs. Impairment loss from patent of $63,621 was recognized in 2017 to write off the entire book value of the patent.
The following table outlines the amortization expense for the next ~~five~~three years and thereafter:
Amortization to be
Years ending December 31, Recognized
2017 (6 months) $ 55,904
2018 111,778
2019 29,592
Total amortization to be recognized $ 197,274
17

Amortization to be
Years ending December 31, Recognized
2016 (6 months) $ 179,641
2017 346,769
2018 304,061
2019 168,079
2020 137,792
2021 137,792
Thereafter 1,182,698
Total amortization to be recognized $ 2,456,832

6.
~~Long Term Investments~~

~~(1)~~18
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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
8. Long Term Investments ~~under Cost Method~~

Cost method investments
Cost method investments as of the period ended June 30, 2017 and December 31, 2016 are as follow:
June 30, December 31,
2017 2016
Topsgame (i) $ 3,230,422 $ 3,156,985
Frequency (ii) 3,000,000 3,000,000
Total $ 6,230,422 $ 6,156,985
~~(a)~~(i)
Investment in ~~Topsgames~~Topsgame
On April 13, 2016, SSF entered into a Game Right Assignment Agreement with SSS for the acquisition of certain game IP rights (“Game IP Rights”) for approximately $2.7 million (RMB18 million) in cash. ~~As of June 30, 2016, approximately $2.1 million has been paid out to SSS.~~ On April 15, 2016, SSF entered into a Capital Increase Agreement with Nanjing Tops Game Co., Ltd. (“Topsgame”) and its shareholders whereby SSF transferred the Game IP Rights acquired from SSS to Topsgame in exchange for 13% of Topsgame’s equity ownership. Topsgame is a PRC company that specializes in the independent development and operation of online, stand-alone and other games as well as the distribution of domestic and overseas games. The ~~investment was part of the Company’s transformation and expansion strategy. The~~ Company’s 13% ownership interest does not provide the Company with the right to nor does the Company have representation on the board of directors of Topsgame.
The Company has recognized the cost of the investment in Topsgame, which is a private company with no readily determinable fair value, ~~equal to~~based on the ~~fair value~~acquisition cost of Game IP Rights of approximately $2.7 million and ~~account~~accounts for the investment by the cost method.
On September 14, 2016, SSF increased its investment in Topsgame by RMB 3,900,000 (approximately $584,000) and maintained its 13% equity ownership of Topsgame. The investment continued to be accounted for using the cost ~~method~~method.
On June 30, 2017, the Company entered into the BT SPA, pursuant to which, Topsgame has been agreed to sold to BT in the consideration of ~~accounting.~~the fair value of Topsgame which approximates to its carrying book value (appraised by an independent third party). However, considering the payment term is in one year, its collectability is uncertain and required legal transfer process was not completed as of June 30, 2017, Company did not account for this transaction as of June 30, 2017.
~~(b)~~
(ii) Investment in Frequency
In April 2016, the Company and Frequency Networks Inc. (“Frequency”) entered into a Series A Preferred Stock Purchase Agreement (the “SPA”) for the purchase of 8,566,271 shares of Series A Preferred Stock, Frequency (the “Frequency Preferred Stock”) for a total purchase price of ~~$3.0~~$3 million. The 8,566,271 Series A Preferred Stock represent ~~13%~~9% ownership and voting interest on an as converted basis and does not provide the Company with the right to nor does the Company have representation on the board of directors of Frequency.
The Frequency Preferred Stock is entitled to non-cumulative dividends at the rate of $0.02548 per share per annum, declared at the discretion of Frequency’s board of directors. The Frequency Preferred Stock is also convertible into shares of Frequency common stock at the Company’s election any time after issuance on a 1:1 basis, subject to certain adjustment. Each share of Frequency Preferred Stock also has a liquidation preference of $0.42467 per share, plus any declared but unpaid dividends.
The Company has recognized the cost of the investment in Frequency, which is a private company with no readily determinable fair value, at its cost of $3 million and ~~account~~accounts for the investment ~~using~~by the cost method.
There were no identified events or changes in circumstances that may have had a significant adverse effect on the fair value of our cost method investments, accordingly the fair value of ~~accounting.~~our cost method investments are not estimated.
~~(2)~~19
~~Long Term Investment under Equity Method~~
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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Equity method investments
Equity method investment movement for the six months ended on June 30, 2017 is as follow:
June 30, 2017
December 31,
2016 Capital increase Loss on investment Impairment loss Foreign currency
translation adjustments June 30,
2017
Wecast Internet (i) 132,782 - (57,644 ) - 4,771 79,909
Hua Cheng (ii) 364,897 - (19,192 ) - 8,511 354,216
Shandong Media (iii) - - - - - -
Total $ 497,679 - $ (76,836 ) - $ 13,282 $ 434,125
~~(c)~~(i)
Investment in ~~Shandong Media~~Wecast Internet
In October 2016, the Company’s subsidiary, YOU On Demand (Asia) Ltd., invested RMB1,000,000 (approximately $149,750) in Wecast Internet Limited (“Wecast Internet”) and held its 50% equity ownership.
(ii) Investment in Hua Cheng
Investments in entities where the Company can exercise significant influence, but not control, is classified as a long-term equity investment and accounted for using the equity method. Under the equity method, the investment is initially recorded at cost and adjusted for the Company’s share of undistributed earnings or losses of the investee. Investment losses are recognized until the investment is written down to nill provided the Company does not guarantee the investee’s obligations nor it is committed to provide additional funding.
As of ~~and for~~ the period ended June 30, ~~2016~~2017 and December 31, ~~2015,~~2016, the ~~Company’s long term~~Company held 39% equity ~~investments are comprised~~ownership in Hua Cheng, and accounted for the investment by the equity method.
(iii) Investment in Shandong Media
As of the ~~Company’ investment in Shandong Lushi Media Co., Ltd. (“Shandong Media”)~~period ended June 30, 2017 and ~~Hua Cheng Hu Dong (Beijing) Film and Television Communication Co., Ltd. (“Hua Cheng”), which are~~December 31, 2016, the Company held 30% ~~and 39%, respectively, owned by Sinotop Beijing. The long term investment~~equity ownership in Shandong Media, and accounts for the investment by the equity method. The investment was ~~nil and nil~~fully impaired as of June 30, ~~2016~~2017 and December 31, ~~2015 respectively,~~2016.
9. Stockholders’ Equity
On July 6, 2016, the Company entered into a Common Stock Purchase Agreement (the “SSW SPA”) with Seven Stars Works Co., Ltd., a Korea company (“SSW”) and an affiliate of SSS. Pursuant to the ~~long term investment~~terms of the SSW SPA, the Company has agreed to sell and issue 2,272,727 shares of the Company’s common stock for $1.76 per share, or a total purchase price of $4.0 million to SSW. A total of $4.0 million was received and 2,272,727 shares were issued on July 19, 2016.
On August 11, 2016, the Company entered into Common Stock Purchase Agreement (the “Harvest SPA”) with Harvest Alternative Investment Opportunities SPC (“Harvest”), a Cayman Islands company. Pursuant to the terms of the Harvest SPA, the Company has agreed to sell and issue 2,272,727 shares of the Company’s common stock, for $1.76 per share, or a total purchase price of $4.0 million to Harvest. A total of $4.0 million was received and 2,272,727 shares were issued on August 12, 2016.
On November 11, 2016, the Company entered into Common Stock Purchase Agreement (the “SSSHKCD SPA”) with Sun Seven Stars Hong Kong Cultural Development Limited, a Hong Kong company (“SSSHKCD”) and an affiliate of SSS. Pursuant to the terms of the SSSHKCD SPA, the Company has agreed to sell and issue 1,136,365 shares of the Company’s common stock for $1.76 per share, or a total purchase price of $2.0 million to SSSHKCD. A total of $2.0 million was received and 1,136,365 shares were issued on November 17, 2016.
As described in ~~Hua Cheng was $0.4~~Note 12, the Company and SSS entered into a series of agreements, including an agreement pursuant to which the Company agreed to sell and issue 4,545,455 shares of the Company's common stock and warrants to acquire an additional 1,818,182 shares (at an exercise price of $2.75 per share) for an aggregate purchase price of $10 million to SSS.
On May 19, 2017, the Company entered into a subscription agreement with certain investors, including officers, directors and ~~$0.5 million as~~other affiliates of ~~June 30, 2016~~the Company, pursuant to which the Company issued and ~~December 31, 2015 respectively.~~sold to such investors, in a private placement, an aggregate of 727,273 shares of the common stock of the Company, for $2.75 per share, or a total purchase price of $2.0 million. Investors in the private placement included Lan Yang, the wife of the Company’s Chairman Bruno Wu, and China Telenet Ventures Limited, an entity owned and controlled by Sean Wang, a member of the Company’s Board of Directors. As of July 18, 2017, all subscription amounts have been received by the Company.
18

7.
10.
Fair Value Measurements
Accounting standards require the categorization of financial assets and liabilities, based on the inputs to the valuation technique, into a three-level fair value hierarchy. The various levels of the fair value hierarchy are described as follows:
•·
Level 1 — Financial assets and liabilities whose values are based on unadjusted quoted market prices for identical assets and liabilities in an active market that we have the ability to access.
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Seven Stars Cloud Group, Inc., Its Subsidiaries and Variable Interest Entities
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
•
·
Level 2 — Financial assets and liabilities whose values are based on quoted prices in markets that are not active or model inputs that are observable for substantially the full term of the asset or liability.
·
•
Level 3 — Financial assets and liabilities whose values are based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement.
Accounting standards require the use of observable market data, when available, in making fair value measurements. When inputs used to measure fair value fall within different levels of the hierarchy, the level within which the fair value measurement is categorized is based on the lowest level input that is significant to the fair value measurement.
~~We review~~
The Company reviews the valuation techniques used to determine if the fair value measurements are still appropriate on an annual basis, and evaluate and adjust the unobservable inputs used in the fair value measurements based on current market conditions and third party information.
Common stock is valued at closing price reported on the active market on which the individual securities are traded.
The fair value of the warrant liabilities at June 30, ~~2016~~2017 were valued using the Black-Scholes Merton method as an estimate for the Monte Carlos Simulation method which was the method used at the year ended December 31, ~~2015.~~2016. The following assumptions were incorporated:
Black Scholes Monte Carlo
June 30, December 31,
2016 2015
Risk-free interest rate 0.45% 0.92%
Expected volatility 60% 60%
Expected term 1.17 years 1.67 years
Expected dividend yield 0% 0%
Black Scholes Monte Carlo
June 30, December 31,
2017 2016
Risk-free interest rate 1.03 % 0.70 %
Expected volatility 55 % 55 %
Expected term 0.17 year 0.67 year
Expected dividend yield 0 % 0 %
The following tables present the fair value hierarchy for those assets and liabilities measured at fair value on a recurring basis atas of June 30, ~~2016~~2017 and December 31, ~~2015,~~2016, respectively:
June 30, 2016
Fair Value Measurements
Level 1 Level 2 Level 3 Total Fair Value
Liabilities
Warrant liabilities (see Note 10) $ - $ - $ 251,611 $ 251,611

December 31, 2015
Fair Value Measurements
Level 1 Level 2 Level 3 Total Fair Value
Liabilities
Warrant liabilities (see Note 10) $ - $ - $ 395,217 $ 395,217
June 30, 2017
Fair Value Measurements
Level 1 Level 2 Level 3 Total Fair Value
Liabilities
Warrant liabilities (see Note 13) $ - $ - $ 137,587 $ 137,587
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 six months ended June 30, ~~2016:~~2017:
Level 3 Assets and Liabilities
For the SixMonths Ended June 30 , 2016
Change in
January 1, Fair Value June 30,
2016 Settlements gain 2016
Liabilities:
Warrant liabilities (see Note 10) $ 395,217 $ - $ (143,606 ) $ 251,611
19
Level 3 Assets and Liabilities
For the Six  Months Ended June 30 , 2017
January 1, Change in June 30,
2017 Settlements Fair Value 2017
Liabilities:
Warrant liabilities (see Note 13) $ 70,785 $ (177,197 ) $ 243,999 $ 137,587
On March 28, 2016, the Company issued common stock and warrant to SSS (see Note 9). The warrant is considered an equity classified instrument and the fair value of the warrant on March 28, 2016 was $672,727, which was valued using the Monte Carlos Simulation method. The following assumptions were incorporated:
~~Monte Carlo~~
~~March 28, 2016~~
~~Risk-free interest rate~~ ~~0.89%~~
~~Expected volatility~~ ~~60%~~
~~Expected term~~ ~~2 years~~
~~Expected dividend yield~~ 0%
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 ~~payables~~current liabilities and convertible promissory note as of June 30, ~~2016~~2017 and December 31, ~~2015,~~2016, approximate fair value because of the short maturity of these instruments.
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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
11. Related Party Transactions

(a)
$3.0 Million Convertible Note
On May 10, 2012, the ~~Company’s then~~ Executive Chairman and Principal Executive Officer, ~~and current Vice Chairman,~~ 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 ~~an amendment~~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, ~~the Company~~we recognized a beneficial conversion feature of approximately $2,126,000 ~~which~~ 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 ~~another amendment~~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 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 six months ended June 30, 2017, the Company recorded interest expense of $29,507 and $59,507, respectively, related to the Note; For the three and six months ended June 30, 2016, the Company recorded interest expense of $30,000 and $60,000, respectively, related to the ~~Note; For the three and six months ended June 30, 2015,~~Note.
(b) Cost of Revenue
Hua Cheng, in which the Company ~~recorded interest expense~~holds 39% of ~~$30,000 and $60,000, respectively, related to~~ the ~~Note.~~
~~(b)~~
~~Revenue and Accounts Receivable~~
In March 2015, Zhong Hai Video entered into an agreement with C Media Limited (“C Media”), a beneficial owner of more than 5% of our capital stock, controlled by our director Xuesong Song, to provide video content services via C Media’s proprietary railway Wi-Fi service platform. Forequity shares, charged the three months ended June 30, 2016 and June 30, 2015, total revenue recognized amounted to nil and nil, respectively. For the six months ended June 30, 2016 and June 30, 2015, total revenue recognized amounted to nil and $182,000, respectively. As of June 30, 2016, total accounts receivable due from C Media amounted to approximately $91,000.
~~(c)~~
~~Cost of Revenue~~
~~Hua Cheng, the minority shareholder of Zhong Hai Video, charged us~~Company licensed content fees of approximately ~~$37,000~~Nil and ~~$56,000~~$37,000 for the three months ended June 30, 2017 and 2016, and ~~2015,~~approximately Nil and ~~approximately~~ $93,000 ~~and $80,000~~ for the six months ended June 30, 2017 and 2016, ~~and 2015,~~ respectively. As
(c) Purchase of ~~June 30 2016, total accrued license content fees due to Hua Cheng amounted to approximately $112,000.~~Game IP Rights
20

