Cheer Holding, Inc 20-F for FY2025
Cheer Holding, Inc. (CHR)
About this 20-F
Cheer Holding, Inc filed this 20-F on March 20, 2026, covering the fiscal year ended December 31, 2025 (FY2025).
Headline figures
Fiscal year ended December 31, 2025, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $148.84M
- up 1.1% from $147.2M a year earlier
- Net income
- $25.62M
- down 1.3% from net income of $25.97M a year earlier
- Diluted EPS
- $24.07
- down 80.9% from $125.72 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
OR
For the fiscal year ended:
OR
OR
Date of event requiring this shell company report
For the transition period from to
Commission file number:
(Exact name of Registrant as specified in its charter)
(Jurisdiction of incorporation or organization)
(Address of Principal Executive Offices)
Telephone:
Email:
(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)
Securities registered or to be registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Exchange on which registered | ||
Securities registered or to be registered pursuant to Section 12(g) of the Act: None
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None
Number of outstanding shares of each of the issuer’s
classes of capital or common stock as of the close of the period covered by the annual report:
Indicate by check mark if the registrant is a
well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐
If this report is an annual or transition report,
indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934. Yes ☐
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.
Indicate by check mark whether the registrant
has submitted electronically every Interactive Data File required to be submitted 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 such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See definition of “accelerated filer and large accelerated filer,” “accelerated filer,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
| Large accelerated filer | ☐ | Accelerated filer | ☐ | ☒ | Emerging growth company |
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, 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
has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial
reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or
issued its audit report.
If securities are registered pursuant to Section
12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction
of an error to previously issued financial statements.
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive- based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
| ☒ | International Financial Reporting Standards as issued by the International Accounting Standards Board ☐ | Other ☐ |
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow. Item 17 ☐ Item 18 ☐
If this is an annual report, indicate by check
mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Securities Exchange Act of 1934). Yes ☐ No
TABLE OF CONTENTS
| INTRODUCTION | iii | |
| CAUTIONARY LANGUAGE REGARDING FORWARD-LOOKING STATEMENTS | v | |
| NOTE | vi | |
| PART I | 1 | |
| ITEM 1. | IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS | 1 |
| ITEM 2. | OFFER STATISTICS AND EXPECTED TIMETABLE | 1 |
| ITEM 3. | KEY INFORMATION | 1 |
| ITEM 4. | INFORMATION ON THE COMPANY | 47 |
| ITEM 4A. | UNRESOLVED STAFF COMMENTS | 84 |
| ITEM 5. | OPERATING AND FINANCIAL REVIEW AND PROSPECTS | 84 |
| ITEM 6. | DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES | 94 |
| ITEM 7. | MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS | 102 |
| ITEM 8. | FINANCIAL INFORMATION | 103 |
| ITEM 9. | THE OFFER AND LISTING | 104 |
| ITEM 10. | ADDITIONAL INFORMATION | 104 |
| ITEM 11. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK | 114 |
| ITEM 12. | DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES | 115 |
| PART II | 116 | |
| ITEM 13. | DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES | 116 |
| ITEM 14. | MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS | 116 |
i
| ITEM 15. | CONTROLS AND PROCEDURES | 117 |
| ITEM 16. | [RESERVED] | 119 |
| ITEM 16A. | AUDIT COMMITTEE FINANCIAL EXPERT | 119 |
| ITEM 16B. | CODE OF ETHICS | 119 |
| ITEM 16C. | PRINCIPAL ACCOUNTANT FEES AND SERVICES | 119 |
| ITEM 16D. | EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES | 119 |
| ITEM 16E. | PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS | 120 |
| ITEM 16F. | CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT | 120 |
| ITEM 16G. | CORPORATE GOVERNANCE | 120 |
| ITEM 16H. | MINE SAFETY DISCLOSURE | 120 |
| ITEM 16I. | DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS | 120 |
| ITEM 16J. | INSIDER TRADING POLICIES | 121 |
| ITEM 16K. | CYBERSECURITY | 121 |
| PART III | 122 | |
| ITEM 17 | FINANCIAL STATEMENTS | 122 |
| ITEM 18 | FINANCIAL STATEMENTS | 122 |
| ITEM 19 | EXHIBITS | 122 |
ii
INTRODUCTION
Unless otherwise indicated, the terms “Company”, “we” and “us” refer to Cheer Holding, Inc., (f/k/a Glory Star New Media Group Holdings Limited), a Cayman Islands exempted company, and its consolidated subsidiaries, including the VIE operating companies, Xing Cui Can and Horgos, following the closing of the Business Combination. When used herein to describe events prior to the Business Combination, the terms “Company”, “TKK”, “we” and “us” refers to TKK Symphony Acquisition Corporation, our predecessor.
Unless otherwise stated in this Form 20-F, references to:
| ● | “we,” “us,” “our,” or the “Company,” means the combined business of CHEER Holdings and the CHEER Group; |
| ● | “Memorandum and Articles of Association” means CHEER Holdings Third Amended and Restated Memorandum and Articles of Association, as further amended and in effect on the date hereof; |
| ● | “Business Combination” means the acquisition of Glory Star by TKK pursuant to the terms of the Share Exchange Agreement; |
| ● | “Cayman Islands Companies Act” means the Cayman Islands Companies Act (As Revised), as amended; |
| ● | “Exchange Act” means the United States Securities Exchange Act of 1934, as amended; |
| ● | “CHEER Holdings” means Cheer Holding, Inc., a Cayman Islands exempted company; |
| ● | “CHEER Group” means CHEER Holdings and Glory Star, together with our consolidated subsidiaries and VIEs; |
| ● | “Class A Ordinary Shares” means CHEER Holdings Class A ordinary shares of a par value of US$0.05 each; |
| ● | “Class B Ordinary Shares” means CHEER Holdings Class B ordinary shares of a par value of US$0.001 each; |
| ● | “Glory Star” means Glory Star New Media Group Limited, a Cayman Islands exempted company |
| ● | “Horgos” means Horgos Glory Star Media Co., Ltd., a limited liability company incorporated in the PRC; |
| ● | “IPO” means TKK’s initial public offering of Units at $10.00 per Unit which closed in August 2018; |
| ● | “Nasdaq” means the Nasdaq Capital Market; |
| ● | “Ordinary Shares” as of the date of this report means CHEER Holdings’ Class A Ordinary Shares and Class B Ordinary Shares; |
| ● | “PRC” or “China” means the People’s Republic of China; |
| ● | “Purchaser Representative” means TKK Symphony Sponsor 1, a Cayman Islands exempted company, as representative of the Purchaser; |
iii
| ● | “RMB” refers to Renminbi, the lawful currency of China; |
| ● | “SEC” means the United States Securities and Exchange Commission; |
| ● | “Securities Act” means the United States Securities Act of 1933, as amended; |
| ● | “Seller Representative” means Bing Zhang, as representative of the Sellers; |
| ● | “Sellers” means the shareholders of Glory Star; |
| ● | “Share Exchange Agreement” means the Share Exchange Agreement, dated as of September 6, 2019, as may be amended from time to time, by and among TKK, Glory Star, WFOE, Xing Cui Can, Horgos, each of the Sellers, the Purchaser Representative, and the Seller Representative. |
| ● | “Sponsor” means TKK Symphony Sponsor 1, a Cayman Islands exempted company; |
| ● | “TKK” means our predecessor TKK Symphony Acquisition Corporation; |
| ● | “VIE Contracts” means certain documents executed by the VIEs, the WFOE, the shareholders of the VIEs and certain other parties thereto as necessary to implement certain contractual arrangements in the PRC, which allow the WFOE to (i) direct the activities of the VIEs and their subsidiaries that most significantly affect the VIEs’ economic performance, (ii) receive substantially all of the economic benefit of the VIEs and their subsidiaries; and (iii) have an exclusive option to purchase all or part of the equity interests in the VIEs when and to the extent permitted by PRC law; |
| ● | “Units” means the units issued in TKK’s IPO; each Unit comprised of one ordinary share, one warrant and one right (whether they were purchased in the IPO or thereafter in the open market); |
| ● | “VIEs” means Xing Cui Can and Horgos, our variable interest entities; |
| ● | “WFOE” means Glory Star New Media (Beijing) Technology Co., Ltd., a wholly foreign-owned enterprise limited liability company and indirectly wholly-owned by CHEER Holdings; and |
| ● | “Xing Cui Can” means Xing Cui Can International Media (Beijing) Co., Ltd., a limited liability company incorporated in the PRC. |
Discrepancies in any table between the amounts identified as total amounts and the sum of the amounts listed therein are due to rounding.
Information Related To, Or Based On, The Number Of Outstanding Ordinary Shares
The information contained in this annual report reflect (1) the consolidation of our issued and outstanding ordinary shares on the basis of one post-consolidation ordinary share for each 50 pre-consolidation ordinary shares issued and outstanding which took effect on December 22, 2025 (the “Share Consolidation”).
To the extent that such information relates to historical financial information about the number of ordinary shares outstanding or underlying outstanding convertible instruments such as options or warrants, per share prices or other information pertaining to, or based on, the number of outstanding ordinary shares for periods preceding the effective date of the Share Consolidation, such information is presented giving effect to the Share Consolidation.
iv
CAUTIONARY LANGUAGE REGARDING FORWARD-LOOKING STATEMENTS
This report and the information incorporated by reference herein and therein may contain “forward-looking statements” within the meaning of, and intended to qualify for the safe harbor from liability established by, the United States Private Securities Litigation Reform Act of 1995. These statements are based on our management’s beliefs and assumptions and on information currently available to us. These statements, which are not statements of historical fact, may contain estimates, assumptions, projections and/or expectations regarding future events, which may or may not occur. These statements involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from those expressed or implied by the forward-looking statements. In some cases, you can identify these forward-looking statements by words or phrases such as “aim,” “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “should,” “will,” “would,” or similar expressions, including their negatives. We have based these forward looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy and financial needs. These forward-looking statements include:
| ● | future operating or financial results; | |
| ● | future payments of dividends, if any, and the availability of cash for payment of dividends, if any; | |
| ● | future acquisitions, business strategy and expected capital spending; | |
| ● | assumptions regarding interest rates and inflation; | |
| ● | ability to attract and retain senior management and other key employees; | |
| ● | ability to manage our growth; | |
| ● | fluctuations in general economic and business conditions; | |
| ● | financial condition and liquidity, including our ability to obtain additional financing in the future (from warrant exercises or outside services) to fund capital expenditures, acquisitions and other general corporate activities; | |
| ● | estimated future capital expenditures needed to preserve our capital base; | |
| ● | the ability to meet the Nasdaq continuing listing standards, and the potential delisting of our securities from Nasdaq; | |
| ● | potential changes in the legislative and regulatory environments; | |
| ● | a lower return on investment; and | |
| ● | potential volatility in the market price of our securities. |
The forward-looking statements contained in this report are based on our current expectations and beliefs concerning future developments and their potential effects on us. Future developments affecting us may not be those that we have anticipated. These forward-looking statements involve a number of risks, uncertainties (some of which are beyond our control) and other assumptions that may cause actual results or performance to be materially different from those expressed or implied by these forward-looking statements. These risks and uncertainties include, but are not limited to, those factors described under the heading “Risk Factors.” Should one or more of these risks or uncertainties materialize, or should any of our assumptions prove incorrect, actual results may vary in material respects from those projected in these forward-looking statements. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws. These risks and others described under “Risk Factors” may not be exhaustive.
v
By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. We caution you that forward-looking statements are not guarantees of future performance and that our actual results of operations, financial condition and liquidity, and developments in the industry in which we operate may differ materially from those made in or suggested by the forward-looking statements contained in this report. In addition, even if our results or operations, financial condition and liquidity, and developments in the industry in which we operate are consistent with the forward-looking statements contained in this report, those results or developments may not be indicative of results or developments in subsequent periods.
The forward-looking statements made in this annual report relate only to events or information as of the date on which these statements are made in this annual report. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, after the date of this annual report. You should not rely upon forward-looking statements as predictions of future events.
NOTE
Our Holding Company Structure
CHEER Holdings is not a Chinese operating company but an offshore holding company incorporated in Cayman Islands. As a holding company with no material operations of our own, CHEER Holdings conducts all of its operations through its subsidiaries and VIEs, Horgos and Xing Cui Can in China, and this corporate structure involves unique risks to investors. “Item 3.D. Risk Factors – Risks Relating to Doing Business in China.”
Neither we nor our subsidiaries own any share in Horgos or Xing Cui Can. Instead, our WFOE entered into a series of VIE Contracts with (i) Horgos and Horgos shareholders, and (ii) Xing Cui Can and Xin Cui Can’s shareholders, which allows the WFOE to receive substantially all of the economic benefits from Horgos and Xing Cui Can; and certain exclusive option agreements which provide WFOE with an exclusive option to purchase all or part of the equity interests in Horgos and Xing Cui Can when and to the extent permitted by PRC laws. Through the VIE Contracts, we are regarded as the primary beneficiary of Horgos and Xing Cui Can for accounting purpose, and, therefore, we are able to consolidate the financial results of Horgos and Xing Chui Can in our consolidated financial statements in accordance with U.S. GAAP. See “Item 4. Information on the Company” – “C. Organizational Structure.” However, the VIE structure cannot completely replicate a foreign investment in China-based companies, as the investors will not and may never directly hold equity interests in the Chinese operating entities. Instead, the VIE structure provides contractual exposure to foreign investment in us. Although we took every precaution available to effectively enforce the contractual and corporate relationship above, these VIE Agreements may still be less effective than direct ownership and that we may incur substantial costs to enforce the terms of the arrangements. Because we do not directly hold equity interests in Horgos and Xing Cui Can, we are subject to risks due to uncertainty of the interpretation and the application of the PRC laws and regulations, including but not limited to limitation on foreign ownership of internet technology companies, regulatory review of oversea listing of PRC companies through a special purpose vehicle, and the validity and enforcement of the VIE Contracts. We are also subject to the risks of uncertainty about any future actions of the PRC government in this regard that could disallow the VIE structure, which would likely result in a material change in our operations and the value of our Class A Ordinary Shares may depreciate significantly or become worthless. See “Item 3.D. Risk Factors–Risks Related to our Corporate Structure.”
We are subject to certain legal and operational risks associated with being based in China. PRC laws and regulations governing our current business operations are sometimes vague and uncertain, and as a result these risks may result in material changes in the operations of our subsidiaries and VIEs, significant depreciation of the value of our Class A Ordinary Shares, or a complete hindrance of our ability to offer our securities to investors. In recent years, the PRC government adopted a series of regulatory actions and issued statements to regulate business operations in China, including cracking down on illegal activities in the securities market, enhancing supervision over China-based companies listed overseas using variable interest entity structures, adopting new measures to extend the scope of cybersecurity reviews, and expanding the efforts in anti-monopoly enforcement.
vi
As advised by our PRC legal counsel, Jingtian & Gongcheng, and based on its understanding of the Measures for Cybersecurity Review (2021) which became effective on February 15, 2022 and replaced the Measures for Cybersecurity Review promulgated on April 13, 2020, our VIEs and their subsidiaries are currently not required to apply for a cybersecurity review with the Cyberspace Administration of China, or the “CAC,” under Article 7 of the measures, pursuant to which online platform operators possessing personal information of more than 1 million users which intend to go public abroad shall apply to the CAC for a cybersecurity review, because we listed our Class A Ordinary Shares on the Nasdaq before the effective date of the measures on February 15, 2022. Under the Measures for Cybersecurity Review (2021), our VIEs and their subsidiaries could be subject to cybersecurity review with the CAC if it is determined that our VIEs or their subsidiaries constitute critical information infrastructure operators and intend to procure a network product or service that affects or could affect national security. Further, as the measures are newly revised and there remains uncertainty as to the interpretation and implementation thereof, we are uncertain whether our VIEs or their subsidiaries would be subject to a cybersecurity review when we offer or list new shares or carry out other financing activities in the capital market. As of the date of this annual report, our VIEs and their subsidiaries have not been informed by any PRC governmental authority of any requirement that we file for a cybersecurity review. Pursuant to the Data Security Management Regulations promulgated by the State Council on September 24, 2024, which became effective on January 1, 2025, network data processing activities refer to activities such as the collection, storage, use, processing, transmission, provision, disclosure, and deletion of data. Network data processors refer to individuals or organizations that independently determine the purposes and methods of data processing activities. Network data processors conducting any data processing activities that affect or may affect national security shall undergo national security review in accordance with relevant national regulations. Where it is indeed necessary to transfer any important data collected and generated within the territory of the PRC to an overseas party, the security assessment of outbound data transfer organized by the national cyberspace administration department shall be passed. On December 6, 2025, the CAC published the Circular of the Cyberspace Administration of China on Seeking Public Comments on the Measures for Network Data Security Risk Assessment (Draft for Comment) (the “Draft Network Data Security Risk Assessment Measures”), which has not yet become effective. According to the Draft Network Data Security Risk Assessment Measures, network data processors that handle important data (according to the Data Security Management Regulations, important data refers to data in specific fields, pertaining to specific groups or regions, or of a certain level of precision and scale, which, once tampered with, destroyed, leaked, or illegally obtained or used, may directly endanger national security, economic operation, social stability, public health, or safety ) shall conduct risk assessments of their network data processing activities on a yearly basis. Where any material changes occur in the security status of important data that may adversely affect data security, important data processors shall promptly conduct risk assessments on the changed data and their impacts. Network data processors that handle general data are encouraged to conduct risk assessments at least once every three years. Network data processors may conduct risk assessments on their own or entrust third-party assessment institutions to conduct risk assessments. Important data processors shall, within ten working days after completing the annual risk assessment, submit the assessment report as required by the competent authorities. Where no competent authority is clearly designated, the report shall be submitted to the provincial cyberspace authority or the national cyberspace authority. Our VIEs and their subsidiaries may be subject to network data security review by the CAC if our VIEs or their subsidiaries are recognized as network data processors which conduct data processing activities that affect or may affect national security. As of the date of this annual report, we, our subsidiaries, and our VIEs and their subsidiaries, have not been involved in any investigations on cybersecurity review initiated by any PRC regulatory authority, nor has any of them received any inquiry, notice or sanction. According to our PRC legal counsel, as of the date of this annual report, there are currently no explicit laws or regulations in the PRC that prohibit us, with our WFOE, VIEs and their subsidiaries from listing on overseas stock exchanges. However, since these statements and regulatory actions are newly published, how future official guidance and related implementation rules will carry out those requirements remains to be observed, there is no assurance that relevant PRC authorities will reach the same conclusion as our PRC legal counsel. It is highly uncertain what the potential impact such modified or new laws and regulations will have on our daily business operation, the ability to accept foreign investments and our ability to continue our listing on an U.S. exchange.
On February 17, 2023, the China Securities Regulatory Commission, or the “CSRC,” issued the Trial Administrative Measures of Overseas Securities Offering and Listing by Domestic Companies (the “Trial Administrative Measures”) and relevant supporting guidelines (collectively, the “New Administrative Rules Regarding Overseas Listings”), which came into force since March 31, 2023. According to the New Administrative Rules Regarding Overseas Listings, among other things, a domestic company in the PRC that seeks to offer and list securities in overseas markets shall fulfill the filing procedure with the CSRC as per requirement of the Trial Administrative Measures. Where a domestic company seeks to directly offer and list securities in overseas markets, the issuer shall file with the CSRC. Where a domestic company seeks to indirectly offer and list securities in overseas markets, the issuer shall designate a major domestic operating entity, which shall, as the domestic responsible entity, file with the CSRC. Initial public offerings or listings in overseas markets shall be filed with the CSRC within 3 working days after the relevant application is submitted overseas. If an issuer offers securities in the same overseas market where it has previously offered and listed securities subsequently, filings shall be made with the CSRC within 3 working days after the offering is completed. Upon occurrence of any material event, such as change of control, investigations or sanctions imposed by overseas securities regulatory agencies or other relevant competent authorities, change of listing status or transfer of listing segment, or voluntary or mandatory delisting, after an issuer has offered and listed securities in an overseas market, the issuer shall submit a report thereof to CSRC within 3 working days after the occurrence and public disclosure of such event.
vii
As advised by to our PRC legal counsel, we are currently not required to obtain permission or approval from any of the PRC authorities including CSRC or CAC to continue our listing on an U.S. exchange. However, if we seek any future offerings on Nasdaq Stock Market or seek issuance and listing on other overseas markets or if any major events occur, as stipulated in the New Administrative Rules Regarding Overseas Listings, we will be required to report to the CSRC under the New Administrative Rules Regarding Overseas Listings. There is no assurance that we will be able to get the clearance of filing or report procedures under the New Administrative Rules Regarding Overseas Listings on a timely basis, or at all. Any failure of us to fully comply with new regulatory requirements may significantly limit or completely hinder our ability to offer or continue to offer our Class A Ordinary Shares, cause significant disruption to our business operations, and severely damage our reputation, which would materially and adversely affect our financial condition and results of operations and cause our Class A Ordinary Shares to significantly decline in value or become worthless. See “Risk Factors – Risks relating to doing business in China.” Further, the General Office of the Central Committee of the Communist Party of China and the General Office of the State Council jointly issued the “Opinions on Severely Cracking Down on Illegal Securities Activities According to Law,” or the “Opinions,” which was made available to the public on July 6, 2021. The Opinions emphasized the need to strengthen the administration over illegal securities activities, and the need to strengthen the supervision over overseas listings by Chinese companies. Effective measures, such as promoting the construction of relevant regulatory systems will be taken to deal with the risks and incidents of China-concept overseas listed companies, and cybersecurity and data privacy protection requirements and similar matters. The Opinions and any related implementing rules to be enacted may subject us to compliance requirement in the future. On February 24, 2023, the CSRC promulgated the Provisions on Strengthening Confidentiality and Archives Administration of Overseas Securities Offering and Listing by Domestic Companies (the “Confidentiality and Archives Administration Provisions”), which also became effective on March 31, 2023. The Confidentiality and Archives Administration Provisions set out rules, requirements and procedures relating to provision of documents, materials and accounting archives for securities companies, securities service providers, overseas regulators and other entities and individuals in connection with oversea offering and listing, including without limitation to, domestic companies that carry out overseas offering and listing (either in direct or indirect means) and the securities companies and securities service providers (either incorporated domestically or overseas) that undertake relevant businesses shall not leak any state secret and working secret of government agencies, or harm national security and public interest, and a domestic company shall first obtain approval from competent authorities according to law, and file with the secrecy administrative department at the same level, if it plans to, either directly or through its overseas listed entity, publicly disclose or provide any documents and materials that contain state secrets or working secrets of government agencies. Since those rules and regulations are recently issued, the interpretation and enforcement thereof are subject to future interpretations and actions of the PRC authorities. In addition, we cannot assure you that relevant PRC government agencies would reach the same conclusion as we do or as advised by our PRC legal counsel. If we are wrong with regards to our interpretation of the PRC laws and regulations, or if the CSRC, the Cyberspace Administration of China or other regulatory PRC agencies later promulgate new rules requiring that we obtain their approvals to offer our Class A Ordinary Shares to foreign investors, we may be unable to obtain a waiver of such approval requirements, if and when procedures are established to obtain such a waiver. Any uncertainties and/or negative publicity regarding such an approval requirement could have a material adverse effect on the trading price of our securities. As a result, our operations could be adversely affected, directly or indirectly, by existing or future laws and regulations relating to our business or industry. See “Risk Factors – Risks relating to doing business in China.”
CHEER Holdings is permitted under the laws of Cayman Islands to provide funding to our subsidiaries in Cayman Islands, Hong Kong and PRC through loans or capital contributions. Our subsidiary in Hong Kong is also permitted under the laws of Hong Kong, a Special Administrative Region of the PRC, to provide funding to Glory Star through dividend distribution without restrictions on the amount of the funds. Current PRC regulations permit WFOE to pay dividends to our Hong Kong subsidiary only out of its accumulated after-tax profits after drawing common reserves, if any, determined in accordance with Chinese accounting standards and regulations. As of the date of this annual report, our Company, our subsidiaries, and the VIEs have not distributed any earnings or settled any amounts owed under the VIE Contracts. Our Company, our subsidiaries, and the VIEs do not have any plan to distribute earnings or settle amounts owed under the VIE Contracts in the foreseeable future. As of the date of this report, none of our subsidiaries or VIEs have made any dividends or distributions to our Company and our Company has not made any dividends or distributions to our shareholders. We intend to keep any future earnings to finance the expansion of our business, and we do not anticipate that any cash dividends will be paid in the foreseeable future. If we determine to pay dividends on any of our Class A Ordinary Shares in the future, as a holding company, we will depend on receipt of funds from our PRC subsidiary and from the VIEs to our PRC subsidiary in accordance with the VIE Contracts. See “Item 4. Information on the Company – C. Organizational Structure.”
The Holding Foreign Companies Accountable Act
On December 16, 2021, Public Company Accounting Oversight Board (“PCAOB”) issued a report on its determinations that PCAOB is unable to inspect or investigate completely PCAOB-registered public accounting firms headquartered in mainland China and in Hong Kong, because of positions taken by PRC authorities in those jurisdictions. The PCAOB made these determinations pursuant to PCAOB Rule 6100, which provides a framework for how the PCAOB fulfills its responsibilities under the Holding Foreign Companies Accountable Act (“HFCAA”). The report further listed in its Appendix A and Appendix B, Registered Public Accounting Firms Subject to the Mainland China Determination and Registered Public Accounting Firms Subject to the Hong Kong Determination, respectively. On August 26, 2022, the PCAOB signed a Statement of Protocol with the CSRC, and the Ministry of Finance of the PRC, taking the first step toward opening access for the PCAOB to inspect and investigate registered public accounting firms headquartered in mainland China and Hong Kong. On December 15, 2022, the PCAOB announced that it “was able to secure complete access to inspect and investigate audit firms in PRC for the first time in history, in 2022. Therefore, on December 15, 2022, the PCAOB Board voted to vacate previous determinations to the contrary.” Notwithstanding the foregoing, uncertainties exist with respect to the implementation of these provisions and there is no assurance that the PCAOB will be able to execute, in a timely manner, its future inspections and investigations in a manner that satisfies the Statement of Protocol. On June 22, 2021, the U.S. Senate passed the Accelerating Holding Foreign Companies Accountable Act (“AHFCAA”), which was enacted under the Consolidated Appropriations Act, 2023, as further described below.
viii
On December 29, 2022, the Consolidated Appropriations Act, 2023, was signed into law, which amended the HFCAA (i) to reduce the number of consecutive years that would trigger delisting from three years to two years, and (ii) so that any foreign jurisdiction could be the reason why the PCAOB does not to have complete access to inspect or investigate a company’s auditors. As it was originally enacted, the HFCAA applied only if the PCAOB’s inability to inspect or investigate because of a position taken by an authority in the foreign jurisdiction where the relevant public accounting firm is located. As a result of the Consolidated Appropriations Act, 2023, the HFCAA now also applies if the PCAOB’s inability to inspect or investigate the relevant accounting firm is due to a position taken by an authority in any foreign jurisdiction. The denying jurisdiction does not need to be where the accounting firm is located.
Our current independent auditors, Enrome LLP (“Enrome”), that issue the audit reports included elsewhere in this Annual Report is a Singapore-based accounting firm registered with the PCAOB and can be inspected by the PCAOB. We have no intention of dismissing Enrome in the near future or of engaging any auditor not subject to regular inspection by the PCAOB. There is no guarantee, however, that any future auditor engaged by the Company would remain subject to full PCAOB inspection during the entire term of our engagement. If we do not engage change to an auditor that is subject to regular inspection by the PCAOB, our Class A Ordinary Shares may be delisted.
Summary of Risk Factors
You should carefully read the “Risk Factors” beginning on page 1 of this annual report for a discussion of information that should be considered before making a decision to purchase our Class A Ordinary Shares. Below please find a summary of the principal risks we face, organized under relevant headings.
Risk Relating to Our Business and Industry
Risks and uncertainties related to our business and industry include, but are not limited to, the following:
| ● | Our ability to retain existing or attract new advertising customers to advertise within our mobile and online video content or on our e-commerce platform, maintain and increase our wallet share of advertising budget, and collect accounts receivable in a timely manner; |
| ● | Our ability to adequately protect our intellectual property rights, and any failure to protect our intellectual property rights could adversely affect our revenues and competitive position; |
| ● | The incorporation of artificial intelligence into our products and business operations, including challenges to properly manage such technologies;. |
| ● | Our success in our AI initiatives; |
| ● | Our ability to maintain or improve our technology infrastructure; |
| ● | Risks in our investments in new product offerings and technologies, including generative AI; |
| ● | An economic slowdown in China and indirectly by trade disputes between the United States and China that may contribute to uncertainties in economic outlook; |
| ● | Our controlling shareholder will have substantial influence over us; |
| ● | Our bank accounts are in China and are not insured or protected against loss; |
| ● | We do not maintain business liability or disruption, litigation or property insurance and any business liability or disruption, litigation or property damage we experience may result in substantial costs to us and the diversion of our resources; |
ix
| ● | The creation of our metaverse platform is dependent on our ability to develop an acceptable blockchain; |
| ● | The technology underlying blockchain technology is subject to a number of industry-wide challenges and risks relating to consumer acceptance of blockchain technology; |
| ● | Expansion of our operations into new products, services and technologies; and |
| ● | A particular digital asset’s status as a “security” in any relevant jurisdiction is subject to a high degree of uncertainty and depending upon the activities undertaken by our customers utilizing our products and services, we and our customers may be subject to regulatory scrutiny, investigations, fines, and other penalties. |
Risks Related to Our Corporate Structure
We are also subject to risks and uncertainties related to our corporate structure, including, but not limited to, the following:
| ● | If the PRC government determines that our VIE Contracts do not comply with applicable regulations, or if these regulations or their interpretations change in the future, we could be subject to severe consequences, including the nullification of the VIE Contracts and the relinquishment of our interest in Horgos and Xing Cui Can. |
| ● | Our VIE Contracts may not be as effective in providing operational control as direct ownership and Horgos and Xing Cui Can or their shareholders may fail to perform their obligations under our VIE Contracts. |
| ● | Our VIE Contracts may be subject to scrutiny by the PRC tax authorities and additional taxes may be imposed. A finding that we owe additional taxes could substantially reduce our consolidated net income and the value of your investment. |
| ● | The shareholders may potentially have a conflict of interest with us, and they may breach their contracts with us or cause such contracts to be amended in a manner contrary to our interests. |
| ● | We conduct our value-added telecommunications services and certain other businesses in the PRC through Horgos and Xing Cui Can by way of the VIE Contracts, but certain of the terms of the VIE Contracts may not be enforceable under PRC laws. |
| ● | Our current corporate structure and business operations may be substantially affected by the newly enacted Foreign Investment Law. |
| ● | We rely on the approval certificates and business license held by us for our advertising operation, e-commerce and certain other business and any deterioration of the relationship between Horgos and Xing Cui Can could materially and adversely affect our business operations. |
Risks Relating to Doing Business in China
We face risks and uncertainties relating to doing business in the PRC in general, including, but not limited to, the following:
| ● | The recent state government interference into business activities on U.S. listed Chinese companies may negatively impact our existing and future operations in China. |
| ● | We are subject to risks relating to the nature of China’s advertising industry, including frequent and sudden changes in advertising proposals. |
| ● | China regulates media content extensively and it may be subject to government actions based on the advertising content it designs for advertising clients or services it provides to them. |
x
| ● | Uncertainties in the interpretation and enforcement of PRC laws and regulations could limit the legal protections available to us. |
| ● | Substantial uncertainties in relation to the regulatory administration and governmental policies of the metaverse could have a significant impact upon the cost, performance and prospect of the operation of the metaverse related businesses in which we will engage in the future. |
| ● | Delays in issuing invoices due to China taxing authorities may materially and adversely affect our cash flow. |
| ● | Any adverse changes in political policies of the PRC government could negatively impact China’s overall economic growth, which could materially adversely affect our business. |
| ● | Substantial uncertainties and restrictions with respect to the political and economic policies of the PRC government and PRC laws and regulations could have a significant impact upon the business we may be able to conduct in the PRC and accordingly on the results of our operations and financial condition. | |
| ● | It may be difficult to protect interests and exercise rights as a shareholder since we conduct all of our operations in China, and all of our officers and our Chairman reside outside of the United States. |
| ● | PRC regulation of loans to, and direct investments in, PRC entities by offshore holding companies may delay or prevent us from using proceeds from future financing activities to make loans or additional capital contributions to our PRC operating subsidiaries. |
| ● | The approval, record filing and/or other requirements of the CSRC or other PRC governmental authorities may be required in connection with our contractual arrangement and overseas offering under PRC rules, regulations or policies, especially with the promulgation of the new filing-based administrative rules for overseas offering and listing by domestic companies in China, and, if required, we cannot predict whether or how soon we will be able to obtain such approval, complete the record filing or fulfil other governmental requirements. |
| ● | Uncertainties exist with respect to the enactment timetable, interpretation and implementation of the laws and regulations with respect to online platform business operation. |
| ● | The approval of the China Securities Regulatory Commission or other PRC regulatory agencies may be required in connection with overseas listings like our company under PRC law. |
| ● | The M&A Rules and certain other PRC regulations set forth complex procedures for acquisitions conducted by foreign investors, which could make it more difficult to pursue growth through acquisitions. |
| ● | PRC regulations relating to offshore investment activities by PRC residents and PRC citizens may increase the administrative burden we face and may subject our PRC resident beneficial owners or employees who are share option holders to personal liabilities, limit our subsidiary’s abilities to increase our registered capital or distribute profits to us, limit our ability to inject capital into our PRC subsidiary, or may otherwise expose us to liability under PRC law. |
| ● | Restrictions on foreign exchange under PRC laws may limit our ability to convert cash derived from our operating activities into foreign currencies and may materially and adversely affect the value of your investment. |
| ● | We may rely on dividends and other distributions on equity paid by our wholly-owned subsidiaries to fund any cash and financing requirements we may have, and any limitation on the ability of our subsidiaries to make payments to us could have a material adverse effect on our ability to conduct our business. |
| ● | We may be treated as a resident enterprise for PRC tax purposes under the EIT Law, which may subject us to PRC income tax for our global income and withholding for any dividends it pay to our non-PRC shareholders. |
| ● | Uncertainties with respect to the PRC legal system, including uncertainties regarding the enforcement of laws, and sudden or unexpected changes in laws and regulations in China could adversely affect us and limit the legal protections available to you and us. |
xi
Risks Relating to our Class A Ordinary Shares
In addition to the risks described above, we are subject to general risks and uncertainties relating our Class Ordinary Shares, including, but not limited to, the following:
| ● | Our dual-class voting structure will have the effect of concentrating voting control with holders of Class B Ordinary Shares, which will limit the ability of our other investors to influence corporate matters, including the election of directors and the approval of any change of control transaction. |
| ● | Risks related to a future determination that the PCAOB is unable to inspect or investigate our auditor completely. |
| ● | Future sales or other dilution of our equity could depress the market price of our Class A Ordinary Shares. |
| ● | You may face difficulties in protecting your interests, and your ability to protect your rights through the U.S. federal courts may be limited, because the Company is incorporated under Cayman Islands Companies Act. |
| ● | If we fail to implement and maintain an effective system of internal control to remediate our material weakness over financial reporting, we may be unable to accurately report our results of operations, meet our reporting obligations or prevent fraud. |
| ● | Nasdaq could delist our Class A Ordinary Shares, which could limit investors’ ability to transact in our securities and subject us to additional trading restrictions. |
| ● | We were a “shell company” and are subject to additional restrictions under Rule 144 on resales of our restricted securities. |
| ● | There could be adverse United States federal income tax consequences to United States investors if we were or were to become a passive foreign investment company. |
The foregoing risks are discussed more fully under “Item 3. Key Information—D. Risk Factors” beginning on page 1 of this annual report.
xii
PART I
Item 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
Not Applicable.
Item 2. OFFER STATISTICS AND EXPECTED TIMETABLE
Not Applicable.
Item 3. KEY INFORMATION
A. [Reserved]
B. Capitalization and Indebtedness
Not Applicable.
C. Reasons for the Offer and Use of Proceeds
Not Applicable.
D. Risk Factors
You should consider carefully all of the following risk factors and all the other information contained in this report, including the financial statements. This report also contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in the forward-looking statements as a result of specific factors, including the risks described below. The risk factors described below are not necessarily exhaustive and you are encouraged to perform your own investigation with respect to us and our business.
1
Risks Relating to Our Business and Industry
There are many risks and uncertainties that may affect our operations, performance, development and results. Many of these risks are beyond our control. The following is a description of the important risk factors that may affect our business. If any of these risks were to actually occur, our business, financial condition or results of operations could be materially adversely affected. Additional risks and uncertainties not currently known to us or that we currently consider to be immaterial may also materially adversely affect our business, financial condition or results of operations.
If we fail to anticipate user preferences and provide high-quality content, especially popular original content, in a cost-effective manner, we may not be able to attract and retain users to remain competitive.
Our success depends on our ability to maintain and grow users and user time spent on the CHEERS App. To attract and retain users and compete against our competitors, we must continue to offer high-quality content, especially popular original content that provides our users with a superior online entertainment experience. To this end, we must continue to produce new original content and source new talent and producers in a cost effective manner. Given that we operate in a rapidly evolving industry, we must anticipate user preferences and industry trends and respond to such trends in a timely and effective manner. If we fail to fulfill the needs and preferences of our users in order to deliver a superior user experience or control our costs in doing so, we may suffer from reduced user traffic, and our business, financial condition and results of operations may be materially and adversely affected.
We currently rely on our in-house team of employees to generate creative ideas for original content and to supervise the original content origination and production process and intend to continue to invest our human and capital resources in such content production. We face fierce competition for qualified personnel in a limited pool of high-quality creative talent. If we are not able to compete effectively for highly qualified personnel or attract and retain top talent at reasonable costs, our original content production capabilities would be materially and adversely impacted. If we are unable to offer popular original content that addresses our users’ tastes and preferences in a cost effective manner, we may suffer a reduction in user traffic and our business, financial condition and results of operations may be materially and adversely affected.
We operate in a capital intensive industry and require a significant amount of cash to fund our operations and to produce or acquire high quality video content. If we fail to obtain sufficient capital to fund our operations, our business, financial condition and future prospects may be materially and adversely affected.
The operation of an internet video streaming content provider and producer of television shows requires significant and continuous investment in content production or acquisition and video production technology. Producing high-quality original content is costly and time-consuming and typically requires a long period of time in order to realize a return on investment, if at all. If we cannot obtain adequate capital to meet our capital needs, we may not be able to fully execute our strategic plans for growth and our business, financial condition and prospects may be materially and adversely affected.
If our efforts to retain users and attract new users for our mobile and on-line video content and e-commerce products are not successful, our business, financial condition and results of operations will be materially and adversely affected.
In addition to our content production for television shows, we have experienced significant user growth for our mobile and on-line video and e-commerce products over the past several years. Our ability to continue to retain users and attract new users will depend in part on our ability to consistently provide our users with compelling content choices, as well as a quality experience for selecting and viewing video content. If we introduce new features or service offerings, or change the mix of existing features and services offerings, in a manner that is not favorably received by our users, we may not be able to attract and retain users and our business, financial condition and results of operations would be materially and adversely affected.
2
If we fail to retain existing or attract new advertising customers to advertise within our mobile and online video content or on our e-commerce platform, maintain and increase our wallet share of advertising budget, or if we are unable to collect accounts receivable in a timely manner, our business, financial condition and results of operations may be materially and adversely affected.
We generate a substantial part of our revenues from advertising placed within our mobile and online video content and on our e-commerce platform. Our advertising customers are not under long term contracts, we may not be able to retain our advertising customers in the future, attract new advertising customers continuously or be able to retain our advertising customers at all. If our advertising customers find that they can generate better returns elsewhere, or if our competitors provide better online advertising services to suit the advertising customers’ goals, we may lose some or all of our advertising customers. In addition, third parties may develop and use certain technologies to block the display of online advertisements, and should this occur our members will be able to skip the viewing of our advertising customers’ advertisements, which may in turn cause us to lose advertising customers. If our advertising customers determine that their expenditures on internet video streaming platforms or our video content does not generate expected returns, they may allocate a portion or all of their advertising budgets to other advertising channels such as television, newspapers and magazines or other internet channels such as e-commerce and social media platforms, and reduce or discontinue business with us. Since most of our advertising customers are not bound by long-term contracts, they may easily reduce or discontinue advertising arrangements without incurring material liabilities. Failure to retain existing advertising customers or attract new advertising customers to advertise within the video content produced by us or on our e-commerce platform may materially and adversely affect our business, financial conditions and results of operations.
Our brand advertising customers typically enter into advertising agreements through various third-party advertising agencies. In China’s advertising industry, advertising agencies typically have good relationships and maintain longer periods of cooperation with the brand advertising customers they represent. In addition to entering into advertising contracts directly with advertising customers, we also enter into advertising contracts with third-party advertising agencies, which represent advertising customers, even if we have direct contact with such advertisers. As a result, we rely on third-party advertising agencies for sales to, and collection of payment from, our brand advertisers. The financial soundness of our advertising customers and advertising agencies may affect our collection of accounts receivable. We make a credit assessment of our advertising customers and advertising agencies to evaluate the collectability of the advertising service fees before entering into an advertising contract. However, we may not be able to accurately assess the creditworthiness of each advertising customer or advertising agency, and any inability of advertising customers or advertising agencies to pay us for our services in a timely manner would negatively affect our liquidity and cash flows and may materially and adversely affect our business, financial condition and results of operations.
We operate in a highly competitive market and we may not be able to compete effectively.
We face significant competition in China in various sub-markets we operate, primarily from Alibaba (Nasdaq: BABA), Pin Duoduo (Nasdaq:PDD), Douyu (Nasdaq: DOYU), Mango Media (SZ.300413), and TVZone Media (SH.603721). We compete for users, usage time, advertising customers, and shoppers. Some of our competitors have a longer operating history and significantly greater financial resources than we do, and, in turn, may be able to attract and retain more users, usage time and advertising customers. Our competitors may compete with us in a variety of ways, including by conducting brand promotions and other marketing activities, and making investments in and acquisitions of our business partners. If any of our competitors achieves greater market acceptance than we do or are able to offer more attractive internet video content, our user traffic and our market share may decrease, which may result in a loss of advertising customers, shoppers, and users, as well as have a material and adverse effect on our business, financial condition and results of operations. We also face competition for users and user time from major television stations, which are increasing their internet video offerings. We also face competition from users and user time from other internet media and entertainment services, such as internet and social media platforms that offer content in emerging and innovative media formats.
3
The success of our business depends on our ability to maintain and enhance our brand.
We believe that maintaining and enhancing our brand is of significant importance to the success of our business. Our well-recognized brand is critical to increasing our user base and, in turn, expanding our shoppers for our e-commerce platform and attractiveness to advertising customers and content providers. Since the internet video industry is highly competitive, maintaining and enhancing our brand depends largely on our ability to become and remain a market leader in China, which may be difficult and expensive to accomplish. To the extent our original content is perceived as low quality or otherwise not appealing to users, our ability to maintain and enhance our brand may be adversely impacted which in turn may result in a loss of users for our mobile and online video and e-commerce platform.
Increases in professionally-produced content, or PPC, by others may have a material and adverse effect on our business, financial condition and results of operations.
We depend on the quality of our PPC for the success of our business model. The amount of PPC, especially TV series and movies, has recently increased significantly in China and may continue to increase in the future. Due to relatively robust online advertising budgets, internet video streaming platforms are generating more revenues and are competing aggressively to produce and license more PPC in general. As the demand for quality PPC grows, the number of PPC producers will likely grow, resulting in an increase in competition for our users and usage time, which in turn may result in a loss of advertising customers, users, and shoppers on our e-commerce platform. Any significant loss in advertising customers, users, or shoppers on our e-commerce platform would have a material and adverse effect on our business, financial condition and results of operations.
The continued and collaborative efforts of our senior management and key employees are crucial to our success, and any loss of senior management or key employees may materially and adversely affect our business, financial condition and results of operations.
Our success depends on the continued and collaborative efforts of our senior management, especially our executive officers, including our founder, Mr. Bing Zhang. If one or more of our executives or other key personnel are unable or unwilling to continue to provide their services, we may not be able to find suitable replacements easily or at all. Competition for management and key personnel is intense and the pool of qualified candidates is limited. We may not be able to retain the services of our executives or key personnel, or attract and retain experienced executives or key personnel in the future. If any of our executive officers or key employees joins a competitor or forms a competing business, we may lose crucial business secrets, technological know-how, advertisers and other valuable resources. Each of our executive officers and key employees has entered into an employment agreement, which contains non-compete provisions. However, we cannot assure you that they will abide by the employment agreements or that our efforts to enforce these agreements will be effective enough to protect our interests.
Our limited operating history makes it difficult to evaluate our business and prospects.
We expect to continue to grow our user and customer bases and explore new market opportunities. However, due to our limited operating history since 2016, our historical growth rate may not be indicative of our future performance. We cannot assure you that our growth rate will be the same as in the past. In addition, we may in the future introduce new services or significantly expand our existing services, including those that currently are of relatively small scale or with which we have little or no prior development or operating experience. If these new or enhanced services fail to engage users and customers, our business and operating results may suffer as a result. We cannot assure you that we will be able to recoup our investments in introducing these new services or enhancing existing smaller business lines, and we may experience significant loss and impairment of asset value due to such efforts. Furthermore, as a technology-based entertainment company, we frequently introduce innovative products and services to our users and advertising customers in order to capture new market opportunities. However, we cannot assure you that our products and services will be well received by our users and advertising customers. If our existing or new products and services are not well received by our users and customers, we may suffer damages to our brand image and may not be able to maintain or expand our user and customer base, which in turn may have a material and adverse effect on our business, financial condition and results of operations. You should consider our prospects in light of the risks and uncertainties fast-growing companies with limited operating histories in a fast evolving industry.
4
We may not be able to manage our growth effectively.
We continue to experience periods of rapid growth since we launched our services in 2016. To manage the further expansion of our business and the growth of our operations and personnel, we need to continuously expand and enhance our infrastructure and technology, and improve our operational and financial systems, procedures, compliance and controls. We also need to expand, train and manage our growing employee base. In addition, our management will be required to maintain and expand our relationships with distributors, advertising customers, and other third parties. We cannot assure you that our current infrastructure, systems, procedures and controls will be adequate to support our expanding operations. If we fail to manage our expansion effectively, our business, financial condition, results of operations and prospects may be materially and adversely affected.
If we are unable to offer branded products at attractive prices to meet customer needs and preferences on our e-commerce platform, or if our reputation for selling authentic, high-quality products suffers, we may lose customers and our business, financial condition and results of operations may be materially and adversely affected.
Our future growth on our e-commerce platform partially depends on our ability to continue to attract new customers as well as to increase the spending and repeat purchase rate of existing customers. Constantly changing consumer preferences have historically affected, and will continue to affect, the online retail industry. Consequently, we must stay abreast of emerging lifestyle and consumer preferences and anticipate product trends that will appeal to existing and potential customers.
As we implement our strategy to offer a personalized web-interface focusing on deep curation and targeted offerings desired by our customers, we expect to face additional challenges in the selection of products and services. We are focused on offering only authentic products on our e-commerce platform, as perception by our customers or prospective customers that any of our products are not authentic, or are lacking in quality, could cause our reputation to suffer. While our representatives generally check the products that are offered for sale on our e-commerce platform to confirm their authenticity and quality, there can be no assurance that our suppliers have provided us with authentic products or that all products that we sell are of the quality expected by consumers. If our customers cannot find desired products within our product portfolio at attractive prices, or if our reputation for selling authentic, high-quality products suffers, our customers may lose interest in our e-Mall and thus may visit our e-commerce platform less frequently or even stop visiting it altogether, which in turn, may materially and adversely affect our business, financial condition and results of operations.
User behavior on mobile devices is rapidly evolving, and if we fail to successfully adapt to these changes, our competitiveness and market position may suffer.
Buyers, sellers and other participants are increasingly using mobile devices in China for a wide range of purposes, including for e-commerce. While a significant and growing portion of participants access our e-commerce platform through mobile devices, this area is developing rapidly and we may not be able to continue to increase the level of mobile access to, or transactions on, our e-commerce platform by users of mobile devices. The variety of technical and other configurations across different mobile devices and platforms increases the challenges associated with this environment. our ability to successfully expand the use of mobile devices to access our e-commerce platform is affected by the following factors:
| ● | our ability to continue to provide compelling video content on our e-commerce platform and tools in a multiple mobile device environment; | |
| ● | our ability to successfully deploy apps on popular mobile operating systems; and | |
| ● | the attractiveness of alternative platforms. |
If we are unable to attract significant numbers of new mobile buyers and increase levels of mobile engagement, our ability to maintain or grow our business would be materially and adversely affected.
5
Our business prospects and financial results may be impacted by our relationship with third-party platforms.
In addition to our own e-commerce platform, we also distribute video content through third-party platforms. However, there can be no assurance that our arrangements with those platforms will be extended or renewed after their respective expiration or that we will be able to extend or renew such arrangements on terms and conditions favorable to us. In addition, if any such third-party platforms breach their obligations under any of the agreements entered into with us or refuses to extend or renew such agreements when their term expires, and we cannot find a suitable replacement on a timely basis, or at all, we may suffer significant losses to our user base and revenue streams, or lose the opportunity to expand our business through such platforms. Disputes may arise between us and third-party platforms with which we have used in the past that may adversely affect the relationship with such platforms which in turn may have a material and adverse effect on our business, financial condition and results of operations.
We face risks, such as unforeseen costs and potential liability in connection with content we produce, license and/or distribute through third-party platforms and our e-commerce platform.
As a producer, licensor and distributor of content, we face potential liability for negligence, copyright and trademark infringement, or other claims based on the content that we produce, license, provide and/or distribute. We also may face potential liability for content used in promoting our service, including marketing materials and features on our platform such as user reviews. We are responsible for the production costs and other expenses of our original content. Litigation to defend these claims could be costly and the expenses and damages arising from any liability or unforeseen production risks could harm our business, financial condition and results of operations. We may not be indemnified against claims or costs of these types and we may not have insurance coverage for these types of claims.
Videos and other content produced by us or displayed on our e-commerce platform may be found objectionable by PRC regulatory authorities and may subject us to penalties and other administrative actions.
We are subject to PRC regulations governing internet access and the distribution of videos and other forms of information over the internet. Under these regulations, internet content providers and internet publishers are prohibited from posting or displaying over the internet any content that, among other things, violates PRC laws and regulations, impairs the national dignity of China or the public interest, or is obscene, superstitious, frightening, gruesome, offensive, fraudulent or defamatory. Furthermore, as an internet video streaming producer, we are not allowed to (i) produce or disseminate programs that distort, parody or vilify classic literary works; (ii) re-edit, re-dub or re-caption the subtitles of classic literary works, radio and television programs, and network-based original audio-video programs, (iii) intercept program segments and splice them into new programs; or (iv) disseminate edited pieces of works that distort the originals. Failure to comply with these requirements may result in monetary penalties, revocation of licenses to provide internet content or other licenses, suspension of the concerned platforms and reputational harm. In addition, these laws and regulations are subject to interpretation by the relevant authorities, and it may not be possible to determine in all cases the types of content that could cause us to be held liable as an internet content provider.
To the extent that PRC regulatory authorities find any content produced by us or displayed on our e-commerce platform objectionable, they may require us to limit or eliminate the dissemination of such content on our platform in the form of take-down orders or otherwise.
We operate in a rapidly evolving industry. If we fail to keep up with the technological developments and users’ changing requirements, our business, financial condition, results of operations and prospects may be materially and adversely affected.
The internet video streaming industry is rapidly evolving and subject to continuous technological changes. Our success will depend on our ability to keep up with the changes in technology and user behavior resulting from the technological developments. As we make our services available across a variety of mobile operating systems and devices, we are dependent on the interoperability of our services with popular mobile devices and mobile operating systems that we do not control, such as Android and iOS. Any changes in such mobile operating systems or devices that degrade the functionality of our services or give preferential treatment to competitive services could adversely affect usage of our services. Further, if the number of mobile operating systems and devices increases, which is typically seen in a dynamic and fragmented mobile services market such as China, we will likely incur additional costs and expenses associated with developing tools and software necessary for access to our e-commerce platform by these devices and systems. If we fail to adapt our products and services to such changes in an effective and timely manner, we may suffer from decreased user traffic, which may result in a reduced user base. Furthermore, changes in technologies may require substantial capital expenditures in product development as well as in modification of products, services or infrastructure. We may not execute our business strategies successfully due to a variety of reasons such as technical hurdles, misunderstanding or erroneous prediction of market demand or lack of necessary resources. Failure to keep up with technological development may result in our products and services being less attractive, which, in turn, may materially and adversely affect our business, results of operations and prospects.
6
We may not be able to adequately protect our intellectual property rights, and any failure to protect our intellectual property rights could adversely affect our revenues and competitive position.
We believe that our patents, trademarks, trade secrets, copyrights, and other intellectual property we use are critical to our business. We rely on a combination of patent, trademark, copyright and trade secret protection laws in China and other jurisdictions, as well as confidentiality procedures and contractual provisions to protect our intellectual property and our brand. Protection of intellectual property rights in China may not be as effective as in the United States or other jurisdictions, and as a result, we may not be able to adequately protect our intellectual property rights, which could adversely affect our revenues and competitive position. In addition, any unauthorized use of our intellectual property by third parties may adversely affect our revenues and our reputation. Further, we may have difficulty addressing the threats to our business associated with piracy of our copyrighted content, particularly our original content. our content and streaming services may be potentially subject to unauthorized consumer copying and illegal digital dissemination without an economic return to us.
Furthermore, policing unauthorized use of proprietary technology is difficult and expensive, and we may need to resort to litigation to enforce or defend intellectual property or to determine the enforceability, scope and validity of our proprietary rights or those of others. Such litigation and an adverse determination in any such litigation could result in substantial costs and diversion of resources and management attention.
We face risks related to the incorporation of artificial intelligence into our products and business operations, and challenges with properly managing such technologies could result in reputational harm, competitive harm, and legal liability, and adversely affect our results of operations.
We use and expect to continue to use artificial intelligence (including generative artificial intelligence), machine learning, data science and similar technologies (collectively, “AI”) in our technology and infrastructure, which may become more important in our operations over time. We are increasingly utilizing AI technology and our AI content creation platform, CHEERS Telepathy, in our products and ecosystem. The use of AI (and, in particular, generative AI) can lead to unintended consequences, data leakage or unauthorized exposure of data, including confidential business information, personal data, or other sensitive information, which could result in legal liability or affect our reputation and business. The content, analysis, materials, software, recommendations and other outputs produced by AI (and, in particular, The use of generative AI could be alleged to be deficient, inaccurate, inappropriate, or biased, or if the AI results in the infringement of the IP of third parties, which could adversely affect our business, reputation, financial condition, and results of operations.
We may lose intellectual property and other proprietary rights in any data, content, confidential information, trade secrets, or other materials that we provide as inputs to AI technology. In addition, as of the date of this annual report, we hold five (5) invention patents in China relating to our AI intelligent cloud-based service “Polaris” and CHEERS Telepathy content creation platform. However, our patents may be held invalid or unenforceable as a result of legal challenges by third parties, and others may challenge the inventorship or ownership of our patents and pending patent applications. Further, competitors may be able to design around our patents or develop products that provide outcomes comparable or superior to ours. If we are unable to assert proprietary rights, we may experience competitive harm, and our financial condition and results of operations may be adversely affected.
In addition, the use of AI may result in violations of applicable data security or data privacy laws, or in cybersecurity incidents that implicate the personal data of end customers, employees or other third parties. Any such violation or cybersecurity incidents related to our use of AI could result in legal liability or otherwise adversely affect our reputation and results of operations. AI is subject to a dynamic and rapidly evolving legal and regulatory environment, the extent and scope of which may in many instances be uncertain and may vary (or conflict) across jurisdictions. Compliance with existing and potential government regulation of AI, may require significant resources, including to develop, test and maintain platforms, offerings, services, and features to help us implement AI in accordance with applicable law, and to minimize other adverse effect on our results of operations.
7
Developing, testing, and deploying resource-intensive AI systems may require additional investment and increase our costs. In addition, the development of generative AI technologies is complex, and there are technical challenges associated with achieving the desired level of accuracy, efficiency, and reliability. Furthermore, there is a risk of system failures, disruptions, or vulnerabilities that could compromise the integrity, security, or privacy of the generated content. There can be no assurance that our investments in AI will be beneficial to our business.
We may not be successful in our AI initiatives, which could adversely affect our business, reputation, or financial results.
We have been investing in CHEERS Telepathy and improving our AI initiatives to, among other things, enhance our advertising tools, develop new products, develop new and improving current features for CHEERS Telepathy, and enhance content creation and our digital ecosystems. Our business, prospects, results of operations and financial condition depend upon our ability, alone or with others, to complete the development of CHEERS Telepathy. There are significant risks involved in development and deploying AI and there can be no assurance that the usage of AI will enhance our products or services or be beneficial to our business, including our efficiency or profitability.
In addition, the use of AI, including generative AI involves significant technical complexity and requires specialized expertise. Any disruption or failure in our AI and generative AI offerings, or those of our third-party providers, could result in delays or errors in our operations, which could harm our business and financial results. The use of generative AI tools could also result in a greater likelihood of cybersecurity incidents, privacy violations and inadvertent disclosures of our intellectual property or other confidential information, any of which could directly or indirectly harm our business, operations and reputation.
We are making investments in new product offerings and technologies, including generative AI, and may increase such investments in the future, which are inherently risky.
We have made investments to develop new services, products and technologies utilizing CHEERS Telepathy and we intend to continue investing significant resources to accelerate our AI development and technologies. If we do not spend our development budget efficiently or effectively on commercially successful and innovative technologies, or if we encounter significant technical or other challenges with respect to the development of our anticipated product offerings, we may not realize the expected benefits of our strategy. Our new initiatives also have a high degree of risk, as each involves development of new software platforms or other product offerings, unproven business strategies and technologies with which we may have limited prior development or operating experience, and may involve additional expenses, regulatory challenges, and other risks that we do are unable to anticipate.
There can be no assurance that demand for AI and generative AI products, will exist or be sustained at the levels that we anticipate, or that any of these initiatives will gain sufficient traction or market acceptance to generate sufficient revenue to offset any new expenses or liabilities associated with these new investments. It is also possible that products and offerings developed by others will render our products and offerings noncompetitive or obsolete. Further, our development efforts with respect to new products, offerings and technologies could distract management from current operations, and will divert capital and other resources from our more established products, offerings and technologies. Even if we are successful in developing new products, offerings or technologies, such developments may be subject to new or existing rules or restrictions that could increase our expenses or prevent us from successfully commercializing new products, offerings or technologies. If we do not realize the expected benefits of our investments, our business, financial condition, results of operations and prospects may be harmed.
Our business generates and processes a large amount of data, and the improper use or disclosure of such data could harm our reputation as well as have a material adverse effect on our business and prospects.
Our e-commerce platform generates and processes a large quantity of personal, transaction, demographic and behavioral data. We face risks inherent in handling large volumes of data and in protecting the security of such data. In particular, we face a number of challenges relating to data from transactions and other activities on our platform, including:
| ● | protecting the data in and hosted on our system, including against attacks on our system by outside parties or fraudulent behavior by our employees; |
8
| ● | addressing concerns related to privacy and sharing, safety, security and other factors; and |
| ● | complying with applicable laws, rules and regulations relating to the collection, use, disclosure or security of personal information, including any requests from regulatory and government authorities relating to such data. |
Any systems failure or security breach or lapse that results in the release of user data could harm our reputation and brand and, consequently, our business, in addition to exposing us to potential legal liability.
Failure to maintain or improve our technology infrastructure could harm our business and prospects.
Adopting new software and upgrading our online infrastructure requires significant investments of time and resources, including adding new hardware, updating software and recruiting and training new engineering personnel. Maintaining and improving our technology infrastructure require significant levels of investment. Adverse consequences could include unanticipated system disruptions, slower response times, impaired quality of buyers’ and sellers’ experiences and delays in reporting accurate operating and financial information. In addition, much of the software and interfaces we use are internally developed and proprietary technology. If we experience problems with the functionality and effectiveness of our software, or are unable to maintain and constantly improve our technology infrastructure to handle our business needs, our business, financial condition, results of operation and prospects, as well as our reputation, could be materially and adversely affected.
We are subject to payment processing risk.
Our e-commerce customers pay for their services using a variety of different online payment methods. We rely on third parties to process such payments. Acceptance and processing of these payment methods are subject to certain rules and regulations and require payment of interchange and other fees. To the extent there are increases in payment processing fees, material changes in the payment ecosystem, such as delays in receiving payments from payment processors and/or changes to rules or regulations concerning payment processing, our revenues, operating expenses and results of operations could be adversely impacted.
The successful operation of our business depends upon the performance and reliability of the Internet infrastructure in China.
Other than the production of television shows that are transmitted via satellite television in China, our business depends on the performance and reliability of the Internet infrastructure in China. Almost all access to the Internet is maintained through state-owned telecommunications operators under the administrative control and regulatory supervision of the Ministry of Industry and Information Technology of China. In addition, the national networks in China are connected to the Internet through state-owned international gateways, which are the only channels through which a domestic user can connect to the Internet outside of China. We may not have access to alternative networks in the event of disruptions, failures or other problems with China’s Internet infrastructure. In addition, the Internet infrastructure in China may not support the demands associated with continued growth in Internet usage.
9
We rely on information technology and other systems and services, and any failures, errors, defects or disruptions in our systems or services could diminish our brand and reputation, subject us to liability, disrupt our business, affect our ability to scale our technical infrastructure and adversely affect our operating results business growth.
Our technology infrastructure is critical to the performance of our product offerings and to user satisfaction. However, our systems may not be adequately designed with the necessary reliability and redundancy to avoid performance delays or outages that could be harmful to our business. We cannot assure you that the measures we take to prevent, detect or hinder cybersecurity incidents; protect our systems, data and user information; prevent outages, data or information loss and fraud; and prevent or detect security breaches, including a disaster recovery strategy for server and equipment failure and back-office systems and the use of third parties for certain cybersecurity services, will provide absolute security. We have experienced, and we may in the future experience, website disruptions, outages and other performance problems due to a variety of factors, including infrastructure changes, human or software errors, cybersecurity incidents and capacity constraints. Such disruptions have not had a material impact on us; however, future disruptions from unauthorized access to, fraudulent manipulation of, or tampering with our computer systems and technological infrastructure, or those of third parties, could result in a wide range of negative outcomes, each of which could materially adversely affect our business, financial condition, results of operations and prospects.
Additionally, our product offerings from time to time contain errors, bugs, flaws or corrupted data, and these defects have in certain instances only become apparent after their launch. If a particular product offering is unavailable when users attempt to access it or navigation through our product offerings is slower than they expect, users may be unable to place their bets or submit their line-ups in a timely manner and may be less likely to return to our product offerings as often, if at all. Furthermore, programming errors, defects and data corruption could disrupt our operations, adversely affect the experience of our users, harm our reputation, cause our users to stop utilizing our product offerings, divert our resources and delay market acceptance of our product offerings. As such, a failure or significant interruption in our service could harm our reputation, business and operating results.
Security breaches and attacks against our internal systems and network, and any potential resulting breach or failure to otherwise protect confidential and proprietary information, could damage our reputation and negatively impact our business, as well as materially and adversely affect our financial condition and results of operations.
Although we have employed resources to develop security measures against unauthorized access to our systems and networks, our cybersecurity measures may not successfully detect or prevent all unauthorized attempts to access the data on our network or compromise and disable our systems. Unauthorized access to our network and systems may result in the misappropriation of information or data, deletion or modification of user information, or a denial-of-service or other interruption to our business operations. As techniques used to obtain unauthorized access to or sabotage systems change frequently and may not be known until launched against us or our third-party service providers, we may be unable to anticipate, or implement adequate measures to protect against these attacks. If we are unable to avert these attacks and security breaches, we could be subject to significant legal and financial liability, our reputation would be harmed and we could sustain substantial revenue loss from user dissatisfaction. We may not have the resources or technical sophistication to anticipate or prevent rapidly evolving types of cyber-attacks. Actual or anticipated attacks and risks may cause us to incur significantly higher costs, including costs to deploy additional personnel and network protection technologies, train employees, and engage third-party experts and consultants. Cybersecurity breaches would not only harm our reputation and business, but also could materially decrease our revenue and net income.
We rely upon our partners to make our service available through Internet Protocol Television (IPTV).
In the IPTV video streaming market, only a small number of qualified license holders can provide internet audio and visual program services to the TV terminal users via IPTV, set-top boxes and other electronic products. Most of those license holders are radio or TV stations. Private companies that wish to operate such businesses need to cooperate with those license holders to legally provide relevant services. If we are not successful in maintaining existing or creating new relationships, or if we encounter technological, content licensing, regulatory or other impediments to delivering our streaming content to our members via these devices, our ability to grow our business may be adversely impacted.
Disruption or failure of our IT systems could impair our users’ online entertainment experience and adversely affect our reputation.
Our ability to provide users with a high-quality online entertainment experience on our e-commerce platform depends on the continuous and reliable operation of our IT systems. We cannot assure you that we will be able to procure sufficient bandwidth in a timely manner or on acceptable terms or at all. Failure to do so may significantly impair user experience on our platform and decrease the overall effectiveness of our platform to both users and advertisers.
10
If we experience frequent or persistent service disruptions, whether caused by failures of our own systems or those of third-party service providers, our users’ experience may be negatively affected, which in turn, may have a material and adverse effect on our reputation. We cannot assure you that we will be successful in minimizing the frequency or duration of service interruptions.
Undetected programming errors could adversely affect our user experience and market acceptance of our video content, which may materially and adversely affect our business, financial condition and results of operations.
Video content produced by us or displayed on our e-commerce platform may contain programming errors that may only become apparent after our release. We generally have been able to resolve such programming errors in a timely manner. However, we cannot assure you that we will be able to detect and resolve all of these programming errors effectively. Undetected audio or video programming errors or defects may adversely affect user experience which in turn may have a material and adverse effect on our business, financial condition and results of operation.
Our revenue and net income may be materially and adversely affected by any economic slowdown in China and indirectly by trade disputes between the United States and China that may contribute to uncertainties in economic outlook.
The success of our business depends on consumers spending from e-commerce, advertising fees, production costs and copyright payments from third parties which may be affected by consumer confidence and uncertainties in the outlook for economic growth within China. We derive substantially all of our revenue from China. As a result, our revenue and net income are impacted to a significant extent by economic conditions in China and globally, as well as economic conditions specific to online and mobile commerce and advertising of brands. The PRC government has in recent years implemented a number of measures to control the rate of economic growth, including by raising and lowering interest rates and adjusting deposit reserve ratios for commercial banks as well as by implementing other measures designed to tighten or loosen credit and liquidity. In the past, these measures have contributed to a slowdown of the PRC economy and although recently the PRC has taken steps to reduce interest rates and adjust deposit reserve ratios to increase the availability of credit in response to a weakening economy caused, in part, by the continuing trade dispute with the United States, no assurances can be given that the PRC’s efforts will result in more certainty in domestic economic outlook or an increase in consumer confidence. Any continuing or worsening slowdown could significantly reduce domestic commerce in China, including through the Internet generally and within our ecosystem. An economic downturn, whether actual or perceived, a further decrease in economic growth rates or an otherwise uncertain economic outlook in China or any other market in which we may operate could have a material adverse effect on our business, financial condition and results of operations.
We face risks related to natural disasters, health epidemics and other outbreaks, which could significantly disrupt our operations.
We are vulnerable to natural disasters and other calamities. Fire, floods, typhoons, earthquakes, power loss, telecommunications failures, break-ins, war, riots, terrorist attacks or similar events may give rise to server interruptions, breakdowns, system failures, technology platform failures or internet failures, which could cause the loss or corruption of data or malfunctions of software or hardware as well as adversely affect our ability to produce video content or provide products and services on our e-commerce platform.
Our business operations could be disrupted if any of our employees are suspected of having COVID-19, Ebola virus disease, H1N1 flu, H7N9 flu, avian flu, SARS or other epidemic, since we could require our employees to be quarantined and/or our offices to be disinfected. In addition, our business, financial condition or results of operations could be materially and adversely affected to the extent that any of these epidemics harms the Chinese economy in general.
11
Our semi-annual operating results may fluctuate, which makes our results of operations difficult to predict and may cause our quarterly results of operations to fall short of expectations.
Our semi-annual operating results have fluctuated in the past and may continue to fluctuate depending upon a number of factors, many of which are out of our control. Our operating results tend to be seasonal. As a result, comparing our operating results on a period-to-period basis may not be meaningful. For example, online user numbers tend to be lower during school holidays and certain parts of the school year, and advertising revenues tend to be lower during the Chinese New Year season, which may negatively affect our cash flow for those periods.
We require highly qualified personnel to generate high quality video content and if we are unable to hire or retain qualified personnel, we may not be able to grow effectively and our business, financial condition, and results of operation may be materially and adversely affected.
We currently rely on our in-house team of employees to generate creative ideas for original content and to supervise the original content origination and production process and intends to continue to invest our human and capital resources in such content production. We face fierce competition for qualified personnel in a limited pool of high-quality creative talent. If we are not able to compete effectively for highly qualified personnel or attract and retain top talent at reasonable costs, our original content production capabilities would be materially and adversely impacted. If we are unable to offer popular original content that addresses our user’s tastes and preferences in a cost effective manner, we may suffer a reduction in user traffic and our business, financial condition and results of operations may be materially and adversely affected.
Our future success also depends upon our ability to attract and retain highly qualified management personnel. Expansion of our business and our management will require additional managers and employees with industry experience, and our success will be highly dependent on our ability to attract and retain skilled management personnel and other employees. We may not be able to attract or retain highly qualified personnel. Competition for skilled management personnel is significant in China. This competition may make it more difficult and expensive to attract, hire and retain qualified managers and employees.
Our controlling shareholder will have substantial influence over us.
As of the date of this report, Happy Starlight Limited, which is controlled by Mr. Bing Zhang, our chairman, beneficially owns 37,906 of our Class A Ordinary Shares. In addition, Mr. Zhang also directly owns 1,520 of our Class A Ordinary Shares, and 500,000 of our Class B Ordinary Shares. therefore, Mr. Zhang may be deemed to beneficially own 39,426 Class A Ordinary Shares and 500,000 Class B Ordinary Shares. Holders of Class A ordinary shares are entitled to one (1) vote per share, while holders of Class B ordinary shares are entitled to one hundred (100) votes per share. Due to the disparate voting powers attached to these two classes of ordinary shares, Mr. Zhang holds approximately 91.5% of the voting power of our outstanding shares. As such, Mr. Zhang has substantial influence over our business, including decisions regarding mergers, consolidations, the sale of all or substantially all of our assets, election of directors, declaration of dividends and other significant corporate actions. In addition, this concentration of ownership may discourage, delay or prevent a change in control which could deprive you of an opportunity to receive a premium for your Class A Ordinary Shares as part of a sale of our company.
We do not foresee paying cash dividends in the foreseeable future and, as a result, our investors’ sole source of gain will depend on capital appreciation, if any.
We do not plan to declare or pay any cash dividends on our shares of Class A Ordinary Shares in the foreseeable future and currently intend to retain any future earnings for funding growth (holders of Class B ordinary shares shall not be entitled to any dividends). As a result, investors should not rely on an investment in our securities if they require the investment to produce dividend income. Capital appreciation, if any, of our shares may be our investors’ sole source of gain for the foreseeable future.
CHEER Group’s bank accounts are in China and are not insured or protected against loss.
CHEER Group maintains its cash primarily with major banks in China which is primarily owned by the Chinese government. CHEER Group’s cash accounts are not insured or otherwise protected. Should any bank or trust company holding our cash deposits become insolvent, or if we are otherwise unable to withdraw funds, we could lose the cash on deposit with that particular bank or trust company or have our account frozen.