~~(d)~~
~~Purchase of Game IP Rights~~
On April 13, 2016, SSF entered into a Game Right Assignment Agreement with SSS for the acquisition of certain Game IP Rights for cash ~~based on total fair value~~ of ~~the Game IP Rights,~~$2.7 million (RMB 18 million), which was ~~determined to be approximately $2.7 million (RMB18 million).~~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 68 above.
(d) Deposit for Investment in MYP
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. As of June 30, 2017, 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.
(e) Assets Disposal to BT
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
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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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 collectivebility 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 June 30, 2017 until the collectivebility is probable.
9.
12.
SSS Agreements
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 Zheng 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 the performance of SSF. SSF intends to provide a branded pay content service, consumer payments and behavior data analysis service, customer management and data-based service and mobile social TV-based customer management service.
On December 21, 2015, the Company entered into an Amended and Restated Securities Purchase Agreement (the “Amended SSS Purchase Agreement”) and a Revised Content License Agreement (the “Revised Content Agreement”) with SSS which amended certain terms of the original agreements dated November 23, 2015. In addition, the Company also entered into an Amended and Restated Share Purchase Agreement (the “Amended Tianjin Agreement”) with Tianjin Enternet.
On July 6, 2016, the Company entered into a Common Stock Purchase Agreement with Seven Stars Works Co., Ltd., a Korea company (“SSW”) and an affiliate of SSS for the purchase by SSW of 2,272,727 shares of the Company’s common stock, for $1.76 per share, or a total purchase price of $4.0 million.
On November 11, 2016, the Company entered into a Common Stock Purchase Agreement with Sun Seven Stars Hong Kong Cultural Development Limited, a Hong Kong company (“SSSHKCD”) and an affiliate of SSS. Pursuant to the terms of the SPA, the Company has agreed to sell and issue 1,136,365 shares of the Company’s common stock, for $1.76 per share, or a total purchase price of $2.0 million to SSSHKCD.
(a)
Amended SSS Purchase Agreement
On March 28, 2016, pursuant to the Amended SSS Purchase Agreement, the Company sold, and SSS purchased, 4,545,455 shares of the Company’s common stock for a purchase price of $2.20 per share, or an aggregate of $10.0 million. In addition, SSS received a two-year warrant to acquire an additional 1,818,182 shares of the Company’s common stock at an exercise price of $2.75 per share (the “SSS Warrant”). Until receipt of necessary shareholder approvals, the SSS Warrant may not be exercised to the extent that such exercise would result in SSS and its affiliates beneficially owning more than 19.99% of the Company’s outstanding common stock. On June 27, 2016, shareholder approval was obtained.
Since the SSS Warrant does not embody any future obligation for the Company to repurchase its own shares, is indexed to the Company’s own stock, may only be settled by the physical delivery of shares, and no conditions exist in which net cash settlement could be forced upon the Company by SSS in any other circumstances, the SSS Warrant is considered an equity classified instrument. The proceeds of $10.0 million, net of issuance cost of approximately ~~$443,000,~~$411,000, was allocated to common stock and SSS Warrant based on their relative fair value as of March 28, 2016 of approximately $8,227,000 and $673,000, respectively. Accordingly, the Company recorded approximately ~~$722,000~~$725,000 in additional paid-in capital for the SSS Warrant.
(b)
Revised Content Agreement
On March 28, 2016, pursuant to the Amended and Restated SSS Purchase Agreement, SSS granted the Company non-exclusive royalty-free distribution rights for certain video content value ~~at approximately $29.1 million~~ in exchange for a convertible promissory note (the “SSS Note”). The SSS Note has a stated principal amount of approximately $17,718,000, was originally due to mature on May 21, 2016. On May 12, 2016, the Company and SSS entered into an amendment agreement to extend the maturity date of the SSS Note to July 31, 2016. The SSS Note beard an interest at the rate of 0.56% per annum. Immediately upon the receipt of the required shareholder approval to allow SSS to beneficially own more than 19.99% of the Company’s outstanding common stock, which was obtained on June 27, 2016, the SSS Note was ~~automatically~~ converted into 9,208,860 shares of the Company’s common stock. ~~On June 27, 2016, shareholder approval was obtained.~~
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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In connection with the issuance of the SSS Note, the Company recorded debt issuance costs of approximately $131,000 which iswas to be amortized over the period of the SSS Note’s maturity date, of which approximately ~~$115,000 and $122,000~~$123,000 was recognized during the ~~three and six months~~year ended ~~June 30, 2016 respectively.~~December 31, 2016.
The Company measured the effective conversion price of the SSS Note using its carrying value on March 28, 2016 and compared it to the fair value of the Company’s common stock on that date. As the effective conversion price of the SSS Note of $1.91 exceeded the fair value of the Company’s common stock of $1.81, no beneficial conversion feature was recognized.
~~On May 12, 2016, the Company and SSS entered into an amendment agreement to extend the maturity date of the SSS Note to July 31, 2016.~~
21
In the Annual Meeting of Shareholders (the “Annual Meeting”) of the Company held on June 27, 2016, shareholders approved the issuance of 9,208,860 shares of the Company’s common stock upon the conversion of the SSS Note and it was automatically converted into 9,208,860 shares of the Company’s common stock on June 27, 2016.
The carrying value of the SSS Note as of June 27, 2016, which included the unamortized issuance costs of ~~$9,000~~$8,000 and, pursuant to the terms of SSS Note, accrued interest expense ~~(as to the date~~ of ~~conversion) of $24,000~~$25,000 has been recorded into the common shares issued on June 27, 2016.
(c)
Amended Tianjin Agreement
Pursuant to the Amended Tianjin Agreement dated December 21, 2015, Tianjin Enternet was to contribute 100% of the equity ownership of SSF, a newly-formed subsidiary of Tianjin Enternet to the Company. Contingent on the performance of SSF, Tianjin ~~will~~Enternet was to receive shares of the Company’s common stock over three years, with the exact number not exceeding 5.0 million per year, provided the earn-out provisions for each of the 2016, 2017 and 2018 annual periods (the “Earn-Out Share Award”) ~~are~~was achieved. The earn-out provision for 2016, 2017 and 2018 are either 50.0 million homes/users passed or $4.0 million net income, 100.0 million homes/users passed or $6.0 million net income and 150.0 million homes/users passed or $8.0 million net income, respectively. In the event that the Company has not obtained the required vote from shareholders to issue the earn-out shares to Tianjin Enternet, the Company ~~shall~~was required to issue a promissory note with a principal amount equal to the quotient by multiplying 5.0 million by the applicable stock price defined in the agreement.
On April 5, 2016, in lieu of Tianjin Enternet contributing 100% of the equity ownership of SSF to the Company, YOD WFOE entered into VIE agreements with SSF and its legal shareholders in order to comply with PRC regulatory requirements on certain industries. SSF is 99% owned by Lan Yang, the spouse of Bruno Zheng Wu, the Company’s Chairman, and 1% owned by Yun Zhu, a Vice President of ~~YOD.~~Wecast Network. By virtue of these VIE agreements; YOD WFOE obtained financial controlling interest in SSF, including the power to direct the activities of SSF, and therefore is the primary beneficiary of SSF. As the control of SSF was transferred to YOD WFOE through both the VIE agreements and physical handover of company documents on April 5, 2016, the transaction was determined to be completed on that date.
At the time YOD WFOE obtained control over SSF, SSF had no assets, liabilities, employees or operating activities, nor did it hold any licenses, trade names or other intellectual properties. The Company also did not receive any assets, employees, contracts, sales or distribution systems or intellectual property from Tianjin Enternet in connection with the transaction. Since the acquisition of SSF did not include any input or processes, as defined under ASC 805-10-20, the transaction was not considered a business combination under ASC 805.
The earn-out provision iswas originally based on either the number of home/user pass or the net income of SSF. While the net income iswas to be measured based on the operations of SSF, the number of home/user pass is measured based on number of home/user pass of SSF’s distributors. Such earn-out provision is based on an index that is not calculated solely by reference to the operations of SSF, which is not considered indexed to the Company’s own shares. Also the earn-out provisions permit cash settlement if the Company cannot issue the earn-out shares. Therefore, the earn-out provision is classified as a liability and measured initially and subsequently at fair value with changes in fair value recognized in earnings at each reporting periods.
On June 27, 2016, the Company held its 2016 annual meeting of stockholders and received approval from its stockholders to allow SSS to beneficially own more than 19.99% of the Company’s outstanding common stock. Accordingly, the Earn-Out Share Award became issuable at the time when the earn-out provisions are considered to have been met pursuant to the Amended Tianjin Agreement.
~~The~~
On November 10, 2016, the Board of Directors (the “Board”) of SSC held a special meeting. At the recommendation of the Company’s audit committee, the Board determined that it is in the best interests of the Company ~~obtained control of SSF on April 5, 2016. As of June 30, 2016, SSF had yet~~and the Company’s shareholders to ~~receive all business licenses necessary to conduct its new business, including any Internet, telecommunication or content related sales and operations. Accordingly,~~amend the ~~liability recognized was nil as of June 30, 2016 because the conditions to trigger the issuance~~terms of the Earn-Out Share Award to (1) reduce the total Earn-Out Share Award from 15,000,000 shares of Common Stock to 10,000,000 shares of Common Stock and (2) measure the achievement of the earn-out provisions based on the Companywide achievement of homes passed in lieu of the measurement being measured by SFF’s stand-alone achievement of homes passed. Based on evidence provided to the Board, the requisite thresholds necessary to trigger issuance of all shares of Common Stock subject to the Earn-Out Share Award have been achieved. Accordingly, on November 10, 2016, the Board approved the issuance of 10,000,000 shares of its common stock, par value $0.001 per share (“Common Stock to SSS”) and the shares were ~~not probable~~issued on November 11, 2016.
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Table of ~~being met.~~Contents
Seven Stars Cloud Group, Inc., Its Subsidiaries and Variable Interest Entities
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The Company recognized the fair value of the Common Stock to SSS of approximately $13,700,000, based on the market price of the Company’s Common Stock, as Earn-out share award expense in the consolidated statement of operations for the year ended December 31, 2016.
~~10.~~
13.
Warrant Liabilities
In connection with our August 30, 2012 private financing, wethe Company issued 977,063 warrants to investors and ~~a broker warrants to acquire 977,063 shares of~~ the ~~Company’s common stock, of which 440,813 shares were exercised prior to January 1, 2015.~~broker. In accordance with ~~FASB~~ ASC ~~815-40-15-5, Determining Whether an Instrument (or Embedded Feature) is indexed to an~~815-40, Contracts in Entity’s Own ~~Stock;~~Equity, the warrants have been accounted as derivative liabilities to be re- measured at the end of every reporting period with the change in fair value reported in the consolidated statement of operations. On August 30, 2012, such warrants were valued at $1,525,000 utilizing a valuation model and were initially recorded as a liability. The fair value of the warrants ~~are revalued~~is remeasured at each ~~year end~~reporting period based on the Monte Carlo valuation.
As of June 30, ~~2016~~2017 and December 31, ~~2015,~~2016, the warrant liability was ~~re-valued~~revalued as disclosed in Note 7,10, and recorded at its ~~current~~ fair value of approximately ~~$252,000~~$137,587 and ~~$395,000,~~$70,785, respectively, ~~as determined by the Company,~~ resulting in a ~~gain~~loss of approximately ~~$143,000~~$243,999 for the six months ended June 30, ~~2016.~~2017. There were no107,534 warrants exercised during six months ended June 30, ~~2016 and 2015, respectively.~~2017.
22

~~11.~~
14.
Share-Based Payments
As of June 30, ~~2016,~~2017, the Company had ~~1,696,428~~1,999,528 options, 463,335 restricted shares and ~~1,964,820~~3,546,897 warrants outstanding (including the 1,818,182 warrants issued to SSS as disclosed in Note 12 (a) to purchase shares of our common stock.
The Company awards common stock and stock options to employees and directors as compensation for their services, and accounts for its stock option awards to employees and directors pursuant to the provisions of ASC 718,Stock Compensation. The fair value of each option award is estimated on the date of grant using the Black-Scholes Merton valuation model. The Company recognizes the fair value of each option as compensation expense ratably using the straight-line attribution method over the service period, which is generally the vesting period.
Total share-based payments expense recorded by the Company during the three ~~and six~~ months ended June 30, ~~2016~~2017 and ~~2015~~2016 is as follows:
Three Months Ended Six Months Ended
June 30 June 30 June 30 June 30
2016 2015 2016 2015
Employees and directors share-based payments $ 73,000 $ 277,000 $ 212,000 $ 681,000
Three Months Ended Six Months Ended
June 30, June 30, June 30, June 30,
2017 2016 2017 2016
Employees and directors share-based payments $ 76,224 $ 73,000 $ 147,652 $ 212,000
Effective as of December 3, 2010, our Board of Directors approved the ~~YOU On Demand Holdings,~~Wecast Network, Inc. 2010 Stock Incentive Plan (“the 2010 Plan”) pursuant to which options or other similar securities may be granted. The maximum aggregate number of shares of our common stock that may be issued under the Plan is 4,000,000 shares. As of June 30, ~~2016,~~2017, options available for issuance are ~~1,694,467~~1,215,327 shares.
(a)
Stock Options
Stock option activity for the six months ended June 30, ~~2016~~2017 is summarized as follows:
Weighted Average
Remaining Aggregated
Options Weighted Average Contractual Life Intrinsic
Outstanding Exercise Price (Years) Value
Outstanding at January 1, 2016 1,734,429 $ 2.77
Granted - -
Exercised - -
Expired (25,897 ) 1.65
Forfeited (12,104 ) 1.65
Outstanding at June 30, 2016 1,696,428 2.79 3.99 -
Vested and expected to vest as of June 30, 2016 1,696,428 2.79 3.99 -
Options exercisable at June 30, 2016 (vested) 1,684,707 2.80 3.97 -
Weighted Average
Remaining Aggregated
Options Weighted Average Contractual Life Intrinsic
Outstanding Exercise Price (Years) Value
Outstanding at January 1, 2017 2,101,425 $ 2.42 4.59 $ -
Granted 170,000 1.57
Exercised (11,035 ) 2.00
Expired - -
Forfeited (260,862 ) 1.49
Outstanding at June 30, 2017 1,999,528 2.62 3.14 0.04
Vested and expected to vest as of June 30, 2017 1,999,528 2.62 3.14 0.04
Options exercisable at June 30, 2017 (vested) 1,683,238 2.80 2.00 0.02
On January 4, March 1 and March 16, 2017, 90,000, 45,000 and 35,000 shares stock options, respectively, were issued to certain employees for services provided to us. The fair value of the stock options granted were valued using the Black-Scholes Merton method on the grant date, amounting to $61,200, $45,443 and $36,750, respectively.
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Seven Stars Cloud Group, Inc., Its Subsidiaries and Variable Interest Entities
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
As of June 30, ~~2016,~~2017, approximately ~~$15,000~~$279,108 of total unrecognized compensation expense related to non-vested share options is expected to be recognized over a weighted average period of approximately ~~1.17~~1.87 years. The total fair value of shares vested during the six months ended June 30, ~~2016~~2017 and ~~2015~~2016 was approximately ~~$9,000~~$19,357 and ~~$251,000~~$16,000, respectively.
~~(b)~~
(b) Warrants
In connection with the Company’s financings, the Warner Brother Agreement and the service agreements, the Company issued warrants to ~~investors and~~ service providers to purchase common stock of the Company.
As of June 30, ~~2016,~~2017, the weighted average exercise price of the warrants was ~~$1.68~~$2.23 and the weighted average remaining life was ~~2.12~~0.96 years. ~~The May 2011 Warner Brothers Warrants of 200,000 and 2011 Service Agreement Warrants of 26,667 expired as of June 30, 2016.~~ The following table outlines the warrants outstanding and exercisable as of June 30, ~~2016~~2017 and December 31, ~~2015:~~2016:
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June 30, December 31,
2016 2015
Number of Number of
Warrants Warrants Exercise Expiration
Warrants Outstanding Outstanding Outstanding Price Date
and Exercisable and Exercisable

May 2011 Warner Brothers Warrants - 200,000 $ 6.60 05/11/16
2011 Service Agreement Warrants - 26,667 $ 7.20 06/15/16
2012 August Financing Warrants⁽ⁱ⁾ 536,250 536,250 $ 1.50 08/30/17
2013 Broker Warrants (Series D Financing) 228,571 228,571 $ 1.75 07/05/18
2013 Broker Warrants (Convertible Note) 114,285 114,285 $ 1.75 11/04/18
2014 Broker Warrants (Series E Financing) 1,085,714 1,085,714 $ 1.75 01/31/19
1,964,820 2,191,487

June 30, December 31,
2017 2016
Number of Number of
Warrants Warrants
Warrants Outstanding Outstanding and
Exercisable Outstanding and
Exercisable Exercise
Price Expiration
Date

2012 August Financing Warrants  (i) 428,716 536,250 $ 1.50 08/30/17
2013 Broker Warrants (Series D Financing) 100,000 228,571 1.75 07/05/18
2013 Broker Warrants (Convertible Note) 114,285 114,285 1.75 11/04/18
2014 Broker Warrants (Series E Financing) 1,085,714 1,085,714 1.75 01/31/19
2016 Warrants to SSS (Note 12) 1,818,182 1,818,182 $ 2.75 03/28/18
3,546,897 3,783,002
(i)
The warrants are classified as derivative liabilities as disclosed in Note ~~10.~~
13.

(c) Restricted Shares
In January, 2017, the Company granted 35,000 restricted shares to one employee under the “2010 Plan”. The restricted shares have a vesting period of four years with the first one-fourth vesting on the first anniversary from grant date and the remaining three-fourth vesting ratably over twelve quarters. The grant date fair value of the restricted shares was $43,750. As this employee left the Company in February, no expense was recorded.
In March and April, 2017, the Company granted 365,000 restricted shares to certain employees under the “2010 Plan”. The restricted shares have a vesting period of four years with the first one-fourth vesting on the first anniversary from grant date and the remaining three-fourth vesting ratably over twelve quarters. The grant date fair value of the restricted shares was $778,200.
A summary of the restricted shares is as follows:
Shares Weighted-average
fair value
Restricted shares outstanding at January 1, 2017 228,550 $ 1.75
Granted 400,000 2.05
Forfeited (60,000 ) 1.49
Vested (105,215 ) 1.72
Restricted shares outstanding at June 30, 2017 463,335 $ 2.05
~~12.~~ 26
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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
~~Net~~
15. Loss Per Common Share
Three Months Ended Six Months Ended
June 30, June 30, June 30, June 30,
2017 2016 2017 2016
Net loss attributable to common stockholders $ (3,660,225 ) $ (1,588,089 ) $ (1,447,346 ) $ (3,724,560 )
Basic
Basic weighted average shares outstanding 61,180,365 29,197,899 58,297,202 26,851,888

Diluted
Diluted weighted average common shares outstanding 61,180,365 29,197,899 58,297,202 26,851,888

Net loss per share:
Basic $ (0.06 ) $ (0.05 ) $ (0.02 ) $ (0.14 )
Diluted $ (0.06 ) $ (0.05 ) $ (0.02 ) $ (0.14 )
Basic ~~net~~ loss per common share attributable to ~~YOU On Demand~~Seven Stars Cloud shareholders is calculated by dividing the net loss attributable to ~~YOU On Demand~~Seven Stars Cloud shareholders by the weighted average number of outstanding common shares during the applicable period.
Diluted ~~net~~ loss per share ~~equals basic~~is calculated by taking net loss, divided by the diluted weighted average common shares outstanding. Diluted loss per share for the three and six months ended June 30, 2017 and 2016 both equal to basic loss per share for respective periods because the effect of securities convertible into common shares is anti-dilutive.
~~For the six months ended June 30, 2016 and 2015,~~
The following table includes the number of ~~securities convertible into~~shares that may be dilutive potential common shares in the future. These shares were not included in the computation of diluted loss per ~~common~~ share because the effect ~~would have been anti-dilutive consists of~~was either antidilutive or the ~~following:~~performance condition was not met.
June 30, June 30,
2016 2015
Warrants 3,783,002 2,191,487
Options 1,696,428 1,723,153
Series A Preferred Stock 933,333 933,333
Series E Preferred Stock 7,154,997 7,326,426
Convertible promissory notes 1,998,528 1,929,769
Total 15,566,288 14,104,168
~~The Company has reserved its authorized but unissued common stock for possible future issuance in connection with the following:~~
June 30, June 30,
2016 2015
Exercise of stock warrants 3,783,002 2,191,487
Issuable shares for stock options and restricted shares 3,928,870 3,983,263
Conversion of preferred stock 8,088,330 8,259,759
Issuable shares from conversion of promissory notes payable 1,998,528 1,929,769
Total 17,798,730 16,364,278

Three Months Ended Six Months Ended
June 30, June 30, June 30, June 30,
2017 2016 2017 2016
Warrants 3,546,897 3,783,002 3,546,897 3,783,002
Options 2,462,863 1,696,428 2,462,863 1,696,428
Series A Preferred Stock 933,333 933,333 933,333 933,333
Series E Preferred Stock - 7,154,997 - 7,154,997
Convertible promissory note and interest 35,745,070 1,998,528 35,745,070 1,998,528
Total 42,688,163 15,566,288 42,688,163 15,566,288
~~13.~~
16.
Income Taxes
As of June 30, ~~2016,~~2017, the Company had approximately ~~$27.6~~$29.9 million of the U.S domestic cumulative tax loss carryforwards and approximately ~~$16.0~~$16.5 million of the foreign cumulative tax loss carryforwards, which may be available to reduce future income tax liabilities in certain jurisdictions. These U.S. and foreign tax loss carryforwards will expire beginning year 2028 through 2036 and year ~~2016~~2018 to year ~~2021,~~2022, respectively. ~~We have~~
The income tax expense for the six months ended June 30, 2017 is nil because of net operating loss and deferred tax assets related to the net operating loss carryovers utilized had been offset by a valuations allowance. Company had established a 100% valuation allowance against ~~our~~its net deferred tax assets due to ~~our~~its history of pre-tax losses and the likelihood that the deferred tax assets will not be ~~realizable.~~realized. The valuation allowance ~~increased~~was decreased approximately $0.3 million ~~and $1.5 million~~ during the ~~three and~~ six months ended June 30, ~~2016, respectively.~~2017.
As of June 30, ~~2016,~~2017, there are no unrecorded tax benefits which would impact our financial position or our results of operations.
~~14.~~
~~Contingencies and Commitments~~

~~(a)~~27
~~Severance Commitment~~
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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
17. Contingencies and Commitments
The Company has employment agreements with certain employees that provide severance payments upon termination of employment under certain circumstances, as defined in the applicable agreements. As of June 30, 2016, the Company's potential minimum cash obligation to these employees was approximately $280,000.
24(a) Operating Lease Commitment

~~(b)~~
~~Operating Lease Commitment~~
The Company is committed to paying ~~operating leases~~leased property costs related to our offices ~~in China through 2020 and thereafter~~ as follows:
Leased Property
Years ending December 31, Costs
2016 (6 months) $ 315,000
2017 306,000
2018 311,000
2019 268,000
2020 206,000
Thereafter 88,000
Total $ 1,494,000

~~(c)~~
~~Licensed Content Commitment~~
Leased Property
Years ending December 31, Costs
2017 (6 months) $ 41,375
2018 69,585
2019 35,595
2020 36,457
Thereafter 18,228
Total $ 201,240
(b) Lawsuits and Legal Proceedings
~~The Company is committed to paying content costs through 2019 as follows:~~
Years ending December 31, Content Costs
2016 (6 months) $ 3,830,000
2017 426,000
2018 226,000
2019 226,000
Total $ 4,708,000

~~(d)~~
~~Lawsuits and Legal Proceedings~~
From time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business. As of June 30, ~~2016,~~2017, there are no such legal proceedings or claims that we believe will have a material adverse effect on our business, financial condition or operating results.
~~(e)~~
~~Acquisition of Property Commitment~~
In consideration of the Company’s business expansion and rising rental costs, on February 2016, the Company entered into an agreement with Beijing Kuntin Taiming Investment Management Co., Ltd. for purchase of an office building. Total consideration for the property acquisition was approximately $4,239,000 (RMB27 million), which the Company has paid half in RMB in 2016 Q2 and is committed to paying the following through 2016 as follows:
~~Years ending December 31,~~18. ~~Property~~
~~2016 (6 months)~~ ~~2,065,000~~
~~Total~~ $ ~~2,065,000~~

~~(f)~~
~~Advertising and Marketing Expense Commitment~~
~~The Company is committed to paying advertising and marketing expense through 2016 as follows:~~
~~Years ending December 31,~~ ~~Marketing expenses~~
~~2016 (6 months)~~ ~~299,000~~
~~Total~~ $ ~~299,000~~
~~(g)~~
~~Investment Commitment~~
The Company entered into a Joint Venture Agreement (the “JV Agreement”) with Megtron Hong Kong Investment Group Co., Limited on May 30, 2016, pursuant to which the Company is committed to contribute $5.0 million to the Joint-Venture Company to be formed in installment.
~~15.~~
Concentration, Credit and Other Risks

~~(a)~~
~~PRC Regulations~~
25
(a) PRC Regulations
The PRC market in which the Company operates poses certain macro-economic and regulatory risks and uncertainties. These uncertainties extend to the ability of the Company to conduct wireless telecommunication services through contractual arrangements in the PRC since the industry remains highly regulated. The Company conducts ~~all of its operations~~legacy YOD business in China through Zhong Hai ~~Video,~~Media, which the Company controls as a result of a series of contractual arrangements entered among YOD WFOE, Sinotop Beijing as the parent company of Zhong Hai ~~Video,~~Media, SSF and the respective legal shareholders of Sinotop Beijing and SSF. The Company believes that these contractual arrangements are in compliance with PRC law and are legally enforceable. If Sinotop Beijing, SSF or their respective legal shareholders fail to perform the obligations under the contractual arrangements or any dispute relating to these contracts remains unresolved, YOD WFOE or YOD HK can enforce its rights under the VIE contracts through PRC law and courts. However, uncertainties in the PRC legal system could limit the Company’s ability to enforce these contractual arrangements. In particular, the interpretation and enforcement of these laws, rules and regulations involve uncertainties. If YOD WFOE had direct ownership of Sinotop Beijing and SSF, it would be able to exercise its rights as a shareholder to effect changes in the board of directors of Sinotop Beijing or SSF, which in turn could effect changes at the management level, subject to any applicable fiduciary obligations. However, under the current contractual arrangements, the Company relies on Sinotop Beijing, SSF and their respective legal shareholders to perform their contractual obligations to exercise effective control. The Company also gives no assurance that PRC government authorities will not take a view in the future that is contrary to the opinion of the Company. If the current ownership structure of the Company and its contractual arrangements with the VIEs and their equity holders were found to be in violation of any existing or future PRC laws or regulations, the Company's ability to conduct its business could be ~~impacted~~affected and the Company may be required to restructure its ownership structure and operations in the PRC to comply with the changes in the PRC laws which may result in deconsolidation of the VIEs.
In addition, the telecommunications, information and media industries remain highly regulated. Restrictions are currently in place and are unclear with respect to which segments of these industries foreign owned entities, like YOD WFOE, may operate. The PRC government may issue from time to time new laws or new interpretations on existing laws to regulate areas such as telecommunications, information and media, some of which are not published on a timely basis or may have retroactive effect. For example, there is substantial uncertainty regarding the Draft Foreign Investment Law, including, among others, what the actual content of the law will be as well as the adoption and effective date of the final form of the law. Administrative and court proceedings in China may also be protracted, resulting in substantial costs and diversion of resources and management attention. While such uncertainty exists, the Company cannot assure that the new laws, when it is adopted and becomes effective, and potential related administrative proceedings will not have a material and adverse effect on the Company's ability to control the affiliated entities through the contractual arrangements. Regulatory risk also encompasses the interpretation by the tax authorities of current tax laws, and the Company’s legal structure and scope of operations in the PRC, which could be subject to further restrictions resulting in limitations on the Company’s ability to conduct business in the PRC.
~~(b)~~28
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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(b) Major Customers
Legacy YOD business
The Company ~~relies on~~has agreements with distribution partners, including digital cable operators, IPTV operators, OTT streaming operators and mobile smartphone manufacturers and ~~operators, during the course of its business.~~operator. A distribution partner that individually generates more than 10% of the Company’s revenue is considered a major customer.
On October 8, 2016, the Company signed an agreement to form a partnership with Zhejiang Yanhua ("Yanhua Agreement"), where Yanhua will act as the exclusive distribution operator (within the territory of the People's Republic of China) of WCST's licensed library of major studio films. According to the Yanhua Agreement, the existing legacy Hollywood studio paid contents as well as other IP contents specified in the agreement, along with the corresponding authorized rights letter that WCST is entitled to, will be turned over to Yanhua as a whole package, which was agreed to be priced at RMB13,000,000. In addition to the above-mentioned minimal guarantee fee of RMB13,000,000 specified, there is a provision in the Yanhua Agreement which states that once the revenue recognized from the existing contents transferred from WCST to Yanhua reaches the amount of RMB13,000,000, the revenue above RMB13,000,000 will be shared with WCST from the date when this revenue threshold is reached based on certain revenue-sharing mechanism stipulated in the Yanhua Agreement.
Pursuant to ASC Subtopic 926-605, Entertainment-Films - Revenue Recognition, for certain contracts that involve sub-licensing content within the specified license period, revenue is recognized upon delivery of films when the arrangement includes a nonrefundable minimum guarantee, delivery is complete and there are no substantive future obligations to provide future additional services.
According to the Yanhua Agreement, the total price of the Existing Contents to be transferred is RMB13,000,000. The payment is agreed to be paid in two installments, the first half of RMB6,500,000 was received on December 30, 2016. The remaining RMB6,500,000 will be paid under the scenario that the license content fees due to Studios for the existing legacy Hollywood paid contents will be settled. Due to the fact that the second installment will depend upon some future events and is contingent in nature, we deem this portion of the fee is not fixed or determinable and therefore, this portion of the revenue did not meet the revenue recognition criteria to be recognized accordingly.
In terms of the additional revenue-sharing fee over the above-mentioned RMB13,000,000 fee specified, considering that this part of arrangement fee is not fixed or determinable at the time point as of June 30, 2017, it has not met the criteria for revenue recognition, management will recognize it once it becomes determinable and meet the other revenue recognition criteria in the future.
Pursuant to the Yanhua Agreement, RMB6,500,000 was recognized as revenue in the first six months ended June 30, 2017 based on the relative fair value of licensed content delivered to Yanhua.
For the six months ended June 30, 2016, four customers individually accounted for ~~25%, 17%, 14%, and 12%~~more than 10% of the Company’s revenue. Four customers individually accounted for ~~16%, 13%, 11% and 11%~~10% of the Company’s net accounts receivables as of June 30, 2016.
Wecast Services
The holdings and businesses from Company’s two acquisitions in January 2017 (Note 4) now reside under “Wecast Services”, our wholly-owned subsidiary Wecast Services Group Limited. Wecast Services (which resides under the Product Sales Cloud) is currently primarily engaged with consumer electronics e-commerce and smart supply chain management operations. The Company’s ending customers include British Telecom, Micromax and about 15 to 20 other corporations across the world.
For the six months ended June 30, ~~2015, three~~2017, one customer individually accounted for more than 10% of the Company’s revenue. Two customers individually accounted for ~~19%, 18% and 12% of the Company’s revenue. Four customers individually accounted for 19%, 18%, 12% and 12%~~more than 10% of the Company’s net accounts receivables as of June 30, ~~2015.~~2017, respectively.
~~(c)~~
(c) Major Suppliers
Legacy YOD business
The Company relies on agreements with studio content partners to acquire video contents. A content partner that accounts for more than 10% of the Company’s cost of revenues is considered a major supplier.
As of December 31, 2016, all licensed contents have been recognized as cost of revenues other than the ones that acquired from SSS in the amount of $17.7 million (note 12).
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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the six months ended June 30, 2016, four suppliers individually accounted for ~~31%, 24%, 19% and 13%~~more than 10% of the Company’s cost of revenues. Two suppliers individually accounted for ~~83% and~~ 10% of the Company’s ~~accrued license content fees~~accounts payable as of June 30, 2016.
Wecast Services
The Company relies on agreements with consumer electronics manufactures.
For the six months ended June 30, ~~2015, four~~2017, three suppliers individually accounted for ~~35%, 22%, 22% and 14%~~more than 10% of the Company’s cost of revenues. ~~Two~~Three suppliers individually accounted for ~~59% and 41%~~more than 10% of the Company’s ~~accrued license content fee~~accounts payable as of June 30, ~~2015.~~2017.
~~(d)~~
(d) Concentration of Credit Risks
Financial instruments that potentially subject the Company to significant concentration of credit risk primarily consist of cash and accounts receivable. As of June 30, ~~2016~~2017 and ~~2015,~~December 31, 2016, the Company’s cash was held by financial institutions located in the PRC, Hong Kong and the United States that management believes have acceptable credit. Accounts receivable are typically unsecured and are mainly derived from revenues from the Company’s VOD content distribution ~~partners.~~partners, and smart sales products to customers. The risk with respect to accounts receivable is mitigated by regular credit evaluations that the Company performs on its distribution partners and its ongoing monitoring of outstanding balances.
26

~~(e)~~
(e) Foreign Currency Risks
A majority of the Company’s operating transactions are denominated in RMB and a significant portion of the Company’s assets and liabilities is denominated in RMB. RMB is not freely convertible into foreign currencies. The value of the RMB is subject to changes in the central government policies and to international economic and political developments. In the PRC, certain foreign exchange transactions are required by laws to be transacted only by authorized financial institutions at exchange rates set by the People’s Bank of China (“PBOC”). Remittances in currencies other than RMB by the Company in China must be processed through PBOC or other China foreign exchange regulatory bodies which require certain supporting documentation in order to complete the remittance.
Cash consist of cash on hand and demand deposits at banks, which are unrestricted as to withdrawal.
~~Demand~~
Time deposits, which mature within one year as of the balance sheet date, represent interest-bearing certificates of deposit with an initial term of greater than three months when purchased. Time deposits which mature over one year as of the balance sheet date are included in non-current assets.
Cash and time deposits maintained at banks consist of the following:
June 30, December 31,
2016 2015
RMB denominated bank deposits with financial institutions in the PRC $ 762,100 1,076,430
US dollar denominated bank deposits with financial institutions in the PRC $ 1,211,548 2,613,834
US dollar denominated bank deposits with financial institutions in Hong Kong Special Administrative Region (“HK SAR”) 427,343 23,460
US dollar denominated bank deposits with financial institutions in The United States of America (“USA”) $ 1,766 53,231
US dollar denominated bank deposits with financial institutions in Cayman Islands (“Cayman”) $ 157 99
RMB restricted cash denominated bank deposits with financial institutions in the PRC $ - 2,994,364
June 30, December 31,
2017 2016
RMB denominated bank deposits with financial institutions in the PRC $ 1,298,945 1,566,107
US dollar denominated bank deposits with financial institutions in the PRC $ 16,728 670,951
HKD denominated bank deposits with financial institutions in Hong Kong Special Administrative Region (“HK SAR”) 68,083 14,151
US dollar denominated bank deposits with financial institutions in Hong Kong Special Administrative Region (“HK SAR”) $ 1,039,362 1,402,842
US dollar denominated bank deposits with financial institutions in The United States of America (“USA”) $ 730,602 95,030
As of June 30, ~~2016~~2017 and December 31, ~~2015~~2016 deposits of ~~$291,003~~$415,530 and ~~$241,807~~$384,545 were insured, respectively. To limit exposure to credit risk relating to bank deposits, the Company primarily places bank deposits only with large financial institutions in the PRC, HK SAR, USA and Cayman with acceptable credit rating.
~~16.~~
19.
Defined Contribution Plan
~~During~~
For our U.S. employees, during 2011, the Company began sponsoring a 401(k) defined contribution plan ("401(k) Plan") that provides for a 100% employer matching contribution of the first 3% and a 50% employer matching contribution of each additional percent contributed by an employee up to 5% of each employee’s pay. Employees become fully vested in employer matching contributions after six months of employment. Company 401(k) matching contributions were approximately approximately $904 and $2,100 for the three and six months ended June 30, 2017 respectively and $1,000 and $2,000 for the three and six months ended June 30, 2016 ~~respectively~~respectively.
Full time employees in the PRC participate in a government-mandated defined contribution plan pursuant to which certain pension benefits, medical care, unemployment insurance, employee housing fund and ~~$5,000~~other welfare benefits are provided to employees. PRC labor regulations require the Company to make contributions based on certain percentages of the employees’ basic salaries. Other than
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Seven Stars Cloud Group, Inc., Its Subsidiaries and ~~$6,000~~Variable Interest Entities
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
such contributions, there is no further obligation under these plans. The total contribution for such PRC employee benefits was $233,676 and $224,134 for the ~~three and~~ six months ended June 30, ~~2015~~2017 and 2016, respectively.
~~17.~~ 20. Segment Reporting
The Company’s chief operating decision maker has been identified as the chief executive officer, who reviews consolidated results when making decisions about allocating resources and assessing performance of the Company. In fiscal year 2016, the Company operated and reported its performance in one segment. However, starting from fiscal year 2017, since Company has acquired Wecast Services Limited and Wide Angle Group Limited in January (see note 4), the Company has operated two segments based on different clouds that major business reside in, including Legacy YOD segment and Wecast Service segment. Therefore, there are two reportable segments for the six months ended June 30, 2017. The two reportable segments are:
Legacy YOD - Provides premium content and integrated value-added service solutions for the delivery of VOD and paid video programming to digital cable providers, Internet Protocol Television (“IPTV”) providers. The core revenues are being generated from both minimum guarantee payments and revenue sharing arrangements with distribution partners as well as subscription or transactional fees from subscribers.
Wecast Service - Wecast Services (which resides under the Product Sales Cloud) is currently primarily engaged with consumer electronics e-commerce and smart supply chain management operations.
Segment disclosures are on a performance basis consistent with internal management reporting. The Company does not allocate expenses below segment gross profit since these segments share the same executive team, office space, occupancy expenses, information technology infrastructures, human resources and finance department. The following tables summarized the Company’s revenue and cost generated from different revenue streams.
Six Months Ended
June 30, June 30,
2017 2016
NET SALES TO EXTERNAL CUSTOMERS
-Legacy YOD $ 794,273 $ 2,750,190
-Wecast Service 75,694,517 -
Net sales 76,488,790 2,750,190
GROSS PROFIT
-Legacy YOD 31,659 1,034,011
-Wecast Service 3,842,029 -
Gross profit 3,873,688 1,034,011