12
Our failure to protect our intellectual property rights could have a negative impact on our business.
We believe our brand, trade names, trademarks and other intellectual property are critical to our success. The success of our business depends substantially upon our continued ability to use our brand, trade names and trademarks to increase brand awareness and to further develop our brand. The unauthorized reproduction of our trade names or trademarks could diminish the value of our brand and our market acceptance, competitive advantages or goodwill. In addition, our proprietary information, which has not been patented or otherwise registered as our property, is a component of our competitive advantage and our growth strategy.
Monitoring and preventing the unauthorized use of our intellectual property is difficult. The measures we take to protect our brand, trade names, trademarks and other intellectual property rights may not be adequate to prevent their unauthorized use by third parties. In addition, the application of laws governing intellectual property rights in China and abroad is uncertain and evolving, and could involve substantial risks to us. To our knowledge, the relevant authorities in China historically have not protected intellectual property rights to the same extent as the United States. If we are unable to adequately protect our brand, trade names, trademarks and other intellectual property rights, we may lose these rights and our business may suffer materially. Further, unauthorized use of our brands, trade names or trademarks could cause brand confusion among advertisers and harm our reputation as a provider of high quality and comprehensive advertising services. If our brand recognition decreases, we may lose advertisers and fail in our expansion strategies, and our business, results of operations, financial condition and prospects could be materially and adversely affected.
We may be named as a defendant in litigation, or may be joined as a defendant in litigation brought against our customers by third parties, our customers’ competitors, governmental or regulatory authorities or consumers, which could result in judgments against us and materially disrupt our business. These actions could involve claims alleging, among other things, that:
| ● | advertising claims made with respect to our customers’ products or services are false, deceptive or misleading; |
| ● | our customers’ products are defective or injurious and may be harmful to others; or |
| ● | marketing, communicating or advertising materials created for our customers infringe on the proprietary rights of third parties. |
The damages, costs, expenses and attorneys’ fees arising from any of these claims could have a material and adverse effect on our business, financial condition, results of operations, and prospects to the extent that we are not adequately indemnified by our customers. In any case, our reputation may be negatively affected by these allegations.
We rely on computer software and hardware systems in our operations, the failure of which could adversely affect our business, financial condition, and results of operations.
We are dependent upon our computer software and hardware systems in designing our advertisements and keeping important operational and market information. In addition, we rely on our computer hardware for the storage, delivery and transmission of data. Any system failure that causes interruptions to the input, retrieval and transmission of data or increase in service time could disrupt our normal operations. Although we have a disaster recovery plan that is designed to address the failures of our computer software and hardware systems, we may not be able to effectively carry out this disaster recovery plan or restore our operations within a sufficiently short time frame to avoid business disruptions. Any failure in our computer software or hardware systems could decrease our revenues and harm our relationships with advertisers, television channels and other media companies, which in turn could have a material adverse effect on our business, results of operations and financial condition.
13
We do not maintain business liability or disruption, litigation or property insurance and any business liability or disruption, litigation or property damage we experience may result in substantial costs to us and the diversion of our resources.
The insurance industry in China is still at an early stage of development. Insurance companies in China offer limited business disruption, business liability or similar business insurance products. We have determined that the risks of disruption or liability from our business, the potential loss or damage to our property, including our facilities, equipment and office furniture, the cost of obtaining insurance coverage for these risks and the difficulties associated with obtaining such insurance on commercially reasonable terms, make it impractical for us to have obtained such insurance on terms and conditions that are commercially reasonable. As a result, we did not purchase any business liability, disruption, litigation or property insurance coverage for our operations in China. Any occurrence of an uninsured loss or damage to our property or litigation or business disruption may result in substantial costs to us and the diversion of our resources, which could have an adverse effect on our operating results.
The creation of our metaverse platform is dependent on our ability to develop an acceptable blockchain.
Our ability to create our metaverse platform is dependent on our ability to develop an accepted and secured blockchain. Failure to develop a secured and reliable blockchain, will adversely affect our ability to create our metaverse platform.
We rely on third-party service providers for certain aspects of our operations, and any interruptions in services provided by these third parties may impair our ability to support our users and develop platforms.
Our success depends in part on our relationships with other third-party service providers. If those providers do not perform adequately, our users may experience issues or interruptions with their experiences. If we are unable to obtain necessary technology from third parties, we may be forced to acquire or develop alternate technology, which may require significant time and effort and may be of lower quality or performance standards and increase our operational costs.
In addition, we cannot be certain that our licensors are not infringing the intellectual property rights of others or that the suppliers and licensors have sufficient rights to the artwork and related technology in all jurisdictions in which we may operate. If we are unable to obtain or maintain such rights because of intellectual property infringement claims brought by third parties against our suppliers and licensors or against us, or if we are unable to continue to utilize third-party technology, third-party artwork, enter into new agreements on commercially reasonable terms, or develop our own technology required, our ability to continue developing our platforms could be severely limited and our business could be harmed.
Our metaverse universe is currently under development and no assurance can be given that our metaverse platform will be accepted by others or generate sufficient interest.
Our proposed Metaverse platform is currently under development. It is our intent that our Metaverse platform will feature a virtual world containing immersive experiences in intelligent retail, video on demand, social networking, and gaming, boasting a wide range of “online + offline” and “virtual + reality” scenarios. By leveraging our CHEERS video and e-Mall platforms, we aim to continue researching and developing different entertainment and shopping applications for our planned metaverse platform, and to provide a suite of tools for our users to facilitate the development of new content by creators.
Our business will suffer to some extent if we are unable to continue to develop or implement our metaverse platform, and develop our Metaverse Experience Centers.
Our business depends in part on developing and implementing our metaverse platform and Metaverse Experience Centers. We have devoted and we expect to continue to devote substantial resources to development, analytics and marketing of our metaverse platform, however we cannot guarantee that our metaverse platform will be successful. The success of our metaverse platform depends, in part, on unpredictable and volatile factors beyond our control including consumer preferences, new metaverse platforms, the availability of other entertainment experiences and potential changes in regulations regarding the metaverse, which could impact our ability to grow revenue and our financial performance will be negatively affected.
These and other uncertainties make it difficult to know whether we will succeed in continuing to develop our metaverse platform and Metaverse Experience Centers in accordance with our business plans. If we do not succeed in doing so, our business model for this particular segment could be impacted.
We have a relatively new history in developing and launching a metaverse platform. As a result, we may have difficulty predicting the development schedule of our metaverse platform and Metaverse Experience Centers. If development or launches are delayed and we are unable to continue our investment into our metaverse platform and Metaverse Experience Centers, our ability to grow revenue and our financial performance will be negatively impacted.
14
Implementation of AI and machine learning technologies may result in legal and regulatory risks, reputational harm or have other adverse consequences to our business.
The AI regulatory landscape is still uncertain and evolving, and the development and use of AI technologies, including generative AI, in new or existing content creation tools and other offerings may result in new or enhanced governmental or regulatory scrutiny, litigation, ethical concerns or other complications that could be costly and time-consuming and could adversely affect our business, reputation or financial results. For example, some jurisdictions are currently considering AI specific laws and regulations. Such laws and regulations, if enacted, could increase our compliance costs or require us to limit or modify our use of AI or our AI-enabled offerings in certain jurisdictions. In addition, the intellectual property ownership and license rights, including copyrights, surrounding AI technologies, including generative AI, have not been fully addressed, and many countries and regions have proposed new regulations related to the use of AI and machine learning. The rapid evolution and governmental regulation of AI may require significant resources to develop and implement ethically, in a manner that complies with law, in order to minimize unintended, harmful impacts. We cannot yet determine the impact future laws may have on our business and the cost to comply with AI laws could be significant.
The technology underlying blockchain technology is subject to a number of industry-wide challenges and risks relating to consumer acceptance of blockchain technology. The slowing or stopping of the development or acceptance of blockchain networks and blockchain assets would have a material adverse effect on the successful development of our metaverse platform and other products.
The growth of the blockchain industry is subject to a high degree of uncertainty regarding consumer adoption and long-term development. The factors affecting the further development of the blockchain industry include, without limitation:
| ● | Worldwide growth in the adoption and use of blockchain technologies; |
| ● | government and quasi-government regulation, or restrictions on or regulation of access to and operation of blockchain networks or similar systems; |
| ● | the maintenance and development of the open-source software protocol of blockchain networks; |
| ● | changes in consumer demographics and public tastes and preferences; |
| ● | general economic conditions in the United States and the world; and |
| ● | the regulatory environment relating to blockchains. |
The blockchain industry as a whole has been characterized by rapid changes and innovations and is constantly evolving. Although it has experienced significant growth in recent years, the slowing or stopping of the development, general acceptance and adoption and usage of blockchain networks and blockchain assets may affect the development of our metaverse platform and other products.
15
Expansion of our operations into new products, services and technologies, including content categories, is inherently risky and may subject us to additional business, legal, financial and competitive risks.
Historically, we have been a digital media platform and content-driven e-commerce company. Further expansion of our operations and development of our CHEERS platforms to be incorporated into our metaverse platform involves numerous risks and challenges, including potential new competition, increased capital requirements and increased marketing spent to achieve customer awareness of these new products and services. Growth into additional content, product and service areas may require changes to our existing business model and cost structure and modifications to our infrastructure and may expose us to new regulatory and legal risks, any of which may require expertise in areas in which we have little or no experience. There is no guarantee that we will be able to generate sufficient revenue from sales of such products and services to offset the costs of developing, acquiring, managing and monetizing such products and services and our business may be adversely affected.
If we cannot continue to innovate technologically or develop, market and sell new products and services, or enhance existing technology and products and services to meet customer requirements, our ability to grow our revenue could be impaired.
Our growth largely depends on our ability to innovate and add value to our existing creative platform and to provide our customers and contributors with a scalable, high-performing technology infrastructure that can efficiently and reliably handle increased customer and contributor usage globally, as well as the deployment of new features. Without improvements to our technology and infrastructure, our operations might suffer from unanticipated system disruptions, slow performance or unreliable service levels, any of which could negatively affect our reputation and ability to attract and retain customers and contributors. We are currently making, and plan to continue making, significant investments to maintain and enhance the technology and infrastructure and to evolve our information processes and computer systems in order to run our business more efficiently and remain competitive. We may not achieve the anticipated benefits, significant growth or increased market share from these investments for several years, if at all. If we are unable to manage our investments successfully or in a cost-efficient manner, our business and results of operations may be adversely affected.
16
Risks Related to our Corporate Structure
If the PRC government determines that our VIE Contracts do not comply with applicable regulations, or if these regulations or their interpretations change in the future, we could be subject to severe consequences, including the nullification of the VIE Contracts and the relinquishment of our interest in Horgos and Xing Cui Can.
We are a holding company incorporated in the Cayman Islands. As a holding company with no material operations of our own, we conduct all of our operations through our subsidiaries and VIEs established in PRC. We control and receive the economic benefits of our VIE’s business operations through the VIE Contracts. Our Class A Ordinary Shares are shares of our offshore holding company instead of shares of our VIEs in China. For a description of the VIE contractual arrangements, see “Item 4. Information on the Company—C. Organizational Structure.”
The VIE accounts for majority of the Company’s consolidated results of operations and cash flows for the years ended December 31, 2025, 2024 and 2023, respectively. As of December 31, 2025 and 2024, the VIE accounted for majority of the consolidated total assets and total liabilities of the Company.
Current PRC laws and regulations impose certain restrictions or prohibitions on foreign ownership of companies that engage in value-added telecommunications services and other related businesses. Under the Special Administrative Measures for Access of Foreign Investment (2024) (“Negative List (2024)”), our value-added telecommunications services and certain other businesses are considered restricted or prohibited in relation to foreign investment. To comply with PRC laws and regulations, we conduct our value-added telecommunication services and certain other businesses in China through Horgos and Xing Cui Can, based on VIE Contracts by and among (i) WFOE, (ii) Xing Cui Can and its shareholders, and (iii) Horgos and its shareholders. As a result of these VIE Contracts, we exert control over Horgos and Xing Cui Can and consolidate or combine the results of operations into our financial statements. Horgos and Xing Cui Can hold the licenses, approvals and key assets that are essential for the operations of our services.
As advised by our PRC legal counsel, each of VIE Contracts governed by PRC laws is valid and legally binding under current PRC laws. However, our PRC legal counsel has also advised us that there are substantial uncertainties regarding the interpretation and application of current or future PRC laws and regulations and the PRC regulatory authorities have broad discretion in determining whether a particular contractual structure violates PRC laws and regulations. Accordingly, the PRC regulatory authorities may ultimately take a view that is contrary to the conclusion of our PRC legal counsel. In addition, it is uncertain whether any new PRC laws or regulations relating to variable interest entity structures will be adopted or if adopted, what they would provide. If we are found in violation of any PRC laws or regulations or if the VIE Contracts are determined as illegal or invalid by any PRC court, arbitral tribunal or regulatory authorities, the relevant governmental authorities would have broad discretion in dealing with such violation, including, without limitation:
| ● | revoke the agreements constituting the VIE Contracts; |
| ● | revoke our business and operating licenses related to Horgos and Xing Cui Can’s value-added telecommunications services business and certain other businesses; |
| ● | require us to discontinue or restrict operations related to value-added telecommunications services business and certain other businesses; |
17
| ● | restrict our right to collect revenue generated from value-added telecommunications services business and certain other businesses; |
| ● | restrict or prohibit our use of the proceeds from overseas offering to finance Horgos and Xing Cui Can’s business and operations; |
| ● | levy fines on us and/or confiscate the proceeds that they deem to have been obtained through noncompliant operations; |
| ● | require us to restructure the operations in such a way as to compel us to establish a new enterprise, re-apply for the necessary licenses or relocate our businesses, staff and assets related to value-added telecommunications services business and certain other businesses; |
| ● | impose additional conditions or requirements with which we may not be able to comply; or |
| ● | take other regulatory or enforcement actions that could be harmful to our business. |
Furthermore, any of the assets under the name of any record holder of equity interest in Horgos and Xing Cui Can, including such equity interest, may be put under court custody in connection with litigation, arbitration or other judicial or dispute resolution proceedings against that record holder. We cannot be certain that the equity interest will be disposed of in accordance with the VIE Contracts. In addition, new PRC laws, rules and regulations may be introduced to impose additional requirements that may bring additional challenges to our corporate structure and VIE Contracts. The occurrence of any of these events or the imposition of any of these penalties may result in a material and adverse effect on our ability to conduct the business. In addition, if the imposition of any of these penalties causes us to lose the rights to direct the activities of our consolidated affiliated entity and its subsidiary or the right to receive their economic benefits, we would no longer be able to consolidate Horgos and Xing Cui Can, thus adversely affect our results of operations.
Our VIE Contracts may not be as effective in providing operational control as direct ownership and Horgos and Xing Cui Can or their shareholders may fail to perform their obligations under our VIE Contracts.
We conduct our value-added telecommunications services business and certain other businesses in China based on the VIE Contracts by and among (i) WFOE, (ii) Xing Cui Can and its shareholders, and (iii) Horgos and its shareholders. Our revenue and cash flow from the value-added telecommunications services and certain other businesses are attributed to Horgos and Xing Cui Can. The VIE Contracts may not be as effective as direct ownership in providing us with control over Horgos and Xing Cui Can. Direct ownership would allow us, for example, to directly or indirectly exercise our rights as a shareholder to effect changes in the boards of directors of Horgos and Xing Cui Can, which, in turn, could affect changes, subject to any applicable fiduciary obligations at the management level. However, under the VIE Contracts, as a legal matter, if Horgos and Xing Cui Can or the shareholders fail to perform their respective obligations under the VIE Contracts, we may have to incur substantial costs and expend significant resources to enforce those contractual arrangements and resort to litigation or arbitration and rely on legal remedies under PRC laws. These remedies may include seeking specific performance or injunctive relief and claiming damages, any of which may not be effective. For example, if the shareholders were to refuse to transfer their equity interest in Horgos and Xing Cui Can to WFOE or WFOE’s designee when WFOE exercises the call option pursuant to the VIE Contracts, or if they were otherwise to act in bad faith toward us, we might have to take legal action to compel them to perform their respective contractual obligations. In the event we are unable to enforce these VIE Contracts or we experience significant delays or other obstacles in the process of enforcing these VIE Contracts, we may not be able to effectively direct the activities of the VIEs and may lose control over the assets owned by Horgos and Xing Cui Can. As a result, we may be unable to consolidate Horgos and Xing Cui Can in our consolidated financial statements, which could materially and adversely affect our financial condition and results of operations.
18
Our VIE Contracts may be subject to scrutiny by the PRC tax authorities and additional taxes may be imposed. A finding that we owe additional taxes could substantially reduce our consolidated net income and the value of your investment.
According to applicable PRC laws and regulations, arrangements and transactions among related parties may be subject to challenge by the PRC tax authorities, additional taxes and interest may be imposed. We would be subject to adverse tax consequences if the PRC tax authorities were to determine that transactions under the VIE Contracts were not conducted on an arm’s-length basis as the PRC tax authorities have the authority to make special tax adjustments on our tax position. Such adjustments may adversely affect us by increasing our tax expenses without reducing the tax expenses of WFOE, subjecting us to late payment fees and other penalties for under-payment of taxes. Our consolidated results of operations may be adversely affected if our tax liabilities increase or if it is subject to late payment fees or other penalties.
The shareholders may potentially have a conflict of interest with us, and they may breach their contracts with us or cause such contracts to be amended in a manner contrary to our interests.
We conduct value-added telecommunications services business and certain other businesses through Horgos and Xing Cui Can. Our control over these entities is based upon the VIE Contracts with them and their shareholders that allow us to control them. The shareholders may potentially have a conflict of interest with us, and they may breach their contracts with us if they believe it would further their own interest or if they otherwise act in bad faith. We cannot assure you that when conflicts of interest arise between us and Horgos and Xing Cui Can, the shareholders will act completely in our interests or that the conflicts of interest will be resolved in our favor.
In addition, the shareholders may breach or cause Horgos and Xing Cui Can to breach the VIE Contracts. Currently, we do not have any arrangements to address potential conflicts of interest between these shareholders and our company, except that we may invoke the right under the equity pledge agreements with the shareholders of Horgos and Xing Cui Can to enforce the equity pledge in the case of the shareholders’ breach of the VIE Contracts. For individuals who are also our directors and officers, we rely on them to abide by the laws of the Cayman Islands, which provide that directors and officers owe a fiduciary duty to the company that requires them to act in good faith and in what they believe to be the best interests of the company and not to use their position for personal gains.
The shareholders may also be involved in personal disputes with third parties or other incidents that may have an adverse effect on their respective equity interests in Horgos and Xing Cui Can and the validity or enforceability of our VIE Contracts with Horgos, Xing Cui Can and the shareholders. For example, if any of the equity interests of Horgos or Xing Cui Can is inherited by a third party with whom the current VIE Contracts are not binding, we could lose our control over Horgos and Xing Cui Can or have to maintain such control by incurring unpredictable costs, which could cause significant disruption to our business and operations and harm our financial condition and results of operations.
We conduct our value-added telecommunications services and certain other businesses in the PRC through Horgos and Xing Cui Can by way of the VIE Contracts, but certain of the terms of the VIE Contracts may not be enforceable under PRC laws.
All the agreements which constitute the VIE Contracts are governed by PRC laws and provide for the resolution of disputes through arbitration in the PRC. Accordingly, these agreements would be interpreted in accordance with PRC laws and disputes would be resolved in accordance with PRC legal procedures. Uncertainties in the PRC legal system could limit our ability to enforce the VIE Contracts. Meanwhile, there are very few precedents and little formal guidance as to how VIE Contracts in the context of a consolidated affiliate entity should be interpreted or enforced under PRC laws. There remain significant uncertainties regarding the ultimate outcome of such arbitration if legal action becomes necessary. In addition, under PRC laws, rulings by arbitrators are final, parties cannot appeal the arbitration results in courts, and if the losing parties fail to carry out the arbitration awards within a prescribed time limit, the prevailing parties may only enforce the arbitration awards in PRC courts through arbitration award recognition proceedings, which would require additional expenses and delay. In the event that we are unable to enforce the VIE Contracts, or if we suffer significant time delays or other obstacles in the process of enforcing them, it would be very difficult to effectively direct the activities of Horgos and Xing Cui Can, and our ability to conduct our business and our financial condition and results of operations may be materially and adversely affected.
19
If we exercise the option to acquire equity ownership of Horgos and Xing Cui Can, the ownership transfer may subject us to certain limitations and substantial costs.
Pursuant to the Regulations for the Administration of Foreign-Invested Telecommunications Enterprises (the “FITE Regulations”) promulgated by the State Council and last amended in March 2022, foreign investors are not allowed to hold more than 50% of the equity interests of any company providing value-added telecommunications services, including ICP services, unless otherwise stipulated by the State. If the PRC laws allow foreign investors to invest in value-added telecommunications enterprises like us in China, we may unwind the VIE Contracts and exercise the option to acquire equity ownership of Horgos and Xing Cui Can.
Pursuant to the VIE Contracts, WFOE, or its designated person, has the exclusive right to purchase all or any part of the equity interests in Horgos and Xing Cui Can from the shareholders at the price equivalent to the lowest price then permitted under PRC law at the time of exercise. If such a transfer takes place, the competent tax authority may require WFOE to pay enterprise income tax for ownership transfer income with reference to the market value, in which case the amount of tax could be substantial.
Our current corporate structure and business operations may be substantially affected by the newly enacted Foreign Investment Law.
On March 15, 2019, the National People’s Congress (“NPC”) promulgated the PRC Foreign Investment Law, which took effect on January 1, 2020. The PRC Foreign Investment Law does not explicitly classify whether consolidated affiliated entities that are controlled through VIE Contracts would be deemed as foreign invested enterprises if they are ultimately “controlled” by foreign investors. However, it has a catch-all provision under definition of “foreign investment” that includes investments made by foreign investors in China through other means as provided by laws, administrative regulations or other methods prescribed by the State Council. Therefore, it still leaves leeway for future laws, administrative regulations or provisions of the State Council to provide for VIE Contracts as a form of foreign investment, at which time it will be uncertain whether our VIE Contracts will be deemed to be in violation of the market access requirements for foreign investment in the PRC and if yes, how our VIE Contracts should be dealt with.
The PRC Foreign Investment Law grants national treatment to foreign-invested entities, except for those foreign-invested entities that operate in industries specified as either “restricted” or “prohibited” from foreign investment in the special management measures (negative list) for the access of foreign investment (the “Negative List”). The PRC Foreign Investment Law provides that (i) foreign-invested entities operating in “restricted” industries are required to obtain market entry clearance and other approvals from relevant PRC government authorities;(ii) foreign investors shall not invest in any industries that are “prohibited” under the Negative List. If our control over Horgos and Xing Cui Can through VIE Contracts are deemed as foreign investment in the future, and any business of Horgos and Xing Cui Can is “restricted” or “prohibited” from foreign investment under the Negative List effective at the time, we may be deemed to be in violation of the PRC Foreign Investment Law, the VIE Contracts that allow us to have control over Horgos and Xing Cui Can may be deemed as invalid and illegal, and we may be required to unwind such VIE Contracts and/or restructure our business operations, any of which may have a material adverse effect on our business operation.
Furthermore, if future laws, administrative regulations or provisions mandate further actions to be taken by companies with respect to existing VIE Contracts, we may face substantial uncertainties as to whether we can complete such actions in a timely manner, or at all. Failure to take timely and appropriate measures to cope with any of these or similar regulatory compliance challenges could materially and adversely affect our current corporate structure and business operations.
We rely on the business license and other licenses held by us for our advertising operation, e-commerce and certain other business and any deterioration of the relationship between Horgos and Xing Cui Can could materially and adversely affect our business operations.
We operate our advertising operation, e-commerce and certain other business in the PRC on the basis of the business license and other requisite licenses held by us. There is no assurance that we will be able to renew our licenses or certificates when their terms expire with substantially similar terms as the ones it currently holds.
Further, our relationship with Horgos and Xing Cui Can is governed by the VIE Contracts, which is intended to provide us with the ability to direct the business operations of Horgos and Xing Cui Can. However, the VIE Contracts may not be effective in providing control over the application for and maintenance of the licenses required for our business operations. If we violate the VIE Contracts, go bankrupt, suffer from difficulties in our business or otherwise become unable to perform our obligations under the VIE Contracts and, as a result, our operations, reputations and business could be severely harmed.
20
Risks Relating to Doing Business in China
The recent state government interference into business activities on U.S. listed Chinese companies may negatively impact our existing and future operations in China.
In 2021, the Chinese government announced that it would step up supervision of Chinese companies listed offshore. Under the new measures, China will improve regulation of cross-border data flows and security, crack down on illegal activity in the securities market and punish fraudulent securities issuance, market manipulation and insider trading, China will also check sources of funding for securities investment and control leverage ratios. The Cyberspace Administration of China (“CAC”) has also opened a cybersecurity probe into several U.S.-listed tech giants focusing on anti-monopoly, financial technology regulation and more recently, with the passage of the Data Security Law, how companies collect, store, process and transfer data.
We are headquartered and have operations in China. We currently use variable interest entities to execute our business plan and to conduct our China-based operations. Further our major shareholders are located in China. Therefore there is always a risk that the Chinese government may in the future seek to intervene or influence operations of any company with any level of operations in China, including its ability to offer securities to investors, list its securities on a U.S. or other foreign exchange, conduct its business or accept foreign investment. In light of the foregoing China’s announcements, there are risks and uncertainties which we cannot foresee for the time being, and rules and regulations in China can change quickly with little or no advance notice. The Chinese government may intervene or influence the Company’s current and future operations in China at any time, or may exert more control over offerings conducted overseas and/or foreign investment in issuers likes ourselves.
If any or all of the foregoing were to occur, this could lead to a material change in the Company’s operations and/or the value of its common stock and/or significantly limit or completely hinder its ability to offer or continue to offer securities to investors and cause the value of such securities to significantly decline or be worthless.
We face risks related to health epidemics and other outbreaks, which could significantly disrupt our operations.
The spread of a novel strain of coronavirus (COVID-19) around the world in the first quarter of 2020, which was declared a pandemic by the World Health Organization in March 2020, has caused significant volatility in China and international markets. In early 2020, in response to intensifying efforts to contain the spread of COVID-19, the Chinese government took a number of actions, which included, among others, extending the Chinese New Year holiday, quarantining and otherwise treating individuals in China who had contracted COVID-19, asking residents to remain at home and to avoid gathering in public. Currently, there is no generally recognized anti-viral treatment for COVID-19. While such restrictive measures have been gradually lifted, relaxation of restrictions on economic and social life may lead to new cases which may lead to the re-imposition of restrictions. Re-imposition of restrictive measures could adversely affect our operations.
The extent to which the COVID-19 pandemic may further impact our business and financial performance will depend on future developments, which are highly uncertain and largely beyond our control. Even if the economic impact of COVID-19 gradually recedes, the pandemic will have a lingering, long-term effect on business activities and consumption behavior. There is no assurance that we will be able to adjust our business operations to adapt to these changes and the increasingly complex environment in which we operate.
Similarly, natural disasters, wars (including the potential of war), terrorist activity (including threats of terrorist activity), social unrest and heightened travel security measures instituted in response, and travel-related accidents, as well as geopolitical uncertainty and international conflict, will affect overall economic environment and may in turn have a material adverse effect on our business and results of operations. In addition, we may not be adequately prepared in contingency planning or recovery capability in relation to a major incident or crisis, and as a result, our operational continuity may be adversely and materially affected, which in turn may harm our reputation.
21
We are subject to PRC laws or regulations that govern our industry.
We are subject to administrative regulatory authorities and applicable laws in the PRC to operate our business. In order to operate our business we are required to obtain licenses and permits from various governmental agencies. We will not be able to operate some of our businesses if we lose our licenses and permits, which will adversely affect our business.
We are subject to risks relating to the nature of China’s advertising industry, including frequent and sudden changes in advertising proposals.
The nature of the advertising business in China is such that sudden changes in advertising proposals and actual advertisements are frequent. In China, television stations and other media, as the advertising publisher, remain responsible for the content of advertisements, and as a result, television stations or other media may reject or recommend changes to the content of advertisements. We strive to minimize problems related to work for clients by encouraging the conclusion of basic written agreements, but we are exposed to the risk of unforeseen incidents or disputes with advertising clients. In addition, similar to other companies in our industry in the PRC where relationships between advertising clients within a particular industry and advertising companies are not typically exclusive, we are currently acting for multiple clients within a single industry in a number of industries. If this practice in China is to change in favor of exclusive relationships and if our efforts to respond to this change are ineffective, our business, results of operations and financial condition could be materially and adversely affected.
China regulates media content extensively and it may be subject to government actions based on the advertising content it designs for advertising clients or services it provides to them.
PRC advertising laws and regulations require advertisers, advertising operators and advertising publishers, including our businesses, to ensure that the advertisements shall not contain any false or misleading content and their advertising activities shall be in full compliance with applicable laws, rules and regulations. Violation of these laws, rules or regulations may result in penalties, including fines, confiscation of advertising fees, orders to cease dissemination of the advertisements and orders to publish an advertisement correcting the misleading information. In circumstances involving serious violations, the PRC government may revoke our business license. In addition, such non-compliance can constitute a violation of criminal law and criminal proceedings could be brought against us as a result.
Our business includes assisting advertising clients in designing and producing advertisements, as well as executing their advertising campaigns. We act as agent for our clients in dealing with television channels, or other media on whose platform our clients want to display their advertisements. Under our agreements with television channels or other media, we are typically responsible for the compliance with applicable laws, rules and regulations with respect to advertising content that it provides to the media. In addition, some of our advertising clients provide completed advertisements for us to display on the television channels. Although these advertisements are subject to internal review and verification, their content may not fully comply with applicable laws, rules and regulations. Further, for advertising content related to special types of products and services, such as pharmaceuticals and medical procedures, pesticides and health products, we are required to confirm that our clients have obtained requisite government approvals and/or these advertisements must not contain specific content. We endeavor to comply with such requirements, including by requesting relevant documents from the advertising clients and employing qualified advertising inspectors who are trained to review advertising content for compliance with applicable PRC laws, rules and regulations. However, we cannot assure you that violations or alleged violations of the content requirements will not occur with respect to our operations. If the relevant PRC governmental agencies determine the content of the advertisements that we represent violated any applicable laws, rules or regulations, we could be subject to penalties, which may harm our reputation and may divert significant amounts of our management’s time and other resources. It may be difficult and expensive to defend against such proceedings. Although our agreements with our clients normally require them to warrant the fairness, accuracy and compliance with relevant laws and regulations of their advertising content and agree to indemnify us for violations of these warranties, these contractual remedies may not cover all of our losses resulting from governmental penalties. Violations or alleged violations of the content requirements could also harm our reputation and impair our ability to conduct and expand our business.
22
Uncertainties in the interpretation and enforcement of PRC laws and regulations could limit the legal protections available to us.
The PRC legal system is a civil law system based on written statutes. Prior court decisions are encouraged to be used for reference but it remains unclear to what extent the prior court decisions may impact the current court ruling as the encouragement policy is relatively new and there is limited judicial practice in this regard. In the late 1970s, the PRC government began to develop a comprehensive system of laws and regulations governing economic matters in general. The overall effect of legislation over the past several decades has significantly increased the protections afforded to various forms of foreign or private-sector investment in the PRC. WFOE, our PRC operating subsidiary, is a wholly foreign-owned enterprise and is subject to laws and regulations applicable to foreign investment in the PRC as well as laws and regulations applicable to foreign-invested enterprises. WFOE is a privately owned company and is subject to various PRC laws and regulations that are generally applicable to companies in the PRC. These laws and regulations are still evolving, and their interpretation and enforcement involve uncertainties. For example, we may have to resort to administrative and court proceedings to enforce the legal protections that we enjoy either by law or contract. However, since PRC administrative and court authorities have significant discretion in interpreting and implementing statutory and contractual terms, it may be more difficult to evaluate the outcome of administrative and court proceedings. These uncertainties may also impede our ability to enforce the contracts that we have entered into. As a result, these uncertainties could materially and adversely affect our business and operations.
Substantial uncertainties in relation to the regulatory administration and governmental policies of the metaverse could have a significant impact upon the cost, performance and prospect of the operation of the metaverse related businesses in which we will engage in the future.
The metaverse industry is an important part of our future business plan. We plan to leverage our CHEERS ecosystem, blockchain technologies, artificial intelligence and strategic collaborations with various partners to develop a metaverse platform that features a virtual world containing immersive experiences.
While the metaverse have been rapidly developing businesses in China with more and more market participants, few laws or regulations has been promulgated in this regard. In the past, Chinese government promulgated a series of regulations and policies to prohibit or restrict the offering and trading of virtual currency, and some local regulatory authorities issued guiding opinions on promoting the construction of the city’s metacosmic standard system. However, no specific law or regulation has been published in the PRC to regulate the metaverse related businesses. As such, we cannot be certain whether and when new laws, regulations or policies could be enacted by the governmental authorities to regulate the businesses, and whether our operation of those businesses could satisfy the regulatory requirements from the governmental authorities. Moreover, new laws or regulations with respects to the metaverse could subject us to substantial costs to comply those rules, or penalties, suspension or even termination of those businesses in the event of we fail to comply with those rules, which could substantially affect our cost, performance and prospect of those businesses.
In addition, as there is no clear regulatory laws or regulations in relation to the d metaverse in China, the legal protection of metaverse assets may not be as effective as those of other properties. In the event that the metaverse assets owned by our customers or us are subject to infringement, theft or other adverse effects without proper legal remedies, our business operation of those businesses and/or our reputation could be adversely affected.
23
Delays in issuing invoices due to China taxing authorities may materially and adversely affect our cash flow.
Companies operating in China may be required to obtain VAT invoices in advance from the Chinese tax authorities in order to collect the dues from our customers according to their contractual arrangement. To accomplish this, companies submit invoices to the Chinese tax authorities and await for the VAT invoices to be issued. Upon receipt, it sends the VAT invoices to the customers for payment. From time to time, the Chinese tax authority may delay issuing the VAT invoices because the amount of the company’s invoices exceeded the quotas previously granted for the VAT invoices for that period of time. Such quotas are set by the Chinese tax authorities based on the amount of invoices issued by the company over a period of time pursuant to the company’s past business operation, which quotas are adjusted periodically. As such, for fast growing companies like ours, our invoices may periodically exceed the current quota granted which results in a delay in obtaining VAT invoices impacting our ability to timely invoice and collect our accounts receivable from our clients. To address this challenge, we have taken an active role in reaching out to the Chinese tax authorities to explain the company’s fast growth which is outpacing the quota needed to timely obtain VAT invoices. In addition, we are working closely with our clients to receive payments before VAT invoices are issued. However, if we are unable to timely increase our quota resulting in delays in issuing VAT invoices or our clients are unable or unwilling to make payments before receipt of VAT invoices, it may suffer delays in collecting our accounts receivable and hence affect our cash flow.
Competition in our industry is growing and could cause us to lose market share and revenues in the future.
We may face growing competition in our industry and we believe that the market is becoming more competitive as this industry matures and begins to consolidate. Some of our competitors have larger and more established user bases and substantially greater financial, marketing and other resources than us. In addition, our competitors or other third parties may incorporate AI in a similar or different manner, and may do so more quickly or more successfully than us, which could impair our ability to compete effectively and impact our ability to keep up with the changing AI landscape. As a result, we could lose market share and our revenues could decline, thereby affecting our earnings and potential for growth.
The adoption and use of AI technology, and the continued rapid pace of developments in AI, are inherently uncertain. If we are unable to keep up with evolving AI infrastructure requirements, it could have a material adverse effect on our business, financial condition, and results of operations.
Our efforts in developing new AI infrastructure technology solutions are inherently risky and may not always succeed. We may incur significant costs and expect significant delays in developing new products or new generations of existing products to adapt to the changing AI landscape, and may not achieve a return on investment or capitalize on the opportunities presented by demand for AI solutions. Moreover, while AI-adoption is likely to continue and may accelerate, the long-term trajectory of this technological trend is uncertain.