June 30, December 31,
2017 2016
TOTAL ASSETS
-Legacy YOD $ 23,781,011 $ 36,975,911
-Wecast Service 46,426,638 14,448,702
-Unallocated assets 4,386,182 4,321,677
-Intersegment elimination (320,092 ) -
Total 74,273,739 55,746,290
21. Subsequent Event
As at August 14, 2017 (reporting date approved by Board of Directors), there is no material subsequent event to be disclosed.
31
~~(a)~~
On July 6, 2016, the Company entered into a Common Stock Purchase Agreement (the “SSW SPA”) with Seven Stars Works Co., Ltd., a Korea company (“SSW”) and an affiliate of SSS. Pursuant to the terms of the SSW SPA, the Company has agreed to sell and issue 2,272,727 shares of the Company’s common stock for $1.76 per share, or a total purchase price of $4.0 million to SSW. A total of $4.0 million was received on July 19, 2016.
Table of Contents
~~(b)~~
On August 11, 2016, the Company entered into a Common Stock Purchase Agreement (the “Harvest SPA”) with Harvest Alternative Investment Opportunities SPC (“Harvest”), a Cayman Islands company. Pursuant to the terms of the Harvest SPA, the Company has agreed to sell and issue 2,272,727 shares of the Company’s Common Stock, for $1.76 per share, or a total purchase price of $4.0 million to Harvest. A total of $4.0 million was received on August 12, 2016.
27
Cautionary Note Regarding Forward Looking Statements
This Form 10-Q contains “forward-looking” statements that involve risks and uncertainties. You can identify these statements by the use of forward-looking words such as "may", "will", "expect", "anticipate", "estimate", "believe", "continue", or other similar words. You should read statements that contain these words carefully because they discuss our future expectations, contain projections of our future results of operations or financial condition or state other "forward-looking" information. We believe that it is important to communicate our future expectations to our investors. However, these forward-looking statements are not guarantees of future performance and actual results may differ materially from the expectations that are expressed, implied or forecasted in any such forward-looking statements. There may be events in the future that we are unable to accurately predict or control, including weather conditions and other natural disasters which may affect demand for our products, and the product–development and marketing efforts of our competitors. Examples of these events are more fully described in the Company’s ~~2015~~2016 Annual Report under Part I. Item 1A. Risk Factors.
Unless required by law, the Company undertakes no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise. However, readers should carefully review the reports and documents the Company files from time to time with the SEC, particularly its Quarterly Reports on Form 10-Q, Annual Report on Form 10-K , Current Reports on Form 8-K and all amendments to those reports.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following management’s discussion and analysis should be read in conjunction with our financial statements and the notes thereto and the other financial information appearing elsewhere in this report. In addition to historical information, the following discussion contains certain forward-looking information. See ~~“Special~~“Cautionary Note Regarding Forward Looking Statements” above for certain information concerning those forward-looking statements.
Overview
~~YOU On Demand~~
Seven Stars Cloud Group, Inc. (the “Company” or “SSC”), formerly known as Wecast Network, Inc., is a ~~premium Video On Demand (“VOD”) service provider with primary operations~~Nevada corporation that primarily operates in ~~the People’s Republic of~~ China (“PRC”)~~. YOU On Demand Holdings, Inc. was incorporated in the State of Nevada on October 19, 2004.~~
~~YOU On Demand,~~ through its subsidiaries and consolidated variable interest entities ~~provides enhanced~~(“VIEs”). The Company, its subsidiaries and consolidated VIEs are collectively referred to as Seven Stars Cloud (“SSC”, “we”, “us”, or “the Company”).
SSC is aiming to be a leading Intelligent Industrial Internet company with solutions designed to provide operational efficiencies in today’s constantly evolving business landscape. With a focus on “BASE” technology and infrastructure (Blockchain, Artificial Intelligence, Supply Chain & Exchanges) to power our Virtual Platform as a Service or “VPaaS”, SSC is creating a closed trade ecosystem for buyers and sellers designed to eliminate supply chain and transactional middlemen and create a more direct and margin-expanding trading path for principals. SSC is applying BASE plus V PaaS to focus on three Core Cloud Areas, including Intellectual Property Cloud, Product Sales Cloud, and the Finance Services Cloud. With the three clouds functioning both independently and interdependently, SSC is creating a vertical, transactional and flexible platform for today’s global enterprises. SSC is also still leveraging its legacy operations as a premium content Video On Demand (“VOD”) service provider in China.
The Company’s mission and ~~integrated value-added service solutions for~~vision is to be the ~~delivery of VOD~~world’s leading cloud-based, total B2B enterprise solution and ~~paid video programming~~platform provider that empowers businesses to ~~digital cable providers, Internet Protocol Television (“IPTV”) providers, Over-the-Top (“OTT”) streaming providers, mobile manufacturers and operators, as well as direct to customers.~~grow with Big Data technology.
We
SSC launched ~~our~~its VOD service through ~~the~~ acquisition of YOD Hong Kong, formerly Sinotop Group Limited, onin July 30, ~~2010.~~2010 through its subsidiary China CB Cayman. Through a series of contractual ~~agreements,~~arrangements, YOD WFOE, the subsidiary of YOD Hong Kong, controls ~~Beijing Sino Top Scope Technology Co., Ltd. (“~~Sinotop ~~Beijing”),~~Beijing, a corporation established in the PRC. Sinotop Beijing is the 80% owner of Zhong Hai ~~Shi Xun Information Technology Co., Ltd. (“Zhong Hai Video”), though~~Media until June 30, 2017, through which we provide: 1) integrated ~~value-added business-to-business~~value–added business–to–business (“B2B”) service solutions for the delivery of VOD and enhanced premium content for digital cable; 2) integrated ~~value-added business-to-business-to-customer~~value–added business–to–business–to–customer (“B2B2C”) service solutions for the delivery of VOD and enhanced premium content for IPTV and OTT providers and; 3) a direct to user, or B2C, mobile video service app. As
On October 8, 2016, the Company signed an agreement to form a ~~result~~partnership with Zhejiang Yanhua ("Yanhua Agreement"), where Yanhua will act as the exclusive distribution operator (within the territory of the ~~contractual arrangements with Sinotop Beijing, we have~~People's Republic of China) of WCST's licensed library of major studio films. According to the ~~right to control management decisions and direct~~Yanhua Agreement, the ~~economic activities that most significantly impact Sinotop Beijing and Zhong Hai Video, and accordingly, under generally accepted accounting principles~~existing legacy Hollywood studio paid contents as well as other IP contents specified in the ~~United States (“U.S. GAAP”), we consolidate these operating entities~~agreement, along with the corresponding authorized rights letter that WCST is entitled to, will be turned over to Yanhua as a whole package, which was agreed to be priced at RMB 13,000,000. In addition to the above-mentioned minimal guarantee fee of RMB 13,000,000 specified, there is a provision in ~~our consolidated financial statements.~~the Yanhua Agreement which states that once the revenue recognized from the existing contents transferred from WCST to Yanhua reaches the amount of RMB 13,000,000, the revenue above RMB 13,000,000 will be shared with WCST from the date when this revenue threshold is reached based on certain revenue-sharing mechanism stipulated in the Yanhua Agreement.
~~Recent Development~~
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On ~~July 6, 2016, we~~January 30, 2017, the Company entered into a ~~Common Stock~~Securities Purchase Agreement (the ~~“SSW~~“Sun Video SPA”) with ~~SSW, a Korea company and an affiliate~~BT Capital Global Limited which has been controlled by Company’s chairman Bruno Wu, for the purchase by us of ~~SSS. Pursuant to the terms~~all of the ~~SSW SPA,~~outstanding capital stock of Sun Video Group Hong Kong Limited. On January 31, 2017, the Company ~~has agreed to sell~~entered into another Securities Purchase Agreement (the “Wide Angle SPA”) with BT and ~~issue 2,272,727 shares~~Sun Seven Stars Media Group Limited, one of the Company’s ~~common~~largest shareholders, controlled by Mr. Wu, as guarantor, for the purchase by us of 55% of the outstanding capital stock ~~for $1.76 per share, or a total purchase price~~ of ~~$4.0 million to SSW. A total of $4.0 million was received on July 19, 2016.~~Wide Angle. After acquiring these two entities, other than our legacy YOD business, we are also engaged with consumer electronics and smart hand held device design and supply chain management business.
28
On ~~August 11, 2016, we~~June 30, 2017, Company entered into ~~a Common Stock~~another Securities Purchase Agreement (the ~~“Harvest~~“BT SPA”) with ~~Harvest Alternative Investment Opportunities SPC (“Harvest”),~~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 ~~Cayman Islands company. Pursuant~~combination of cash and publicly traded stock to ~~the terms~~be paid to SSC within one year of closing. A minimum of 20% of the ~~Harvest SPA, the Company has agreed~~total consideration to ~~sell and issue 2,272,727 shares~~SSC will be paid in cash (approximately $2.95 million). A portion of the ~~Company’s Common Stock, for $1.76 per share, or~~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 ~~total purchase price~~public company affiliated with BT, in an industry related to SSC’s and with an average daily trading value of ~~$4.0 million to Harvest. A total of $4.0 million was received on August 12, 2016.~~at least $146,000.
Principal Factors Affecting Our Financial Performance
~~Our operating results are primarily affected by~~
The Company is in the ~~following factors:~~process of transforming its business model and is aiming to be a leading Intelligent Industrial Internet company with solutions designed to provide operational efficiencies in today's constantly evolving business landscape. With a focus on 'BASE' technology and infrastructure (Blockchain, Artificial Intelligence, Supply Chain & Exchanges) to power our V PaaS (Virtual Platform as a Service), SSC is creating a closed trade ecosystem for buyers and sellers designed to eliminate supply chain and transactional middlemen and create a more direct and margin-expanding trading path for principals. SSC is applying BASE + V PaaS to focus on 3 Core Cloud Areas: I. Intellectual Property Cloud; II. Product Sales Cloud; III. Financial Services Cloud. With the three clouds functioning both independently and interdependently, SSC is creating a vertical, transactional and flexible platform for today's global enterprises. In connection with this transformation, the Company has recently assembled a new experienced management team, stabilized the foundation, capitalized and rebranded the Company, reconfigured the business structure, expanded the Company’s mission and business lines, made several key investments and finally, injected several privately held and revenue producing assets into the corporation. It is uncertain whether these efforts will prove beneficial or whether we will be able to develop the necessary business models, infrastructure and systems to support the business. This includes having or hiring the right talent to execute our business strategy. Market acceptance of new product and service offerings will be dependent in part on our ability to include functionality and usability that address customer requirements, and optimally price our products and services to meet customer demand and cover our costs.
•
~~Our ability to adapt our product and service offerings to meet consumer demands~~. Our expansion prospect is dependent on continued development of our product and services. The content distribution industry in China is highly competitive and dominated by large Internet companies that have more resources than us. The growth of our business will depend on whether we can develop new services and products that can offer higher quality contents, technological innovation and unique user experience.
•
~~Our ability to expand our subscriber base~~. Our business is affected by the overall size of our user base, which in turn is determined by, among other factors, (i) user experience of our service and products, (ii) our relationship with distribution platforms, such as digital cable and IPTV providers and mobile product manufacturers, (iii) expansion of our business to include increased service offerings and (iv) the expansion of our subscribers beyond smartphones to mobile tablets and other Internet-enabled mobile devices.
•
~~Our ability to achieve revenue growth and meet internal or external expectations of future performance~~. In the latter half of 2013, we shifted our focus to our core multi-platform video streaming services and our business model is still evolving. Our financial performance is affected by, among other things, our ability to come to favorable business terms with our distribution partners, manage and procure contents in a cost-effective manner and manage our operating expenses. Overall, our normalized operating expenses have been decreasing but we have also incurred certain additional costs related to our financing activities, maintaining our public company status and making staff reductions.
•
~~Changes in China’s economic, political or social policies or conditions~~. We operate in China and derive all of our revenues from sales to customers in China. Accordingly, our business, financial condition and results of operation is significantly influenced by the political, social and economic policies and conditions in China. While the Chinese economy has experienced significant growth over the past decade, growth has been uneven, both geographically and among various sectors of the economy. In addition, the Chinese government continues to play a significant role in regulating telecommunication and Internet industry development by imposing certain laws and regulations concerning Internet access and distribution of video content and other information over traditional and new media platforms. Some of the laws and regulations are also relatively new and involving and their interpretation and enforcement involve significant uncertainty.
Taxation
United States
~~YOU On Demand Holdings,~~
Seven Stars Cloud Group, Inc. isand M. Y. Products, LLC are subject to United States tax. No provision for income taxes in the United States has been made as ~~YOU On Demand Holdings, Inc.~~both companies had no ~~income~~ taxable profit in the United States since inception.
Cayman Islands and the British Virgin Islands
~~CB Cayman was incorporated in the Cayman Islands.~~
Under the current laws of the Cayman Islands ~~it is~~and the British Virgin Islands, we are not subject to tax on our income or capital ~~gains tax.~~gains. In addition, dividend payments are not subject to withholding tax in the Cayman Islands or British Virgin Islands.
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Hong Kong
Our ~~subsidiary, YOD Hong Kong, was~~subsidiaries that were incorporated in Hong Kong ~~and~~were under the current laws of Hong Kong, isare subject to Profits Tax of 16.5%. No provision for Hong Kong Profits Tax has been made as ~~YOD Hong Kong has no~~net operating loss carryovers offset current taxable income.
The People’s Republic of China
Under the Enterprise Income Tax Law, our Chinese subsidiaries and VIEs are subject to an earned income tax of 25.0%.
Our future effective income tax rate depends on various factors, such as tax legislation, the geographic composition of our pre-tax income and non-tax deductible expenses incurred. Our management carefully monitors these legal developments to determine if there will be any change in the statutory income tax rate.
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Consolidated Results of Operations
Comparison of Three Months Ended June 30, ~~2016~~2017 and ~~2015~~2016
Three Months Ended
June 30, 2016 June 30, 2015 Amount Change % Change
Revenue $ 1,480,000 $ 1,480,000 $ - -
Cost of revenue 800,000 829,000 (29,000 ) -3%
Gross profit 680,000 651,000 29,000 4%

Operating expense:
Selling, general and administrative expenses 1,809,000 1,659,000 150,000 9%
Professional fees 271,000 151,000 120,000 79%
Depreciation and amortization 123,000 95,000 28,000 29%
Total operating expense 2,203,000 1,905,000 298,000 16%

Loss from operations (1,523,000 ) (1,254,000 ) (269,000 ) 21%

Interest and other income/(expense)
Interest expense, net (167,000 ) (30,000 ) (137,000 ) 457%
Change in fair value of warrant liabilities 107,000 49,000 58,000 118%
Equity in losses of equity method investees (27,000 ) (61,000 ) 34,000 -56%
Others (5,000 ) (37,000 ) 32,000 -86%

Loss before income taxes and non-controlling interest (1,615,000 ) (1,333,000 ) (282,000 ) 21%

Income tax benefit 9,000 9,000 - -

Net loss (1,606,000 ) (1,324,000 ) (282,000 ) 21%

Net loss attributable to non-controlling interest 18,000 7,000 11,000 157%

Net loss attributable to YOU On Demand shareholders $ (1,588,000 ) (1,317,000 ) (271,000 ) 21%
Three Months Ended
June 30, 2017 June 30, 2016 Amount Change % Change
Revenue $ 43,324,439 $ 1,480,464 $ 41,843,975 2,826 %
Cost of revenue 43,272,723 800,399 42,472,324 5,306 %
Gross profit 51,716 680,065 (628,349 ) (92 %)
　
Operating expense:
Selling, general and administrative expenses expenses 2,875,440 1,808,906 1,066,534 59 %
Professional fees 747,418 270,491 476,927 176 %
Impairment of other intangible assets 63,621 - 63,621 100 %
Depreciation and amortization 60,942 123,343 (62,401 ) (51 %)

Total operating expense 3,747,421 2,202,740 1,544,681 70 %

Loss from operations (3,695,705 ) (1,522,675 ) (2,173,030 ) 143 %
Interest expense, net (3,696 ) (166,710 ) 163,014 (98 %)
Change in fair value of warrant liabilities 26,117 106,583 (80,466 ) (75 %)
Equity in loss of equity method investees (33,090 ) (27,001 ) (6,089 ) 23 %
Others (11,072 ) (5,258 ) (5,814 ) 111 %
　
Loss before income taxes (3,717,446 ) (1,615,061 ) (2,102,385 ) 130 %

Income tax benefit - 8,612 (8,612 ) (100 %)

Net loss
(3,717,446
) (1,606,449 )
(2,110,997
) 131 %

Net loss attributable to non-controlling interest 57,221 18,360 38,861 212 %

Net loss attributable to Seven Stars Cloud Group, Inc. shareholders $
(3,660,225
) $ (1,588,089 ) $ (2,072,136 ) 130 %
Revenues
We are refocusing from our legacy operations as a premium content VOD service provider in China and aiming to be a leading Intelligent Industrial Internet company with solutions designed to provide operational efficiencies in today’s constantly evolving business landscape. With a focus on “BASE” or Blockchain, Artificial Intelligence, Supply Chain & Exchanges, we are organized into three cloud-based categories and business units: Brand, Content & Intellectual Property Cloud, Product Sales Cloud, and the Transactional Finance Product Cloud. With the three clouds functioning both independently and interdependently, we are creating a vertical, transactional and flexible platform for today’s global enterprises, including:
1> OTT, Mobile App, IPTV and Digital Cable VOD Businesses (Legacy YOD)
Provides premium content and integrated value-added service solutions for the delivery of VOD and paid video programming to digital cable providers, Internet Protocol Television (“IPTV”) providers. The core revenues are being generated from both minimum guarantee payments and revenue sharing arrangements with distribution partners as well as subscription or transactional fees from subscribers.
2> Wecast Services
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
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outstanding capital stock of Wide Angle Group Limited (“Wide Angle”). The holdings and businesses from both of these aforementioned 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 e-commerce and smart supply chain management operations. Our ending customers include British Telecom, Micromax and about 15 to 20 other corporations across the world.
　 2017Q2 2016Q2 Diff
　 USD % USD USD %
Legacy YOD - - 1,480,464 (1,480,464 ) (100 %)
Wecast Services 43,324,439 100 % - 43,324,439 100 %
Total 43,324,439 100 % 1,480,464 41,843,975 2826 %
Revenue for the three months ended June 30, ~~2016~~2017 was ~~approximately $1,480,000,~~$43.3 million as compared to ~~$1,480,000~~$1.5 million for the same period in ~~2015 with minor~~2016, an increase of ~~0.1%~~approximately $41.8 million, or 2,826%. ~~Our revenue~~The increase was mainly due to our new business line acquired in January 2017. This was partially offset by a decrease of our legacy YOD business in the ~~three months~~amount of $1.5 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 was not over revenue sharing threshold yet, no additional revenue was recorded in the quarter ended June 30, ~~2016~~2017.
Cost of revenues
　 2017Q2 2016Q2 Diff
　 USD % USD USD %
Legacy YOD - - 800,399 (800,399 ) (100 %)
Wecast Services 43,272,723 100 % - 43,272,723 100 %
Total 43,272,723 100 % 800,399 42,472,324 5306 %
Cost of revenues was ~~primarily attributed to the revenue from multi-platforms revenue streams primarily including OTT, Cable and Mobile platforms, the aggregate of which comprised 95.8% of the total revenue~~approximately $43.3 million for the three months ended June 30, ~~2016~~2017, as compared to the three ended months June 30, 2015 in which 60.8% was from multi-platforms revenue streams and 39.2% was from other service streams. The decrease in revenue from other revenue streams was mainly due to the Company's focus on developing multi-platform products in providing premium contents to our customers.
~~Cost of revenues~~
~~Cost of revenues was approximately $800,000~~$0.8 million for the three months ended June 30, ~~2016, as compared to $829,000 for the three months ended June 30, 2015. The decrease~~2016. Our cost of ~~approximately $29,000, or 3%, was primarily due to delay~~revenues increased by $42.5 million which is in ~~expected revenue from content titles which impacted~~line with our ~~content license cost amortization pattern.~~increase in revenues. Our cost of revenues is primarily comprised of ~~content licensing fees.~~electronics products purchasing cost from Wecast Services.
Gross profit
~~Our gross~~
　 2017Q2 2016Q2 Diff
　 USD % USD USD %
Legacy YOD - - 680,065 (680,065 ) (100 %)
Wecast Services 51,716 100 % - 51,716 100 %
Total 51,716 100 % 680,065 (628,349 ) (92 %)
Gross profit ratio for the three months ended June 30, ~~2016 was approximately $680,000~~2017 decreased by 45.82% from 45.94% to 0.12%, as ~~compared to gross profit~~the Wecast Services business, which currently is engaged mostly in lower margin electronics e-commerce, is still in its relative infancy and the business service offerings as well as profit-sharing arrangements with a growing range of ~~$651,000 during the same period~~suppliers are in 2015. Our gross profit margin percentage was 46% and 44% for the three month periods ended June 30, 2016 and 2015, respectively. The increase in gross profit of approximately $29,000 was primarily due to the decrease of cost recognized per expected revenue, which is expected to increase considering the current business transformation and expansion.transition.
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Selling, general and administrative expenses
~~Our selling,~~
Selling, general and administrative ~~expenses~~expense for the three months ended June 30, ~~2016, increased approximately $150,000, to $1,809,000,~~2017 was $2.9 million as compared to ~~$1,659,000 for the three months ended June 30, 2015.~~
Salaries and personnel costs are the primary components of selling, general and administrative expenses, accounting for 56% and 50% of our selling, general and administrative expenses for the three months ended June 30, 2016 and 2015, respectively. For the second quarter of 2016, salaries and personnel costs totaled approximately $1,015,000, an increase of $178,000, or 21%, as compared to $837,000$1.8 million for the same period in 2016, an increase of ~~2015.~~approximately $1.1 million or 59%. The increase was primarily attributed to the recent business transformation and headcount expansion during the first and second quarter as well as an increase in share based compensation due to recently vested restricted share units granted to our management. In second quarter of 2017, the Company ~~which was demonstrated by establishment of the new technical department and approximately 20% headcount increase via recruitment during the second quarter.~~
~~The other major components~~terminated one of our selling, general and administrative expenses include marketing and promotion expenses, outsourced technology costs, rent and severance. For the three months ended June 30, 2016, these costs totaled $794,000, a net decreaseoffice leases in Shanghai, which resulted in an approximate $0.5 million impairment of ~~approximately $28,000, or 3%, as compared to $822,000 for the same period~~leasehold improvements. In addition, there was an approximate $0.2 million increase in 2015. The decrease was primarily attributed to the decrease of BOD compensation expense and technology outsourcing costs by approximately $152,000 and $91,000 respectively, which was offset by increase of severance, regulatory, travel and entertainment and other office expenses by approximately $75,000, $42,000, $58,000, and $40,000 respectively.D&O insurance expenses.
Professional fees
Professional fees ~~are generally related to public company reporting and governance expenses. Our costs for professional fees increased approximately $120,000, or 79%, to $271,000~~ for the three months ended June 30, ~~2016, from $151,000~~2017 were $0.7 million as compared to $0.3 million for the same period in ~~2015. The~~2016, an increase ~~in professional fees was related to legal, audit and advisory expenses, among which audit, legal and advisory expenses has increased by~~of approximately ~~$66,000, $46,000 and $8,000 respectively from the same period in 2015. The increase was primarily attributed to the investment and financing activities occurred in 2016.~~
~~Depreciation and amortization~~
~~Our depreciation and amortization expense increased by approximately $28,000, or 29%, to $123,000 in the three months ended June 30, 2016, from $95,000 during the three months ended June 30, 2015. The~~$0.4 million. This increase was mainly due to ~~amortization~~audit and valuation fees that were incurred in the second quarter for additional audit services rendered in relation to our January acquisitions of ~~costs related to the workforce intangible assets acquired on April 1, 2016.~~Wide Angle and Wecast Services and therefore increased review service fees charged by our external auditor.
Change in fair value of warrant liabilities
Certain of our warrants are recognized as derivative liabilities and re-measured at the end of every reporting period and upon settlement, with the change in value reported in the statement of operations. We reported a ~~gain~~loss of approximately ~~$107,000~~$0.03 million and a gain of approximately ~~$49,000~~$0.1 million for the three months ended June 30, ~~2016~~2017 and ~~2015,~~2016, respectively. The changes are primarily due to ~~fluctuation~~fluctuations in our closing stock price.
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Income tax expenses
The income tax expense for the three months ended June 30, 2017 is nil because net operating loss carryovers offset current taxable income and deferred tax assets related to the net operating loss carryovers utilized had been offset by a valuation allowance.
Net loss attributable to non-controlling interest
Hua Cheng has a 20% non-controlling interest in Zhong Hai ~~Video~~Media and as such we allocate 20% of the operating loss of Zhong Hai ~~Video~~Media to Hua Cheng. During the three months ended June 30, ~~2016, $18,000~~2017, approximately $0.1 million of our operating ~~loss~~profit from Zhong Hai ~~Video~~Media was allocated to Hua Cheng. For the three months ended June 30, ~~2015,~~2016, operating loss attributable to non-controlling interest was ~~$7,000.~~approximately $0.02 million.
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Dillon Yu has a 49% non-controlling interest in Shanghai Wecast Supply Chain Management Limited (“Wecast SH”) and as such we allocate 49% of the operating loss of Wecast SH to Dillon Yu. During the three months ended June 30, 2017, approximately $0.2 million of our operating loss from Wecast SH was allocated to Dillon Yu, which was nil in the same period in 2016.
Swiss Guorong Limited has a 45% non-controlling interest in Wide Angle and as such we allocate 45% of the operating profit of Wide Angle to Swiss Guorong Limited. During the three months ended June 30, 2017, approximately $0.01 million of our operating loss from Wide Angle was allocated to Swiss Guorong Limited, which was nil in the same period in 2016.
Comparison of Six Months Ended June 30, ~~2016~~2017 and ~~2015~~2016
Six Months Ended
June 30, 2016 June 30, 2015 Amount Change % Change
Revenue $ 2,750,000 $ 2,508,000 $ 242,000 10%
Cost of revenue 1,716,000 1,872,000 (156,000 ) -8%
Gross profit 1,034,000 636,000 398,000 63%
Operating expense:
Selling, general and administrative expenses 3,974,000 4,107,000 (133,000 ) -3%
Professional fees 638,000 440,000 198,000 45%
Depreciation and amortization 221,000 185,000 36,000 19%
Total operating expense 4,833,000 4,732,000 101,000 2%

Loss from operations (3,799,000 ) (4,096,000 ) 297,000 -7%

Interest & other income/(expense)
Interest expense, net (200,000 ) (59,000 ) (141,000 ) 239%
Change in fair value of warrant liabilities 144,000 34,000 110,000 324%
Change in fair value of contingent consideration - - - -
Equity in losses of equity method investees (37,000 ) (93,000 ) 56,000 -60%
Gain from disposal of consolidated entities - - - -
Others (5,000 ) (46,000 ) 41,000 -89%

Loss before income taxes and non-controlling interest (3,897,000 ) (4,260,000 ) 363,000 -9%
Income tax benefit 17,000 17,000 - -

Net loss (3,880,000 ) (4,243,000 ) 363,000 -9%

Net loss attributable to non-controlling interests 156,000 128,000 28,000 22%

Net loss attributable to YOU On Demand shareholders $ (3,724,000 ) $ (4,115,000 ) $ 391,000 -10%
Six Months Ended
June 30, 2017 June 30, 2016 Amount Change % Change
Revenue $ 76,488,790 $ 2,750,190 $ 73,738,600 2,681 %
Cost of revenue 72,615,102 1,716,179 70,898,923 4,131 %
Gross profit 3,873,688 1,034,011 2,839,677 275 %
　
Operating expense:
Selling, general and administrative expenses expenses 4,140,612 3,973,959 166,653 4 %
Professional fees 1,014,551 637,937 376,614 59 %
Impairment of other intangible assets 63,621 - 63,621 100 %
Depreciation and amortization 257,153 220,806 36,347 16 %

Total operating expense 5,475,937 4,832,702 643,235 13 %

Loss from operations (1,602,249 ) (3,798,691 ) 2,196,442 (58 %)
Interest expense, net (45,253 ) (200,183 ) 154,930 (77 %)
Change in fair value of warrant liabilities (243,999 ) 143,606 (387,605 ) (270 %)
Equity in loss of equity method investees (76,836 ) (37,349 ) (39,487 ) 106 %
Others (110,642 ) (5,096 ) (105,546 ) 2071 %
　
Loss before income taxes (2,078,979 ) (3,897,713 ) 1,818,734 (47 %)

Income tax benefit - 17,224 (17,224 ) (100 %)

Net loss (2,078,979 ) (3,880,489 ) 1,801,510 (46 %)
Net loss attributable to non-controlling interest 631,633 155,929 475,704 305 %

Net loss attributable to Seven Stars Cloud Group, Inc. shareholders $ (1,447,346 ) $ (3,724,560 ) $ 2,277,214 (61 %)
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Revenues
　 2017 1-6 2016 1-6 Diff
　 USD % USD USD %
Legacy YOD 794,273 - 2,750,190 (1,955,917 ) (71 %)
Wecast Services 75,694,517 100 % - 75,694,517 100 %
Total 76,488,790 100 % 2,750,190 73,738,600 2681 %
Revenue for the six months ended June 30, ~~2016~~2017 was approximately ~~$2,750,000,~~$76.5 million, as compared to ~~$2,508,000~~$2.8 million for the same period in ~~2015.~~2016. The increase in revenue of approximately ~~$242,000~~$75.7 million was attributable to the ~~growth~~new consumer electronics e-commerce business line acquired in January 2017, and to a lesser extent, a one-time consulting services that we provided to certain customers. These revenues were partially offset by the decrease of our ~~multi-platform video streaming services from the same period~~legacy YOD business, which is in 2015 mainly from the OTT, Cable and Mobile Platforms, which accounted for 92% of the total revenue for the six months ended June 30, 2016 as compared to the six months June 30, 2015 in which 73.0% was from multi-platforms revenue streams and 27.0% was from other service streams. The decrease in revenue from other revenue streams was due to the Company's focus on developing multi-platform products in providing premium contents toline with our ~~customers.~~business strategy transition.
~~Cost of revenues~~
Cost of revenues was approximately $1,716,000 for the six months ended June 30, 2016, as compared to $1,872,000 for the six months ended June 30, 2015. The decrease of approximately $156,000, or 8%, was primarily due to delay in expected revenue from content titles which impacted our content license cost amortization pattern. Our cost of revenues is primarily comprised of content licensing fees.
Gross profit
　 2017 1-6 2016 1-6 Diff
　 USD % USD USD %
Legacy YOD 31,659 - 1,034,011 (1,002,352 ) (97 %)
Wecast Services 3,842,029 100 % - 3,842,029 100 %
Total 3,873,688 100 % 1,034,011 2,839,677 275 %
Our gross profit for the six months ended June 30, ~~2016~~2017 was approximately ~~$1,034,000,~~$3.9 million, as compared to ~~$636,000 gross profit~~$1.0 million during the same period in ~~2015. Our gross~~2016. Gross profit ~~margin percentage was 38% and 25%~~ratio for the six ~~month periods~~months ended June 30, ~~2016~~2017 was 5.06%, a decrease from 37.60%, as the Wecast Services business, which currently is engaged mostly in lower margin electronics e-commerce, is still in its relative infancy and ~~2015, respectively. The increase~~the business service offerings as well as profit-sharing arrangements with a growing range of suppliers are in gross profit of approximately $398,000 was primarily due to the decrease of cost from delay in expected revenue, which is expected to increase considering the current business transformation and expansion to focus on developing premium multi-platform products which are more profitable than old regular products.transition.
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Selling, general and administrative expenses
Our selling, general and administrative expenses for the six months ended June 30, ~~2016, decreased~~2017 increased approximately ~~$133,000, to $3,974,000,~~$0.2 million, or 4%, as compared ~~to $4,107,000~~with the amount for the six months ended June 30, ~~2015.~~2016.
Salaries and personnel costs are the primary components of selling, general and administrative expenses, accounting for ~~43%~~55% and ~~41%~~43% of our selling, general and administrative expenses for the six months ended June 30, ~~2016~~2017 and June 30, ~~2015.~~2016, respectively. For the half year of ~~2016,~~2017, salaries and personnel costs totaled ~~$1,724,000,~~$2.4 million, an increase of approximately ~~$32,000,~~$0.7 million, or 2%41%, as compared to ~~$1,692,000 for~~ the same period of ~~2015.~~2016. The increase was primarily due to the increase in headcount ~~from establishment of the new technical department~~ as part of our business transformation and expansion strategy in ~~2016.~~2017.
The other major components of our selling, general and administrative expenses include marketing and promoting, technology and severance expense. For the six months ended June 30, 2016, these costs totaled $2,250,000, a net decrease of approximately $165,000, or 7%, as compared to $2,415,000 for the same period in 2015, primarily due to the decrease of BOD compensation expense and technology outsourcing service costs by approximately $219,000 and $129,000 respectively, which was offset by increase in severance and regulatory expenses by approximately $107,000 and $72,000 respectively.
Professional fees
Professional fees are generally related to public company reporting and governance expenses as well as legal fees related to ~~expansion of our VOD business.~~business transition and expansion. Our costs for professional fees increased approximately ~~$198,000,~~$0.4 million, or ~~45%~~59%, to ~~$638,000~~$1.0 million for the six months ended June 30, ~~2016, from $440,000~~2017, for the same period in ~~2015.~~2016. The increase in professional fees was mainly caused by ~~investing~~the legal, valuation and ~~financing activities occurred~~auditing service fees incurred in relation to the ~~first half of fiscal year 2016.~~acquisitions in January 2017.
~~Depreciation and amortization~~
Our depreciation and amortization expense increased by approximately $36,000, or 19%, to $221,000 in the six months ended June 30, 2016, from $185,000 during the six months ended June 30, 2015. The increase was mainly due to the acquisition of workforce intangible assets starting from April 1, 2016, which caused the increase of depreciation and amortization correspondingly.
Interest expense, net
Our interest expense ~~increased~~decreased by approximately ~~$141,000 to $200,000~~$0.2 million for the six months ended June 30, ~~2016, from $59,000 during~~2017. In the same period ~~in 2015. Interest expense increase during~~of 2016, ~~was primarily comprised of 1)~~we incurred approximately ~~$123,000~~$0.1 million in interest expense ~~recorded~~ related to the amortization of debt ~~issuance~~ costs ~~related to~~from the issuance of the $17.7 million convertible note to SSS ~~and 2) approximately $24,000 interest expenses accrued for the convertible note issued to SSS before its conversion on June 27, 2016.~~which was no longer incurred in 2017.
Change in fair value of warrant liabilities
Certain of our warrants are recognized as derivative liabilities and re-measured at the end of every reporting period and upon settlement, with the change in value reported in the statement of operations. We reported a ~~gain~~loss of approximately ~~$144,000 and~~$0.3 million but a gain of approximately ~~$34,000~~$0.1 million for the six months ended June 30, ~~2016~~2017 and ~~2015,~~2016, respectively. The changes are primarily due to ~~fluctuation~~fluctuations in our closing stock price.
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Net loss attributable to non-controlling interest
For the period ended June 30, 2017, Hua Cheng has a 20% non-controlling interest in Zhong Hai ~~Video~~Media and as such we allocate 20% of the operating loss of Zhong Hai ~~Video~~Media to Hua Cheng. During the six months ended June 30, ~~2015,~~2017, approximately ~~$156,000~~$0.03 million of our operating ~~loss~~profit from Zhong Hai ~~Video~~Media was allocated to Hua Cheng. For the six months ended June 30, ~~2015,~~2016, operating loss attributable to non-controlling interest was approximately ~~$128,000.~~$0.2 million.
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Dillon Yu has a 49% non-controlling interest in Shanghai Wecast Supply Chain Management Limited (“Wecast SH”) and as such we allocate 49% of the operating loss of Wecast SH to Dillon Yu. During the six months ended June 30, 2017, approximately $0.6 million of our operating loss from Wecast SH was allocated to Dillon Yu, which was nil in the same period in 2016.
Swiss Guorong Limited has a 45% non-controlling interest in Wide Angle and as such we allocate 45% of the operating profit of Wide Angle to Swiss Guorong Limited. During the six months ended June 30, 2017, approximately $0.03 million of our operating loss from Wide Angle was allocated to Swiss Guorong Limited, which was nil in the same period in 2016.
Liquidity and Capital Resources
As of June 30, ~~2016,~~2017, the Company had cash of approximately ~~$2,404,000~~$3.2 million and ~~positive working capital of approximately negative $1,847,000. In addition, we~~ had accumulated deficits of approximately ~~$90.2~~$117.5 million and ~~$82.5~~$115.7 million as of June 30, ~~2016~~2017 and ~~2015,~~December 31, 2016, respectively, due to recurring losses since our inception. Subsequent to June 30, 2016, we also entered into investment agreements, the total of which require aggregate cash commitments from us of approximately $5.0 million to invest in the Joint-Venture Company to be formed with Megtron Hong Kong Investment Group Co., Limited per the Joint Venture Agreement signed on May 30, 2016. These factors could raise substantial doubt about the Company’s ability to continue as a going concern.
We continue to rely on debt and equity financing to pay for ongoing operating expenses and execution of our business plan. On March 28, 2016, we completed a common stock financing for $10.0 ~~million,~~million. On July 19, 2016, we completed a stock financing with SSW for $4.0 million. On August 12, 2016, we completed another common stock financing with Harvest Alternative Investment Opportunities SPC for $4.0 million. On November 17, 2016, we completed another common stock financing with SSSHK for $2.0 million. On May 19, 2017, we completed another common stock financing with certain investors, including officers, directors and ~~we also~~other affiliates of the Company for $2.0 million. We have the ability to raise funds through various methods by either issuing debt or equity instruments. On July 6, 2016, we completed a stock financing with SSW for $4.0 million. On August 11, 2016, we also entered into a Common Stock Purchase Agreement with a new investor, completing another common stock financing for $4.0 million.
The consolidated financial statements included in this report have been prepared assuming that the Company will continue as a going concern and, accordingly, do not include any ~~adjustments~~adjustment that might result from the outcome of this uncertainty.
The following table provides a summary of our net cash flows from operating, investing and financing activities.
Six Months Ended
June 30, June 30,
2016 2015
Net cash used in operating activities $ (4,097,000 ) $ (3,880,000)
Net cash used in investing activities (7,234,000 ) (65,000)
Net cash provided by financing activities 10,000,000 -
Effect of exchange rate changes on cash (34,000 ) (1,000 )
Net decrease in cash (1,365,000 ) (3,946,000)