AI has also been developing at a rapid pace, and continues to evolve and change. If we are unable to keep up in developing products to meet our customers’ evolving AI needs, or if the AI landscape does not develop to the extent we or our customers expect, our business, and financial results may be adversely impacted. If we are unable to provide enhancements and new features and integrations for our existing platform, develop new products that achieve market acceptance, or innovate quickly enough to keep pace with these rapid technological developments may adversely impact our business and operations.
24
Our business depends on the continuing efforts of our management. If it loses their services, our business may be severely disrupted.
Our business operations depend on the continuing efforts of our management, particularly the executive officers named in this document. If one or more of our management were unable or unwilling to continue their employment with us, we might not be able to replace them in a timely manner, or at all. We may incur additional expenses to recruit and retain qualified replacements. Our business may be severely disrupted and our financial condition and results of operations may be materially and adversely affected. In addition, our management may join a competitor or form a competing company. We may not be able to successfully enforce any contractual rights we have with our management team, in particular in China, where all of these individuals reside and where our business is operated through our subsidiary and the VIE Contracts. As a result, our business may be negatively affected due to the loss of one or more members of our management.
Our business may be materially adversely impacted by the global financial crisis and economic downturn.
We operate our business in the PRC. Any future global financial crisis and economic downturn may materially adversely impact our business, financial condition, results of operations and prospects in a number of ways, including:
| ● | we may face severe challenges, loss of customers and other operation risks during the global financial crisis and economic downturn; and |
| ● | financing and other sources of liquidity may not be available on reasonable terms or at all. |
These risks may be exacerbated in the event of a prolonged economic downturn or financial crisis.
A severe and prolonged global economic recession and the slowdown in the Chinese economy may adversely affect our business, results of operations and financial condition.
The growth of the Chinese economy has slowed down since 2012 compared to the previous decade and recovered in 2021. According to the National Bureau of Statistics of China, China’s gross domestic product (GDP) growth was 3.0% in 2022. There is considerable uncertainty over the long-term effects of the monetary and fiscal policies adopted by the central banks and financial authorities of some of the world’s leading economies, including the United States and China. In addition, there have also been concerns on the relationship between China and the U.S. following rounds of tariffs imposed by the U.S. and retaliatory tariffs imposed by China and concerns on the relationship among China and other Asian countries, which may result in or intensify potential conflicts in relation to territorial disputes. It is unclear whether these challenges and uncertainties will be contained or resolved, and what effects they may have on the global political and economic conditions in the long term. Economic conditions in China are sensitive to global economic conditions, as well as changes in domestic economic and political policies and the expected or perceived overall economic growth rate in China. Any prolonged slowdown in the global or Chinese economy may have a negative impact on our business, results of operations and financial condition, and continued turbulence in the international markets may adversely affect our ability to access the capital markets to meet liquidity needs.
Any adverse changes in political policies of the PRC government could negatively impact China’s overall economic growth, which could materially adversely affect our business.
The Company is a holding company and all of our operations are entirely conducted in the PRC. China’s economy differs from the economies of most other countries in many respects, including the amount of government involvement in the economy, the general level of economic development, growth rates and government control of foreign exchange and the allocation of resources. The PRC government exercises significant control over China’s economic growth by allocating resources, controlling the payment of foreign currency-denominated obligations, setting monetary policy and providing preferential treatment to particular industries or companies. Any actions and policies adopted by the PRC government could negatively impact the Chinese economy, which could materially adversely affect our business.
25
Substantial uncertainties and restrictions with respect to the political and economic policies of the PRC government and PRC laws and regulations could have a significant impact upon the business we may be able to conduct in the PRC and accordingly on the results of our operations and financial condition.
Our business operations may be adversely affected by the current and future political environment in the PRC. The Chinese government exerts substantial influence and control over the manner in which we must conduct our business activities. Our ability to operate in China may be adversely affected by changes in Chinese laws and regulations. Under the current government leadership, the government of the PRC has been pursuing economic reform policies that encourage private economic activities and greater economic decentralization. However, the government of the PRC may not continue to pursue these policies, or may significantly alter these policies from time to time without notice.
There are substantial uncertainties regarding the interpretation and application of PRC laws and regulations, including, but not limited to, the laws and regulations governing our business, or the laws and regulations applicable to foreign investments in China. Since 1979, the Chinese government began to develop a comprehensive system of laws that regulate economic affairs in general, deal with economic matters such as foreign investment, corporate organization and governance, commerce, taxation and trade, as well as encourage foreign investment in China. Although the influence of the law has been increasing, China has not developed a fully integrated legal system and recently enacted laws and regulations may not sufficiently cover all aspects of economic activities in China. Also, because these laws and regulations are relatively new, and because of the limited volume of published cases and judicial interpretation and their lack of force as precedents, interpretation and enforcement of these laws and regulations involve significant uncertainties. New laws and regulations that affect existing and proposed future businesses may also be applied retroactively. In addition, there have been constant changes and amendments of laws and regulations over the past several decades in order to keep up with the rapidly changing society and economy in China. Because government agencies and courts provide interpretations of laws and regulations and decide contractual disputes and issues, their inexperience in adjudicating new business and new polices or regulations in certain less developed areas causes uncertainty and may affect our business. Consequently, we cannot clearly foresee the future direction of Chinese legislative activities with respect to either businesses with foreign investment or the effectiveness on enforcement of laws and regulations in China. The uncertainties, including new laws and regulations and changes of existing laws, as well as judicial interpretation by inexperienced officials in the agencies and courts in certain areas, may cause possible problems to foreign investors.
The Second Session of the Thirteen National People’s Congress of the People’s Republic of China voted to adopt the Foreign Investment Law of the People’s Republic of China (“the Foreign Investment Law”) on March 15, 2019, which came into effect on January 1, 2020. The three major foreign investment laws (the Sino-Foreign Equity Joint Venture Law, Sino-Foreign Cooperative Joint Venture Law and Wholly Foreign Owned Enterprise Law) were replaced by the Foreign Investment Law on January 1, 2020.
The Foreign Investment Law expressly stipulated that “the State protects foreign investors’ investment, earnings and other legitimate rights and interests within the territory of China pursuant to the present Law;” “foreign investors may, according to the present Law, freely remit into or out of China, in Renminbi or any other foreign currency, their contributions, profits, capital gains, income from asset proposal, intellectual property royalties, lawfully acquired compensation, indemnity or liquidation income and so on within the territory of China;” “Foreign investors shall not invest in any field with investment prohibited by the negative list for foreign investment access. Foreign investors shall meet the investment conditions stipulated under the negative list for any field with investment restricted by the negative list for foreign investment access;” “In formulating normative documents concerning foreign investment, the people’s governments at all levels and their departments concerned shall comply with laws and regulations, and if there are no laws or administrative regulations to serve as the basis, they shall not impair foreign-invested enterprises’ legitimate rights and interests or increase their obligations, set any market access and exit conditions, or intervene the normal production and operation activities of any foreign-invested enterprise.”
It is unclear how the Foreign Investment Law will be implemented in practice by the PRC government authorities. Comparing with the Draft Foreign Investment Law of the People’s Republic of China published in 2015, the Foreign Investment Law does not include the following expression of ‘control or acquire equities of an enterprise within the territory of China through contractual arrangements, including but not limited to contracts and trust agreements.’ Whether the offshore companies controlled by the PRC investors through variable interest entities structure will be deemed a foreign investment remains to be seen.
26
Fluctuations in the foreign currency exchange rate between U.S. Dollars and Renminbi could adversely affect our financial condition.
The value of the RMB against the U.S. dollar and other currencies may fluctuate. Exchange rates are affected by, among other things, changes in political and economic conditions and the foreign exchange policy adopted by the PRC government. On July 21, 2005, the PRC government changed our policy of pegging the value of the RMB to the U.S. dollar. Under the new policy, the RMB is permitted to fluctuate within a narrow and managed band against a basket of foreign currencies. Following the removal of the U.S. dollar peg, the RMB appreciated more than 20% against the U.S. dollar over three years. From July 2008 until June 2010, however, the RMB traded stably within a narrow range against the U.S. dollar. There remains significant international pressure on the PRC government to adopt a more flexible currency policy, which could result in a further and more significant appreciation of the RMB against foreign currencies. On June 20, 2010, the PBOC announced that the PRC government would reform the RMB exchange rate regime and increase the flexibility of the exchange rate. On August 11, 2015, the PBOC led central parity quoting banks to further improve the formation mechanism of the RMB against the US dollar, indicating that the central parity quoting price shall be decided with reference to the closing price on the previous trading day. On December 11, 2015, the China Foreign Exchange Trade System launched the RMB exchange-rate index, which strengthened the reference to a currency basket to better maintain the stability of the RMB exchange rate against the currencies in the basket. As a result, the CNY/USD central parity formation mechanism of “closing rate + exchange-rate movements of a basket of currencies” was developed. In June 2016, the Foreign Exchange Self-Disciplinary Mechanism was established, allowing financial institutions to play a more important role in maintaining orderly operations in the foreign-exchange market and in an environment for fair competition. In February 2017, the Foreign Exchange Self-Disciplinary Mechanism adjusted the reference period for the central parity against the currency basket from 24 hours ahead of submitting the quotes to 15 hours between the closing on the previous trading day and the submission of the quotes, which avoided repeated references to the daily movements of the USD exchange rate in the central parity of the following day. In general, the RMB exchange-rate central parity formation mechanism has been improving, which has effectively improved the rule-based, transparent, and market-oriented nature of RMB exchange-rate policies and has played an active role in stabilizing exchange-rate expectations. The flexibility of the RMB exchange rate against the US dollar was further strengthened, exhibiting larger two-way fluctuations. We cannot predict how this new policy and mechanism will impact the RMB exchange rate.
Our revenues and costs are mostly denominated in the RMB, and a significant portion of our financial assets are also denominated in the RMB. Any significant fluctuations in the exchange rate between the RMB and the U.S. dollar may materially adversely affect our cash flows, revenues, earnings and financial position, and the amount of and any dividends, if any, it may pay on our Class A Ordinary Shares in U.S. dollars. In addition, any fluctuations in the exchange rate between the RMB and the U.S. dollar could result in foreign currency conversion losses for financial reporting purposes.
It may be difficult to protect interests and exercise rights as a shareholder since we conduct all of our operations in China, and all of our officers and our Chairman reside outside of the United States.
The Company was incorporated in the Cayman Islands and it conducts all of our operations in China through Horgos, Xing Cui Can and their subsidiaries, our consolidated VIEs in China. In addition, all of our officers and our chairman reside outside of the United States and substantially all of the assets of those persons are located outside of the United States. As a result of all of the above, our shareholders may have more difficulty in protecting their interests through actions against our management or major shareholders than those shareholders of a corporation doing business entirely or predominantly within the United States.
Future inflation in China may inhibit economic activity and adversely affect our operations.
The Chinese economy has experienced periods of rapid expansion in recent years, which can lead to high rates of inflation or deflation. This has caused the PRC government to, from time to time, enact various corrective measures designed to restrict the availability of credit or regulate growth and contain inflation. High inflation may in the future cause the PRC government to once again impose controls on credit and/or prices, or to take other action, which could inhibit economic activity in China. Any action on the part of the PRC government that seeks to control credit and/or prices may materially adversely affect our business operations.
27
PRC regulation of loans to, and direct investments in, PRC entities by offshore holding companies may delay or prevent us from using proceeds from future financing activities to make loans or additional capital contributions to our PRC operating subsidiaries.
In July 2014, SAFE promulgated the Circular on Relevant Issues Concerning Foreign Exchange Control on Domestic Residents’ Offshore Investment and Financing and Roundtrip Investment through Special Purpose Vehicles, or SAFE Circular 37(《国家外汇管理局关于境内居民通过特殊目的公司境外投融资及返程投资外汇管理有关问题的通知》(汇发[2014]37号) ), which replaces the previous SAFE Circular 75. SAFE Circular 37 requires PRC residents, including PRC individuals and PRC corporate entities, to register with SAFE or its local branches in connection with their direct or indirect offshore investment activities. SAFE Circular 37 is applicable to our shareholders who are PRC residents and may be applicable to any offshore acquisitions that we may make in the future.
Under SAFE Circular 37, PRC residents who make, or have prior to the implementation of SAFE Circular 37 made, direct or indirect investments in offshore special purpose vehicles, or SPVs, are required to register such investments with SAFE or its local branches. In addition, any PRC resident who is a direct or indirect shareholder of an SPV, is required to update its registration with the local branch of SAFE with respect to that SPV, to reflect any material change. Moreover, any subsidiary of such SPV in China is required to urge the PRC resident shareholders to update their registration with the local branch of SAFE to reflect any material change. If any PRC resident shareholder of such SPV fails to make the required registration or to update the registration, the subsidiary of such SPV in China may be prohibited from distributing its profits or the proceeds from any capital reduction, share transfer or liquidation to the SPV, and the SPV may also be prohibited from making additional capital contributions into its subsidiaries in China. In February, 2015, SAFE promulgated a Notice on Further Simplifying and Improving Foreign Exchange Administration Policy on Direct Investment, or SAFE Notice 13. Under SAFE Notice 13, applications for foreign exchange registration of inbound foreign direct investments and outbound direct investments, including those required under SAFE Circular 37, must be filed with qualified banks instead of SAFE. Qualified banks should examine the applications and accept registrations under the supervision of SAFE. We have used our best efforts to notify PRC residents or entities who directly or indirectly hold shares in our Cayman Islands holding company and who are known to us as being PRC residents to complete the foreign exchange registrations. However, we may not be informed of the identities of all the PRC residents or entities holding direct or indirect interest in our company, nor can we compel our beneficial owners to comply with SAFE registration requirements. We cannot assure you that all other shareholders or beneficial owners of ours who are PRC residents or entities have complied with, and will in the future make, obtain or update any applicable registrations or approvals required by, SAFE regulations. Failure by such shareholders or beneficial owners to comply with SAFE regulations, or failure by us to amend the foreign exchange registrations of our PRC subsidiaries, could subject us to fines or legal sanctions, restrict our overseas or cross-border investment activities, and limit our PRC subsidiaries’ ability to make distributions or pay dividends to us or affect our ownership structure, which could adversely affect our business and prospects.
Furthermore, as these foreign exchange and outbound investment related regulations are relatively new and their interpretation and implementation has been constantly evolving, it is unclear how these regulations, and any future regulation concerning offshore or cross-border investments and transactions, will be interpreted, amended and implemented by the relevant government authorities. For example, we may be subject to a more stringent review and approval process with respect to our foreign exchange activities, such as remittance of dividends and foreign- currency-denominated borrowings, which may adversely affect our financial condition and results of operations. We cannot assure you that we have complied or will be able to comply with all applicable foreign exchange and outbound investment related regulations. In addition, if we decide to acquire a PRC domestic company, we cannot assure you that we or the owners of such company, as the case may be, will be able to obtain the necessary approvals or complete the necessary filings and registrations required by the foreign exchange regulations. This may restrict our ability to implement our acquisition strategy and could adversely affect our business and prospects.
As an offshore holding company with PRC subsidiaries, we may transfer funds to our operating entity or finance our operating entity by means of loans or capital contributions. Any capital contributions or loans that we, as an offshore entity, make to our Company’s PRC subsidiaries are subject to the above PRC regulations. We may not be able to obtain necessary government registrations or approvals on a timely basis, if at all. If we fail to obtain such approvals or make such registration, our ability to make equity contributions or provide loans to our Company’s PRC subsidiaries or to fund their operations may be negatively affected, which may adversely affect their liquidity and ability to fund their working capital and expansion projects and meet their obligations and commitments. As a result, our liquidity and our ability to fund and expand our business may be negatively affected.
28
The approval, record filing and/or other requirements of China Securities Regulatory Commission (“the CSRC”) or other PRC governmental authorities may be required in connection with our contractual arrangement and overseas offering under PRC rules, regulations or policies, especially with the promulgation of the new filing-based administrative rules for overseas offering and listing by domestic companies in China, and, if required, we cannot predict whether or how soon we will be able to obtain such approval, complete the record filing or fulfil other governmental requirements.
On September 6, 2024, the National Development and Reform Commission and the Ministry of Commerce issued the Negative List (2024 version), which became effective as of 1 November 2024. According to the Negative List (2024 version), where a domestic enterprise engaging in any industries that are “prohibited” under the Negative List (2024 version) intends to issue shares abroad and list for trading, it shall be examined and approved by the relevant competent departments of the state. In addition, foreign investors are prohibited from participating in the management of such enterprise and shall not hold more than 10% equity interest in such enterprise by each foreign investor and its affiliated parties or 30% equity interest by all foreign investors. The same provisions were also set out in the Negative List (2021 version). According to relevant press releases issued by the National Development and Reform Commission (“NDRC”) in relation to the Negative List (2021 version), the above provisions are only applicable to the direct overseas listing of domestic enterprises engaged in the prohibited investment field, and no adjustment will be made to the shareholding percentage by foreign investors in relation to existing listed companies that do not meet the aforementioned shareholding percentage requirement.
As advised by our PRC legal counsel, based on its understanding of the PRC Laws and our corporate structure up to the date of this annual report, notwithstanding NDRC’s statement on the press releases, it is uncertain whether the abovementioned approval and management requirements apply to companies like us which already listed abroad prior to coming into force of the new Negative List, and there is no detailed rules in connection with relevant requirements or procedures to obtain approval from relevant competent departments of the state. However, if relevant governmental authority determines or new future rules provide that we are required to obtain the approval and/or abide by the management requirement, we would have to apply for such approval and/or adjust our current management mechanism. There is no assurance that we will be able to obtain such approval in time or at all. Further, compliance with the new management requirement may hamper the efficiency or capacity of our management, the rights currently entitled by our foreign investors, and could subject us to substantial costs. If we fail to obtain the approval as required or in a timely manner, our contractual arrangement may be deemed illegal and ordered to be cancelled by relevant government authorities, and other administrative measures or penalties may be imposed on us, which could materially and adversely affect our business, financial condition, and results of operations.
On February 17, 2023, the CSRC issued the Trial Administrative Measures of Overseas Securities Offering and Listing by Domestic Companies (the “Trial Administrative Measures”) and relevant supporting guidelines (collectively, the “New Administrative Rules Regarding Overseas Listings”), which came into force since March 31, 2023. According to the New Administrative Rules Regarding Overseas Listings, among other things, a domestic company in the PRC that seeks to offer and list securities in overseas markets shall fulfill the filing procedure with the CSRC as per requirements of the Trial Administrative Measures. Where a domestic company seeks to directly offer and list securities in overseas markets, the issuer shall file with the CSRC. Where a domestic company seeks to indirectly offer and list securities in overseas markets, the issuer shall designate a major domestic operating entity, which shall, as the domestic responsible entity, file with the CSRC. Initial public offerings or listings in overseas markets shall be filed with the CSRC within 3 working days after the relevant application is submitted overseas. If an issuer offers securities in the same overseas market where it has previously offered and listed securities subsequently, filings shall be made with the CSRC within 3 working days after the offering is completed. Upon occurrence of any material event, such as change of control, investigations or sanctions imposed by overseas securities regulatory agencies or other relevant competent authorities, change of listing status or transfer of listing segment, or voluntary or mandatory delisting, after an issuer has offered and listed securities in an overseas market, the issuer shall submit a report thereof to CSRC within 3 working days after the occurrence and public disclosure of such event.
The noncompliance of the filling requirements will lead to penalties imposed on the Chinese domestic enterprises, the controlling shareholder, the actual controller and other related responsible persons and the potential penalties for the variable interest entities include fines within the range between RMB 0.5 million and RMB 10 million. According to the New Administrative Rules Regarding Overseas Listings, if we seek any future offerings on Nasdaq Stock Market or seek issuance and listing on other overseas markets or if any major events occur, as stipulated in the New Administrative Rules Regarding Overseas Listings, we will be required to report to the CSRC. There is no assurance that we will be able to get the clearance of filing or report procedures under the New Administrative Rules Regarding Overseas Listings on a timely basis, or at all. Any failure of us to fully comply with new regulatory requirements may significantly limit or completely hinder our ability to offer or continue to offer our Class A Ordinary Shares, cause significant disruption to our business operations, and severely damage our reputation, which would materially and adversely affect our financial condition and results of operations and cause our Class A Ordinary Shares to significantly decline in value or become worthless.
29
Our VIEs and their subsidiaries may be liable for improper collection, use or appropriation of personal information provided by our customers.
Through our Cheers e-Mall internet platform, we collect and retain large volumes of internal and customer data, including personal information as our various information technology systems enter, process, summarize and report such data. We also maintain information about various aspects of our operations as well as regarding our employees. The integrity and protection of our customer, employee and company data is critical to our business. Our customers and employees expect that we will adequately protect their personal information. Our VIEs and their subsidiaries are required by applicable laws to keep strictly confidential the personal information that we collect, and to take adequate security measures to safeguard such information.
According to the applicable PRC laws and regulations in relation to cybersecurity and data security, data processing includes, in a broad sense, among others, the collection or access, processing, transmission and related data activities.
The PRC Criminal Law, as amended by its Amendment 7 (effective on February 28, 2009) and Amendment 9 (effective on November 1, 2015), prohibits institutions, companies and their employees from selling or otherwise illegally disclosing a citizen’s personal information obtained during the course of performing duties or providing services or obtaining such information through theft or other illegal ways. On November 7, 2016, the Standing Committee of the PRC National People’s Congress issued the Cyber Security Law of the PRC, or Cyber Security Law (《中华人民共和国网络安全法》), which became effective on June 1, 2017 and was amended on October 28, 2025 with effective from January 1, 2026. Pursuant to the Cyber Security Law, network operators must not, without users’ consent, collect their personal information, and may only collect users’ personal information necessary to provide their services. Providers are also obliged to provide security maintenance for their products and services and shall comply with provisions regarding the protection of personal information as stipulated under the relevant laws and regulations. The Civil Code of the PRC (issued by the PRC National People’s Congress on May 28, 2020 and effective from January 1, 2021) provides main legal basis for privacy and personal information infringement claims under the Chinese civil laws. PRC regulators, including the Cyberspace Administration of China, MIIT, and the Ministry of Public Security have been increasingly focused on regulation in the areas of data security and data protection. The PRC regulatory requirements regarding cybersecurity are constantly evolving. For instance, various regulatory bodies in China, including the Cyberspace Administration of China, the Ministry of Public Security and the SAMR, have enforced data privacy and protection laws and regulations with varying and evolving standards and interpretations. On December 28, 2021, the Chinese government promulgated Cybersecurity Review Measures, which came into effect on February 15, 2022. According to the Cybersecurity Review Measures, the procurement of any network product or service by an operator of critical information infrastructure or the conducting of data processing activities by a network platform operator, that affects or may affect national security, shall be subject to a cybersecurity review under the Measures. A network platform operator that possesses personal information of more than one million users must apply to the Cybersecurity Review Office set up under the CAC for a cybersecurity review when it seeks to list overseas.
As advised by our PRC legal counsel, based on its understanding of the Measures for Cybersecurity Review (2021) which became effective on February 15, 2022 and replaced the Measures for Cybersecurity Review promulgated on April 13, 2020, our VIEs and their subsidiaries are currently not required to apply for a cybersecurity review with the Cyberspace Administration of China, or the “CAC,” under Article 7 of the measures, pursuant to which online platform operators possessing personal information of more than 1 million users which intend to go public abroad shall apply to the CAC for a cybersecurity review, because we listed our Class A Ordinary Shares on the Nasdaq before the effective date of the measures on February 15, 2022. Under the Measures for Cybersecurity Review (2021), our VIEs and their subsidiaries could be subject to cybersecurity review with the CAC if it is determined that our VIEs or their subsidiaries constitute critical information infrastructure operators and intend to procure a network product or service that affects or could affect national security. Further, as the measures are newly revised and there remains uncertainty as to the interpretation and implementation thereof, we are uncertain whether our VIEs or their subsidiaries would be subject to a cybersecurity review when we offer or list new shares or carry out other financing activities in the capital market. As of the date of this annual report, our VIEs and their subsidiaries have not been informed by any PRC governmental authority of any requirement that we file for a cybersecurity review. Pursuant to the Data Security Management Regulations promulgated by the State Council on September 24, 2024, which became effective on January 1, 2025, network data processing activities refer to activities such as the collection, storage, use, processing, transmission, provision, disclosure, and deletion of data. Network data processors refer to individuals or organizations that independently determine the purposes and methods of data processing activities. Network data processors conducting any data processing activities that affect or may affect national security shall undergo national security review in accordance with relevant national regulations. Where it is indeed necessary to transfer any important data collected and generated within the territory of the PRC to an overseas party, the security assessment of outbound data transfer organized by the national cyberspace administration department shall be passed. Our VIEs and their subsidiaries may be subject to network data security review by the CAC if our VIEs or their subsidiaries are recognized as network data processors which conduct data processing activities that affect or may affect national security.
30
In recent years, certain internet platforms in China have been reportedly subject to heightened regulatory scrutiny in relation to cybersecurity matters. As of the date of this annual report, we, our subsidiaries, and our VIEs and their subsidiaries have not been informed by any PRC governmental authority of any requirement that we file for a cybersecurity review. However, as there remains significant uncertainty in the interpretation and enforcement of relevant PRC cybersecurity laws and regulations, we cannot assure you that we would not be subject to such cybersecurity review requirement, and if so, that we would be able to pass such review. In addition, we could become subject to enhanced cybersecurity review or investigations launched by PRC regulators in the future. Any failure or delay in the completion of the cybersecurity review procedures or any other non-compliance with the related laws and regulations may result in fines or other penalties, including suspension of business, website closure, removal of our app from the relevant app stores, and revocation of prerequisite licenses, as well as reputational damage or legal proceedings or actions against us, which may have material adverse effect on our business, financial condition or results of operations.
The PRC governmental authorities have promulgated, among others, the Personal Information Protection Law of the People’s Republic of China（《中华人民共和国个人信息保护法》）, Data Security Law of the People’s Republic of China（《中华人民共和国数据安全法》）, Measures for Cyber Security Review (《网络安全审查办法》), Measures for the Security Assessment for Cross-border Transfer of Data (《数据出境安全评估办法》）and the Data Security Management Regulations（《网络数据安全管理条例》）to ensure cyber security, data and personal information protection and cross-border data transmission.
We attach great importance to data security, cyber security and personal information protection, and the evolvement of applicable PRC laws and regulations therewith. As of the date of this annual report, Horgos, our main PRC operating entity, has implemented comprehensive internal policies and measures on protection of cyber security, data privacy and personal information to make sure its compliance with relevant PRC laws and regulations.
As of the date of this annual report, (i) there had been no material incident of data or personal information leakage, infringement of data protection and privacy laws and regulations or investigation or other legal proceeding concerning data or personal information, pending or threatened against us initiated by competent government authorities or third parties, that will materially and adversely affect the business of us; (ii) we have not received any investigation, notice, warning, penalty or sanction from applicable government authorities (including the CAC) with regard to our business operations concerning any issues related to cybersecurity and data security; (iii) we have not been involved in any suits, judicial review, enquiry, or other legal proceedings initiated by applicable governmental authorities in relation to any violation of applicable regulations or policies that have been issued by the CAC.
While we take various measures to comply with applicable data privacy and protection laws and regulations, there is no guarantee that our current security measures and those of our third-party service providers may always be adequate for the protection of our customer, employee or company data; and like all companies, we may experience data incidents from time to time. In addition, given the size of our customer base and the types and volume of personal data on our system, we may be a particularly attractive target for computer hackers, foreign governments or cyber terrorists. Unauthorized access to our proprietary internal and customer data may be obtained through break-ins, sabotage, breach of our secure network by an unauthorized party, computer viruses, computer denial-of-service attacks, employee theft or misuse, breach of the security of the networks of our third-party service providers, or other misconduct. Because the techniques used by computer programmers who may attempt to penetrate and sabotage our proprietary internal and customer data change frequently and may not be recognized until launched against a target, we may be unable to anticipate these techniques. Unauthorized access to our proprietary internal and customer data may also be obtained through inadequate use of security controls. Any of such incidents may harm our reputation and adversely affect our business and results of operations. In addition, we may be subject to negative publicity about our security and privacy policies, systems, or measurements from time to time.
Any failure to prevent or mitigate security breaches, cyber-attacks or other unauthorized access to our systems or disclosure of our customers’ data, including their personal information, could result in loss or misuse of such data, interruptions to our service system, diminished customer experience, loss of customer confidence and trust, impairment of our technology infrastructure, and harm our reputation and business, resulting in significant legal and financial exposure and potential lawsuits and could cause the value of such securities to significantly decline or be worthless. In addition, any violation of the provisions and requirements under relevant laws and regulations with respect to cyber security, data security and personal information protection may subject us to rectifications, warnings, fines, confiscation of illegal gains, suspension of the related business, revocation of licenses, cancellation of qualifications being entered into the relevant credit record or even criminal liabilities.
Since the legislation in the areas of cyber security, data security and personal information protection is still evolving in the PRC, we will continue to pay close attention to the legislative and regulatory developments in these areas and strive to comply with the latest regulatory requirements.
31
Uncertainties exist with respect to the enactment timetable, interpretation and implementation of the laws and regulations with respect to online platform business operation.
Through our Cheers e-Mall, we operate an online platform and are subject to various internet-related laws and regulations. These internet-related laws and regulations are relatively new and evolving, and their enactment timetable, interpretation and implementation involve significant uncertainties.
For example, On February 7, 2021, the Anti-monopoly Commission of the State Council, promulgated Guidelines to Anti-Monopoly in the Field of Platform Economy, or the Anti-Monopoly Guidelines for Platform Economy. The Anti-Monopoly Guidelines for Platform Economy provides operational standards and guidelines for identifying certain internet platforms’ abuse of market dominant position which are prohibited to restrict unfair competition and safeguard users’ interests, including without limitation, prohibiting personalized pricing using big data and analytics, selling products below cost without reasonable causes, actions or arrangements seen as exclusivity arrangements, using technology means to block competitors’ interface, using bundle services to sell services or products. In addition, internet platforms’ compulsory collection of user data may be viewed as abuse of dominant market position that may have the effect to eliminate or restrict competition. In August 2021, the Standing Committee of the National People’s Congress officially promulgated the Personal Information Protection Law, which has come into effect in November 2021. The Personal Information Protection Law provides the basic regime for personal information protection, including without limitation, stipulating an expanded definition of personal information, providing a long-arm jurisdiction in cross-border scenarios, emphasizing individual rights, and prohibiting rampant infringement of personal information, such as stealing, selling, or secretly collecting personal information. In addition, on June 10, 2021, the Standing Committee of the National People’s Congress promulgated the PRC Data Security Law, which took effect in September 2021. The Data Security Law, among others, provides for security review procedures for data activities that may affect national security. Furthermore, Measures for Cybersecurity Review, which became effect on February 15, 2022, set forth the cybersecurity review mechanism for critical information infrastructure operators and Internet platform operators, and provide that Internet platform operators that possess the personal data of over one million users must apply for a review by the Cyber Security Review Office, if they plan listing of companies in foreign countries.
Our VIEs and their subsidiaries could be subject to cybersecurity review by CAC and other relevant PRC regulatory authorities and be required to change our existing practices in data privacy and cybersecurity matters at substantial costs. During such cybersecurity review, we may be required to stop providing services to our customers, and such review could also result in negative publicity to us and diversion of our managerial and financial resources.
On August 31, 2018, the Standing Committee of the National People’s Congress promulgated the E-commerce Law, which came into effect on January 1, 2019. The E-commerce Law imposes a series of requirements on e-commerce operators including e-commerce platform operators, merchants operating on the platform and the individuals and entities carrying out business online. The governance measures our PRC subsidiary adopted in response to the enhanced regulatory requirements may fail to meet these requirements and may lead to penalties or our loss of merchants to those platforms, or to complaints or claims made against us by customers on our platforms.
As there are uncertainties regarding the enactment timetable, interpretation and implementation of the existing and future internet-related laws and regulations, we cannot assure you that our business operations will comply with such regulations in all respects and we may be ordered to terminate certain of our business operations that are deemed illegal by the regulatory authorities and become subject to fines and/or other sanctions.
32
The approval of the China Securities Regulatory Commission or other PRC regulatory agencies may be required in connection with overseas listings like our company under PRC law.
The Regulations on Mergers of Domestic Enterprises by Foreign Investors, or the M&A Rules, purport to require offshore special purpose vehicles that are controlled by PRC companies or individuals and that have acquired PRC domestic companies’ equities with the special purpose vehicles’ shares to obtain CSRC approval prior to publicly listing their securities on an overseas stock exchange. As advised by our PRC legal counsel, based on its understanding of the rules and the Company’s corporate structure up to the date of this annual report, it is of the opinion that CSRC approval is not required as the Company is not a special purpose vehicle which have acquired PRC domestic companies’ equities with its shares prior to the listing of its shares on the Nasdaq Stock Market. However, there remains uncertainty as to how the M&A Rules will be interpreted or implemented by the relevant PRC authorities, and the opinions summarized above will be subject to any new PRC laws, rules and regulations or detailed implementations and interpretations in any form relating to overseas listing of SPVs like the Company. We cannot assure you that relevant PRC government agencies, including the CSRC, would reach the same conclusion as our PRC legal counsel. If CSRC approval is required, it is uncertain how long it will take for us to obtain such approval, and any failure to obtain or a delay in obtaining CSRC approval for this registration may subject us to sanctions imposed by the CSRC and other PRC regulatory agencies.
Furthermore, on July 6, 2021, the General Office of the Communist Party of China Central Committee and the General Office of the State Council jointly promulgated the Opinions on Strictly Cracking Down on Illegal Securities Activities in Accordance with the Law, pursuant to which PRC regulators are required to accelerate rulemaking related to overseas issuance and listing of securities, and improvement to the laws and regulations related to data security, cross-border data flow, and management of confidential information. Numerous regulations, guidelines and other measures have been or are expected to be adopted under the umbrella of or in addition to the Cybersecurity Law and Data Security Law, including (i) the Measures for the Security Assessment for Cross-border Transfer of Data promulgated in July 2022 and effective from September 1, 2022, which requires security review before transferring personal information and important data out of China in specific situations, and (ii) the Cybersecurity Review Measures promulgated in December 2021 and effective from February 15, 2022, which provides that, among others, a network platform operator that possesses personal information of more than one million users must apply to the Cybersecurity Review Office for a cybersecurity review when it seeks to list overseas, and that the relevant governmental authorities in the PRC may initiate cybersecurity review if such governmental authorities determine an operator’s cyber products or services, data processing or potential listing in a foreign country affect or may affect national security. As there are still uncertainties regarding the interpretation and implementation of such regulatory guidance, we cannot assure you that we will be able to comply with new regulatory requirements relating to our future overseas capital raising activities and our PRC subsidiary may become subject to more stringent requirements with respect to matters including data privacy, and cross-border investigation and enforcement of legal claims.
As of the date of this annual report, we have not received any inquiry, notice, warning, sanction or any regulatory objection to our current listing on a U.S exchange from the CSRC, the CAC or any other PRC authorities that have jurisdiction over our operations. Notwithstanding the foregoing, our PRC legal counsel has advised us that, the current PRC laws and regulations related to overseas securities registration and other capital markets activities are constantly changing and some regulations are newly promulgated, for instance, the promulgation of the new filing-based administrative rules by the CSRC for overseas offering and listing by domestic companies in China, there remains significant uncertainty as to the enactment, interpretation and implementation of regulatory requirements related to overseas securities registration and other capital markets activities. If it is determined in the future that CSRC, the CAC or other approval were required for overseas listings like our company, our PRC subsidiary may face sanctions by the CSRC, the CAC or other PRC regulatory agencies. These regulatory agencies may impose fines and penalties on our operations in China, limit our ability to pay dividends outside of China, limit our operations in China, delay or restrict the repatriation of the proceeds from this registration into China or take other actions that could have a material adverse effect on our business, financial condition, results of operations and prospects, as well as the trading price of the Stocks. The CSRC, the CAC or other PRC regulatory agencies also may take actions requiring us, or making it advisable for us, to halt our current listing on a U.S. exchange. In addition, if the CSRC, the CAC or other regulatory agencies later promulgate new rules requiring that our PRC subsidiary obtaining their approvals, we may be unable to obtain a waiver of such approval requirements, if and when procedures are established to obtain such a waiver. Any uncertainties and/or negative publicity regarding such an approval requirement could have a material adverse effect on our business and operating results.
33
The M&A Rules and certain other PRC regulations set forth complex procedures for acquisitions conducted by foreign investors, which could make it more difficult to pursue growth through acquisitions.
Among other things, merger and acquisition activities by foreign investors in mainland China shall comply with the M&A Rules and Anti-Monopoly Law of the People’s Republic of China promulgated by the Standing Committee of the NPC which became effective in 2008 and its amendment promulgated by the Standing Committee of the NPC on June 24, 2022 and became effective on August 1, 2022 (the “Anti-Monopoly Law”). Such regulation requires, among other things, that the State Administration for Market Regulation (the “SAMR”) be notified in advance of any change-of-control transaction in which a foreign investor acquires control of a PRC domestic enterprise or a foreign company with substantial PRC operations, if certain thresholds under the Provisions of the State Council on the Standard for Declaration of Concentration of Business Operators, issued by the State Council in 2008 and lastly amended in 2024, are triggered. Moreover, the Anti-Monopoly Law requires that transactions which involve national security, the examination on national security shall also be conducted according to the relevant provisions of the State. In addition, PRC Measures for the Security Review of Foreign Investment which became effective in January 2021 require acquisitions by foreign investors of PRC companies engaged in military-related or certain other industries that are crucial to national security be subject to security review before consummation of any such acquisition. In the future, we may grow our business in part by acquiring complementary businesses. Complying with the requirements of those laws and regulations to complete such transactions could be time-consuming, and any required approval processes may delay or inhibit our ability to complete such transactions. Any delay or inability to obtain applicable approvals to complete acquisitions could affect our ability to expand our business or maintain our market share. In addition, in the future, if any of our acquisitions were found not to be in compliance with the requirements of those laws and regulations, relevant PRC regulatory agencies may impose fines and penalties on our operations in the PRC, limit our operating privileges in the PRC, or take other actions that could have a material adverse effect on our business, financial condition, results of operations, reputation and prospects.
PRC regulations relating to offshore investment activities by PRC residents and PRC citizens may increase the administrative burden we face and may subject our PRC resident beneficial owners or employees who are share option holders to personal liabilities, limit our subsidiary’s abilities to increase our registered capital or distribute profits to us, limit our ability to inject capital into our PRC subsidiary, or may otherwise expose us to liability under PRC law.
SAFE has promulgated regulations that require PRC residents and PRC corporate entities to register with local branches of SAFE or qualified banks in connection with their direct or indirect offshore investment activities. These regulations may apply to our shareholders who are PRC residents and may apply to any offshore acquisitions that they make in the future. In accordance with the Circular on Relevant Issues Relating to Domestic Resident’s Investment and Financing and Roundtrip Investment through Special Purpose Vehicles, or SAFE Circular 37, any PRC resident who is a direct or indirect shareholder of an offshore company is required to update his or her registration with the relevant SAFE branches, with respect to that offshore company, any material change involving an increase or decrease of capital, transfer or swap of shares, merger, division or other material event. SAFE promulgated the Notice on Further Simplifying and Improving the Administration of the Foreign Exchange Concerning Direct Investment in February 2015, which took effect on June 1, 2015. This notice has amended SAFE Circular 37 requiring PRC residents or entities to register with qualified banks rather than SAFE or their local branch in connection with their establishment or control of an offshore entity established for the purpose of overseas investment or financing.
There is uncertainty concerning under what circumstances residents of other countries and regions can be classified as a PRC resident. The PRC government authorities may interpret our beneficial owners’ status differently or their status may change in the future. Moreover, we may not be fully informed of the identities of our beneficial owners and we cannot assure you that all of our PRC resident beneficial owners will comply with SAFE regulations. The failure of our beneficial owners who are PRC residents to make any required registrations may subject us to fines and legal sanctions, and prevent us from being able to make distributions or pay dividends, as a result of which our business operations and our ability to distribute profits to you could be materially adversely affected.
34
Restrictions on foreign exchange under PRC laws may limit our ability to convert cash derived from our operating activities into foreign currencies and may materially and adversely affect the value of your investment.
Substantially all of our revenues and operating expenses are denominated in Renminbi. Under the relevant foreign exchange regulations in the PRC, conversion of the Renminbi is permitted, without the need for SAFE approval, for “current account” transactions, which includes dividends, trade, and service-related foreign exchange transactions, subject to procedural requirements including presenting relevant documentary evidence of such transactions and conducting such transactions at designated foreign exchange banks within China who have the licenses to carry out foreign exchange business. Under our current structure, our source of funds primarily consists of dividend payments from our subsidiary in the PRC. We cannot assure you that we will be able to meet all of our foreign currency obligations or to remit profits out of China. If future changes in relevant regulations were to place restrictions on the ability of our subsidiaries to remit dividend payments, our liquidity and ability to satisfy our third-party payment obligations and our ability to distribute dividends could be materially adversely affected.
We may rely on dividends and other distributions on equity paid by our wholly-owned subsidiaries to fund any cash and financing requirements we may have, and any limitation on the ability of our subsidiaries to make payments to us could have a material adverse effect on our ability to conduct our business.
The Company is a holding company, and it may rely on dividends from our wholly-owned subsidiaries and service, license and other fees paid to our wholly-owned subsidiary in China by Horgos and Xing Cui Can for our cash requirements, including any debt it may incur. Current PRC regulations permit our PRC subsidiary to pay dividends to us only out of their accumulated profits, if any, determined in accordance with Chinese accounting standards and regulations. In addition, our PRC subsidiary, Xing Cui Can and Horgos, are required to set aside at least 10% of their after-tax profits each year, if any, to fund a statutory reserve until such reserve reaches 50% of their registered capital, and they are also required to further set aside a portion of their after-tax profits to fund the voluntary reserve at the discretion of their shareholder(s). These reserves are not distributable as cash dividends. Furthermore, if our PRC subsidiary, Xing Cui Can and Horgos, incur debt on their own behalf in the future, the instruments governing the debt may restrict their ability to pay dividends or make other payments to us. In addition, the PRC tax authorities may require us to adjust our taxable income under the contractual arrangements we currently have in place in a manner that would materially and adversely affect our PRC subsidiary’ ability to pay dividends and other distributions to us. Any limitation on the ability of our subsidiary to distribute dividends to us or on the ability of Horgos and Xing Cui Can to make payments to us could materially and adversely limit our ability to grow, make investments or acquisitions that could be beneficial to our business, pay dividends, or otherwise fund and conduct our business.
We may be treated as a resident enterprise for PRC tax purposes under the EIT Law, which may subject us to PRC income tax for our global income and withholding for any dividends it pay to our non-PRC shareholders.
Under the Enterprise Income Tax Law (“EIT Law”), enterprises established outside of China whose “de facto management bodies” are located in China are considered “resident enterprises,” and will generally be subject to the uniform 25% enterprise income tax rate for their global income. Although the term “de facto management bodies” is defined as “management bodies which have substantial and overall management and control power on the operation, human resources, accounting and assets of the enterprise,” the circumstances under which an enterprise’s “de facto management body” would be considered to be located in China are currently unclear. A circular issued by the State Administration of Taxation (《国家税务总局关于境外注册中资控股企业依据实际管理机构标准认定为居民企业有关问题的通知》) on April 22, 2009, provides that a foreign enterprise controlled by a PRC company or a PRC company group will be classified as a “resident enterprise” with “de facto management bodies” located within China if the following requirements are satisfied: (1) the senior management and core management departments in charge of daily operations function mainly in the PRC; (2) financial and human resources decisions are subject to determination or approval by persons or bodies in the PRC; (3) major assets, accounting books, company seals, and minutes and files of board and shareholders’ meetings are located or kept in the PRC; and (4) at least half of the enterprise’s directors or senior management with voting rights reside in the PRC. In addition, the State Administration of Taxation recently promulgated the Interim Provisions on Administration of Income Tax of Chinese-Controlled Resident Enterprise Registered Overseas (《境外注册中资控股居民企业所得税管理办法(试行)》), effective from September 1, 2011, which clarified certain matters concerning the determination of resident status, administrative matters following this determination, and competent tax authorities. These interim provisions also specify that, when an enterprise that is both Chinese-controlled and incorporated outside of mainland China, receives PRC-sourced incomes such as dividends and interests, no PRC withholding tax is applicable if such enterprise has obtained a certificate evidencing its status as a PRC resident enterprise that is registered overseas and controlled by Chinese.
35
Most members of our management team are based in China and are expected to remain in China. Although our offshore holding companies are not controlled by any PRC company or company group, we cannot assure you that it will not be deemed to be a PRC resident enterprise under the EIT Law and our implementation rules. If we are deemed to be a PRC resident enterprise, we will be subject to PRC enterprise income tax at the rate of 25% on our global income. In that case, however, dividend income that we receive from our PRC subsidiaries may be exempt from PRC enterprise income tax because the EIT Law and our implementation rules generally provide that dividends received by a PRC resident enterprise from our directly invested entity that is also a PRC resident enterprise is exempt from enterprise income tax. Accordingly, if we are deemed to be a PRC resident enterprise and earn income other than dividends from our PRC subsidiaries, a 25% enterprise income tax on our global income could significantly increase our tax burden and materially and adversely affect our cash flow and profitability. In addition, the EIT Law and implementation rules are relatively new and ambiguities exist with respect to the interpretation of the provisions relating to identification of PRC-sourced income. If we are deemed to be a PRC resident enterprise, dividends distributed to our non-PRC entity investors by us, or the gain our non-PRC entity investors may realize from the transfer of our Class A Ordinary Shares, may be treated as PRC-sourced income and therefore be subject to a 10% PRC withholding tax pursuant to the EIT Law and, as a result, the value of your investment may be materially and adversely affected.
We may have exposure to greater than anticipated tax liabilities.
Under PRC laws and regulations, arrangements and transactions among business entities may be subject to audit or challenge by the PRC tax authorities. The tax laws applicable to our business activities are subject to interpretation. We could face material and adverse tax consequences if the PRC tax authorities determine that some of our business activities are not based on arm’s-length prices and adjust our taxable income accordingly. In addition, the PRC tax authorities may impose late payment fees and other penalties to us for underpaid taxes. Our consolidated net profits in the future may be materially and adversely affected if we are subject to greater than anticipated tax liabilities.
Uncertainties with respect to the PRC legal system, including uncertainties regarding the enforcement of laws, and sudden or unexpected changes in laws and regulations in China could adversely affect us and limit the legal protections available to you and us.
Our VIEs and their operating subsidiaries are incorporated under and governed by the laws of the PRC. The PRC legal system is based on written statutes. Prior court decisions are encouraged to be used for reference but it remains unclear to what extent the prior court decisions may impact the current court ruling as the encouragement policy is new and there is limited judicial practice in this regard. In 1979, the PRC government began to develop a comprehensive system of laws and regulations governing economic matters in general, such as foreign investment, corporate organization and governance, commerce, taxation and trade. As a significant part of our business is conducted in China, our operations are principally governed by PRC laws and regulations. However, since the PRC legal system continues to evolve rapidly, the interpretations of some laws, regulations and rules are not always uniform and enforcement of these laws, regulations and rules involves uncertainties, which may limit legal protections available to us. Uncertainties due to evolving laws and regulations could also impede the ability of a China-based company, such as our company, to obtain or maintain permits or licenses required to conduct business in China. In the absence of required permits or licenses, governmental authorities could impose material sanctions or penalties on us. In addition, some regulatory requirements issued by certain PRC government authorities may not be consistently applied by other PRC government authorities (including local government authorities), thus making strict compliance with all regulatory requirements impractical, or in some circumstances impossible. For example, our VIEs and their PRC subsidiaries may have to resort to administrative and court proceedings to enforce the legal protection that we enjoy either by law or contract. However, since PRC administrative and court authorities have discretion in interpreting and implementing statutory and contractual terms, it may be more difficult to predict the outcome of administrative and court proceedings. Furthermore, the PRC legal system is based in part on government policies and internal rules, some of which are not published on a timely basis or at all and may have retroactive effect. As a result, we may not be aware of our violation of these policies and rules until sometime after the violation. Such uncertainties, including uncertainty over the scope and effect of our contractual, property (including intellectual property) and procedural rights, could materially and adversely affect our business and impede our ability to continue our operations.
36
Furthermore, if China adopts more stringent standards with respect to environmental protection or corporate social responsibilities, we may incur increased compliance costs or become subject to additional restrictions in our operations. Intellectual property rights and confidentiality protections in China may also not be as effective as in the United States or other countries. In addition, we cannot predict the effects of future developments in the PRC legal system on our business operations, including the promulgation of new laws, or changes to existing laws or the interpretation or enforcement thereof. These uncertainties could limit the legal protections available to us and our investors, including you. Moreover, any litigation in China may be protracted and result in substantial costs and diversion of our resources and management attention.
The PRC government has significant oversight and discretion over the conduct of our business and may intervene or influence our operations as the government deems appropriate to further regulatory, political and societal goals. The PRC government has recently published new policies that significantly affected certain industries such as the education and internet industries, and we cannot rule out the possibility that it will in the future release regulations or policies regarding our industry that could adversely affect our business, financial condition and results of operations. Furthermore, the PRC government has recently exerted more oversight and control over securities offerings and other capital markets activities that are conducted overseas and foreign investment in China-based companies like us. Any such intervention in or influence on our business operations or action to exert more oversight and control over securities offerings and other capital markets activities, could adversely affect our business, financial condition and results of operations and the value of our Stocks, or significantly limit or completely hinder our ability to offer or continue to offer securities to investors and cause the value of such securities to significantly decline or in extreme cases, become worthless.
The PRC legal system is evolving, and the resulting uncertainties could adversely affect us.
We conduct our business primarily through our VIEs and their subsidiaries in China. Our operations in China are governed by PRC laws and regulations. As the legislation in China and the PRC legal system has continued to evolve rapidly over the past decades and the PRC government has made significant progress in promulgating laws and regulations related to economic affairs and matters, for example, such laws and regulations have significantly enhanced the protections afforded to various forms of foreign investments in China. However, many of these laws and regulations are relatively new and there is a limited volume of published decisions and enactments. In particular, there exist substantial uncertainties surrounding the evolvement, interpretation and enforcement of regulatory requirements of cybersecurity, data security, privacy protection, anti-monopoly as well as overseas securities offering and listing by domestic companies, and we may need to take certain corresponding measures to maintain our regulatory compliance, such as adjusting the relevant business or transactions and introducing compliance experts and talents, which may incur additional related costs and adverse impact on our business. As a result, the interpretations of many laws, regulations and rules are not always uniform and enforcement of these laws, regulations and rules involves uncertainties, which may limit legal protections available to us. Therefore, there are uncertainties involved in their implementation and interpretation, and it may be difficult to evaluate the outcome of administrative and court proceedings and the level of legal protection available to you and us. Such uncertainties, including uncertainty over the scope and effect of our contractual, property (including intellectual property) and procedural rights, and any failure to respond to changes in the regulatory environment in China could materially and adversely affect our business and impede our ability to continue our operations.
37
If we become directly subject to the recent scrutiny, criticism and negative publicity involving U.S.-listed Chinese companies, it may have to expend significant resources to investigate and resolve any related issues, which could materially adversely impact our business operations and reputation.
Certain U.S. public companies that have substantially all of their operations in China have been the subject of intense scrutiny, criticism and negative publicity by investors, financial commentators and regulatory agencies, such as the SEC. Much of the scrutiny, criticism and negative publicity has been centered around financial and accounting irregularities and mistakes, a lack of effective internal controls over financial accounting, inadequate corporate governance policies or a lack of adherence thereto and, in many cases, allegations of fraud. As a result of the scrutiny, criticism and negative publicity, the publicly traded stock of certain U.S.-listed Chinese companies has sharply decreased in value. Certain companies are now subject to shareholder lawsuit and SEC enforcement actions and are conducting internal and external investigations into the allegations. It is not clear what effect this scrutiny, criticism and negative publicity may have on our business. If we become the subject of any unfavorable allegations, whether such allegations are proven to be true or untrue, it will have to expend significant resources to investigate such allegations and/or defend. This situation will be costly and time consuming and distract our management from growing our business. Such allegations may materially adversely impact our business operations and reputation.
The risk of discontinuation of our Preferential Tax Treatments.
Horgos and Horgos Glary Prosperity Culture Co., Ltd., were eligible to be exempted from income tax from 2017 to 2020, and enjoy a preferential income tax rate of 15% that are expected to last from 2021 to 2025. Glory Star (Horgos) Media Technology Co., Ltd. is eligible to be exempted from income tax from 2020 to 2024, and expected to enjoy a preferential income tax rate of 15% from 2025 to 2029, If such preferential tax is no longer available to us, the income tax rate may increase up to 25%, which could have an adverse effect on financial condition and results of operations.
As a result of the Business Combination, we will face uncertainty with respect to indirect transfers of equity interests in PRC resident enterprises by their non-PRC holding companies.
On February 3, 2015, the SAT issued the Circular on Issues of Enterprise Income Tax on Indirect Transfers of Assets by Non-PRC Resident Enterprises, or Circular 7. Pursuant to Circular 7, an “indirect transfer” of assets, including equity interests in a PRC resident enterprise, by non-PRC resident enterprises, may be re-characterized and treated as a direct transfer of PRC taxable assets, if such arrangement does not have a reasonable commercial purpose and is established for the purpose of avoiding payment of PRC enterprise income tax. As a result, gains derived from such indirect transfer may be subject to PRC enterprise income tax. When determining whether there is a “reasonable commercial purpose” of the transaction arrangement, considerations include, inter alia, (i) whether the main value of the equity interest of the relevant offshore enterprise derives directly or indirectly from PRC taxable assets; (ii) whether the assets of the relevant offshore enterprise mainly consist of direct or indirect investment in China or if income is mainly derived from China; and (iii) whether the offshore enterprise and subsidiaries directly or indirectly holding PRC taxable assets have real commercial nature evidenced by their actual function and risk exposure. According to Circular 7, where the payer fails to withhold any or sufficient tax, the transferor shall declare and pay such tax to the tax authority by itself within the statutory time limit. Late payment of applicable tax will subject the transferor to default interest. Circular 7 does not apply to transactions of sales of shares by investors through a public stock exchange where such shares were acquired on a public stock exchange. On October 17, 2017, the SAT issued the Circular on Issues of Tax Withholding regarding Non-PRC Resident Enterprise Income Tax, or Circular 37, which further elaborates the relevant implemental rules regarding the calculation, reporting and payment obligations of the withholding tax by the non-resident enterprises. Nonetheless, there remain uncertainties as to the interpretation and application of Circular 7. Circular 7 may be determined by the tax authorities to be applicable to our offshore transactions or sales of our shares or those of our offshore subsidiaries where non-resident enterprises, being the transferors, were involved.
Accordingly, as a result of the Business Combination, if a holder of our Class A Ordinary Shares purchases our Class A Ordinary Shares in the open market and sells them in a private transaction, or purchases our Class A Ordinary Shares in a private transaction and sells them in the open market, and fails to comply with the SAT Circular 7, the PRC tax authorities may take actions, including requesting us to provide assistance for their investigation or impose a penalty on us, which could have a negative impact on our business operations. In addition, since we may pursue acquisitions as one of our growth strategies, and may conduct acquisitions involving complex corporate structures, the PRC tax authorities might impose taxes on capital gains or request that we submit certain additional documentation for their review in connection with any potential acquisitions, which may incur additional acquisition costs, or delay our acquisition timetable.
38
The PRC tax authorities have discretion under Circular 7 to make adjustments to the taxable capital gains based on the difference between the fair value of the equity interests transferred and the cost of investment. We may pursue acquisitions in the future that involve complex corporate structures. If we are considered a non-resident enterprise under the EIT Law and if the PRC tax authorities make adjustments to the taxable income of these transactions under Circular 7, our income tax expenses associated with such potential acquisitions will be increased, which may have an adverse effect on our financial condition and results of operations.
New legislation or changes in the PRC labor laws or regulations may affect our business operations.
Relevant PRC labor laws or regulations could be amended or updated from time to time, and new laws or regulations may be enacted. We may be required to change our business practices in order to comply with the new or revised labor laws and regulations or adapt to policy changes. There can be no assurance that we will be able to change our business practices in a timely or efficient manner pursuant to such new requirements. Any such failure may subject us to administrative fines or penalties or other adverse consequences which could materially and adversely affect our brand name, reputation, business, financial condition and results of operations.
Governmental control of currency conversion may limit our ability to utilize our net revenues effectively and affect the value of your investment.
The PRC government imposes controls on the convertibility of the Renminbi (RMB) into foreign currencies and, in certain cases, on the remittance of currency out of China. We receive all of our revenues in Renminbi. Under our current corporate structure, we will primarily rely on dividend payments from the WFOE to fund any cash and financing requirements that we may have, or for the possible payment of dividends. Under existing PRC foreign exchange regulations, payments of current account items, including profit distributions, interest payments and trade and service-related foreign exchange transactions, can be made in foreign currencies without prior approval of SAFE by complying with certain procedural requirements. Specifically, under the existing exchange restrictions, without prior approval of SAFE, cash generated from the operations of the WFOE may be used to pay dividends to us. However, approval from or registration with appropriate government authorities is required where Renminbi is to be converted into foreign currency and remitted out of China to pay capital expenses such as the repayment of loans denominated in foreign currencies. As a result, we may need to obtain SAFE approval or complete relevant registration to use cash generated from the operations of the WFOE and VIE to pay off their respective debt in a currency other than Renminbi owed to entities outside China, if any, or to make other capital expenditure payments outside China in a currency other than Renminbi. The PRC government may at their discretion restrict access to foreign currencies for current account transactions in the future. If the foreign exchange control system prevents us from obtaining sufficient foreign currencies to satisfy our foreign currency demands, the value of your investment may be affected.
Risks Relating to our Ordinary Shares
Our dual-class voting structure will have the effect of concentrating voting control with holders of Class B Ordinary Shares, which will limit the ability of our other investors to influence corporate matters, including the election of directors and the approval of any change of control transaction.
Our authorized and issued ordinary shares divide into Class A Ordinary shares and Class B Ordinary shares. Holders of Class A Ordinary Shares are entitled to one vote per share, while holders of Class B Ordinary Shares are entitled to one hundred (100) votes per share. Holders of Class B Ordinary Shares will have the ability to control matters requiring shareholders’ approval, including any amendment of our memorandum and articles of association and approval over any change of control transactions. Our Class A and Class B Ordinary Shares are not convertible.
As a result of the dual-class share structure and the concentration of ownership, holders of Class B Ordinary Shares have considerable influence over matters such as decisions regarding mergers and consolidations, election of directors and other significant corporate actions. Such holders may take actions that are not in the best interest of us or our other shareholders. Mr. Bing Zhang, our chairman of board of directors and chief executive officer, beneficially owns all of our Class B Ordinary Shares. As of December 31, 2024, these Class B Ordinary Shares constitutes approximately 91.5% of the aggregate voting power of our total issued and outstanding Ordinary Shares due to the disparate voting powers associated with our dual-class share structure. As such, Mr. Zhang will have will have sufficient voting power to determine the outcome with respect to elections of directors, amendments to our Memorandum and Articles of Association that are subject to a stockholder vote, increases to the number of shares available for issuance under our equity incentive plans or adoption of new equity incentive plans, and approval of any merger, consolidation, sale of all or substantially all of our assets or other major corporate transaction requiring stockholder approval for the foreseeable future.
39
We cannot predict the effect our dual-class structure may have on the market of the Class A Ordinary Shares.
We cannot predict whether our dual-class structure will result in a lower or more volatile market price of our Class A Ordinary Shares, in adverse publicity, or in other adverse consequences. Certain shareholder advisory firms have announced changes to their eligibility criteria for inclusion of shares of public companies on certain indices, including the S&P 500, to exclude companies with multiple classes of shares and companies whose public shareholders hold no more than 5% of total voting power from being added to such indices. In addition, several shareholder advisory firms have announced their opposition to the use of multiple class structures. As a result, the dual-class structure of our Ordinary shares may prevent the inclusion of our Class A Ordinary Shares in such indices and may cause shareholder advisory firms to publish negative commentary about our corporate governance practices or otherwise seek to cause us to change our capital structure. Any such exclusion from indices could result in a less active trading market for our Class A Ordinary Shares. Given the sustained flow of investment funds into passive strategies that seek to track certain indices, exclusion from certain stock indices would likely preclude investment by many of these funds and could make our Class A Ordinary Shares less attractive to other investors. As a result, the market price of our Class A Ordinary Shares could be adversely affected.
Our Class A Ordinary Shares may be delisted from The Nasdaq Capital Market, which could negatively impact the price of our Class A Ordinary Shares and our ability to access the capital markets.
Our Class A Ordinary Shares is listed on The Nasdaq Capital Market. The bid price of our common stock has in the past closed below the $1.00 minimum per share bid price required for continued listing. If the bid price of our Class A Ordinary Shares below $1.00 per share for thirty consecutive business days, we could be subject to delisting from the Nasdaq Capital Market. In addition, the continued listing of our Class A Ordinary Shares is contingent upon our compliance with Nasdaq’s conditions for continued listing. If we fail to meet any Nasdaq listing requirements, including the minimum bid price, satisfaction of minimum financial and other continued listing requirements and standards, and do not regain compliance, we may be subject to delisting by Nasdaq.
Any delisting from The Nasdaq Capital Market could have an adverse effect on our business and on the trading of our Class A Ordinary Shares. If a delisting of our Class A Ordinary Shares were to occur, our Class A Ordinary Shares would trade in the over-the-counter market and be quoted on a service such as those provided by OTC Markets Group, Inc. Such alternatives are generally considered to be less efficient markets, and our stock price, as well as the liquidity of our Class A Ordinary Shares, may be adversely impacted as a result. Delisting from The Nasdaq Capital Market could also have other negative results, including the potential loss of confidence by customers, suppliers and employees, the loss of institutional investor interest and fewer business development opportunities, as well as the loss of liquidity for our shareholders.
In addition, we note Nasdaq recently filed a proposed rule changed with the SEC that would, under the “net income standard,” increase the minimum market value of unrestricted publicly held shares to $15 million. Additionally, it would grant Nasdaq the authority to expedite the suspension of trading in and delisting of a company’s securities if the market value of its listed securities falls below $5 million. While we believe we will meet the current standards, we cannot assure you that we would meet these new proposed standards, which could materially impact our ability to maintain a listing on Nasdaq. The implementation of this or any similar rule could require us to incur significant costs and divert management’s attention from our business operations, which could have a material adverse effect on our business, financial condition, and results of operations.
We are a “controlled company” within the meaning of the Nasdaq Stock Market Listing Rules and, as a result, may rely on exemptions from certain corporate governance requirements that provide protection to shareholders of other companies.
We are a “controlled company” as defined under the Nasdaq Stock Market Listing Rules because Mr. Bing Zhang, our chairman of board of directors and chief executive officer, holds approximately 9.15% of our aggregate voting power, which is more than 50% of our total aggregate voting power of our Ordinary Shares for the election of directors through his ownership of 100% of our issued and outstanding Class B Ordinary Shares. For so long as we remain a “controlled company” under that definition, we are permitted to elect to rely, and may rely, on certain exemptions from corporate governance rules, including an exemption from the rule that a majority of our board of directors must be independent directors or that we have to establish a nominating committee and a compensation committee composed entirely of independent directors. In the event that we elect to rely on one or more of these exemptions, you will not have the same protection afforded to shareholders of companies that are subject to these corporate governance requirements.
40
The trading prices of our Class A Ordinary Shares are likely to be volatile, which could result in substantial losses to our shareholders and investors.
The trading prices of our Class A Ordinary Shares are likely to be volatile and could fluctuate widely due to factors beyond our control. This may happen because of broad market and industry factors, like the performance and fluctuation in the market prices or the underperformance or deteriorating financial results of other similarly situated companies that have listed their securities in the U.S. in recent years. The securities of some of these companies have experienced significant volatility since their initial public offerings, including, in some cases, substantial price declines in the trading prices of their securities. The trading performances of these companies’ securities after their offerings may affect the attitudes of investors toward such companies listed in the United States, which consequently may affect the trading performance of our Class A Ordinary Shares, regardless of our actual operating performance. In addition, securities markets may from time to time experience significant price and volume fluctuations that are not related to our operating performance, such as the large decline in share prices in the United States and other jurisdictions.
In addition to market and industry factors, the price and trading volume for our Class A Ordinary Shares may be highly volatile for factors specific to our own operations including the following:
| ● | variations in our revenues, earnings and cash flow; |
| ● | announcements of new product and service offerings, investments, acquisitions, strategic partnerships, joint ventures, or capital commitments by us or our competitors; |
| ● | changes in the performance or market valuation of our company or our competitors; |
| ● | changes in financial estimates by securities analysts; |
| ● | changes in the number of our users and customers; |
| ● | fluctuations in our operating metrics; |
| ● | failures on our part to realize monetization opportunities as expected; |
| ● | additions or departures of our key management and personnel; |
| ● | release of lock-up or other transfer restrictions on our outstanding equity securities or sales of additional equity securities; |
| ● | detrimental negative publicity about us, our competitors or our industry; |
| ● | market conditions or regulatory developments affecting us or our industry; and |
| ● | potential litigation or regulatory investigations. |
Any of these factors may result in large and sudden changes in the trading volume and the price at which our Class A Ordinary Shares will trade. In the past, shareholders of a public company often brought securities class action suits against the listed company following periods of instability in the market price of that company’s securities. If we were involved in a class action suit, it could divert a significant amount of our management’s attention and other resources from our business and operations, which could harm our results of operations and require us to incur significant expenses to defend the suit. Any such class action suit, whether or not successful, could harm our reputation and restrict our ability to raise capital in the future. In addition, if a claim is successfully made against us, we may be required to pay significant damages, which could have a material adverse effect on our financial condition and results of operations.
41
If securities or industry analysts do not publish research or publish inaccurate or unfavorable research about our business, the market price for our Class A Ordinary Shares and trading volume could decline.
The trading market for our Class A Ordinary Shares will depend in part on the research and reports that securities or industry analysts publish about us or our industry. If research analysts do not establish and maintain adequate research coverage or if the analysts who cover us downgrade our Class A Ordinary Shares or publish inaccurate or unfavorable research about our industry, the market price for our Class A Ordinary Shares might decline. If one or more of these analysts cease coverage of us or fail to publish reports on us regularly, we could lose visibility in the financial markets, which in turn could cause the market price or trading volume for our Class A Ordinary Shares to decline.
Risks related to a future determination that the Public Company Accounting Oversight Board (the “PCAOB”) is unable to inspect or investigate our auditor completely.
As a public company with securities listed on the Nasdaq Capital Market, we will be required to have our financial statements audited by an independent registered public accounting firm registered with the PCAOB. A requirement of being registered with the PCAOB is that if requested by the SEC or PCAOB, such accounting firm is required to make its audits and related audit work papers be subject to regular inspections to assess its compliance with the applicable professional standards. Since our auditor is located in Hong Kong and China, a jurisdiction where the PCAOB has been unable to conduct inspections without the approval of the Chinese authorities due to various state secrecy laws and the revised securities law, the PCAOB currently does not have free access to inspect the work of our auditor. The lack of access to the PCAOB inspection in China prevents the PCAOB from fully evaluating audits and quality control procedures of the auditors based in China. As a result, the investors may be deprived of the benefits of such PCAOB inspections. The inability of the PCAOB to conduct inspections of auditors in China makes it more difficult to evaluate the effectiveness of these accounting firms’ audit procedures or quality control procedures as compared to auditors outside of China that are subject to the PCAOB inspections.
On March 24, 2021, the SEC adopted interim final amendments, which will become effective 30 days after publication in the Federal Register, relating to the implementation of certain disclosure and documentation requirements of the HFCAA (as amended by the Consolidated Appropriation Act, 2023). The interim final amendments will apply to registrants that the SEC identifies as having filed an annual report with an audit report issued by a registered public accounting firm that is located in a foreign jurisdiction and that the PCAOB has determined it is unable to inspect or investigate completely because of a position taken by an authority in that jurisdiction. Before any registrant will be required to comply with the interim final amendments, the SEC must implement a process for identifying such registrants. As of the date of this annual report, the SEC is seeking public comment on this identification process. Consistent with the HFCAA (as amended by the Consolidated Appropriation Act, 2023), the amendments will require any identified registrant to submit documentation to the SEC establishing that the registrant is not owned or controlled by a government entity in that jurisdiction, and will also require, among other things, disclosure in the registrant’s annual report regarding the audit arrangements of, and government influence on, such registrant.
On June 22, 2021, the U.S. Senate passed the Accelerating Holding Foreign Companies Accountable Act (“AHFCAA”), which has been enacted under the Consolidated Appropriations Act, 2023, on December 29, 2022, as further described below.
On November 5, 2021, the SEC approved PCAOB Rule 6100, Board Determination Under the Holding Foreign Companies Accountability Act, effective immediately. The rule establishes “a framework for the PCAOB’s determinations under the HFCAA (as amended by the Consolidated Appropriation Act, 2023) that the PCAOB is unable to inspect or investigate completely registered public accounting firms located in a foreign jurisdiction because of a position taken by an authority in that jurisdiction.”
42
On December 2, 2021, SEC has announced the adoption of amendments to finalize rules implementing the submission and disclosure requirements in the HFCAA. The rules apply to registrants the SEC identifies as having filed an annual report with an audit report issued by a registered public accounting firm that is located in a foreign jurisdiction and that the PCAOB is unable to inspect or investigate (Commission-Identified Issuers). The final amendments require Commission-Identified Issuers to submit documentation to the SEC establishing that, if true, it is not owned or controlled by a governmental entity in the public accounting firm’s foreign jurisdiction. The amendments also require that a Commission-Identified Issuer that is a “foreign issuer,” as defined in Exchange Act Rule 3b-4, provide certain additional disclosures in its annual report for itself and any of its consolidated foreign operating entities. Further, the adopting release provides notice regarding the procedures the SEC has established to identify issuers and to impose trading prohibitions on the securities of certain Commission-Identified Issuers, as required by the HFCAA (as amended by the Consolidated Appropriation Act, 2023). The SEC will identify Commission-Identified Issuers for fiscal years beginning after December 18, 2020. A Commission-Identified Issuer will be required to comply with the submission and disclosure requirements in the annual report for each year in which it was identified. If a registrant is identified as a Commission-Identified Issuer based on its annual report for the fiscal year ended December 31, 2021, the registrant will be required to comply with the submission or disclosure requirements in its annual report filing covering the fiscal year ended December 31, 2022.
On December 16, 2021, Public Company Accounting Oversight Board (PCAOB) issued a report on its determinations that PCAOB is unable to inspect or investigate completely PCAOB-registered public accounting firms headquartered in mainland China and in Hong Kong, a Special Administrative Region of the People’s Republic of China (PRC), because of positions taken by PRC authorities in those jurisdictions. The PCAOB made these determinations pursuant to PCAOB Rule 6100, which provides a framework for how the PCAOB fulfills its responsibilities under the Holding Foreign Companies Accountable Act (HFCAA). The report further listed in its Appendix A and Appendix B, Registered Public Accounting Firms Subject to the Mainland China Determination and Registered Public Accounting Firms Subject to the Hong Kong Determination, respectively. On August 26, 2022, the PCAOB signed a Statement of Protocol with the China Securities Regulatory Commission, or the CSRC, and the Ministry of Finance of the PRC, taking the first step toward opening access for the PCAOB to inspect and investigate registered public accounting firms headquartered in mainland China and Hong Kong. On December 15, 2022, the PCAOB announced that it “was able to secure complete access to inspect and investigate audit firms in the People’s Republic of China (PRC) for the first time in history, in 2022. Therefore, on December 15, 2022, the PCAOB Board voted to vacate previous determinations to the contrary.” Notwithstanding the foregoing, uncertainties exist with respect to the implementation of these provisions and there is no assurance that the PCAOB will be able to execute, in a timely manner, its future inspections and investigations in a manner that satisfies the Statement of Protocol. In addition, under the HFCAA (as amended by the Consolidated Appropriation Act, 2023), our securities may be prohibited from trading on the U.S. stock exchanges or in the over the counter trading market in the U.S. if our auditor is not inspected by the PCAOB for two consecutive years, and this ultimately could result in the Company’s common stock being delisted. On June 22, 2021, the U.S. Senate passed the Accelerating Holding Foreign Companies Accountable Act (“AHFCAA”), which was enacted under the Consolidated Appropriations Act, 2023, as further described below.