Cash at beginning of period 3,769,000 10,812,000

Cash at end of period $ 2,404,000 $ 6,866,000
Six  Months Ended
June 30, June 30,
2017 2016
Net cash used in operating activities $ (1,435,592 ) $ (4,097,000 )
Net cash used in investing activities (845,830 ) (7,234,000 )
Net cash provided by financing activities 1,650,350 10,000,000
Effect of exchange rate changes on cash 32,728 (34,000 )
Net decrease in cash (598,344 ) (1,365,000 )

Cash at beginning of period 3,761,814 3,769,000

Cash at end of period $ 3,163,470 $ 2,404,000
Operating Activities
Cash used in operating activities ~~increased~~decreased for the six months ended June 30, ~~2016~~2017 compared to ~~2015,~~2016, primarily due to ~~increase in payments for accrued expenses and other liabilities, which was partially offset by~~a decrease in ~~payments for accounts payable and decrease in net~~our loss ~~during the six months ended June 30, 2016.~~from operation from $3.8 million to $2.1 million.
~~Investing Activities~~
Cash used in investing activities for the six months ended June 30, 2016 is comprised of 1) acquisition of property and equipment at $2.1 million mainly for an office building as disclosed in note 14(e) above; 2) investments in intangible assets at $2.2 million primarily for the Game IP Rights acquired from SSS; and 3) investment in Frequency at $3.0 million.
Financing Activities
~~Net cash provided by financing activities~~
We entered into a subscription agreement with our certain investors, including officers, directors and other affiliates, pursuant to which we issued and sold to such investors, in a private placement, an aggregate of 727,273 shares of the common stock of the Company, for ~~the six months ended~~$2.75 per share, or a total purchase price of $2.0 million, and as of June 30, 2017, we already received $1.5 million, and all the remaining subscription have been received as of July 18, 2017; While in the same period in 2016, ~~was from~~we received $10 million investment proceeds ~~of $10.0 million received~~ from the sales of 4,545,455 shares of ~~the Company’s~~our common stock and issuance of a two-year warrant to acquire an additional 1,818,182 shares of ~~the Company’s~~our common stock at an exercise price of $2.75 per share to ~~SSS, while no such financing occurred in the comparative period for the six months ended June 30, 2015.~~SSS.
Effects of Inflation
Inflation and changing prices have had an effect on our business and we expect that inflation or changing prices could materially affect our business in the foreseeable future. Our management will closely monitor the price change and make efforts to maintain effective cost control in operations.
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Off Balance Sheet Arrangements
We do not have any off balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity or capital expenditures or capital resources that is material to an investor in our securities.
Seasonality
Our operating results and operating cash flows historically have not been subject to seasonal variations. This pattern may change, however, as a result of new market opportunities or new product introductions.
Critical Accounting Policies
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires our management to make assumptions, estimates, and judgments that affect the amounts reported, including the notes thereto, and related disclosures of commitments and contingencies, if any. We have identified certain accounting policies that are significant to the preparation of our financial statements. These accounting policies are important for an understanding of our financial condition and results of operations. Critical accounting policies are those that are most important to the portrayal of our financial condition and results of operations and require management’s difficult, subjective, or complex judgment, often as a result of the need to make estimates about the effect of matters that are inherently uncertain and may change in subsequent periods. Certain accounting estimates are particularly sensitive because of their significance to financial statements and because of the possibility that future events affecting the estimate may differ significantly from management’s current judgments. We believe the following critical accounting policies involve the most significant estimates and judgments used in the preparation of our financial statements.
Variable Interest Entities
We account for entities qualifying as variable interest entities ~~(VIEs)~~(“VIEs”) in accordance with Financial Accounting Standards Boards (“FASB”) Accounting Standards Codification (“ASC”) Topic 810,Consolidation. For our consolidated VIEs, management has made evaluations of the relationships between our VIEs and the economic benefit flow of contractual arrangement with VIEs. In connection with such evaluation, management also took into account the fact that, as a result of such contractual arrangements, we control the legal shareholders’ voting interests and have power of attorney in the VIEs, and therefore we are able to direct all business activities of the VIEs. As a result of such evaluation, management concluded that we are the primary beneficiary of our consolidated VIEs.
We have consulted our PRC legal counsel in assessing our ability to control our PRC VIEs. Any changes in PRC laws and regulations that affect our ability to control our PRC VIEs may preclude us from consolidating these companies in the future.
Revenue Recognition
When persuasive evidence of an arrangement exists, the sales price is fixed or determinable and collectability is reasonably assured, we recognize revenue as services are performed. For certain contracts that involve sub-licensing content within the specified license period, revenue is recognized in accordance with ASC Subtopic 926-605, Entertainment-Films - Revenue Recognition, whereby revenue is recognized upon delivery of films when the arrangement includes a nonrefundable minimum guarantee, delivery is complete and we have no substantive future obligations to provide future additional services. Payments received from customers for the performance of future services are recognized as deferred revenue, and subsequently recognized as revenue in the period that the service obligations are completed.
In accordance with ASC 605-25, Revenue Recognition –- Multiple Element Arrangements, contracts with multiple element deliverables are separated into individual units for accounting purposes when the unit determined to have standalone value to the customer. Since the contract price is for all deliverables, we allocated the arrangement consideration to all deliverables at the inception of the arrangement based on their relative selling price. We use (a) vendor-specific objective evidence of selling price, if it exists, or, (b) the management’s best estimate of the selling price for that deliverable to determine the relative selling price of each individual unit.
We also generate revenue from sales of goods. Sales orders are confirmed after negotiation on price between customers and us. Purchase orders are confirmed after careful selection of suppliers and negotiation on price. We purchase finished goods from suppliers in accordance with sales orders from customers. Our suppliers then deliver goods to our customers directly. When the delivery is completed, we recognizes revenue and transfers cost at same time. According to purchase orders with suppliers, we, as the owner of the goods, become the first responsible party for the goods. We are required to bear the direct risk of damage to the goods and the direct default risk that can not be delivered to the customer.
In accordance with ASC 605-45, Revenue Recognition — Principal Agent Consideration, we account for revenue from sales of goods on a gross basis. We are the primary obligor in the arrangements, as we have the ability to establish prices, and have discretion in selecting the independent suppliers and other third-party that will perform the delivery service, we are responsible for the defective products and we bear credit risk with customer payments. Accordingly, all such revenue billed to customers is classified as revenue and all corresponding payments to suppliers are classified as cost.
The recognition of revenue involves certain judgments and changes in our assumptions, judgments or estimations may have a material impact on the amount and timing of our revenue recognition.
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Licensed Content
We obtain content through content licensing agreements with studios and distributors. We recognize licensed content when the license fee and the specified content titles are known or reasonably determinable. Prepaid license fees are classified as an asset on the consolidated balance sheets as licensed content and accrued license content fees payable are classified as a liability on the consolidated balance sheets.
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We amortize licensed content in cost of revenues over the contents contractual window of availability based on the expected revenue derived from the licensed content, beginning with the month of first availability, such that our revenues bear a representative amount of the cost of the licensed content. We review factors that impact the amortization of licensed content on a regular basis, including factors that may bear direct impact on expected revenue from specific content titles. We estimate expected revenue by reviewing relevant factors, including marketing considerations, programming efforts, relationship with our channel partners, expected customer renewals and content offered by other distributors on the same platform. Changes in our expected revenue from licensed content could have a significant impact on our amortization pattern.
Intangible Assets and Goodwill
We account for intangible assets and goodwill, in accordance with ASC 350,Intangibles – Goodwill and Other. ASC 350 requires that goodwill and intangible assets with indefinite useful lives no longer be amortized, but instead be evaluated for impairment at least annually. ASC 350 also requires that intangible assets with estimable useful lives be amortized over their respective estimated useful lives and reviewed for impairment whenever events indicate the carrying amount may not be recoverable. In accordance with ASC 350, goodwill is allocated to reporting units, which are either the operating segment or one reporting level below the operating segment. On an annual basis, we review goodwill for impairment by first assessing qualitative factors to determine whether the existence of events or circumstances makes it more-likely-than-not that the fair value of a reporting unit is less than its carrying amount. If we determine that it is more-likely-than-not that the fair value of a reporting unit is less than its carrying amount, goodwill is further tested for impairment by comparing the carrying value to the estimated fair value of its reporting units, determined using externally quoted prices (if available) or a discounted cash flow model and, when deemed necessary, a market approach.
Application of goodwill impairment tests requires significant management judgment, including the identification of reporting units, assigning assets, liabilities and goodwill to reporting units and determination of fair value of each reporting unit. Judgment applied when performing the qualitative analysis includes consideration of macroeconomic, industry and market conditions, overall financial performance of the reporting unit, composition, personnel or strategy changes affecting the reporting unit and recoverability of asset groups within a reporting unit. Judgments applied when performing the quantitative analysis includes estimating future cash flows, determining appropriate discount rates and making other assumptions. Changes in these judgments, estimates and assumptions could materially affect the determination of fair value for each reporting unit.
Recent Accounting Pronouncements
In May 2014, ~~the~~ Financial Accounting Standards Board ~~(“FASB”~~(or “FASB”) issued ~~ASU No.~~Accounting Standards Updates (or “ASU”) 2014-09, “Revenue from Contracts with ~~Customers~~Customers”(Topic 606). This guidance supersedes current guidance on revenue recognition in Topic 605,Revenue Recognition. In addition, there are disclosure requirements related to the nature, amount, timing, and uncertainty of revenue recognition. In August 2015, the FASB issued ASU ~~No.~~ 2015-14 to defer the effective date of ASU ~~No.~~ 2014-09 for all entities by one year. For public business entities that follow U.S. GAAP, the deferral results in the new revenue standard are being effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017, with early adoption permitted for interim and annual periods beginning after December 15, 2016. Management is currently evaluating the impact of adopting this standard on our consolidated financial statements.
In January 2016, the FASB issued ~~Accounting Standards Update No.~~ASU 2016-01 ~~(ASU 2016-01) "Financial~~"Financial Instruments-Overall (Subtopic 825-10):Recognition and Measurement of Financial Assets and Financial ~~Liabilities"~~Liabilities". ASU 2016-01 amends various aspects of the recognition, measurement, presentation, and disclosure for financial instruments. With respect to our consolidated financial statements, the most significant impact relates to the recognition and measurement for warrant liabilities. Additionally, ASU 2016-01 will impact the disclosure and presentation of financial assets and liabilities. ASU 2016-01 is effective for annual reporting periods, and interim periods within those years beginning after December 15, 2017. Early adoption by public entities is permitted only for certain provisions. Management is currently evaluating the impact of the adoption of this standard on our consolidated financial statements.
In February 2016, the FASB issued ~~Accounting Standards Update No.~~ASU 2016-02 ~~(ASU 2016-02)~~ which amends the FASB Accounting Standards Codification and created Topic 842, ~~"Leases"~~"Leases". Under Topic 842, lessees are required to recognize assets and liabilities on the balance sheet for most leases and provides for enhanced disclosures. Leases will continue to be classified as either finance or operating. ASU 2016-02 is effective for annual reporting periods, and interim periods within those years beginning after December 15, 2018. Entities are required to use a modified retrospective approach for leases that exist or are entered into after the beginning of the earliest comparative period in the financial statements. Full retrospective application is prohibited and early adoption by public entities is permitted. Management is currently evaluating the impact of the adoption of this standard on our consolidated financial statements.
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In ~~March~~May 2016, the FASB issued ASU ~~2016-09, C~~~~ompensation – Stock Compensation:~~2016-12 Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients. The amendments in this Update do not change the core principle of the guidance in Topic 606. Rather, the amendments in this Update affect only the narrow aspects of Topic 606. The areas improved include: (1) Assessing the Collectability Criterion in Paragraph 606-10-25-1(e) and Accounting for Contracts That Do Not Meet the Criteria for Step 1; (2) Presentation of Sales Taxes and Other Similar Taxes Collected from Customers; (3) Noncash Consideration; (4) Contract Modifications at Transition; (5) Completed Contracts at Transition; and (6) Technical Correction. The effective date and transition requirements for the amendments in this Update are the same as the effective date and transition requirements for Topic 606 (and any other Topic amended by Update 2014-09). We are planning to ~~Employee Share-Based Payment Accounting,~~adopt the above standards on January 1, 2018. We may use either a full retrospective or a modified retrospective approach to adopt this standard. We are currently evaluating this standard and the related updates, including which ~~relates~~transition approach to use as well as the impact of adoption on policies, practices and systems. The standard also requires us to evaluate whether our businesses promise to transfer services to the ~~accounting~~customer itself (as a principal) or to arrange for ~~employee share-based payments. This~~services to be provided by another party (as an agent). To make that determination, the standard ~~addresses several aspects~~uses a control model rather than the risks-and-rewards model in current U.S. GAAP. At this stage in the evaluation, we do not anticipate that the new guidance will have a material impact on our revenue recognition policies, practices or systems. We are currently evaluating the impact of this standard to its consolidated financial statements upon adoption.
In June 2016, the FASB issued ASU 2016-13, “Financial Instruments—Credit Losses (Topic 326)”. The pronouncement changes the impairment model for most financial assets, and will require the use of an “expected loss” model for instruments measured at amortized cost. Under this model, entities will be required to estimate the lifetime expected credit loss on such instruments and record an allowance to offset the amortized cost basis of the ~~accounting~~financial asset, resulting in a net presentation of the amount expected to be collected on the financial asset. This pronouncement is effective for ~~share-based payment award transactions, including: (a) income tax consequences; (b) classification~~fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2019. We do not expect a material impact to its consolidated financial statement upon adoption of ~~awards~~this ASU.
In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash, which requires companies to include amounts generally described as ~~either equity or liabilities;~~restricted cash and ~~(c) classification~~restricted cash equivalents in cash and cash equivalents when reconciling beginning-of-period and end-of-period total amounts shown on the statement of cash flows. This ~~standard~~guidance will be effective in the first quarter of 2018 and early adoption is permitted. Management is still evaluating the effect that this guidance will have on the consolidated financial statements and related disclosures.
In January 2017, FASB issued ASU 2017-01, “Business Combinations (Topic 805): Clarifying the Definition of a Business”. The update affects all companies and other reporting organizations that must determine whether they have acquired or sold a business. The definition of a business affects many areas of accounting including acquisitions, disposals, goodwill, and consolidation. The update is intended to help companies and other organizations evaluate whether transactions should be accounted for ~~fiscal years~~as acquisitions (or disposals) of assets or businesses. The update provides a more robust framework to use in determining when a set of assets and activities is a business, and also provides more consistency in applying the guidance, reduce the costs of application, and make the definition of a business more operable. For public companies, the update is effective for annual periods beginning after December 15, ~~2016,~~2017, including interim periods within those ~~fiscal years. Management is currently evaluating~~periods. The guidance should be applied prospectively upon its effective date. The effect of ASU 2017-01 on the ~~impact of this amendment~~consolidated financial statements will be dependent on ~~our financial position, statement of operations or cash flow.~~any future acquisitions.
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Item 3. Quantitative and Qualitative Disclosures about Market Risk
We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) that are designed to ensure that information that would be required to be disclosed in Exchange Act reports is recorded, processed, summarized and reported within the time period specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including to our Chief Executive Officer and Chief Financial Officer , as appropriate, to allow timely decisions regarding required disclosure.
As required by Rule 13a-15 under the Exchange Act, our management, including our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of June 30, ~~2016.~~2017. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that as of June 30, ~~2016,~~2017, and as of the date that the evaluation of the
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effectiveness of our disclosure controls and procedures was completed, our disclosure controls and procedures were not effective to satisfy the objectives for which they are ~~intended.~~intended, as a result of one material weakness and one significant deficiency described below.
Changes in Internal Control Over Financial Reporting
~~The Board appointed~~
On February 4, 2017, Ms. Mei Chen resigned from her position as ~~the Company's~~ Chief Financial Officer ~~effective from April 1, 2016. The Board believes it is in the best interest~~ of the Company and ~~its stockholders to appoint Ms. Chen~~was replaced by Mr. Simon Wang, as the ~~Company's~~Chief Financial Officer and principal financial officer and principal accounting ~~officer, serving~~officer.
In the first quarter of 2017, one significant deficiency was identified as we did not maintain effective internal controls over the accounting for and related disclosures of significant non-routine transactions. Specifically, we did not maintain a sufficient complement of resources with an ~~essential role~~appropriate level of accounting knowledge, experience and training commensurate with our structure and financial reporting requirements related to the financial presentation associated with the consolidation of our newly acquired business under common control. We have undertaken certain remedial steps to address the significant deficiency, including strengthened our financial reporting function by hiring additional competent professionals with appropriate understanding of U.S. GAAP accounting issues and the SEC reporting requirements and enhanced our monitoring control over financial reporting, including additional review by our finance controller and finance director over the application of U.S. GAAP accounting knowledge and the selection and evaluation of U.S. GAAP accounting policies, critical accounting judgments and estimates, reporting and disclosures. As of June 30, 2017, we have concluded that the significant deficiency described in our quarterly report on Form 10-Q for the quarter ended March 31, 2017 have been remediated.
In 2016, a material weakness identified in the internal control of financial reporting ~~process~~related to the design, documentation and implementation of effective internal controls over the review of the ~~Company.~~
~~On April 11, 2016,~~cash flow forecasts used in the ~~Board accepted Mr. Arthur Wang's resignation as Audit Committee chair~~accounting for licensed content recoverability. Specifically, the Company did not design and ~~appointed James Cassano as the new chair. The Board also approved Jin Shi and Jerry Fan~~maintain effective internal controls related to ~~serve as new members~~management’s review of the ~~Audit Committee. The Board has reviewed the relationship of each Audit Committee member with the Company~~data inputs and assumptions used in ~~accordance with the NASDAQ Marketplace Rules. Based on the review, the Board believes that each of the Audit Committee Member meets the requirements of NASDAQ Rules under the Exchange Act~~its cash flow forecasts for ~~independence with respect to audit committees of boards of directors.~~licensed content recoverability.
Other than the changes stated above, there have been no other significant changes in internal control for the ~~quarter~~six months ended June 30, ~~2016,~~2017, which have materially affected or would likely materially affect our internal control over financial reporting. The Company continues to invest resources in order to upgrade internal controls.
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PART II – OTHER INFORMATION
Item 1. Legal Proceedings
There are no material pending legal proceedings to which we are a party or to which any of our property is subject. To the best of our knowledge, no such actions against us are contemplated or threatened.
Item 1A. Risk Factors
In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, "Item 1A. Risk Factors" in our ~~2015~~2016 Annual Report which could materially affect our business, financial condition or future results. The risks described in our Annual Report on Form 10-K isare not the only risks facing our Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition or future results. Other than as noted below, there have been no material changes in the risk factors from those disclosed in the Annual Report on Form 10-K for the year ended December 31, 2016.
The Company is in the process of transforming its business model and this transformation may not be successful.
The Company is in the process of transforming its business model and is aiming to be a leading Intelligent Industrial Internet company with solutions designed to provide operational efficiencies in today's constantly evolving business landscape. With a focus on 'BASE' technology and infrastructure (Blockchain, Artificial Intelligence, Supply Chain & Exchanges) to power our V PaaS (Virtual Platform as a Service), SSC is creating a closed trade ecosystem for buyers and sellers designed to eliminate supply chain and transactional middlemen and create a more direct and margin-expanding trading path for principals. SSC is applying BASE + V PaaS to focus on 3 Core Cloud Areas: I. Intellectual Property Cloud; II. Product Sales Cloud; III. Financial Services Cloud. With the three clouds functioning both independently and interdependently, SSC is creating a vertical, transactional and flexible platform for today's global enterprises. In connection with this transformation, the Company has recently assembled a new experienced management team, stabilized the foundation, capitalized and rebranded the Company, reconfigured the business structure, expanded the Company’s mission and business lines, made several key investments and finally, injected several privately held and revenue producing assets into the corporation. It is uncertain whether these efforts will prove beneficial or whether we will be able to develop the necessary business models, infrastructure and systems to support the business. This includes having or hiring the right talent to execute our business strategy. Market acceptance of new product and service offerings will be dependent in part on our ability to include functionality and usability that address customer requirements, and optimally price our products and services to meet customer demand and cover our costs.
Any failure to implement this plan in accordance with our expectations could have a material adverse effect on our financial results. Even if the anticipated benefits and savings are substantially realized, there may be consequences, internal control issues, or business impacts that were not expected. Additionally, as a result of our restructuring efforts in connection with our business transformation plan, we may experience a loss of continuity, loss of accumulated knowledge or loss of efficiency during transitional periods. Reorganization and restructuring can require a significant amount of management and other employees' time and focus, which may divert attention from operating activities and growing our business. If we fail to achieve some or all of the expected benefits of these activities, it could have a material adverse effect on our competitive position, business, financial condition, results of operations and cash flows.
The Company experiences significant competitive pressure, which may negatively impact its results.
The market for the Company’s products and services is very competitive and subject to rapid technological advances, new market entrants, non-traditional competitors, changes in industry standards and changes in customer needs and consumption models. Not only does the Company compete with global distributors, it also competes for customers with regional distributors and some of the Company’s own suppliers that maintain direct sales efforts. In addition, as the Company expands its offerings and geographies, the Company may encounter increased competition from current or new competitors. The Company’s failure to maintain and enhance its competitive position could adversely affect its business and prospects. Furthermore, the Company’s efforts to compete in the marketplace could cause deterioration of gross profit margins and, thus, overall profitability.
The size of the Company’s competitors varies across market sectors, as do the resources the Company has allocated to the sectors and geographic areas in which it does business. Therefore, some competitors may have greater resources or a more extensive customer or supplier base than the Company has in one or more of its market sectors and geographic areas, which may result in the Company not being able to effectively compete in certain markets which could impact the Company’s profitability and prospects.
Our International Operations Expose Us to a Number of Risks
Our international activities are significant to our revenues and profits, and we plan to further expand internationally. In certain international market segments, we have relatively little operating experience and may not benefit from any first-to-market advantages or otherwise succeed. It is costly to establish, develop, and maintain international operations and platforms, and promote our brand internationally.
Our international sales and operations are subject to a number of risks, including:
local economic and political conditions;
government regulation of e-commerce and other services, electronic devices, and competition, and restrictive governmental actions (such as trade protection measures, including export duties and quotas and custom duties and tariffs), nationalization, and restrictions on foreign ownership;
restrictions on sales or distribution of certain products or services and uncertainty regarding liability for products, services, and content, including uncertainty as a result of less Internet-friendly legal systems, local laws, lack of legal precedent, and varying rules, regulations, and practices regarding the physical and digital distribution of media products and enforcement of intellectual property rights;
limitations on the repatriation and investment of funds and foreign currency exchange restrictions;
limited technology infrastructure;
shorter payable and longer receivable cycles and the resultant negative impact on cash flow;
laws and regulations regarding consumer and data protection, privacy, network security, encryption, payments, and restrictions on pricing or discounts;
geopolitical events, including war and terrorism.
Item 2. Unregistered ~~Sales of~~ Sales of Equity Securities and Use of Proceeds
There were no unregistered sales of equity securities during the fiscal quarter ended ~~June30, 2016,~~June 30, 2017, other than those that were previously reported in our Current Reports on Form ~~8-K .~~8-K.
Item 3. Defaults Upon Senior Securities
There were no defaults upon senior securities during the fiscal quarter ended ~~June30, 2016.~~June 30, 2017.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
On August 11, 2016, the Company entered into a Common Stock Purchase Agreement (the “Harvest SPA”) with Harvest Alternative Investment Opportunities SPC, a Cayman Islands corporation (“Harvest”). Pursuant to the terms
Not applicable.
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Table of the Harvest SPA, the Company has agreed to sell and issue 2,272,727 shares of the Company’s common stock for $1.76 per share, or a total purchase price of $4.0 million to Harvest. The SPA contains customary representations, warranties and covenants. The Company issued the shares of its common stock to Harvest in reliance on exemptions from registration provided by Section 4(a)(2) of the Securities Act and Rule 506 of Regulation D promulgated thereunder.The foregoing description of the Harvest SPA is not purported to be complete and is qualified in its entirety by reference to the complete text of such agreement, a copy of which is filed as Exhibit 10.3 hereto and incorporated herein by reference.Contents
Item 6. Exhibits
Exhibit No.
~~No.~~ Description
10.1 ~~Joint Venture~~ Form of Subscription Agreement, dated May 19, 2017, by and between ~~YOU on Demand (Asia) Limited,~~Wecast Network, Inc. and ~~Megtron Hongkong Investment Group Co., Limited, dated May 30, 2016.~~its certain investors, including officers, directors and other affiliates of the Company.*
10.2 ~~Common Stock~~ Securities Purchase Agreement, dated June 9, 2017, by and between ~~the Company~~Wecast Network, Inc. and ~~Seven Stars Works Co., Ltd., dated July 6, 2016.~~Redrock Capital Group Limited.*
10.3 ~~Common Stock~~ Securities Purchase Agreement, dated June 30, 2017, by and between ~~the Company~~Wecast Network, Inc. and ~~Harvest Alternative Investment Opportunities SPC, dated August 11, 2016.~~BT Capital Global Limited.*
31.1 Certifications of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*
31.2 Certifications of Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*
32.1 Certification of Principal Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.**
32.2 Certification of Principal Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.**
101.INS XBRL Instance Document
101.SCH Taxonomy Extension Schema Document
101.CAL Taxonomy Extension Calculation Linkbase Document
101.DEF Taxonomy Extension Definition Linkbase Document
101.LAB Taxonomy Extension Label Linkbase Document
101.PRE Taxonomy Extension Presentation Linkbase Document
*Filed herewith
**Furnished herewith
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SIGNATURES
~~SIGNATURES~~
In accordance with the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized on August ~~15, 2016.~~14, 2017.
~~YOU ON DEMAND HOLDINGS, INC.~~
~~By:/s/ Mei Chen~~Seven Stars Cloud Group, Inc.
~~Name: Mei Chen~~
~~Title: Chief Financial Officer~~
~~(Principal Financial Officer and an Authorized Officer)~~
By: /s/ Simon Wang
Name: Simon Wang
Title: Chief Financial Officer
(Principal Financial Officer and an Authorized Officer)
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46