On December 29, 2022, the Consolidated Appropriations Act, 2023, was signed into law, which amended the HFCAA (i) to reduce the number of consecutive years that would trigger delisting from three years to two years, and (ii) so that any foreign jurisdiction could be the reason why the PCAOB does not to have complete access to inspect or investigate a company’s auditors. As it was originally enacted, the HFCAA applied only if the PCAOB’s inability to inspect or investigate because of a position taken by an authority in the foreign jurisdiction where the relevant public accounting firm is located. As a result of the Consolidated Appropriations Act, 2023, the HFCAA now also applies if the PCAOB’s inability to inspect or investigate the relevant accounting firm is due to a position taken by an authority in any foreign jurisdiction. The denying jurisdiction does not need to be where the accounting firm is located.
Our current independent auditors, Enrome LLP (“Enrome”), that issue the audit reports included elsewhere in this Annual Report is a Singapore-based accounting firms registered with the PCAOB and can be inspected by the PCAOB. We have no intention of dismissing Enrome in the near future or of engaging any auditor not subject to regular inspection by the PCAOB. There is no guarantee, however, that any future auditor engaged by the Company would remain subject to full PCAOB inspection during the entire term of our engagement. If we do not engage change to an auditor that is subject to regular inspection by the PCAOB, our Class A Ordinary Shares may be delisted.
The SEC may propose additional rules or guidance that could impact us if our auditor is not subject to PCAOB inspection. The enactment of the HFCAA and the implications of any additional rulemaking efforts to increase U.S. regulatory access to audit information in China could cause investor uncertainty for affected SEC registrants, including us, and the market price of our stock could be materially adversely affected. Additionally, whether the PCAOB will be able to conduct inspections of our auditors in the next three years, or at all, is subject to substantial uncertainty and depends on a number of factors out of our control. If we are unable to meet the PCAOB inspection requirement in time, our stock will not be permitted for trading “over-the counter” either. Such a delisting would substantially impair your ability to sell or purchase our stock when you wish to do so, and the risk and uncertainty associated with delisting would have a negative impact on the price of our stock. Also, such a delisting would significantly affect our ability to raise capital on terms acceptable to us, or at all, which would have a material adverse impact on our business, financial condition and prospects.
43
Future sales or other dilution of our equity could depress the market price of our Class A Ordinary Shares.
Future sales of our Class A Ordinary Shares, preferred shares, warrants, debt securities, units consisting of Class A Ordinary Shares, preferred shares, warrants, or debt securities, or any combination of the foregoing securities in the public market, or the perception that such sales could occur, could negatively impact the price of our Class A Ordinary Shares. We have a number of shareholders that own significant blocks of our Class A Ordinary Shares. If one or more of these shareholders were to sell large portions of their holdings in a relatively short time, for liquidity or other reasons, the prevailing market price of our Class A Ordinary Shares could be negatively affected.
In addition, the issuance of additional shares of our Class A Ordinary Shares, securities convertible into or exercisable for our Class A Ordinary Shares, other equity-linked securities, including warrants or any combination of the securities pursuant to the shelf registration statement will dilute the ownership interest of our shareholders and could depress the market price of our Class A Ordinary Shares and impair our ability to raise capital through the sale of additional equity securities.
We may need to seek additional capital. If this additional financing is obtained through the issuance of equity securities, debt convertible into equity or options or warrants to acquire equity securities, our existing shareholders could experience significant dilution upon the issuance, conversion or exercise of such securities.
You may face difficulties in protecting your interests, and your ability to protect your rights through the U.S. federal courts may be limited, because the Company is incorporated under Cayman Islands Companies Act.
We are an exempted company incorporated under the laws of the Cayman Islands. As a result, it may be difficult for investors to effect service of process within the United States upon our directors or executive officers, or enforce judgments obtained in the United States courts against our directors or officers.
Our corporate affairs are governed by our Memorandum and Articles of Association, the Cayman Islands Companies Act and the ordinary law of the Cayman Islands. We will also be subject to the federal securities laws of the United States. The rights of shareholders to take action against the directors, actions by minority shareholders and the fiduciary responsibilities of our directors to us under Cayman Islands law are to a large extent governed by the ordinary law of the Cayman Islands. The ordinary law of the Cayman Islands is derived in part from comparatively limited judicial precedent in the Cayman Islands as well as from English ordinary law, the decisions of whose courts are of persuasive authority, but are not binding on a court in the Cayman Islands. The rights of our shareholders and the fiduciary responsibilities of our directors under Cayman Islands law are different from what they would be under statutes or judicial precedent in some jurisdictions in the United States. In particular, the Cayman Islands has a different body of securities laws as compared to the United States, and certain states, such as Delaware, may have more fully developed and judicially interpreted bodies of corporate law. In addition, Cayman Islands companies may not have standing to initiate a shareholders derivative action in a Federal court of the United States.
44
We have been advised that the courts of the Cayman Islands are unlikely (i) to recognize or enforce against us judgments of courts of the United States predicated upon the civil liability provisions of the federal securities laws of the United States or any state; and (ii) in original actions brought in the Cayman Islands, to impose liabilities against us predicated upon the civil liability provisions of the federal securities laws of the United States or any state, so far as the liabilities imposed by those provisions are penal in nature. In those circumstances, although there is no statutory enforcement in the Cayman Islands of judgments obtained in the United States, the courts of the Cayman Islands will recognize and enforce a foreign money judgment of a foreign court of competent jurisdiction without retrial on the merits based on the principle that a judgment of a competent foreign court imposes upon the judgment debtor an obligation to pay the sum for which judgment has been given provided certain conditions are met. For a foreign judgment to be enforced in the Cayman Islands, such judgment must be final and conclusive and for a liquidated sum, and must not be in respect of taxes or a fine or penalty, inconsistent with a Cayman Islands judgment in respect of the same matter, impeachable on the grounds of fraud or obtained in a manner, or be of a kind the enforcement of which is, contrary to natural justice or the public policy of the Cayman Islands (awards of punitive or multiple damages may well be held to be contrary to public policy). A Cayman Islands Court may stay enforcement proceedings if concurrent proceedings are being brought elsewhere.
As a result of all of the above, public shareholders may have more difficulty in protecting their interests in the face of actions taken by management, members of the board of directors or controlling shareholders than they would as public shareholders of a United States company.
If we fail to implement and maintain an effective system of internal control to remediate our material weakness over financial reporting, we may be unable to accurately report our results of operations, meet our reporting obligations or prevent fraud.
As a public company, we are subject to the Sarbanes-Oxley Act of 2002. Section 404 of the Sarbanes-Oxley Act, or Section 404, requires that we include a report from management on the effectiveness of our internal control over financial reporting in our annual report on Form 20-F. In addition, once we cease to be an “emerging growth company” as defined in the JOBS Act, our independent registered public accounting firm must attest to and report on the effectiveness of our internal control over financial reporting. Our management may conclude that our internal control over financial reporting is not effective. Moreover, even if our management concludes that our internal control over financial reporting is effective, our independent registered public accounting firm, after conducting its own independent testing, may issue a report that is qualified if it is not satisfied with our internal control or the level at which our controls are documented, designed, operated or reviewed, or if it interprets the relevant requirements differently from us. In addition, our reporting obligations may place a significant strain on our management, operational and financial resources and systems for the foreseeable future. We may be unable to timely complete our evaluation testing and any required remediation.
During the course of documenting and testing our internal control procedures, in order to satisfy the requirements of Section 404, we may identify other weaknesses and deficiencies in our internal control over financial reporting. In addition, if we fail to maintain the adequacy of our internal control over financial reporting, as these standards are modified, supplemented or amended from time to time, we may not be able to conclude on an ongoing basis that we have effective internal control over financial reporting in accordance with Section 404. If we fail to achieve and maintain an effective internal control environment, we could suffer material misstatements in our financial statements and fail to meet our reporting obligations, which would likely cause investors to lose confidence in our reported financial information. This could in turn limit our access to capital markets, harm our results of operations, and lead to a decline in the trading price of our Class A Ordinary Shares. Additionally, ineffective internal control over financial reporting could expose us to increased risk of fraud or misuse of corporate assets and subject us to potential delisting from the stock exchange on which we list, regulatory investigations and civil or criminal sanctions. We may also be required to restate our financial statements for prior periods.
We are committed to remediating its material weakness as promptly as possible. However, there can be no assurance as to when this material weakness will be remediated or that additional material weaknesses will not arise in the future. If we are unable to maintain effective internal control over financial reporting, our ability to record, process and report financial information timely and accurately could be adversely affected, which could subject us to litigation or investigations, require management resources, increase our expenses, negatively affect investor confidence in our financial statements and adversely impact our stock price.
45
Certain judgments obtained against the Company by our shareholders may not be enforceable.
The Company is a Cayman Islands exempted company and all of our assets are located outside of the United States. Substantially all of our current operations are conducted in the PRC. In addition, all of the Company’s directors and officers are nationals and residents of countries other than the United States. A substantial portion of the assets of these persons are located outside the United States. As a result, it may be difficult or impossible for you to bring an action against the Company or against these individuals in the United States in the event that you believe that your rights have been infringed under the United States federal securities laws or otherwise. Even if you are successful in bringing an action of this kind, the laws of the Cayman Islands and of the PRC may render you unable to enforce a judgment against our assets or the assets of our directors and officers.
Nasdaq could delist our Class A Ordinary Shares, which could limit investors’ ability to transact in our securities and subject us to additional trading restrictions.
Our Class A Ordinary Shares are listed on The Nasdaq Capital Market, a national securities exchange. We cannot assure you that we will be able to remain in compliance with The Nasdaq listing requirements. If The Nasdaq Capital Market delists our Class A Ordinary Shares, we could face significant material adverse consequences, including:
| ● | a limited availability of market quotations for our securities; |
| ● | reduced liquidity for our securities; |
| ● | a determination that our Class A Ordinary Shares are a “penny stock” which will require brokers trading in our Class A Ordinary Shares to adhere to more stringent rules and possibly result in a reduced level of trading activity in the secondary trading market for our securities; |
| ● | a limited amount of news and analyst coverage; and |
| ● | a decreased ability to issue additional securities or obtain additional financing in the future. |
If our Class A Ordinary Shares become subject to the SEC’s penny stock rules, broker-dealers may experience difficulty in completing customer transactions, and trading activity in our securities may be adversely affected.
If at any time we have net tangible assets of $5,000,001 or less and our Class A Ordinary Shares have a market price per share of less than $5.00, transactions in our Class A Ordinary Shares may be subject to the “penny stock” rules promulgated under the Exchange Act. Under these rules, broker-dealers who recommend such securities to persons other than institutional accredited investors must:
| ● | make a special written suitability determination for the purchaser; | |
| ● | receive the purchaser’s written agreement to the transaction prior to sale; |
| ● | provide the purchaser with risk disclosure documents which identify certain risks associated with investing in “penny stocks” and which describe the market for these “penny stocks” as well as a purchaser’s legal remedies; and |
| ● | obtain a signed and dated acknowledgment from the purchaser demonstrating that the purchaser has actually received the required risk disclosure document before a transaction in a “penny stock” can be completed. |
If our Class A Ordinary Shares become subject to these rules, broker-dealers may find it difficult to effectuate customer transactions and trading activity in our securities may be adversely affected. As a result, the market price of our securities may be depressed, and you may find it more difficult to sell our securities.
46
We were a “shell company” and are subject to additional restrictions under Rule 144 on resales of our restricted securities.
The following is a quotation from subparagraph (i)(B)(2) of Rule 144: “Notwithstanding paragraph (i)(1), if the issuer of the securities previously had been an issuer described in paragraph (i)(1)(i) but has ceased to be an issuer described in paragraph (i)(1)(i); is subject to the reporting requirements of section 13 or 15(d) of the Exchange Act; has filed all reports and other materials required to be filed by section 13 or 15(d) of the Exchange Act, as applicable, during the preceding 12 months (or for such shorter period that the issue was required to file such reports and materials), other than Form 8-K reports (§249.308 of this chapter); and has filed current “Form 10 information” with the Commission reflecting its status as an entity that is no longer an issuer described in paragraph (i)(1)(i), then those securities may be sold subject to the requirements of this section after one year has elapsed from the date that the issuer filed “Form 10 information” with the Commission.” As a “shell company” immediately prior to the Business Combination, we will be subject to additional restrictions under Rule 144 which provides that no sales of our restricted securities could be sold until we have complied with subparagraph (i)(B)(2) of Rule 144.
There could be adverse United States federal income tax consequences to United States investors if we were or were to become a passive foreign investment company.
While we do not believe we are or will become a passive foreign investment company, or PFIC, there can be no assurance that we were not a PFIC in the past and will not become a PFIC in the future. The determination of whether or not we are a PFIC is made on an annual basis and will depend on the composition of our income and assets from time to time. Specifically, we will be classified as a PFIC for United States federal income tax purposes for any taxable year if either: (i) 75% or more of our gross income for that taxable year is passive income, or (ii) at least 50% of the value (determined on a quarterly basis) of our assets for that taxable year is attributable to assets that produce or are held for the production of passive income. See “Item 10. Additional Information — E. Taxation — Material United States Federal Income Tax Considerations — Passive Foreign Investment Company.”
Although we do not believe we were or will become a PFIC, it is not entirely clear how the contractual arrangements between us and our variable interest entities will be treated for purposes of the PFIC rules. If it were determined that we do not own the stock of our variable interest entities for United States federal income tax purposes (for example, because the relevant PRC authorities do not respect these arrangements), we may be treated as a PFIC. See “Item 10. Additional Information — E. Taxation — Material United States Federal Income Tax Considerations — Passive Foreign Investment Company.”
If we were or were to become a PFIC, adverse United States federal income tax consequences to our shareholders that are United States investors could result. For example, if we are a PFIC, our United States investors will become subject to increased tax liabilities under United States federal income tax laws and regulations and will become subject to burdensome reporting requirements. There can be no assurance that we were not or will not become a PFIC for any taxable year. You are urged to consult your own tax advisors concerning United States federal income tax consequence on the application of the PFIC rules. See “Item 10. Additional Information — E. Taxation — Material United States Federal Income Tax Considerations — Passive Foreign Investment Company.”
Item 4. INFORMATION ON THE COMPANY
A. History and Development of the Company
Introduction
On February 14, 2020, our predecessor, TKK, consummated a Business Combination contemplated by the Share Exchange Agreement dated as of September 6, 2019, as amended (“Share Exchange Agreement”), by and among TKK, Glory Star New Media Group Limited, a Cayman Islands exempted company (“Glory Star”), Glory Star New Media (Beijing) Technology Co., Ltd., a wholly foreign-owned enterprise limited liability company (“WFOE”) incorporated in the People’s Republic of China (“PRC”) and indirectly wholly-owned by Glory Star, Xing Cui Can, Horgos, each of Glory Star’s shareholders (collectively, the “Sellers”), TKK Symphony Sponsor 1, TKK’s sponsor (the “Sponsor”), in the capacity as the representative from and after the closing of the Business Combination for TKK’s shareholders other than the Sellers, and Bing Zhang, in the capacity as the representative for the Sellers thereunder, pursuant to which Cheer Holding, Inc. (“CHEER Holdings”) acquired 100% of the equity interests of Glory Star from the Sellers.
47
Upon the close of the Business Combination, we acquired all of the issued and outstanding securities of Glory Star in exchange for approximately 92,408 of our Class A Ordinary Shares, which includes 20,000 Class A Ordinary Shares that were issued to the former shareholders of Glory Star because certain financial performance targets were attained for both 2019 and 2020 fiscal years.
As a result of the Business Combination, Sellers became the controlling shareholders of the Company. The Business Combination was accounted for as a reverse merger, wherein Glory Star is considered the acquirer for accounting and financial reporting purposes.
We were incorporated as an exempted company under the laws of the Cayman Islands on February 5, 2018 under the name TKK Symphony Acquisition Corporation. In connection with the Share Exchange Agreement, we changed our name from “TKK Symphony Acquisition Corporation” to “Glory Star New Media Group Holdings Ltd.” As a result of the Business Combination, all of our business operations are conducted through our subsidiaries and our VIEs. On October 31, 2023, the shareholders of our Company passed a special resolution to change the Company’s name from “Glory Star New Media Group Holdings Limited” to “Cheer Holding, Inc.” (the “Name Change”). On November 1, 2023, the Company filed a certificate of incorporation on change of name with the Registry of Companies, Cayman Islands, reflecting the Name Change.
The following is a brief description of each of our subsidiaries and VIEs:
| ● | Glory Star. Glory Star New Media Group Limited (“Glory Star”) is an exempted company incorporated on November 30, 2018, under the laws of the Cayman Islands. Glory Star is authorized to issue 5,000,000 ordinary shares of which 2,000,000 ordinary shares are issued and outstanding. Glory Star is wholly owned by the Company. | |
| ● | Glory Star HK. Glory Star New Media Group HK Limited (“Glory Star HK”) is a limited company incorporated on December 18, 2018, under the Companies Ordinance of Hong Kong. The total amount of share capital of Glory Star HK is HKD 1.00 with one (1) authorized share. Glory Star HK is wholly owned by Glory Star. | |
| ● | WFOE. Glory Star New Media (Beijing) Technology Co., Ltd. (“WFOE”) is a wholly foreign-owned enterprise established by Glory Star HK on March 13, 2019. WFOE has been issued a business license (No. 91110113MA01HN7N6P) by the Beijing Administration for Industry and Commerce Shunyi District Bureau on April 4, 2019. | |
| ● | Xing Cui Can. Xing Cui Can International Media (Beijing) Co., Ltd. (“Xing Cui Can”) is a limited liability company incorporated under laws of PRC on September 7, 2016, and the current shareholders are: Bing Zhang, Jia Lu, Ran Zhang, Yixing He, Ronghui Zhang, Hui Lin, Hui Jin, Hanying Li, Yinghao Zhang, and Jiancong Xiao, all of whom are PRC residents. Xing Cui Can currently holds a business license issued by Beijing Administration for Industry and Commerce Chaoyang District Bureau. Through a series of contractual agreements, WFOE is deemed to control Xing Cui Can and have rights to consolidate all of Xing Cui Can’s audited financial results. | |
| ● | Horgos. Horgos Glory Star Media Co., Ltd. (“Horgos”) is a limited liability company incorporated under laws of PRC on November 1, 2016. The current shareholders are Xing Cui Can, Bing Zhang, Jia Lu, Ran Zhang, Yixing He, Ronghui Zhang, Hui Lin, Hui Jin, Hanying Li, Yinghao Zhang and Everest Venture Capital Investment Co., Ltd. (“Everest”). Horgos currently holds a business license issued by Horgos Market Supervisory Authority. Xianhong Liang and Jiancong Xiao are the beneficial owners of Horgos through Everest. Through a series of contractual agreements, WFOE is deemed to control Horgos and have rights to consolidate all of Horgos’s audited financial results. |
48
Prior to the incorporation of Glory Star, on August 31, 2017 (the “Acquisition Date”), Horgos completed the acquisition of 100% of the equity interest of Leshare Star (Beijing) Technology Co., Ltd. (“Beijing Leshare”), a company incorporated in the PRC, which is mainly engaged in internet advertising activities and owns a copyright of “Fashion Star Short Video App Leshare Software.” Horgos purchased all 100% equity interest of Beijing Leshare from six individual shareholders with a consideration of $0. Prior to the acquisition, Mr. Bing Zhang was the chief operation officer of Horgos and had a 65% equity interest in Beijing Leshare, hence the acquisition was deemed as a related party transaction. Beijing Leshare’s assets and liabilities were recorded at their carrying values as of the Acquisition Date, and the results of operations of Beijing Leshare are consolidated with the results of operations of CHEER Group, starting on August 31, 2017.
In addition, on October 26, 2018, Messrs. Bing Zhang, Ran Zhang and Jia Lu, management of Horgos, acquired 51% of the equity interest from Lead Eastern Investment Co., Ltd. (“Dangdai Dongfang”) in a management buy-out for RMB39.4 million ($6.0 million) based on the then net asset value of Horgos (“MBO”). Prior to the MBO, Dangdai Dongfang was the largest shareholder of Horgos, and wanted Horgos to focus on traditional advertising and the production of content for the cable TV networks, the business of Horgos at that time. However, the management of Horgos wanted to expand and transform Horgos into an online media and e-commerce company which is what the CHEER Group is today. However, at that time, Dangdai Dongfang did not wish to make the additional investments into Horgos’ new business and was in fact looking to liquidate its holdings in Horgos because of its own financial troubles at that time. Immediately following the closing of the MBO, Dangdai Dongfang ceased to be a shareholder of Horgos and Mr. Bing Zhang, directly and indirectly through Xing Cui Can, became the controlling shareholders of Horgos, holding 72.58% of the equity interest in Horgos.
Dual-Class Share Structure
Our Third Amended and Restated Memorandum and Articles of Association (the “MAA”) includes a dual Class Share Structure of Class A Ordinary Shares and Class B Ordinary Shares with the following rights:
| ● | Class A Ordinary Shares and Class B Ordinary Shares shall at all times vote together as one class on all resolutions submitted to a vote by the shareholders; |
| ● | Each Class A Ordinary Shares shall be entitled to one (1) vote on all matters subject to vote at general meetings of the Issuer, and each Class B Ordinary Share shall be entitled to one hundred (100) votes on all matters subject to vote at general meetings of the Issuer; |
49
| ● | Upon winding up of the Issuer, holders of Class A Ordinary Shares shall be entitled to participate in the surplus assets of the Issuer, and holders of Class B Ordinary Shares shall only be entitled to repayment of capital; |
| ● | In terms of dividends, holders of Class A Ordinary Shares shall be entitled the right to receive dividend, and holders of Class B Ordinary Shares shall not be entitled to any dividends; |
| ● | As to redemption, a Class B Share may be redeemed at par value at the option of the holder; and |
| ● | Class A Ordinary Shares and Class B Ordinary Shares are not convertible. |
The Charter Amendment was approved by our shareholders on August 28, 2024.
Entry into Subscription Agreement for Class B Ordinary Shares
On September 9, 2024, the Company entered into a Subscription Agreement (the “Subscription Agreement”) with Mr. Bing Zhang, the Company’s Chairman, Director, Chief Executive Officer and Chief Financial Officer. Pursuant to the Subscription Agreement, the Company agreed to issue and sell to Mr. Zhang an aggregate of 500,000 Class B Ordinary Shares of the Company, at par, for an aggregate purchase price of US$500, or US$0.001 per share (the “Share Purchase”). The closing of the Share Purchase occurred on September 9, 2024.
Class A Ordinary Shares and Class B Ordinary Shares shall at all times vote together as one class, and each Class A Ordinary Share shall be entitled to one (1) vote and each Class B Ordinary Share shall be entitled to one hundred (100) votes. Class B Ordinary Shares are not convertible into Class A Ordinary Shares, and may be redeemed by the Company at par value at the option of the holder.
The Share Purchase was approved by the Company’s shareholders on August 28, 2024, and authorized and approved by our board of directors on September 4, 2024. The Share Purchase is intended to support our management team’s ability to implement a sustainable development strategy to fully integrate the Company’s multi-platform portfolio to become one of the most innovative internet companies in China. This structure will assist in the continuity of management in order to implement its short- and long-term business plan without being distracted by external financial market factors which, many times, are out of management’s control.
2024 Equity Incentive Plan
On July 15, 2024, our board of directors approved our 2024 Equity Incentive Plan (“2024 Plan”), which was approved by our shareholders on August 28, 2024. The 2024 Plan allows for the award of stock and options, up to 40,000 Class A Ordinary Shares.
Share Repurchase Program
On December 2, 2024, our board of directors approved a share repurchase program authorizing a repurchase of up to $50 million of our Class A Ordinary Shares over the next 36 months (the “Share Repurchase Program”). Repurchases under the Share Repurchase Program may be made through open market purchases or privately negotiated transactions in accordance with applicable U.S. federal securities laws. The timing and method of repurchases, and the exact number of Class A Ordinary Shares to be purchased will be determined by our management, in its discretion, and will depend upon market conditions and other factors. Share Repurchase Program may be suspended, adjusted, or discontinued at any time. No assurance can be given that any amount of Class A Ordinary Shares will be repurchased under the Share Repurchase Program. As of the date of this annual report, no Class A Ordinary Shares have been repurchased by the Company.
50
Charter Amendment
On May 12, 2025, at our annual general shareholder meeting, our shareholders authorized and approved an increase in the number of authorized Class A ordinary shares, par value US$0.001 per share, from 200,000,000 to 500,000,000. In connection with this approval, the shareholder resolution (“Amendment Resolution”) was filed with the Registrar of Companies of the Cayman Islands on May 13, 2025, and incorporated into the Third Amended and Restated Memorandum and Articles of Association (the “MAA”). This filing of the Amendment Resolution to the MAA effected an increase of the Company’s authorized share capital from US$200,700, divided into 200,000,000 Class A ordinary shares of a par value of US$0.001 each (the “Class A Shares”), 500,000 Class B ordinary shares of a par value of US$0.001 each (the “Class B Shares”), and 2,000,000 preferred shares of a par value of US$0.0001 each, to US$500,700, divided into 500,000,000 Class A Shares, 500,000 Class B Shares, and 2,000,000 preferred shares of a par value of US$0.0001 each.
Share Consolidation
On December 22, 2025, the Company effected a share consolidation so that every 50 Class A ordinary shares of a par value of US$0.0001 each in the authorized share capital of the Company (including issued and unissued share capital) be consolidated into 1 ordinary share of a par value of US$0.001, such that immediately following the Share Consolidation, the authorized share capital of the Company will be US$500,700 divided into 10,000,000 Class A ordinary shares of a par value of US$0.05 each; 500,000 Class B ordinary shares of a par value of US$0.001 each; and 2,000,000 preferred shares of a par value of US$0.0001 each.
Nasdaq Deficiency and Hearing
On November 19, 2025, we received a notice from The NASDAQ Stock Market LLC (“Nasdaq”) notifying us that we were not in compliance with the minimum bid price requirement of $1.00 per share under the Nasdaq Listing Rules 5550(a)(2) (the “Rule”). In addition, on November 19, 2025, the Company received a letter from Nasdaq that, as of November 18, 2025, it had determined that the Company’s securities had a closing bid price of $0.10 or less for ten consecutive trading days (the “Letter”). Accordingly, the Company was subject to the provisions contemplated under Listing Rule 5810(c)(3)(A)(iii) (the “Low Priced Stocks Rule,” together with the Rule, the “Rules”). As a result, the staff of the Nasdaq had determined to delist the Company’s securities from The Nasdaq Capital Market (the “Delisting Determination”) unless the Company timely requested a hearing before the Nasdaq Hearings Panel (the “Panel”) by November 26, 2025, which would stay the suspension of the Company’s securities and the filing of the Form 25-NSE pending the Panel’s decision.
The Company subsequently requested a hearing to appeal the Delisting Determination, which stayed the suspension of the Company’s securities under the Delisting Determination.
To regain compliance, the Board of Directors of the Company authorized and approved to effect the Share Consolidation, which took effect on December 22, 2025 and began trading on a post-consolidation-adjusted basis on December 23, 2025.
On January 13, 2026, the Company appeared before the Panel to present its compliance plan for continued listing. On January 27, 2026, the Panel notified the Company that it granted the Company’s request to continue its listing on Nasdaq, and confirmed that the Company regained compliance with the minimum bid price requirement set forth in Rule 5550(a)(2) of the Rules.
2026 Extraordinary General Meeting
On March 16, 2026 (Beijing Time), the Company held an extraordinary general meeting, at which our shareholders approved a proposal, as a special resolution, subject to certain conditions being met, that the authorised share capital of the Company be reduced and amended to US$500,699.95 divided into 3,333,333 Class A ordinary shares of a par value of US$0.15 each, 500,000 Class B ordinary shares of US$0.001 each and 2,000,000 preferred shares of a par value of US$0.0001 each by the cancellation of 1 authorised but unissued Class A ordinary share of a par value of US$0.05 and the consolidation of the remaining 9,999,999 Class A ordinary shares such that each 3 Class A ordinary shares of a par value of US$0.05 each in the authorised share capital of the Company (including issued and unissued share capital) be consolidated into 1 Class A ordinary share of a par value of US$0.15 (collectively, the “Share Consolidation and Reduction”); provided, however, the implementation and timing of such Share Consolidation and Reduction to be determined in the discretion of the Board of Directors.
51
Foreign Private Issuer Status
We are a foreign private issuer within the meaning of the rules under the Exchange Act. As such, we are exempt from certain provisions applicable to United States domestic public companies. For example:
| ● | we are not required to provide as many Exchange Act reports, or as frequently, as a domestic public company; | |
| ● | for interim reporting, we are permitted to comply solely with our home country requirements, which are less rigorous than the rules that apply to domestic public companies; |
| ● | we are not required to provide the same level of disclosure on certain issues, such as executive compensation; | |
| ● | we are exempt from provisions of Regulation FD aimed at preventing issuers from making selective disclosures of material information; | |
| ● | we are not required to comply with the sections of the Exchange Act regulating the solicitation of proxies, consents or authorizations in respect of a security registered under the Exchange Act; and | |
| ● | we are not required to comply with certain parts of Section 16 of the Exchange Act establishing insider liability for profits realized from any “short-swing” trading transaction. |
The SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. The address of the SEC’s Internet site is http://www.sec.gov. We maintain an Internet site at http://gsmg.co. However, information contained in, or that can be accessed through our website or any other website cited in this annual report is not part of this annual report.
Our principal executive offices are located at 19F, Block B, Xinhua Technology Building, No. 8 Tuofangying South Road, Jiuxianqiao, Chaoyang District, Beijing, China 100016, Our telephone number at this address is + 86-10-87700500.
B. Business Overview
We provide advertisement and content production services and operate a leading mobile and online advertising, media and entertainment business in China. Our main productions include short videos, online variety shows, dramas, live streams, and the CHEERS series. Since launching the CHEERS App in 2018, we have become a major content-driven e-commerce platform in China, focusing on original lifestyle content to monetize our advertising and e-commerce platform. We focus on creating original lifestyle content to monetize our advertising and e-commerce platform. We mainly offer and generate revenue from the copyright licensing of self-produced content, advertising and customized content production and CHEERS e-Mall marketplace service, membership fees, and others.
In addition, as part of our long term retail strategy, we plan to continue leveraging our CHEERS ecosystem, blockchain technologies and strategic collaborations with various partners on AR and VR technologies, to develop a metaverse platform that features a virtual world containing immersive experiences in intelligent retail, video on demand, social networking, gaming and AI-driven content creation. As a pioneer, our strategy has always been committed to advanced technology, innovation and digital disruption in the media and entertainment industry.
52
In July 2023, we launched CHEERS Telepathy, a groundbreaking AI content creation platform that incorporates multimodal functions. Powered by the Company’s intelligent cloud-based service “Polaris”, CHEERS Telepathy offers a glimpse into the future of art, by providing a stable and reliable AI content creation experience that allows for unprecedented possibilities of art and creativity. In September 2023, we unveiled an upgrade on CHEERS Telepathy that further enhance digital content production and interaction, which became available following regulatory approval. CHEERS Telepathy has now emerged as a comprehensive, end-to-end AI application tool for integrated marketing of creative content. In October 2025, we released an upgrade to CHEERS Telepathy, which is now powered by our new, self-developed Polaris Intelligent Cloud 3.0 model. This major upgrade delivers a full-stack technological revolution within CHEERS Telepathy. The enhanced platform seamlessly converges professional-grade computational photography with dynamic, real-time content generation—enabling studio-quality portrait capture and AI-driven content synthesis through a unified, intuitive interface. This release further solidifies CHEERS Telepathy’s position as a comprehensive, end-to-end AI application tool for integrated marketing of creative content, unlocking unprecedented possibilities for artistic expression and digital production.
We believe that our strategic integration of cutting-edge AI technologies positions our company as a leader in redefining content creation, digital ecosystems, and next-generation human-AI interaction. We are currently developing a dedicated global AI portrait and video product line, with beta testing anticipated to begin around the second fiscal quarter of 2026. Beginning in 2026, we have begun shifting our strategic focus towards overseas expansion and are working to accelerate our global presence. We are committed to utilizing innovative product applications and technologies to drive its long-term sustainable and scalable growth.
Recent Business Developments
We leverage AI technology to enhance content creation, digital ecosystems, and human-AI interaction, driving long-term growth through innovative products and services.
In February 2024, we launched the Year of the Dragon Edition of CHEERS Telepathy. This major upgrade included substantial advancements in model architecture, computing power, and content creation capabilities, including painting, text-to-image, image-to-image, commercial scenarios, dialogue, and long-form text generation.
In June 2024, we released CHEERS Telepathy 2.0. This version featured more advanced and complicated algorithms and models, more powerful application capacity, and more comprehensive AI interaction functionalities to improve user experience, as well as a richer, more diverse and authentic generation effect.
In December 2024, we released CHEERS Telepathy 2.5. This upgrade provided further technical and application advancements, integrating innovative AI tools for content creators.
In April 2024, our Beijing subsidiary was recognized as Specialized and Innovative Enterprise. The Company’s consecutive recognition as both National High-Tech Enterprise and Specialized and Innovative Enterprise specializing in advanced technologies underscores its leadership in technological innovation, robust market competitiveness, and dominant position within the media technology sector. These accolades highlight the Company’s ability to deliver cutting-edge, unique products through specialized expertise.
In January 2025, we discontinued our CheerReal platform and ceased all related operations. No revenue was generated from CheerReal during the year ended December 31, 2025.
In October 2025, we released CHEERS Telepathy 3.0. This version features the AI Portrait Studio, which introduces advance portrait-creation technology, powered by our new, self-developed Polaris Intelligent Cloud 3.0 model. This major upgrade delivers a full-stack technological revolution within CHEERS Telepathy. The enhanced platform seamlessly converges professional-grade computational photography with dynamic, real-time content generation—enabling studio-quality portrait capture and AI-driven content synthesis through a unified, intuitive interface. This release further solidifies CHEERS Telepathy’s position as a comprehensive, end-to-end AI application tool for integrated marketing of creative content, unlocking unprecedented possibilities for artistic expression and digital production. In addition, we have opened the AI Portrait API to brands, photographers, and other developers, to build a collaborative creation environment. CHEERS Telepathy currently supports users in 12 countries and regions.
53
Recent Financings
On October 1, 2025, the Company priced a best efforts public offering for the sale of 253,731 units, each consisting of one Class A Ordinary Share, a pre-funded warrant (each a “Pre-Funded Warrant”), one series A warrant to purchase one Class A Ordinary Share (each a “Series A Warrant”) and one series B warrant to purchase one Class A Ordinary Share (each a “Series B Warrant”) for aggregate gross proceeds to the Company of approximately $8.5 million, before deducting placement agent fees and other estimated expenses payable by the Company, excluding the exercise of any warrants offered. Each of the Series A Warrant and the Series B Warrant had an initial exercise price of $0.7035 per Class A Ordinary Share and are exercisable beginning on the date of the issuance date and will expire on the one-year anniversary of the issuance date. The exercise price of the Series A and Series B Warrants and the number of Class A Ordinary Shares issuable upon exercise of the Series A and Series B Warrants will also be subject to adjustment in the event of share subdivisions, share dividends and other recapitalization events. If at the time of any exercise of either the Series A or Series B Warrants, there is no effective registration statement registering, or the prospectus contained therein is not available for the issuance of the Class A Ordinary Shares underlying the Series A and Series B Warrants to the holder, in lieu of making the cash payment to us upon such exercise, the holder may elect instead to receive upon a “cashless exercise” (either in whole or in part) the number of Class A Ordinary Shares determined according to the formula set forth in the Series A and Series B Warrants. A holder of the Series B Warrants may also effect an exercise at a “zero exercise price” at any time while the Series B Warrants are outstanding. Under the zero exercise price option, the holder of Series B Warrants has the right to receive 0.10247 Class A Ordinary Shares for each Series B Warrant exercised, which will be more than such number of Class A Ordinary Shares that is issuable upon cash exercise or cashless exercise. Under the zero exercise price option of the Series B Warrants, the maximum number of Class A Ordinary Shares that may be issued to the holders of Series B Warrants is 1,300,000 in the aggregate. The offering closed on October 2, 2025.