PART I	-FINANCIAL INFORMATION

Item 1.	Financial Statements	43
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2832
Item 3	Quantitative and Qualitative Disclosures About Market Risk	3742
Item 4.	Controls and Procedures	3742

PART II	-OTHER INFORMATION

Item 1.	Legal Proceedings	3844
Item 1A.	Risk Factors	3844
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	3844
Item 3.	Defaults Upon Senior Securities	3844
Item 4.	Mine Safety Disclosures	3844
Item 5.	Other Information	3844
Item 6.	Exhibits	3845
Signatures			3946

		June 30,			December 31,
		2016			2015
ASSETS
Current assets:
Cash	$	2,403,761		$	3,768,897
Restricted cash		-			2,994,364
Accounts receivable, net		3,094,770			1,689,415
Licensed content, current		711,683			556,591
Prepaid expenses		512,445			362,421
Deferred issuance cost		-			551,218
Other current assets		159,482			157,594
Total current assets		6,882,141			10,080,500
Property and equipment, net		93,589			154,434
Licensed content, non-current		17,726,840			21,085
Intangible assets, net		2,591,122			2,412,591
Goodwill		6,648,911			6,648,911
Long term investments		6,118,445			450,115
Other non-current assets		2,124,417			58,089
Total assets	$	42,185,465		$	19,825,725

LIABILITIES, CONVERTIBLE REDEEMABLE PREFERRED STOCK ANDEQUITY
Current liabilities:
Accounts payable (including accounts payable of consolidated variable interest entities (“VIEs”) without recourse to the Company of $651,254 and $44,867 as of June 30, 2016 and December 31, 2015, respectively)	$	651,254		$	45,788
Deferred revenue (including deferred revenue of VIEs without recourse to the Company of $1,232 and $15,080 as of June 30, 2016 and December 31, 2015, respectively)		1,232			15,080
Accrued expenses (including accrued expenses of VIEs without recourse to the Company of $390,176 and $280,038 as of June 30, 2016 and December 31, 2015, respectively)		1,440,228			1,196,066
Accrued salaries (including accrued salaries of VIEs without recourse to the Company of nil and $10,861 as of June 30, 2016 and December 31, 2015, respectively)		1,344,883			1,058,124
Other current liabilities (including other current liabilities of VIEs without recourse to the Company of $361,908 and $298,422, as of June 30, 2016 and December 31, 2015, respectively)		521,374			312,170
Accrued license content fees (including accrued license content fees of VIEs without recourse to the Company of $1,518,112 and $933,532 as of June 30, 2016 and December 31, 2015, respectively)		1,518,112			933,532
Convertible promissory notes		3,000,000			3,000,000
Warrant liabilities		251,611			395,217
Deposit payable		-			2,994,364
Total current liabilities		8,728,694			9,950,341
Deferred income taxes		312,900			330,124
Total liabilities	$	9,041,594		$	10,280,465

Commitments and contingencies

Convertible redeemable preferred stock:
Series A - 7,000,000 shares issued and outstanding, liquidation and deemed liquidation preference of $3,500,000 as of June 30, 2016 and December 31, 2015, respectively		1,261,995			1,261,995
Equity:
Series E Preferred Stock - $0.001 par value; 16,500,000 shares authorized, 7,154,997 and 7,254,997 shares issued and outstanding, liquidation preference of $12,521,245 and $12,696,245 as of June 30, 2016 and December 31, 2015, respectively		7,155			7,255
Common stock - $0.001 par value; 1,500,000,000 shares authorized, 38,170,204 and 24,249,109 shares issued and outstanding as of June 30, 2016 and December 31, 2015, respectively		38,170			24,249
Additional paid-in capital		125,179,330			97,512,542
Accumulated deficit		(90,182,400	)		(86,457,840	)
Accumulated other comprehensive loss		(632,980	)		(414,910	)
Total YOU On Demand shareholder’s equity		34,409,275			10,671,296
Non-controlling interest		(2,527,399	)		(2,388,031	)
Total equity		31,881,876			8,283,265
Total liabilities, convertible redeemable preferred stock and equity	$	42,185,465		$	19,825,725

	June 30, 2017			December 31, 2016

ASSETS
Current assets:
Cash	$	3,163,470		$	3,761,814
Accounts receivable, net		41,967,360			9,522,151
Licensed content, current		883,015			124,319
Notes receivable		-			1,749,830
Inventory		216,453			203,697
Prepaid expenses		534,573			375,944
Other current assets		4,318,995			3,581,822
Total current assets		51,083,866			19,319,577
Property and equipment, net		117,389			4,963,725
Licensed content, non-current		16,075,134			17,593,528
Intangible assets, net		331,564			453,242
Goodwill		-			6,648,911
Long term investments		6,664,547			6,654,664
Other non-current assets		1,239			112,643
Total assets	$	74,273,739		$	55,746,290
LIABILITIES, CONVERTIBLE REDEEMABLE PREFERRED STOCK AND EQUITY
Current liabilities: (including amounts of the consolidated VIEs without recourse to Seven Stars Cloud Group, Inc. See note 3)
Accounts payable	$	42,536,415		$	13,341,680
Advance from customers		720,073			1,350,054
Accrued interest due to a related party		617,605			557,918
Accrued other expenses		327,958			708,987
Accrued salaries		760,848			766,957
Payable for purchase of building		-			987,015
Amount due to related parties		106,813			1,060,817
Other current liabilities		151,019			934,480
Accrued license content fees		-			1,236,661
Convertible promissory note due to a related party		3,000,000			3,000,000
Warrant liabilities		137,587			70,785
Total current liabilities		48,358,318			24,015,354
Total liabilities	$	48,358,318		$	24,015,354
Commitments and contingencies (Note 17)
Convertible redeemable preferred stock:
Series A - 7,000,000 shares issued and outstanding, liquidation and deemed liquidation preference of $3,500,000 as of June 30, 2017 and December 31, 2016, respectively	$	1,261,995		$	1,261,995
Equity:
Series E Preferred Stock - $0.001 par value; 16,500,000 shares authorized, Nil and 7,154,997 shares issued and outstanding, liquidation preference of Nil and $12,521,245 as of June 30, 2017 and December 31, 2016, respectively		-			7,155
Common stock - $0.001 par value; 1,500,000,000 shares authorized, 61,964,057 and 53,918,523 shares issued and outstanding as of June 30, 2017 and December 31, 2016, respectively		61,963			53,918
Additional paid-in capital		144,952,445			152,755,919
Accumulated deficit		(117,477,132	)		(115,669,268	)
Accumulated other comprehensive loss		(841,255	)		(1,353,302	)
Total Seven Stars Cloud shareholders’ equity		26,696,021			35,794,422
Non-controlling interest		(2,042,595	)		(5,325,481	)
Total equity		24,653,426			30,468,941
Total liabilities, convertible redeemable preferred stock and equity	$	74,273,739		$	55,746,290

		Three Months Ended						Six Months Ended
		June 30,			June 30,			June 30,			June 30,
		2016			2015			2016			2015

Revenue	$	1,480,464		$	1,479,648		$	2,750,190		$	2,507,576
Cost of revenue		800,399			829,039			1,716,179			1,872,038
Gross profit		680,065			650,609			1,034,011			635,538

Operating expenses:
Selling, general and administrative expense		1,808,906			1,658,814			3,973,959			4,107,116
Professional fees		270,491			151,363			637,937			440,081
Depreciation and amortization		123,343			95,082			220,806			184,825
Total operating expense		2,202,740			1,905,259			4,832,702			4,732,022

Loss from operations		(1,522,675	)		(1,254,650	)		(3,798,691	)		(4,096,484	)

Interest and other income/(expense)
Interest expense, net		(166,710	)		(30,232	)		(200,183	)		(58,555	)
Change in fair value of warrant liabilities		106,583			49,344			143,606			34,049
Equity in losses of equity method investees		(27,001	)		(60,621	)		(37,349	)		(93,024	)
Other		(5,258	)		(36,576	)		(5,096	)		(46,343	)
Loss before income taxes and non-controlling interest		(1,615,061	)		(1,332,735	)		(3,897,713	)		(4,260,357	)

Income tax benefit		8,612			8,612			17,224			17,224

Net loss		(1,606,449	)		(1,324,123	)		(3,880,489	)		(4,243,133	)

Net loss attributable to non-controlling interest		18,360			7,303			155,929			127,524

Net loss attributable to YOU On Demand shareholders	$	(1,588,089	)	$	(1,316,820	)	$	(3,724,560	)	$	(4,115,609	)

Basic and diluted loss per share	$	(0.05	)	$	(0.06	)	$	(0.14	)	$	(0.17	)

Weighted average shares outstanding:
Basic and diluted		29,197,899			23,851,602			26,815,888			23,833,760

	Six Months Ended
	June 30, 2017			June 30, 2016

Cash flows from operating activities:
Net loss	$	(2,078,979	)	$	(3,880,489	)
Adjustments to reconcile net loss to net cash used in operating activities
Share-based compensation expense		147,652			211,840
Provision for doubtful accounts		103,043			-
Depreciation and amortization		257,153			220,806
Income tax benefit		-			(17,224	)
Equity in loss of equity method investees		76,836			37,349
Loss on disposal of assets		679,091			-
Change in fair value of warrant liabilities		243,999			(143,606	)
Foreign currency exchange losses		-			(153,334	)
Impairment of intangible assets		63,621			-
Amortization of debt issuance costs		-			122,696

Change in assets and liabilities:
Accounts receivable		(33,765,572	)		(1,405,355	)
Licensed content		759,698			(143,000	)
Prepaid expenses and other assets		3,713,053			(116,540	)
Accounts payable		29,200,687			605,466
Accrued expenses, salary and other current liabilities		(209,478	)		(6,084	)
Deferred revenue		(626,396	)		(13,848	)
Accrued license content fees		-			584,580
Net cash used in operating activities		(1,435,592	)		(4,096,743	)

Cash flows from investing activities:
Acquisition of property and equipment		(38,326	)		(2,070,672	)
Proceeds from disposal of property and equipment		743			-
Disposal of Zhong Hai Shi Xun, net of cash disposed		(115,060	)		-
Cash paid for the acquisition of SVG		(693,187	)		-
Investments in intangibles		-			(2,163,872	)
Investment in long term investments		-			(3,000,000	)
Net cash used in investing activities		(845,830	)		(7,234,544	)

Cash flows from financing activities
Proceeds from private placement		1,866,301			-
Repayment of amounts due to related parties		(215,951	)		-
Proceeds from issuance of warrant and shares		-			10,000,000
Net cash provided by financing activities		1,650,350			10,000,000
Effect of exchange rate changes on cash		32,728			(33,849	)
Net increase (decrease) in cash		(598,344	)		(1,365,136	)

Cash at beginning of period		3,761,814			3,768,897

Cash at end of period	$	3,163,470		$	2,403,761

Supplemental Cash Flow Information:

Exchange of Series E Preferred Stock for common stock	$	7,155		$	100
Issuance of convertible note for licensed content (Note 12)	$	-		$	17,717,847
Issuance of shares for the settlement of liability	$	-		$	75,000
Issuance of shares upon conversion of convertible note, including accrued interest and debt issuance cost	$	-		$	17,733,297
Acquisition of long term investment through transfer of Game IP rights	$	-		$	2,714,441
Payable for Game IP rights acquired	$	-		$	603,209
Payable for workforce acquired	$	-		$	131,358

																Accumulated			YOU On
	Series E			Series E						Additional						Other			Demand			Non-
	Preferred			Par		Common		Par		Paid-in			Accumulated			Comprehensive			Shareholders'			controlling			Total
	Stock			Value		Stock		Value		Capital			Deficit			Loss			Equity			Interest			Equity
Balance,January 1, 2015	7,365,283		$	7,365		23,793,702	$	23,794	$	96,347,272		$	(78,356,567)		$	(66,032	)	$	17,955,832		$	(1,982,119)		$	15,973,713
Share-based compensation	-			-		-		-		251,356			-			-			251,356			-			251,356
Common stock issued for services	-			-		24,999		25		92,495			-			-			92,520			-			92,520
Conversion of Series E Preferred Stock into common stock	(38,857	)		(39	)	38,857		39		-			-			-			-			-			-
Exercise of options						2,811		3		(3	)
Net loss attributable to YOU On Demand shareholders	-			-		-		-		-			(4,115,609	)		-			(4,115,609	)		(127,524	)		(4,243,133	)
Foreign currency translation adjustments	-			-		-		-		-			-			395			395			(1,117	)		(722	)
Balance,June 30, 2015	7,326,426		$	7,326		23,860,369	$	23,861	$	96,691,120		$	(82,472,176)		$	(65,637	)	$	14,184,494		$	(2,110,760)		$	12,073,734

	Series E Preferred Stock			Series E Par Value			Common Stock		Par Value		Additional Paid-in Capital			Accumulated Deficit			Accumulated Other Comprehensive Loss			Seven Stars Cloud Shareholders' Equity			Non- controlling Interest			Total Equity
Balance, January 1, 2016		7,254,997		$	7,255			24,249,109	$	24,249	$	97,512,542		$	(86,457,840	)	$	(414,910	)	$	10,671,296		$	(2,388,031	)	$	8,283,265
Share-based compensation		-			-			25,000		25		161,815			-			-			161,840			-			161,840
Common stock issuance		-			-			4,545,455		4,545		9,273,029			-			-			9,277,574			-			9,277,574
Warrants issued in connection with common stock issuance		-			-			-		-		722,426			-			-			722,426			-			722,426
Issuance cost in connection with the issuance of common stock and warrants		-			-			-		-		(411,223	)		-			-			(411,223	)		-			(411,223	)
Common stock issued from conversion of convertible note		-			-			9,208,860		9,209		17,724,088			-			-			17,733,297			-			17,733,297
Restricted Shares granted in connection with acquisition		-			-							121,695			-			-			121,695			-			121,695
Common stock issued for settlement of liability		-			-			41,780		42		74,958			-			-			75,000			-			75,000
Common stock issued from series E preferred stock		(100,000	)		(100	)		100,000		100		-			-			-			-			-			-
Net loss		-			-			-		-		-			(3,724,560	)		-			(3,724,560	)		(155,929	)		(3,880,489	)
Foreign currency translation adjustments, net of nil tax		-			-			-		-		-			-			(218,070	)		(218,070	)		16,561			(201,509	)
Balance, June 30, 2016		7,154,997		$	7,155			38,170,204	$	38,170	$	125,179,330		$	(90,182,400	)	$	(632,980	)	$	34,409,275		$	(2,527,399	)	$	31,881,876

	June 30,		December 31,
	2017		2016
ASSETS
Current assets:
Cash	$	8,416	$	1,519,125
Accounts receivable, net		-		1,260,529
Prepaid expenses		2,596		30,455
Other current assets		1,475		191,427
Intercompany receivables due from the Company's subsidiaries⁽ⁱ⁾		2,733,143		150,725
Total current assets		2,745,630		3,152,261
Property and equipment, net		-		196,677
Intangible assets, net		-		2,570
Long term investments		3,584,639		3,654,664
Other non-current assets		-		442,782
Total assets	$	6,330,269	$	7,448,954

LIABILITIES
Current liabilities:
Accounts payable	$	-	$	5,817
Deferred revenue		-		824,563
Accrued expenses		1,943		268,074
Other current liabilities		40		394,314
Accrued license content fees		-		1,236,661
Intercompany payables due to the Company's subsidiaries⁽ⁱ⁾		4,069,514		14,752,338
Total current liabilities		4,071,497		17,481,767
Total liabilities	$	4,071,497	$	17,481,767

	June 30, 2017			December 31, 2016
Balance at the beginning of the period	$	(2,828,796	)	$	(3,672	)
Additions charged to bad debt expense		(103,043	)		(2,825,124	)
Disposal of Zhong Hai Shi Xun		2,880,811			-
Balance at the end of the period	$	(51,028	)	$	(2,828,796	)

		June 30, 2016					December 31, 2015
Amortizing Intangible		Gross Carrying	Accumulated		Net		Gross Carrying		Accumulated			Net
Assets		Amount	Amortization		Balance		Amount		Amortization			Balance
Charter/ Cooperation agreements	$	2,755,821	(815,268	)	1,940,553	$	2,755,821	$	(746,372	)	$	2,009,449
Software and licenses		284,233	(245,016	)	39,217		253,930		(234,947	)		18,983
Website and mobile app development		653,830	(456,987	)	196,843		653,830		(403,961	)		249,869
Workforce		305,693	(25,474	)	280,219		-		-			-
Total amortizingintangible assets	$	3,999,577	(1,542,745	)	2,456,832	$	3,663,581	$	(1,385,280	)	$	2,278,301
Indefinite lived intangibleassets
Website name		134,290	-		134,290		134,290		-			134,290
Total intangible assets	$	4,133,867	(1,542,745	)	2,591,122	$	3,797,871	$	(1,385,280	)	$	2,412,591

	Amortization to be
Years ending December 31,	Recognized
2017 (6 months)	$	55,904
2018		111,778
2019		29,592
Total amortization to be recognized	$	197,274

	June 30, 2017
		December 31, 2016		Capital increase		Loss on investment			Impairment loss		Foreign currency translation adjustments		June 30, 2017
Wecast Internet	(i)		132,782		-		(57,644	)		-		4,771		79,909
Hua Cheng	(ii)		364,897		-		(19,192	)		-		8,511		354,216
Shandong Media	(iii)		-		-		-			-		-		-
Total		$	497,679		-	$	(76,836	)		-	$	13,282	$	434,125

	·
	•	Level 3 — Financial assets and liabilities whose values are based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement.

	Black Scholes	Monte Carlo
	June 30,	December 31,
	2016	2015
Risk-free interest rate	0.45%	0.92%
Expected volatility	60%	60%
Expected term	1.17 years	1.67 years
Expected dividend yield	0%	0%

		June 30, 2016
		Fair Value Measurements
		Level 1		Level 2		Level 3		Total Fair Value
Liabilities
Warrant liabilities (see Note 10)	$	-	$	-	$	251,611	$	251,611

		Level 3 Assets and Liabilities
		For the SixMonths Ended June 30 , 2016
						Change in
		January 1,				Fair Value			June 30,
		2016		Settlements		gain			2016
Liabilities:
Warrant liabilities (see Note 10)	$	395,217	$	-	$	(143,606	)	$	251,611

	Level 3 Assets and Liabilities
	For the Six Months Ended June 30 , 2017
	January 1,					Change in		June 30,
	2017		Settlements			Fair Value		2017
Liabilities:
Warrant liabilities (see Note 13)	$	70,785	$	(177,197	)	$	243,999	$	137,587

			~~Monte Carlo~~
			~~March 28, 2016~~
	~~Risk-free interest rate~~		~~0.89%~~
	~~Expected volatility~~		~~60%~~
	~~Expected term~~		~~2 years~~
	~~Expected dividend yield~~		0%

		Three Months Ended				Six Months Ended
		June 30		June 30		June 30		June 30
		2016		2015		2016		2015
Employees and directors share-based payments	$	73,000	$	277,000	$	212,000	$	681,000

					Weighted Average
					Remaining	Aggregated
	Options			Weighted Average	Contractual Life	Intrinsic
	Outstanding			Exercise Price	(Years)	Value
Outstanding at January 1, 2016	1,734,429		$	2.77
Granted	-			-
Exercised	-			-
Expired	(25,897	)		1.65
Forfeited	(12,104	)		1.65
Outstanding at June 30, 2016	1,696,428			2.79	3.99	-
Vested and expected to vest as of June 30, 2016	1,696,428			2.79	3.99	-
Options exercisable at June 30, 2016 (vested)	1,684,707			2.80	3.97	-

	Shares			Weighted-average fair value
Restricted shares outstanding at January 1, 2017		228,550		$	1.75
Granted		400,000			2.05
Forfeited		(60,000	)		1.49
Vested		(105,215	)		1.72
Restricted shares outstanding at June 30, 2017		463,335		$	2.05

		Leased Property
Years ending December 31,		Costs
2016 (6 months)	$	315,000
2017		306,000
2018		311,000
2019		268,000
2020		206,000
Thereafter		88,000
Total	$	1,494,000

Years ending December 31,		Content Costs
2016 (6 months)	$	3,830,000
2017		426,000
2018		226,000
2019		226,000
Total	$	4,708,000

~~Years ending December 31,~~18.		~~Property~~
~~2016 (6 months)~~		~~2,065,000~~
~~Total~~	$	~~2,065,000~~

~~Years ending December 31,~~		~~Marketing expenses~~
~~2016 (6 months)~~		~~299,000~~
~~Total~~	$	~~299,000~~

	31
	~~(a)~~	On July 6, 2016, the Company entered into a Common Stock Purchase Agreement (the “SSW SPA”) with Seven Stars Works Co., Ltd., a Korea company (“SSW”) and an affiliate of SSS. Pursuant to the terms of the SSW SPA, the Company has agreed to sell and issue 2,272,727 shares of the Company’s common stock for $1.76 per share, or a total purchase price of $4.0 million to SSW. A total of $4.0 million was received on July 19, 2016.

	•	*~~Our ability to adapt our product and service offerings to meet consumer demands~~*. Our expansion prospect is dependent on continued development of our product and services. The content distribution industry in China is highly competitive and dominated by large Internet companies that have more resources than us. The growth of our business will depend on whether we can develop new services and products that can offer higher quality contents, technological innovation and unique user experience.

	•	*~~Our ability to expand our subscriber base~~*. Our business is affected by the overall size of our user base, which in turn is determined by, among other factors, (i) user experience of our service and products, (ii) our relationship with distribution platforms, such as digital cable and IPTV providers and mobile product manufacturers, (iii) expansion of our business to include increased service offerings and (iv) the expansion of our subscribers beyond smartphones to mobile tablets and other Internet-enabled mobile devices.

	•	*~~Our ability to achieve revenue growth and meet internal or external expectations of future performance~~*. In the latter half of 2013, we shifted our focus to our core multi-platform video streaming services and our business model is still evolving. Our financial performance is affected by, among other things, our ability to come to favorable business terms with our distribution partners, manage and procure contents in a cost-effective manner and manage our operating expenses. Overall, our normalized operating expenses have been decreasing but we have also incurred certain additional costs related to our financing activities, maintaining our public company status and making staff reductions.

	•	*~~Changes in China’s economic, political or social policies or conditions~~*. We operate in China and derive all of our revenues from sales to customers in China. Accordingly, our business, financial condition and results of operation is significantly influenced by the political, social and economic policies and conditions in China. While the Chinese economy has experienced significant growth over the past decade, growth has been uneven, both geographically and among various sectors of the economy. In addition, the Chinese government continues to play a significant role in regulating telecommunication and Internet industry development by imposing certain laws and regulations concerning Internet access and distribution of video content and other information over traditional and new media platforms. Some of the laws and regulations are also relatively new and involving and their interpretation and enforcement involve significant uncertainty.

		Three Months Ended
		June 30, 2016			June 30, 2015		Amount Change		% Change
Revenue	$	1,480,000		$	1,480,000 $		-		-
Cost of revenue		800,000			829,000		(29,000	)	-3%
Gross profit		680,000			651,000		29,000		4%

Operating expense:
Selling, general and administrative expenses		1,809,000			1,659,000		150,000		9%
Professional fees		271,000			151,000		120,000		79%
Depreciation and amortization		123,000			95,000		28,000		29%
Total operating expense		2,203,000			1,905,000		298,000		16%

Loss from operations		(1,523,000	)		(1,254,000	)	(269,000	)	21%

Interest and other income/(expense)
Interest expense, net		(167,000	)		(30,000	)	(137,000	)	457%
Change in fair value of warrant liabilities		107,000			49,000		58,000		118%
Equity in losses of equity method investees		(27,000	)		(61,000	)	34,000		-56%
Others		(5,000	)		(37,000	)	32,000		-86%

Loss before income taxes and non-controlling interest		(1,615,000	)		(1,333,000	)	(282,000	)	21%

Income tax benefit		9,000			9,000		-		-

Net loss		(1,606,000	)		(1,324,000	)	(282,000	)	21%

Net loss attributable to non-controlling interest		18,000			7,000		11,000		157%

Net loss attributable to YOU On Demand shareholders	$	(1,588,000	)		(1,317,000	)	(271,000	)	21%

	2017Q2					2016Q2		Diff
	USD		%			USD		USD			%
Legacy YOD		-		-			1,480,464		(1,480,464	)		(100	%)
Wecast Services		43,324,439		100	%		-		43,324,439			100	%
Total		43,324,439		100	%		1,480,464		41,843,975			2826	%