On November 5, 2025, we priced a registered direct offering for the sale of our Class A Ordinary Shares or pre-funded warrants in lieu thereof for aggregate gross proceeds to the Company of approximately $15 million, before deducting placement agent fees and other estimated expenses payable by us, including the pre-paid exercise price of the pre-funded warrants offered. The offering was comprised of 3,750,000 Class A Ordinary Shares, or in lieu thereof, a pre-funded warrant to purchase one Class A Ordinary Share. The offering closed on November 6, 2025.
Our Vision
As a leading provider of next-generation mobile internet infrastructure and platform services in China, we are committed to building a comprehensive digital ecosystem that seamlessly integrates platforms, applications, technology, and industry. By harnessing the power of AI, we are creating an open and innovative business environment tailored for the Web 3.0 era. We are also at the forefront of developing a metaverse that combines 5G, VR, AR, and AI, underpinned by cutting-edge technologies such as blockchain, cloud computing, extended reality, and digital twin.
Our Business
Established in 2016, we focused on providing advertisement and content production services and becoming a leading mobile and online advertising, media and entertainment business in China by creating professionally-produced content featuring lifestyle, culture and fashion. In 2018, we expanded into e-commerce services by introducing our CHEERS App, which integrated our e-commerce services with professionally-produced content. Primary to our vision, we continue to produce, create and add to our rich library of short videos, drama series, and live streaming, which we own and stream on our mobile app, Internet Protocol Television (IPTV), and online platform, as well as for distributions and licensing to other mediums such as Chinese television stations and third party online streaming platforms throughout China and the world. Leveraging the popularity of our professionally-produced content and distribution networks, we drive viewing audiences to our CHEERS ecosystem to convert them as users of our online video streaming services and as customers to our e-Mall and online games.
54
Since our establishment, we have focused on developing an ecosystem for our users that incorporates quality content, e-commerce, social networking and gaming. These core elements have formed the basis of our future metaverse platform and continues to provide us a strong competitive advantage in realizing our new strategic objectives. We plan to continue to integrate our cutting edge AI and blockchain technologies, massive user base from our CHEERS ecosystem, quality content offerings, and our e-commerce platform, with our strategic partners in 5G, AR/VR equipment supports, to develop a metaverse boasting a wide range of “online + offline” and “virtual + reality” scenarios. By leveraging our CHEERS ecosystem, we aim to continue researching and developing different entertainment and shopping applications for our planned metaverse platform, and to provide a suite of tools for our users to facilitate the development of new content by creators.
In addition, we have begun making overseas expansion a strategic priority starting in 2026, with plans to pivot into Asia, Latin America and North America. We want to leverage the CHEERS ecosystem already developed in China by expanding our product and service offerings outside of China, beginning in high-growth markets in the Asia Pacific regions such as Japan, South Korea and Singapore. Beginning in 2026, we have begun shifting our strategic focus towards overseas expansion and are working to accelerate our global presence. By focusing towards overseas expansion to become a global company, we believe we will become a stronger and more valued company. We plan to roll out a series of internationally exclusive AI applications spanning sectors including lifestyle and smart living. We are currently developing a dedicated global AI portrait and video product line, with beta testing anticipated to begin around the second fiscal quarter of 2026.
As of December 31, 2025, the total number of app downloads across the Company's platforms reached 550 million, a year-on-year increase of 5.0%, as compared to total downloads of 523.3 million as of December 31, 2024.
CHEERS Video
CHEERS Video app is a professionally-produced and curated media platform that engages users with high-quality content, and continues to develop lifestyle short videos and interactive live-broadcasting. We have upgraded the platform to include UGC rights management system. With these upgrades, content creators now have access and opportunity to co-build the platform and contribute to the improvement of the content production ecosystem. We have made a new strategic plan of cultivating outstanding content creators and producing high quality UGC in the long run in partnership with us. The plan includes multiple initiatives such as traffic support and cash subsidies for content creators and guidance of trending topics to support the creation of high-quality videos.
In 2023, another comprehensive upgrade through an exhaustive eight-month process and culminated in a brand new version, the platform has undergone a paradigm shift in its underlying structure, technological framework, UI interface, and all functional modules. The result is an immersive and user-centric experience, with enhanced visibility and seamless accessibility to a multitude of features. By aligning with users’ visual and operational preferences, the redesigned layout structure provides an intuitive and gratifying journey, elevating user satisfaction to unprecedented levels.
CHEERS e-Mall
Leveraging our brand, large viewership, and users of our CHEERS video platform, in April 2019, we launched our e-Mall where we offer products to our users through third party merchants that we have screened and approved. We charge third-party merchants on our CHEERS e-Mall platform a service fee and a commission for the sales of their products.
While the CHEERS video platform has maintained high business growth for us, the e-Mall has also expanded our presence in video content-driven e-commerce industry and has become another growth driver for us. With the independent operation of the e-Mall, we will look to deploy more resources to our e-commerce business, expand into the cross-border e-commerce market, and achieve greater business autonomy. We believe that the independent operation of the CHEERS e-Mall platform will allow it to be better integrated with other applications, leading to improved business performances and growth.
55
Furthermore, the independent operations of the CHEERS e-Mall and CHEERS video platforms continue to be key growth drivers for us, through the complemental nature of the unique technology, premium content, and strong consumer data insight made possible by our content-driven ecosystem.
The following is a summary of the e-Mall platform of our CHEERS App:
| - | Live Streaming E-Commerce |
Live streaming e-commerce is emerging as one of the most innovative and monetizable tools for content creators. To protect the interests of our content creators, which is one of the values that we uphold in our ecosystem, we connects CHEERS e-Mall’s SAAS supply chain system to the platform, allowing content creators to choose relevant products to sell at their own discretion. Creators can earn commissions and receive related task rewards from their live streaming content. In addition, the platform utilizes blockchain technology to ensure each transaction is correctly ledgered. Through these measures, we believe we have built a substantial closed-loop business model and created additional value for clients within our ecosystem and enhances user engagement, which should help us continue to expand its revenue potential on the CHEERS ecosystem.
We currently have eleven (11) live streaming shows in production, each 90-180 minute segments, where users can interact with each other and the hosts, obtain discount coupons by participating in our real-time online games and quizzes, and make purchases in our e-Mall with these discount coupons. In addition, as requested by some clients, some live streaming shows are customized in order to lead the audience to make purchases in the clients’ online stores and/or in other e-commerce platforms such as JD.com and Taobao.com. We monetize our live streaming shows by promoting products where our subscribers can purchase products through our e-Mall. In addition, our e-commerce suppliers and distributors of our e-Mall have the option to enter separate advertising agreements with us to promote their products in our live streaming shows.
| - | Online Short Videos |
We stream our professionally-produced content on our CHEERS video platform where we generate advertising revenues from traditional pre-video, in-video, banner advertisements, and pop-up advertisements. We also generate revenues from soft product placements that are incorporated into our original video content. We leverage our deep library of professionally-produced content, large viewing audience base, and big data analytics capabilities to help our advertisers target their specific demographics in China.
We will continue to actively introduce high-quality IP and support high-quality content creators, in order to retain more users through our content ecosystem to which will connect our CHEERS video platform, content creators, and users in a closed-loop business model and accelerate our growth at scale. We will leverage the strategic advantages of user-generated content (“UGC”) to stimulate the vitality of the system to a greater extent, build a benign development ecosystem, and consolidate the core competitiveness of the Platform to well-position the Company for the future growth.
| - | Online Games |
We have developed four (4) online games for our CHEERS e-Mall platform where players can play the games that we have developed in-house. We monetize online games through users’ in-app purchases of gift packages and game privileges.
CHEERS Telepathy
CHEERS Telepathy is a leading multimodal artificial intelligence (“AI”) content creation platform. Launched in July 2023, CHEERS Telepathy utilizes the Company’s intelligent cloud-based service “Polaris” and offers multimodal functions for digital content production and interaction. CHEERS Telepathy is now a comprehensive AI tool for creative content marketing and is able to caters to diverse AI needs across private and commercial applications, delivering efficient and stable services.
56
Leveraging the advanced computational power of “Polaris”, CHEERS Telepathy delivers exceptional performance efficiency and real-time responsiveness. Equipped with multi-dimensional data analysis capabilities, it is able to process complex visual inputs to enable data-driven decision-making. This unique competency allows CHEERS Telepathy to manage full-spectrum creative content, spanning basic text, video scripts, storyboards, and beyond. Building on its technical leadership in AI, the platform integrates intelligent functionalities such as smart tagging, dynamic recommendation engine, adaptive formatting, and AI-Powered content generation. By generating scenario-specific creative content tailored to user-defined objectives, CHEERS Telepathy continuously refines content strategies through behavioral feedback analysis, enhancing interactive engagement and driving marketing return on investment (ROI).
CHEERS Telepathy is currently used in animation production, film and television, content creation, e-commerce, advertising, education, and entertainment. It offers innovative features like control over the first and last frames of image-to-video generation. CHEERS Telepathy is able to generate and deliver AI-powered content, including the production of animated short films and series based on classic Chinese literary masterpieces such as “Water Margin”, “Strange Tales from a Chinese Studio”, and “Mysteries of the Mountains and Seas”. We believe that our unique approach in utilizing our AI technologies will achieve substantial market influence and commercial success.
Core Functions and Technical Features:
| - | Multimodal AI Capabilities: Includes text-to-video, image-to-video, text generation, image processing, and video generation. |
| - | Advanced Video Generation: Produces 60-second videos at 30 frames per second with 1080P resolution. |
| - | Hybrid Neural Network Model: Ensures fast interaction response times and data security through encryption. |
CHEERS Telepathy generates revenue through (1) advertising and Data Monetization, through the optimization of Search Engine Optimization (SEO) and ad placement to enhance advertising effectiveness, (2) subscription and pay per use, where users can pay for individual uses or opt for membership plans for content generative services, (3) customized enterprise AI solutions for businesses to improve efficiency or sales, (4) application integration and application programming interface (API) Fees by providing for the integration with multimodal tools and API call services, (5) revenue sharing from AI-generated content, (6) personalized services for e-commerce businesses and (7) ecosystem revenue sharing by collaborating with other platforms for revenue sharing.
CHEERS Telepathy’s many functions makes it a perfect content creation tool without a steep learning curve for users starting with no background in design. For graphics creation, It is easily navigable for beginners to identify design and usability metrics that can personalize content creation and improve user engagement. In addition, CHEERS Telepathy is able to automate tasks ranging from content writing to data extraction and translation, and can quickly create a piece of compelling and informative original article that not only provides insights but resonates with a user’s target audience.
CHEERS API
CHEERS API open platform is a leading provider of industry digital transformation solutions and data integration, with a digital technology-driven approach. The platform focuses on developing diversified service modules tailored to industry demands, combining domain-specific best practices with cutting-edge technological empowerment, for use in services including, but not limited to, content creation, e-commerce, media and the Internet of Things (IoT). We are committed to delivering premium products and scenario-based solutions for enterprise users, CHEERS API open platform enables businesses to accelerate digital innovation through application programming interfaces (API) ecosystem integration.
57
The company’s self-developed CHEERS API open platform offers a full-stack API data service covering data aggregation, intelligent routing, and usage analytics. By exposing core technical capabilities to partners across the value chain, it drives the evolution of data services in the Internet era, helps enterprise users to obtain API data quickly and develop efficiently, greatly reduces the development and operation costs, and supports the rapid innovation of enterprise business.
In 2024, the platform achieved 61 million total API transactions with 450,000+ daily active integrations, demonstrating its critical role in powering enterprise digital infrastructure. Currently we are still in the beta testing stage and we do not charge for the use of our CHEERS API open platform.
In 2025, the CHEERS API concluded its Beta testing and entered the promotion phase aimed at expanding its user base. Concurrently, building on the interfaces already launched, preparations have begun for a new round of API releases, fully demonstrating its key role in driving enterprise digital infrastructure. To maintain the continuous and stable growth of its user base, the CHEERS API Open Platform will temporarily not charge usage fees.
CheerCar
CheerCar is our self-developed interactive entertainment app launched among the first batch on Tencent Auto Intelligence, an Internet of Vehicles ecosystem. As an onboard interactive entertainment app that was designed to provide entertainment in vehicles, CheerCar makes connections between passengers and in-vehicle infotainment systems closer and more efficient. As an app in Tencent’s IoV ecosystem, CheerCar allows users to set preferences and browse individualized content from our library of high-quality videos that are available on its CHEERS video platform. CheerCar also uses a personalized intelligent algorithm recommendation system to recommend contents based on user’s preferences. Currently we do not charge for the use of our CheerCar entertainment app.
CheerChat
CheerChat is our AI social app which has entered the beta phase of testing since 2021. By leveraging the traffic of our CHEERS ecosystem, our CheerChat app will have strong and distinct competitive advantages in penetrating the social audio market. CheerChat will provide users with individual and group matching functions, while connecting high-quality content communities that utilize intelligent voice translation technology. Our innovative technology and business model will provide its CheerChat users with unique social scenarios and a more personalized entertainment experience for social audio networking. We believe that launch of our CheerChat app will be a key development in our progression into the metaverse.
The launch of CheerChat app has been delayed due to development and implement of AI technology, which will improve the overall user experience and development of our CHEERS ecosystem. The launch of CheerChat demonstrates our emphasis on continuing to apply innovative technologies to our business model and create further value through strategic investment in research and development. This long-term vision enables us to maintain our leading position in the new media industry.
CHEERS Metaverse
In December 2023, we announced a groundbreaking advancement in our metaverse retail strategy. By harnessing state-of-the-art technologies, including artificial intelligence, digital twin, cloud computing, and blockchain, the Company is poised to deliver tangible outcomes and redefine the future of shopping in convergence of Web 3.0 and AI.
CHEERS Metaverse is a revolutionary platform meticulously crafted to provide an unparalleled immersive digital experience. Within this virtual realm, users effortlessly navigate through a dynamic landscape integrating intelligent retail, video on demand, social networking, and gaming. By seamlessly blending the physical and virtual domains, this visionary platform empowers users with real-time interactive experiences. Through the transformative power of this integrated ecosystem, the next generation of e-commerce emerges, connecting diverse facets of online and offline shopping contexts. Each user can enter personalized scenarios, protected by robust privacy measures, and engage in transactions with the utmost confidentiality.
58
Series TV Shows
In February 2017, we started production of our series TV shows, which contain six (6) lifestyle shows, including Cheers Foodie, Cheers Health, Cheers Fashion, Cheers Baby, Cheers Space and Cheers World, each episode is 30 minutes in length. Our series TV shows are unique in the content creation and production, with trending lifestyle updates filmed both in-studio and outdoors. We generate revenues from our series TV shows by licensing to TV stations with exclusive advertising times and charging advertising fees, and by displaying products of our e-Mall. We distribute and promote our series TV shows content on a variety of online video platforms, mobile apps, IPTV and television channels where we generate advertising revenues from traditional pre-video, in-video, and pop-up advertisements. We also generate revenues from soft product placements that are incorporated into our series TV shows. We produce and license our series TV shows for airing on local broadcast, basic cable television networks, and throughout China. Our shows can be seen on satellite stations such as Anhui Satellite Television and Shenzhen Satellite Television, which are year-to-year contracts. The following is a summary of our series TV shows:
| Cheers Health |  |
This TV program features and promotes healthy lifestyle. | ||
| Cheers Fashion |  |
This TV program features high-end fashion and beauty, and is touted as the fashion bible in the fashion field. | ||
| Cheers World |  |
This TV program is China’s only leading short tourism program that brings together the world’s best tourism destinations, sharing travel experiences from unique perspectives of the visitors and the cultural scene of the destinations. It has been fully recommended by the cultural centers or consulates of foreign embassies in China and has close ties and cooperation with embassies in many countries around the world. | ||
| Cheers Baby |  |
This TV program is hosted by Cao Ying, who shares the parenting experience of parents in the form of question and answer format, and in-depth interviews. This is one of few programs of this type in China. | ||
| Cheers Foodie |  |
This TV program centers around food and the stories between people and food from various perspectives. Since the launch of Shenzhen Satellite TV, our average ranking has remained stable within the top 8 in China. | ||
| Cheers Space |  |
This regular weekly program focuses on home décor and interior design. |
59
Drama & Variety Shows
We have partnered with third parties to produce and license original online drama and variety show series for distribution on online video platforms. We currently developed the following drama series and variety shows:
| My Greatest Hero |  |
This TV series explores the lives of a high school tennis team. This program is in partnership with iQIYI and has become one of the most popular youth TV series. | ||
| Hi! Rap Season 1 |  |
This variety show was developed in 2018 as a “light-variety” talk show. | ||
| Hi! Rap Season 2 |  |
In 2019, we developed season 2 of this variety show. It is currently one of the most popular variety shows in China. | ||
| Hi! Rap Season 3 |  |
Hi! Rap Season 3 has become one of the most sought after online variety shows for millennials since its initial launch on August 22, 2020. | ||
| Star Makeover |  |
Since premiering on May 5, 2021, the show’s ratings have skyrocketed and the Show has also continued to maintain top ratings for mainstream TV programs in China. |
Depending on the contract with our partners, we can either share revenues generated by the number of viewers, or share advertising revenues generated by the contents.
Advertising
We distribute and promote our professionally-produced content on our CHEERS App and on a variety of online video platforms, mobile apps, IPTV and television channels where we generate advertising revenues from traditional pre-video, in-video, and pop-up advertisements. We also generate revenues from soft product placements that are incorporated into our original video content, including our online short videos. In addition, our e-Mall suppliers and distributors have the option to enter into separate advertising agreements for displaying their products in our live streaming shows. All items displayed in the live streaming shows can be purchased in e-Mall. We leverage our deep library of professionally-produced content, wide distribution channels, and big data analytics capabilities to help our advertisers target their specific demographics in China.
Production Services
We provide brand advertising services to third-party advertising agencies by producing variety shows, short videos, and live streaming shows, according to customers’ needs, for a fee. We also provide planning, shooting, and post-production services for a fee.
Content Licensing and Distribution
From time to time we may also acquire rights to rebroadcast and/or distribute third-party film and television drama.
60
Industry overview
Growth of e-commerce in China and Asia Pacific Region
In recent years, the Asia-Pacific region has solidified its position as the global leader in e-commerce, with China maintaining its dominance as the world’s largest online retail market (National E-Commerce Work Conference, Jan 2026).
China’s e-commerce sector has shifted to high-quality development, surpassing 23.8 trillion yuan in 2025 (Ministry of Commerce, Jan 2026). The landscape is being reshaped by “interest e-commerce,” where live-streaming integration has captured significant market share.
Across the region, B2C e-commerce sales are projected to approach $4.83 trillion by 2029 (Statista, 2025). High-growth markets like Vietnam (32.9% CAGR) and Thailand (27.4% CAGR) are leading the charge (eMarketer, Nov 2025).
Three major trends shape the market in 2026:
| ● | Mobile Commerce Maturity: 78% of transactions now occur on mobile devices (Google & Temasek, 2025), with India (75.8%) and China (71.4%) as top mobile shoppers (Mastercard, Q4 2025). |
| ● | Social Commerce as Standard: APAC live commerce GMV is expected to reach $423 billion, with conversion rates 8-10x higher than traditional e-commerce (KPMG & Alibaba, 2026; McKinsey, 2025). |
| ● | Cross-Border Growth: Cross-border transactions will account for 35% of APAC e-commerce GMV by 2026 (ITC, 2025). |
Video content-driven e-commerce platforms
With the rapid growth of e-commerce market and online video users, many e-commerce platforms started to leverage video content in assisting the customer acquisition of their e-commerce platforms.
A video content-driven e-commerce platform refers to an e-commerce platform with promotional and advertising video content that encourage or incentivize customers in making purchases on its e-commerce platform. The video content adopted by most platforms are live streaming shows and short videos.
A video content-driven e-commerce platform can be PGC, PUGC, or UGC content-driven, depending on who produces the content:
| ● | PGC refers to Professional Generated Content, which relies on professional video producers and is normally more costly to produce. However, it also has the highest commercial value for its attention to detail and consistent quality; |
| ● | UGC refers to User Generated Content, which features content produced by the general public; and |
| ● | PUGC refers to Professional User Generated Content, which is the combination of PGC and UGC. |
Monetization
A video content-driven e-commerce platform can usually monetize video content through following means:
| ● | Advertising revenue for in-video product placement, start screen ads, in-app banner ads, and other forms of advertisements; | |
| ● | Commission revenue from video producers and live streamers on the platform when transactions are completed and settled; and | |
| ● | Direct e-commerce sales of commodities on the platform. |
61
Proprietary PGC video content-driven e-commerce platform
A proprietary PGC video content-driven e-commerce platform is a segment of content-driven e-commerce platform, with in-house professional video production and proprietary e-commerce platform. When compared with other video content-driven e-commerce platforms, a proprietary PGC video content-driven e-commerce platform usually has a larger advantage in maintaining high-quality content production with dedicated professional production teams.
Market scale
Key successful factors for video content-driven e-commerce platforms
| ● | Selection of commodities: A platform must be careful and thoughtful in selecting commodities with high popularity and reasonable profit margin to keep customers attracted. | |
| ● | Sustainable high-quality video content: A platform must be able to sustain consistent video content quality and avoid publishing any video that may result in negative publicity, or even regulatory punishment. | |
| ● | Stable customer inflow: A platform must secure a solid channel for customer acquisition and to keep all customer activities within a proprietary ecosystem in order to minimize customer loss. |
Competition
Our competitors include Alibaba (Nasdaq: BABA), Pin Duoduo (Nasdaq: PDD), Douyu (Nasdaq: DOYU), Mango Media (SZ.300413), and Zhong Guang Tianze (SH.603721) for users, shoppers, and advertising customers. We also compete with other internet media and entertainment services, such as internet and social platforms that offer content in emerging and innovative media formats, as well as major TV stations.
Employees
As of December 31, 2025, we had 116 full time employees. We have entered into written employment contracts with all of our employees in accordance with PRC Labor Law and Contract Law. None of our employees is covered by collective bargaining contracts. We believe that we maintain a good working relationship with our employees and we have not experienced any significant labor disputes or any difficulty in recruiting staff for our operations.
The following table sets forth a breakdown of employees categorized by function as at December 31, 2025:
| Department | Headcount | Percentage of Total | ||||||
| Human Resource and General Management Department | 5 | 4.3 | % | |||||
| Financial Management Department | 6 | 5.2 | % | |||||
| Investor Relations and Legal Department | 2 | 1.7 | % | |||||
| Research and Development Department | 39 | 33.6 | % | |||||
| Content Marketing and Live Streaming Department | 22 | 19.0 | % | |||||
| CHEERS Platform and e-Mall Department | 42 | 36.2 | % | |||||
| Total | 116 | 100.00 | % | |||||
As required by PRC regulations, we participate in various government statutory social security plans, including a pension contribution plan, a medical insurance plan, an unemployment insurance plan, a work-related injury insurance plan, a maternity insurance plan and a housing provident fund. We are required under PRC law to contribute to social security plans at specified percentages of the salaries, bonuses and certain allowances of our employees up to a maximum amount specified by the local government from time to time. An employer that fails to make social insurance contributions may be ordered to rectify the non-compliance and pay the required contributions within a stipulated deadline and be subject to a late fee.
62
Intellectual Property
Our success depends largely on our ability to protect our core technology and intellectual property. To accomplish this, we rely on our trade secrets, including know-how, confidentiality clauses in standard labor agreements and third party nondisclosure agreements, copyright laws, trademarks, intellectual property licenses and other contractual rights to establish and protect our proprietary rights in our technology.
As of December 31, 2025, we own five (5) patents in the PRC, 82 registered trademarks in the PRC, and 10 registered trademarks in Hong Kong. In addition, as of December 31, 2025, we had 84 registered copyrights in the PRC (including 70 software copyrights relating to various aspects of our operations and 14 artwork copyrights). The software and artwork are crucial to our business.
Seasonality
Aside from fluctuations in the level of advertising spending resulting from changes in the overall economic and market conditions in China, our revenues are affected by seasonal fluctuations in business and consumer spending that also affect the level of advertising spending over time in China. Our quarterly operating results have fluctuated in the past and may continue to fluctuate depending upon a number of factors, many of which are out of our control. Our operating results tend to be seasonal. As a result, detailed attention shall be paid when comparing our operating results on a period-to-period basis. For example, online user numbers tend to be higher during holidays and end of the year, and advertising revenues tend to be higher at the end of the year.
Aside from fluctuations in the level of advertising spending resulting from changes in the overall economic and market conditions in China, our revenues are affected by seasonal fluctuations in business and consumer spending that also affect the level of advertising spending over time in China. Our quarterly operating results have fluctuated in the past and may continue to fluctuate depending upon a number of factors, many of which are out of our control. Our operating results tend to be seasonal. As a result, detailed attention shall be paid when comparing our operating results on a period-to-period basis. For example, online user numbers tend to be higher during holidays and end of the year, and advertising revenues tend to be higher at the end of the year.
Insurance
We do not maintain any property insurance policies covering equipment and facilities for losses due to fire, earthquake, flood or any other disaster. Consistent with customary industry practice in China, we do not maintain business interruption insurance or key employee insurance for our executive officers. Uninsured damage to any of our equipment or buildings or a significant product liability claim could have a material adverse effect on our results of operations.
GOVERNMENT REGULATIONS
Regulations of Our Industry
The PRC government imposes extensive controls and regulations over the e-commerce industry and media industry, including television, advertising, media content production. This section summarizes the principal PRC regulations that are relevant to our lines of business.
63
Regulations on Foreign Investment
Guidance Catalogue of Industries for Foreign Investment
On June 28, 2017, the National Development and Reform Commission (the “NDRC”), and Ministry of Commerce (“MOFCOM”), promulgated the Foreign Investment Catalog which was implemented on July 28, 2017. For foreign investment, the Foreign Investment Catalog is divided into encouraged industries, restricted industries and prohibited industries, and industries which are not listed in the Foreign Investment Catalog are categorized as the permitted industries for foreign investment. The list of restricted industries and prohibited industries in the Foreign Investment Catalog was abolished by the Special Administrative Measures for Foreign Investment Access (Negative List) (2018 Edition), which was then replaced by Special Administrative Measures for Foreign Investment Access (Negative List) (2019 Edition) (the “2019 Negative List”) promulgated on June 30, 2019 by NDRC and MOFCOM and implemented on July 30, 2019. According to the 2019 Negative List, foreign investment in value-added telecommunications services (except for e-commerce) falls within the Negative List. As a result, foreign investors can only conduct investment activities through equity or contractual joint ventures with certain shareholding requirements and approvals from competent authorities. PRC partners are required to hold the majority interests in the joint ventures and approval from MOFCOM, or the Ministry of Industry and Information Technology (“MIIT”) for the incorporation of the joint ventures and the business operations. The 2020, 2021, and 2024 Negative lists published later still retain the aforementioned requirements for foreign investment in value-added telecommunications services (except for e-commerce, domestic multi-party communications, store-and-forward, and call center services).
Foreign Direct Investment in Value-Added Telecommunications Companies
Pursuant to the Provisions on Administration of Foreign-Invested Telecommunications Enterprises promulgated by the State Council on December 11, 2001, as amended on September 10, 2008, February 6, 2016 and May 1, 2022, or the FITE Regulations, unless otherwise provided for by the state, the foreign investor of a telecommunications enterprise is prohibited from holding more than 50% of the equity interest in a foreign-invested enterprise that provides value-added telecommunications services.
MIIT issued the Circular on Strengthening the Administration of Foreign Investment in and Operation of Value-added Telecommunications Business, or the MIIT Circular, on July 13, 2006. The MIIT Circular indicates a PRC company that holds an Internet Content Provider License, or the ICP License, is prohibited from leasing, transferring or selling the ICP License to foreign investors in any form, and from providing any assistance, including resources, sites or facilities, to foreign investors that conduct value-added telecommunications business illegally in China. Moreover, the domain names and registered trademarks used by an operating company providing value-added telecommunications service must be legally owned by such company and/or our shareholders. In addition, such company’s operation premises and equipment must comply with our approved ICP License, and such company should improve our internal internet and information security standards and emergency management procedures.
On June 19, 2015, MIIT issued the Circular on Loosening the Restrictions on Shareholding by Foreign Investors in Online Data Processing and Transaction Processing Business (for-profit E-commerce), or the Circular 196. The Circular 196 allows a foreign investor to hold 100% of the equity interest in a PRC entity that provides online data processing and transaction processing services (for-profit e-commerce). With respect to the applications for a license for on-line data processing and transaction processing business (for-profit e-commerce), the requirements for the proportion of foreign equity are governed by this Circular, other requirements and corresponding approval procedures are subject to the FITE Regulations. However, due to the lack of additional interpretation from PRC regulatory authorities, it remains unclear as to what impact MIIT Circular 2015 may have on us or other PRC internet companies with similar corporate and contractual structures.
In view of these restrictions on foreign direct investment in value-added telecommunications services and certain other types of businesses under which our business may fall, including internet culture services and radio/television programs production and operation business, we may rely on contractual arrangements with our VIEs to operate such business in China. For more information, please see “Our Corporate Structure.” Due to the lack of interpretative guidance from the relevant PRC governmental authorities, there are uncertainties regarding whether PRC governmental authorities would consider our corporate structure and contractual arrangements to constitute foreign ownership of a value-added telecommunications business.
64
Foreign Investment Law
The National People’s Congress, or the NPC, Standing Committee promulgated the Foreign Investment Law on March 15, 2019, which came into effect on January 1, 2020, and replaced the Law of the People’s Republic of China on Wholly Foreign-Owned Enterprises, the Law of the People’s Republic of China on Sino-Foreign Equity Joint Ventures and the Law of the People’s Republic of China on Sino-Foreign Cooperative Joint Ventures as the basic law on foreign investment in the PRC.
The Foreign Investment Law stipulates that the foreign investors’ capital contributions, profits, capital gains, income from asset disposal, intellectual property royalties, legally obtained compensation or indemnification, and liquidation income that are made or obtained in China, may be freely remitted in or out of China in RMB or foreign exchange according to law. In addition, it further stipulates that the state protects the legitimate rights and interests of intellectual property rights held by foreign investors and FIEs. In formulating specific normative documents concerning foreign investment, local governments’ authorities at various levels and their relevant departments shall comply with the provisions of laws and regulations, including Foreign Investment Law. Without the basis of laws and regulations, local governments shall not reduce or prejudice FIEs’ legitimate rights and interests, impose additional regulatory burden, set additional impediments for FIE on accessing specific markets, or interfere with the FIE’s normal business activities.
Due to the lack of additional interpretation from PRC regulatory authorities, it is unclear how the Foreign Investment Law will be implemented in practice by the PRC government authorities and whether the offshore companies controlled by the PRC investors through variable interest entities structure be deemed as foreign investment remains to be seen. For more information, please see “Risk Factors — Risks Relating to Doing Business in China – Substantial uncertainties and restrictions with respect to the political and economic policies of the PRC government and PRC laws and regulations could have a significant impact upon the business we may be able to conduct in the PRC in the PRC and accordingly on the results of our operations and financial condition.”
Regulations Related to E-Commerce
In 2005, the General Office of the State Council issued Several Opinions on Accelerating the Development of Electronic Commerce to stress the significance of the e-commerce and the importance of regulating the development of e-commerce. In 2007, MOFCOM promulgated the Guiding Opinions on Online Trading (for Tentative Implementation), under which, the term “Online Trading” is defined as the commodity or service trading conducted between the buyer and the seller by making use of internet and the behaviors of online trading participants.
According to the Opinions of the Ministry of Commerce on Promoting the Regularized Development of the E-Commerce promulgated by MOFCOM in 2007, which required to, among others, regularize the information release and transmission behaviors of all parties concerned to online trading, applaud legal, regularized, fair and equitable online marketing, electronic contracting, after-sale services and other e-commerce trading acts, prevent and settle various kinds of trading disputes, regularize electronic payment acts and ensuring the safe flow of funds.
Implementing Opinions on Promoting E-Commerce Application was promulgated by MOFCOM in October 2013, which aims to further promote the development of e-commerce, guide the healthy and speedy development of network retailing, strengthen the development of e-commerce for rural villages and agricultural products, support the development of urban community e-commerce application system and promote innovative application of cross-border e-commerce.
In May 2015, the State Council promulgated the Opinions on Striving to Develop E-commerce to Speed Up the Cultivation of New Economic Driving Force in order to lower the requirements for market access, further simplify the registration of registered capital, deeply promote the reform from “certificate before license” to “license before certificate” in the field of e-commerce and simplify the approval process for the overseas listing of e-commerce enterprises in the territory and encourage the cross-border RMB direct investment in the field of e-commerce.
65
In addition, in December 2016, Guiding Opinions on Fully Enhancing the Credit Construction in the E-commerce Sector was issued by the State Administration for Industry and Commerce and other governmental authorities. These opinions require that e-commerce platforms (a) establish and perfect internal credit constraint mechanisms, and make full use of big data technologies to strengthen the credit control in terms of commodity quality, intellectual property rights, service level, etc.; (b) establish the business credit early risk warning system, and promptly publish the relevant information to society and risk prompts for seriously dishonest businesses selling forged and fake commodities and hyping credit by malicious scalping, according to requirements of relevant industrial competent and regulatory authorities; (c) establish and improve a report and complaint handling mechanism and responsively submit clues on suspected illegalities and irregularities identified to relevant industrial competent and regulatory authorities, and (d) coordinate with relevant authorities concerning investigation and treatment of business operators on e-commerce platforms. In the event an e-commerce platform fails to actively fulfill our responsibilities, the relevant industrial competent or regulatory authority is authorized to promptly take measures, such as engage in communications, provide notification and impose administrative punishments in accordance with the law. We believe that we are currently in material compliance with the guidance provided by the opinions.
On August 31, 2018, the NPC promulgated the PRC E-Commerce Law, which became effective on January 1, 2019, and aims to regulate the e-commerce activities conducted within the territory of the PRC. Pursuant to the E-Commerce Law, an e-commerce platform operator shall (i) collect, verify and register the truthful information submitted by the third-party merchants that apply for selling products or providing services on its platform, including the identities, addresses, contacts and licenses, establish registration archives and update such information on a regular basis; (ii) submit the identification information of the third-party merchants on its platform to market regulatory administrative department in accordance with regulations and remind the third-party merchants to complete the registration with market regulatory administrative department; (iii) submit identification information and tax-related information of the third-party merchants on its platform to tax authorities in accordance with the laws and regulations regarding the administration of tax collection and remind the individual third-party merchants to complete the tax registration; (iv) record and retain the information of the products and services and the transaction information on its platform for no less than 3 years; (v) display the platform service agreement and the transaction rules or links to such information on the homepage of the platform; (vi) display the noticeable labels regarding the products or services provided by the platform operator itself on its platform, and take liabilities for such products and services; (vii) establish a credit evaluation system, display the credit evaluation rules, provide consumers with accesses to make comments on the products and services provided on its platform, and restrain from deleting such comments; and (viii) establish intellectual property protection rules, and take necessary measures when any intellectual property rights holder notify the platform operator that his intellectual property rights have been infringed.
On July 31, 2025, the SAMR promulgated the Announcement of the State Administration for Market Regulation on Issuing the Compliance Guidelines for Fee Practices of Online Transaction Platforms, which became effective on the same date. Pursuant to the announcement, online trading platform operators shall, in accordance with relevant laws, regulations and rules, in light of their operating costs, and based on factors such as their service agreements, transaction rules and transaction practices, reasonably set fee standards following the principles of fairness, legality, and good faith, while fully considering the operating conditions of on-platform business operators. Online trading platform operators shall prominently and continuously display platform fee items, rules, standards, and other platform service agreement content or transaction rule information, or links to such information on their homepage to on-platform business operators, and ensure that the on-platform business operators can conveniently and completely view and download such information. Where online trading platform operators charge on-platform business operators for the provision of online business spaces, transaction matching, information publication, or other services, they shall provide the on-platform business operators with the specific fee items, standards, amounts, and other fee details. When a online trading platform operator modifies the content of its platform service agreement or transaction rules related to fee items, rules, or standards, it shall publicly solicit opinions in a prominent position on its homepage, disclose the proposed modifications and the reasons therefor, and take reasonable measures to ensure that all relevant stakeholders can fully express their opinions in a timely manner. The public notice period shall be no less than 7 days. If an on-platform business operator does not accept the modifications and requests to exit the platform, the online trading platform operator shall not obstruct the operator, and both the online trading platform operator and the on-platform business operator shall bear the relevant responsibilities in accordance with the agreement prior to the modifications.
Filing by Third-Party Platform Providers for Online Food Trading
In July 2016, the State Food and Drug Administration, or SFDA, promulgated the Measures for Investigation and Handling of Illegal Acts Involving Online Food Safety, last amended in March 2025, pursuant to which a third-party platform provider for online food trading in the PRC is required to file a record with the food and drug administration at the provincial level and obtain a filing number. If an online food trading third-party platform provider fails to complete such filing, the provider may be ordered to make rectifications and given a warning by the competent food and drug administration, and failure to make such rectification may be subject to fines ranging from RMB5,000 to RMB30,000. As of March 18, 2019, Xing Hui Beijing has completed the required filing formalities with the competent food and drug administration.
66
Regulations Relating to Product Quality and Consumer Rights Protection
Based on the PRC Consumer Rights and Interests Protection Law, as amended and effective in March 2014, and the Supervision and Administrative Measures on Online Trading, or Online Trading Measures, by State Administration for Market Regulation, or SAMR, as amended and effective in May, 2025, have provided stringent requirements and obligations on business operators, including internet business operators and platform service providers. For example, consumers are entitled to return goods purchased online, subject to certain exceptions, within seven days upon receipt of such goods for no reason. Each online transaction platform operator shall establish an inspection and monitoring system for platform-based operators and commodity or service information released thereby; and where any commodity or service information in the platform violates laws, regulations or rules on market regulation, damages state interests and public interests, or goes against public order and good customs as identified, it shall legally take necessary disposal measures, keep relevant records, and inform the department for market regulation at or above the county level where the platform is domiciled. Furthermore, online marketplace platform providers may be jointly and severally liable with sellers and manufacturers if they are aware or should be aware that any seller or manufacturer is using the online platform to infringe upon the lawful rights and interests of consumers and fail to take measures necessary to prevent or stop such activity.
The Civil Code of the PRC, which was enacted by the NPC, in May 2020 and took effect on January 1, 2021, also provides that if the online service provider receives any notice from the infringed party on any infringing activities, the online service provider shall take necessary measures, including deleting, blocking and unlinking the infringing content as required, in a timely manner. Otherwise, it will be jointly liable with the respective online user for the extended damages.
As an e-commerce platform service provider, we are subject to the PRC Consumer Rights and Interests Protection Law, the Online Trading Measures and the Civil Code of the PRC and believe that we are currently in compliance with these regulations in all material aspects.
Regulations on the Media Industry
Program Content
According to the Provisions on the Administration of Radio and Television Program Production promulgated by the State Administration of Radio, Film and Television, or SARFT, on July 19, 2004 and took effect in August 20, 2004, and was amended on August 28, 2015, October 29, 2020 and June 3, 2025, entities engaging in (i) the production of television programs, such as feature programs, general programs, drama series and animations, and (ii) the trading activities and agency services on the copyrights of such programs, must first obtain preliminary approval from the SARFT or our provincial branches for license. Horgos and Xing Hui Beijing have obtained the required approvals accordingly.
Regulations on the Advertising Industry
Regulations Relating to Advertising Law
The principal regulations governing advertising businesses in China include Advertising Law promulgated by SCNPC on October 27, 1994, which was amended on April 24, 2015, October 26, 2018 and April 29, 2021. Under the Advertising Law, advertisers refer to any legal persons, economic organizations or individuals that, directly or through agents, design, produce and publish advertisements to promote products or services. Advertisement operators refer to those legal persons, economic organizations or individuals consigned to provide advertisement content design, production and agency services. Advertisement publishers refer to those legal persons or other economic organizations that publish advertisements for the advertisers or for those advertisement operators that are consigned by the advertisers. An advertisement should present distinct and clear descriptions of the product’s function, place of origin, quality, price, manufacturer, validity period, warranties or the contents, forms, quality, price or promises of the services offered. False advertising that may mislead consumers and compromise legal rights and interests of consumers will subject the advertiser to civil liabilities. Where the advertising operator or advertising publisher is unable to provide the real name, address or valid contact information of the advertiser, the consumers may require the advertising operator or advertising publisher to make compensation in advance. Where false advertisements for products or services relating to the life and health of consumers cause damage to the consumers, the advertising agents, advertisement publishers or advertisement endorsers for such advertisements shall bear joint and several liabilities with the advertisers concerned. For other false advertisements of goods or services, where the advertising operator, advertising publisher and advertising spokesperson knew or should have known the falsity yet still provided design, production, agency or publishing services, or provide recommendation or endorsement, they will bear joint and several liability with the advertiser.
67
PRC advertising laws and regulations provide specific content requirements for advertisements in China, which include prohibitions on, among other things, misleading content, superlative wording, socially destabilizing content or content involving obscenities, superstition, violence, discrimination or infringement of the public interest. Advertisements for anesthetic, psychotropic, toxic or radioactive drugs are also prohibited. It is prohibited to disseminate tobacco advertisements via broadcast, film, television or print media, or in any waiting lounge, theater, cinema, conference hall, stadium or other public area. There are also specific restrictions and requirements regarding advertisements that relate to matters such as patented products or processes, pharmaceuticals, medical instruments, agrochemicals, foodstuff, alcohol and cosmetics. In addition, all advertisements relating to pharmaceuticals, medical instruments, agrochemicals and veterinary pharmaceuticals advertised through broadcast, film, television, newspaper, magazine and other forms of media, together with any other advertisements which are subject to censorship by administrative authorities according to relevant laws and administrative regulations, must be submitted to the relevant administrative authorities for content approval prior to dissemination.
Advertisers are required by PRC advertising laws and regulations to ensure that the content of the advertisements they prepare are true and accurate as well as in full compliance with applicable laws and regulations. In providing advertising services, advertising service providers and advertising publishers must review the prescribed supporting documents provided by advertisers for advertisements and verify that the content of the advertisements complies with applicable PRC laws and regulations. Violation of these regulations may result in penalties, including fines, confiscation of advertising income, orders to cease dissemination of the advertisements and orders to publish an advertisement correcting the misleading information. In circumstances involving serious violations, the SAIC or our local branches may revoke violators’ licenses or permits for advertising business operations. Furthermore, advertisers, advertising service providers or advertising distributors may be subject to civil or criminal liability if they infringe on the legal rights and interests of third parties in the course of their advertising business.
Regulations Relating to Internet Advertising
On 25 February, 2023, the SAMR promulgated the Administrative Measures for Online Advertising (《互联网广告管理办法》), which became effective on 1 May 2023 and the Interim Administrative Measures for Online Advertising (《互联网广告管理暂行办法》) issued under the Order of the (former) State Administration for Industry and Commerce No. 87 on 4 July 2016, was abolished simultaneously.
Pursuant to the Administrative Measures for Online Advertising, commercial advertising activities conducted within the territory of the PRC to directly or indirectly promote a product or service through text, images, audio, video, or any other form, using any website, web page, web application, or other online media, shall be governed by such measures and the Advertising Law.
An advertising agent or advertising publisher shall establish, improve and implement systems for the receipt and registration, moderation, file management in respect of their online advertising business. Furthermore, advertising agents and advertising publishers shall cooperate, in accordance with the law, with the investigation of the online advertising industry conducted by market regulatory authority, and provide truthful, accurate, and complete information in a timely manner.
The Administrative Measures for Online Advertising further provides that an online ad shall be identifiable so that it can be clearly identified by consumers as an advertisement. Any paid search ad for a product or service shall be prominently indicated as an “advertisement’’ by the advertising publisher to distinguish it from natural search results. When publishing an online ad in forms such as in pop-up form, the advertiser and the advertising publisher shall prominently display a close symbol to ensure that it can be closed in one click. It is prohibited to deceive or mislead users into clicking or browsing an ad through certain means.
For those who violate the Administrative Measures for Online Advertising, they may be subject to punishment, including but not limited to fines, confiscating advertising fees, suspension of advertisement publishing business, or revocation of business licence.
68
Regulations Related to Internet Information Security and Privacy Protection
On 28 May 2020, the National People’s Congress approved the Civil Code of the PRC (the“Civil Code’’),which has come into effect on 1 January2021. Pursuant to the Civil Code, the personal information of a natural person shall be protected by the law. Any organisation or individual that need to obtain personal information of others shall obtain such information legally and ensure the security of such information, and shall not illegally collect, use, process or transmit personal information of others, or illegally purchase, sell, provide or make public personal information of others.
The Cyber Security Law of the PRC (《中华人民共和国网络安全法》) (the “Cyber Security Law’’), which was promulgated on 7 November 2016, came into effect on 1 June 2017 and amended on October 28, 2025, requires that when constructing and operating a network, or providing services through a network, technical measures and other necessary measures shall be taken in accordance with laws, administrative regulations and the compulsory requirements set forth in national standards to ensure the secure and stable operation of the network, to effectively cope with cyber security events, to prevent criminal activities committed on the network, and to protect the integrity, confidentiality and availability of network data. The Cyber Security Law emphasises that any individuals and organisations that use networks must not endanger network security or use networks to engage in unlawful activities such as those endangering national security, economic order and social order or infringing the reputation, privacy, intellectual property rights and other lawful rights and interests of others. The Cyber Security Law has also reaffirmed certain basic principles and requirements on personal information protection previously specified in other existing laws and regulations. Any violation of the provisions and requirements under the Cyber Security Law may subject an internet service provider to rectifications, warnings, fines, confiscation of illegal gains, revocation of licences, cancellation of qualifications, closedown of websites or even criminal liabilities.
The Data Security Law of the PRC (《中华人民共和国数据安全法》) (the “Data Security Law’’) was passed by the SCNPC on 10 June 2021 and came into effect on 1 September 2021. The Data Security Law requires the data processor to establish and improve a whole-process data security management system, organise data security education and training, and take corresponding technical measures and other necessary measures to safeguard data security. In conducting data processing activities by using the internet or any other information network, the data processor shall perform the above data security protection obligations on the basis of the hierarchical cybersecurity protection system. Any violation of the provisions and requirements under the Data Security Law may subject a data processor to rectifications, warnings, fines, suspension of the related business, revocation of licences or even criminal liabilities.
The Personal Information Protection Law of the PRC (《中华人民共和国个人信息保护法》) (the “Personal Information Protection Law’’) was passed by the SCNPC on 20 August 2021 and has come into effect on 1 November 2021. The Personal Information Protection Law reiterates the circumstances under which a personal information processor could process personal information and the requirements for such circumstances, such as when (i) the individual’s consent has been obtained; (ii) the processing is necessary for the conclusion or performance of a contract to which the individual is a party; (iii) the processing is necessary to fulfil statutory duties and statutory obligations; (iv) the processing is necessary to respond to public health emergencies or protect natural persons’ life, health and property safety under emergency circumstances; (v) personal information is processed within a reasonable scope to conduct news reporting, public opinion-based supervision, and other activities in the public interest; (vi) the personal information that has been made public is processed within a reasonable scope in accordance with this Law; or (vii) under any other circumstance as provided by any law or regulation. It also stipulates the obligations of a personal information processor. Any violation of the provisions and requirements under the Personal Information Protection Law may subject a personal information processor to rectifications, warnings, fines, suspension of the related business, revocation of licences, being entered into the relevant credit record or even criminal liabilities.
69
Pursuant to the Data Security Management Regulations(《网络数据安全管理条例》) promulgated by the State Council on September 24, 2024, which became effective on January 1, 2025, network data processing activities refer to activities such as the collection, storage, use, processing, transmission, provision, disclosure, and deletion of data. Network data processors refer to individuals or organizations that independently determine the purposes and methods of data processing activities. Network data processors conducting any data processing activities that affect or may affect national security shall undergo national security review in accordance with relevant national regulations. Where it is indeed necessary to transfer any important data collected and generated within the territory of the PRC to an overseas party, the security assessment of outbound data transfer organized by the national cyberspace administration department shall be passed.
To comply with these PRC laws and regulations, we have adopted internal procedures to monitor content displayed on our website and application. However, due to the large amount of data we generate and process, we may not be able to properly protect customers’ personal information and safeguard our networks. See “Risk Factors — Risks Relating to Our Business and Industry – Our business generates and processes a large amount of data, and the improper use or disclosure of such data could harm our reputation as well as have a material adverse effect on our business and prospects.”
Regulations Related to Blockchain Technology
Pursuant to the Administrative Provisions on Block Chain Information Services promulgate by the CAC on January 10,2019, a blockchain information service provider shall, within ten working days of its provision of such service, fill in such information as the name of the service provider, service category, form of services, application areas, and address of the server, via the Block Chain Information Service Record-filing Administration System of the Cyberspace Administration of China, to handle record-filing formalities. If a block chain information service provider develops and launches new products, new application programs or new functions, it shall report the same to the Cyberspace Administration of China and the cyberspace administration of the relevant province, autonomous region or municipality directly under the Central Government for safety assessment in accordance with the relevant provisions. On May 27, 2021, the MIIT and the CAC issued the Guiding Opinions on Accelerating the Application of Blockchain Technology and the Development of the Industry, according to which the state supports and encourages enterprises to apply blockchain technology in the traceability of food and medicine, in the management of logistics and capital flow, in data collection, sharing, analysis, and in evidence collection, e-government, etc. In addition, the state will promote the application of blockchain technology and industrial development through application pilots, policy support and strengthening training of industrial talent.
Regulations Related to Artificial Intelligence
On July 29, 2022, the Ministry of Science and Technology and other five PRC regulatory agencies issued the Circular on Issuing the Guiding Opinions on Accelerating Scenario Innovation and Driving High-quality Economic Growth with High-Level Applications of Artificial Intelligence (《关于印发<关于加快场景创新以人工智能高水平应用促进经济高质量发展的指导意见>的通知》), which became effective on the same day. The circular proposes to promote the scenario innovation to become a new path for the upgrading of AI technology and industrial growth, driving the high levels of development in the new generation of AI. According to the circular, creating major scenarios centered on the cultivation of a high-end and high-efficiency intelligent economy, such as key industries including manufacturing, agriculture, logistics, finance, commerce, and home furnishings, major scenarios centered on the development of a safe, convenient, and intelligent society, such as fields including urban management, traffic governance, ecological and environmental protection, healthcare, education, and elderly care, major scenarios centered on high-level scientific research activities, such as solving major scientific issues in fields including mathematics, chemistry, geology, materials, biology, and space science, and major scenarios centered on national major activities and projects such as the Asian Games, National Games, the China International Import Expo, and the China International Fair for Trade in Services, will be encouraged. Enterprises shall take the lead in the full course of scenario innovation of AI technology.
70
On July 10, 2023, the CAC and other six PRC regulatory agencies promulgated the Interim Measures for the Management of Generative Artificial Intelligence Services (《生成式人工智能服务管理暂行办法》), which became effective on August 15, 2023 and is applicable to the utilization of generative AI technology to provide services that generate any text, images, audios, videos or other content (the “generative AI services”) to the public within the territory of the PRC. The State, in adherence to the principles of placing equal emphasis on development and security and combining innovation promotion with law-based governance, shall implement effective measures to encourage the innovation and development of generative AI, and apply inclusion, prudence, and classification and grading in the regulation of generative AI services. The provision and use of generative AI services shall comply with laws and administrative regulations, respect social morality and ethics, and meet a series of requirements including, among others, not endangering national security and interests, avoiding discrimination, and respecting third parties’ lawful rights and interests. Generative AI service providers shall assume responsibility as a producer of online information content in accordance with the law and fulfill online information security obligations. Where personal information is involved, they shall assume responsibility as a personal information processor in accordance with the law and fulfill personal information protection obligations. Those providing generative AI services with public opinion attributes or the capacity for social mobilization shall conduct security assessments in accordance with relevant national regulations, and perform procedures for the filing, amendment, or cancellation of filings for their algorithms in accordance with the Administrative Provisions on Recommendation Algorithms in Internet-based Information Services.
On December 25, 2025, the Ministry of Industry and Information Technology and seven other state departments jointly promulgated the Circular on Issuing the Implementation Opinions on the Special Action of Artificial Intelligence Manufacturing (《关于印发<“人工智能制造“专项行动实施意见>的通知》). The circular clarifies the aim to promote the deep integration between scientific and technological innovation in AI and industrial innovation, achieve mutual empowerment between AI technologies and manufacturing applications. Besides, the circular sets out detailed guidance and planned development direction of the Artificial Intelligence industry in the future years in China, for instance, expand and promote high-value application scenarios of AI.
A number of guidelines and standards were also published in the PRC to guide the development of AI technology, including, among others, the Code of Ethics of New Generation Artificial Intelligence (《新一代人工智能伦理规范》), AI Safety Governance Framework (V1.0) (《人工智能安全治理框架》1．0版), and TC260-003 Basic Security Requirements for Generative Artificial Intelligence Service (TC260－003《生成式人工智能服务安全基本要求》).
Regulations Related to Intellectual Property Rights
Regulations on Patents
According to the PRC Patent Law promulgated by the SCNPC on March 12, 1984 and last amended on October 17, 2020 with effect from June 1, 2021, and its latest Implementation Rules promulgated by the State Council on December 11, 2023 and took into effect on January 20, 2024, the National Intellectual Property Administration is responsible for administering patents in the PRC. Inventions, utility models, and designs with the features of novelty, inventiveness and practical applicability, are three kinds of patent defined and protected under the law. The State Intellectual Property Office is responsible for examining and approving patent applications. Once the application is approved, the applicants can have their patent under Chinese legal protection for a long term since its application date, which is 20 years for invention, 15 years for designs, and 10 years for utility models.
As of December 31, 2025, we had five (5) invention patents in the PRC.
71
Regulations on Copyright
Under the Copyright Law, issued in 1990 and most recently amended in 2020, or the Copyright Law, and our related Implementing Regulations issued in 2002 and amended in 2013, creators of protected works enjoy personal and property rights with respect to publication, authorship, alteration, integrity, reproduction, distribution, lease, exhibition, performance, projection, broadcasting, dissemination via information network, production, adaptation, translation, compilation and related activities. Other than the rights of authorship, alternation and integrity of an author which shall be unlimited in time, the term of a copyright is the life of the individual author plus 50 years, but for by a corporation the term is 50 years after first publication. In consideration of the social benefit and costs of copyrights, the PRC authorities balance copyright protections with limitations that permit certain uses, such as for private study, research, personal entertainment and teaching, without compensation to the author or prior authorization.
The Measures for Administrative Protection of Copyright Related to Internet, which was jointly promulgated by the National Copyright Administration, or NCA, and the MIIT on April 29, 2005, and became effective on May 30, 2005, provides that upon receipt of an infringement notice from a legitimate copyright holder, an operator of Internet information services, or ICP operator, must take remedial actions immediately by removing or disabling access to the infringing content. If an ICP operator knowingly transmits infringing content or fails to take remedial actions after receipt of a notice of infringement that harms public interest, the ICP operator could be subject to administrative penalties, including an order to cease infringing activities, confiscation by the authorities of all income derived from the infringement activities, or payment of fines.
On May 18, 2006, the State Council promulgated the Regulations on the Protection of the Right to Network Dissemination of Information (as amended in 2013). Under these regulations, an owner of the network dissemination rights with respect to written works or audio or video recordings who believes that information storage, search or link services provided by an Internet service provider infringe his or her rights may require that the Internet service provider delete, or disconnect the links to, such works or recordings.
In order to further implement the Computer Software Protection Regulations promulgated by the State Council in 2001 and amended in January 2013, the National Copyright Administration issued the Computer Software Copyright Registration Procedures in 2002, which apply to software copyright registration, license contract registration and transfer contract registration.
As of December 31, 2025, we had seventy (70) registered software copyrights and fourteen (14) artwork copyrights.
Regulations on Trademarks
Registered trademarks are protected by the Trademark Law of the PRC (Revised in 2019) which was adopted in 1982 and subsequently amended in 1993, 2001, 2013 and 2019, respectively as well as by the Implementation Regulations of the PRC Trademark Law adopted by the State Council in 2002 and as most recently amended on April 29, 2014. The Trademark Office under the SAIC handles trademark registrations. The Trademark Office grants a ten-year term to registered trademarks and the term may be renewed for another ten-year period upon request by the trademark owner. A trademark registrant may license our registered trademarks to another party by entering into trademark license agreements, which must be filed with the Trademark Office for our record. As with patents, the Trademark Law has adopted a first-to-file principle with respect to trademark registration. If a trademark applied for is identical or similar to another trademark that has already been registered or subject to a preliminary examination and approval for use on the same or similar kinds of products or services, such trademark application may be rejected. Any person applying for the registration of a trademark may not injure existing trademark rights first obtained by others, nor may any person register in advance a trademark that has already been used by another party and has already gained a “sufficient degree of reputation” through such party’s use.
As of December 31, 2025, we had eighty-two (82) registered trademarks in the PRC and ten (10) registered trademarks in Hong Kong.
72
Regulations on Domain Names
Internet domain name registration and related matters are primarily regulated by the Measures on Administration of Internet Domain Names, which were promulgated by the MIIT on August 24, 2017 and took effect on November 1, 2017, and the Detailed Rules for the Implementation of National Top-level Domain Name Registration, which were promulgated by China Internet Network Information Center and took into effect on June 18, 2019. Domain name owners are required to register their domain names and the MIIT is in charge of the administration of PRC internet domain names. The domain name services follow a “first come, first file” principle. The applicants will become the holders of such domain names upon the completion of the registration procedure.
As of December 31, 2025, we had 12 domain names in PRC.
LABOR REGULATIONS
Labor Contract Law
The PRC Labor Contract Law was promulgated on June 29, 2007, as amended on December 28, 2012, and became effective on July 1, 2013. According to the PRC Labor Contract Law of PRC, labor contracts must be entered into if labor relationships are to be established between an entity and our employees. The entity cannot require the employees to work in excess of the time limit as permitted under the relevant labor laws and regulations and shall pay to the employees wages that are no lower than local standards on minimum wages. The entity shall also abide by the aforementioned laws and regulations and perform procedures for dissolution and termination of labor contracts, payment of labor remuneration and economic compensation, use of labor dispatch and payment of social insurance.
Regulations on Social Insurance and Housing Provident Fund
According to the PRC Social Insurance Law issued by the SCNPC on October 28, 2010, and implemented on July 1, 2011, and subsequently revised on December 29, 2018, the state established a social insurance system including basic pension insurance, basic medical insurance, unemployment insurance, work-related injury insurance and maternity insurance, under which both employers and individuals are required to pay social insurance premiums. Migrant workers participate in such social insurance schemes, and foreigners employed within the territory of the PRC also participate in social insurance as well. Violations of the PRC Social Insurance Law may result in the imposition of fines, and criminal liability may be incurred in serious cases. An employer that fails to make social insurance contributions may be ordered to rectify the non-compliance and pay the required contributions within a stipulated deadline and be subject to a late fee of 0.05% per day, as the case may be. If the employer still fails to rectify the failure to make social insurance contributions within the deadline, it may be subject to a fine ranging from one to three times the amount overdue.
According to the Regulations on Management of Housing Provident Fund which was promulgated and implemented by the State Council on April 3, 1999, and subsequently revised on March 24, 2002, and March 24, 2019, enterprises in China are required to register with the housing provident fund management center within 30 days from the date of establishment, and complete the procedures for establishment of housing accumulation fund accounts for their employees within 20 days from the date of registration. In violation of such regulation, an enterprise that fails to make housing fund contributions may be ordered to rectify the noncompliance and pay the required contributions within a stipulated deadline. The company is fully in compliance with such regulations.
Regulations on Foreign Exchange Registration of Offshore Investment by PRC Residents
On July 4, 2014, State Administration of Foreign Exchange, or the SAFE, promulgated the Circular on Relevant Issues Concerning Foreign Exchange Control on Domestic Residents’ Offshore Investment and Financing and Roundtrip Investment through Special Purpose Vehicles, or SAFE Circular 37, which replaced the former circular commonly known as “SAFE Circular 75” promulgated by SAFE on October 21, 2005. SAFE Circular 37 requires PRC residents to register with local branches of SAFE in connection with their direct establishment or indirect control of an offshore entity, for the purpose of overseas investment and financing, with such PRC residents’ legally owned assets or equity interests in domestic enterprises or offshore assets or interests, referred to in SAFE Circular 37 as a “special purpose vehicle.” SAFE Circular 37 further requires amendment to the registration in the event of any significant changes with respect to the special purpose vehicle, such as increase or decrease of capital contributed by PRC individuals, share transfer or exchange, merger, division or other material event. In the event that a PRC shareholder holding interests in a special purpose vehicle fails to fulfill the required SAFE registration, the PRC subsidiaries of that special purpose vehicle may be prohibited from making profit distributions to the offshore parent and from carrying out subsequent cross-border foreign exchange activities, and the special purpose vehicle may be restricted in our ability to contribute additional capital into our PRC subsidiary. Furthermore, failure to comply with the various SAFE registration requirements described above could result in liability under PRC law for evasion of foreign exchange controls. SAFE promulgated the Notice on Further Simplifying and Improving the Administration of the Foreign Exchange Concerning Direct Investment in February 2015, which took effect on June 1, 2015. This notice has amended SAFE Circular 37 requiring PRC residents or entities to register with qualified banks rather than SAFE or our local branch in connection with their establishment or control of an offshore entity established for the purpose of overseas investment or financing.
73
Regulations on Foreign Currency Exchange
The principal regulation governing foreign currency exchange in China is the Foreign Exchange Administration Rules of the PRC, or the Foreign Exchange Administration Rules, promulgated on January 29, 1996, as subsequently amended on January 14, 1997, and August 1, 2008. Under these rules, RMB is generally freely convertible for payments of current account items, such as trade and service-related foreign exchange transactions and dividend payments, but not freely convertible for capital account items, such as capital transfer, direct investment, investment in securities, derivative products or loan unless prior approval of SAFE is obtained.
Under the Foreign Exchange Administration Rules, foreign-invested enterprises in the PRC may purchase foreign exchange without the approval of SAFE for paying dividends by providing certain evidencing documents, such as board resolutions and tax certificates, or for trade and services-related foreign exchange transactions by providing commercial documents evidencing such transactions. They are also allowed to retain foreign currency, subject to an approval by SAFE of a cap amount, to satisfy foreign exchange liabilities. In addition, foreign exchange transactions involving overseas direct investment or investment and exchange in securities and derivative products abroad are subject to registration with SAFE and approval or file with the relevant governmental authorities if necessary.
On November 19, 2012, SAFE promulgated the Circular of Further Improving and Adjusting Foreign Exchange Administration Policies on Foreign Direct Investment, which was amended on May 4, 2015, October 10, 2018 and December 30, 2019, respectively. This Circular substantially amends and simplifies the current foreign exchange procedure. Pursuant to this circular, the opening of various special purpose foreign exchange accounts, such as pre-establishment expenses accounts, foreign exchange capital accounts and guarantee accounts, the reinvestment of RMB proceeds by foreign investors in the PRC, and remittance of foreign exchange profits and dividends by a foreign-invested enterprise to our foreign shareholders no longer require the approval or verification of SAFE, and multiple capital accounts for the same entity may be opened in different provinces, which was not possible previously. In addition, SAFE promulgated the Circular on Printing and Distributing the Provisions on Foreign Exchange Administration over Domestic Direct Investment by Foreign Investors and the Supporting Documents in May 2013 and was further amended on October 10, 2018 and partially abolished on December 30, 2019, which specifies that the administration by SAFE or our local branches over direct investment by foreign investors in the PRC shall be conducted by way of registration and banks shall process foreign exchange business relating to the direct investment in the PRC based on the registration information provided by SAFE and our branches.
On February 13, 2015, SAFE promulgated the Notice on Further Simplifying and Improving the Administration of the Foreign Exchange Concerning Direct Investment, or SAFE Notice 13. After SAFE Notice 13 became effective on June 1, 2015 and partially abolished on December 30, 2019, instead of applying for approvals regarding foreign exchange registrations of foreign direct investment and overseas direct investment from SAFE, entities and individuals will be required to apply for such foreign exchange registrations from qualified banks. The qualified banks, under the supervision of SAFE, will directly examine the applications and conduct the registration.
74
The Circular on Reforming the Management Approach regarding the Settlement of Foreign Capital of Foreign-invested Enterprise, or the SAFE Circular No. 19, which was promulgated by the SAFE on March 30, 2015 and became effective on June 1, 2015 and partially abolished on December 30, 2019, provides that a foreign-invested enterprise may, according to our actual business needs, settle with a bank the portion of the foreign exchange capital in our capital account for which the relevant foreign exchange administration has confirmed monetary capital contribution rights and interests (or for which the bank has registered the injection of the monetary capital contribution into the account). Pursuant to the SAFE Circular No.19, for the time being, foreign-invested enterprises are allowed to settle 100% of their foreign exchange capitals on a discretionary basis; a foreign-invested enterprise shall truthfully use our capital for our own operational purposes within the scope of business; where an ordinary foreign-invested enterprise makes domestic equity investment with the amount of foreign exchanges settled, the invested enterprise shall first go through domestic re-investment registration and open a corresponding account for foreign exchange settlement pending payment with the foreign exchange administration or the bank at the place where it is registered.
The Circular on Reforming and Regulating Policies on the Control over Foreign Exchange Settlement of Capital Accounts, or the SAFE Circular No. 16, which was promulgated by the SAFE and became effective on June 9, 2016, provides that enterprises registered in the PRC may also convert their foreign debts from foreign currency into Renminbi on a self-discretionary basis. The SAFE Circular No. 16 also provides an integrated standard for conversion of foreign exchange under capital account items (including but not limited to foreign currency capital and foreign debts) on self-discretionary basis, which applies to all enterprises registered in the PRC.
On October 23, 2019, the SAFE promulgated the Circular of the State Administration of Foreign Exchange on Further Promoting Cross-border Trade and Investment Facilitation or the SAFE Circular No. 28, which expressly allows foreign-invested enterprises that do not have equity investments in their approved business scope to use their capital obtained from foreign exchange settlement to make domestic equity investments as long as there is a truthful investment and such investment is in compliance with the foreign investment-related laws and regulations.
PRC Enterprise Income Tax
According to the Enterprise Income Tax, or EIT Law, which was promulgated by the NPC on March 16, 2007, and implemented on January 1, 2008, and subsequently revised on February 24, 2017, and December 29, 2018, and the Implementation Regulations of EIT Law, which was promulgated by the State Council on December 6, 2007, and implemented on January 1, 2008 and amended on April 23, 2019 and December 6, 2024, enterprises are divided into resident enterprises and non-resident enterprises. Resident enterprises, which refer to enterprises that are set up in accordance with the PRC law, or that are set up in accordance with the law of the foreign country (region) but with our actual administration institution in China, pay enterprise income tax originating both within and outside China at the tax rate of 25%. Non-resident enterprises refer to entities established under foreign law whose actual administration institution is not within China but have institution or premises in China, or which do not have institution or premises in China but have income sourced within China. Non-resident enterprises that have set up institutions or premises in China pay enterprise income tax at the tax rate of 25% in relation to the income originated from China and obtained by the aforementioned institutions or premises, as well as the income incurred outside China, provided there is an actual relationship between such income and the aforementioned institutions or premises. For non-resident enterprises that have no institutions or premises in China, or, although they have institutions or premises in China, there is no actual relationship between the income and the aforementioned institutions or premises, they pay enterprise income tax at the tax rate of 10% in relation to the income originated from China. The aforementioned income includes income from sales of goods, provision of labor services, transfer of property, equity investment including dividends, interest income, rental income, income from royalties, donations and other income. In addition, according to the EIT Law and the Implementation Regulations of EIT Law, for the income incurred from equity investment including dividends and bonus among eligible resident enterprises, and the income which is incurred from equity investment including dividends and bonus obtained from resident enterprise by non-resident enterprises that have set up institutions or premises in China and the income has an actual relationship with such institutions or premises, such incomes are tax-free income.
PRC High and New Technology Enterprises
According to EIT Law and its implementation rules, certain “high and new technology enterprises” that hold independent ownership of core intellectual property and simultaneously meet a list of other criteria, financial or non-financial, as stipulated in the implementation rules, will enjoy a reduced 15% enterprise income tax rate. In April 2008, the State Administration of Taxation, the Ministry of Science and Technology and the Ministry of Finance jointly issued the Administrative Rules for the Certification of High and New Technology Enterprises delineating the specific criteria and procedures for the “high and new technology enterprises” certification, which was amended in January 2016 and became effective from January 1, 2016.
In October 2019, Leshare Star (Beijing) Technology Co., Ltd. (悦享星光（北京）科技有限公司) was recognized as a “high and new technology enterprise” by the Beijing Municipal Science & Technology Commission, Beijing Municipal Finance Bureau and Beijing Municipal Tax Service of State Taxation Administration and will be entitled to a preferential tax rate of 15%, subject to certain qualification criteria, from 2019 to 2022.
75
In December 2023, Glory Star Media (Beijing) Co., Ltd (耀世星辉（北京）传媒有限公司) was recognized as a “high and new technology enterprise” by the Beijing Municipal Science & Technology Commission, Beijing Municipal Finance Bureau and Beijing Municipal Tax Service of State Taxation Administration and will be entitled to a preferential tax rate of 15%, subject to certain qualification criteria, from 2023 to 2025.
According to several opinions and administrative measures issued by Beijing Municipal People’s Government, the enterprise recognized as qualified high and new technology enterprises by Zhongguancun Science Park Management Committee is entitled to a series of special services and financial supports when it meets certain criteria, such as financial incentive for being award of patents and registration of international trademarks, more opportunities of participate in intergovernmental scientific and technological cooperation projects, more opportunities of its technologies, products and services enter the international market, entrepreneurship training related services and other preferential treatments.
In May 2022 and December 2022, Leshare Star (Beijing) Technology Co., Ltd.（悦享星光（北京）科技有限公司）was recognized as qualified high and new technology enterprise (“国家专精特新企业”) by National Ministry of Industry and Information Technology, National Ministry of Science and Technology, which entitles it certain preferential treatments, subject to certain qualification criteria, from 2022 to 2025.
In April 2024, Glory Star Media (Beijing) Co., Ltd (耀世星辉（北京）传媒有限公司) was recognized as qualified high and new technology enterprise (“国家专精特新企业”) by National Ministry of Industry and Information Technology, National Ministry of Science and Technology, which entitles it certain preferential treatments, subject to certain qualification criteria, from 2024 to 2027.
Regulation on PRC Value-added Tax
According to the Interim Regulations of PRC on Value-added Tax, which was promulgated by the State Council on December 13, 1993 and subsequently revised on November 10, 2008, February 6, 2016 and November 19, 2017 and the Detailed Rules for the Implementation of the Interim Regulations of the People’s Republic of China on Value-added Tax which was promulgated by the Ministry of Finance (the “MOF”) on December 25, 1993, and subsequently revised on December 15, 2008 and October 28, 2011, entities and individuals that sell goods or labor services of processing, repair or replacement, sell services, intangible assets, or immovables, or import goods within the territory of China are taxpayers of value-added tax (“VAT”), and pay VAT in accordance with law. Unless otherwise stipulated, the VAT rate is 17% for taxpayers selling goods, labor services, or tangible movable property leasing services or importing goods; 11% for taxpayers selling transportation, postal, basic telecommunications, construction, or immovable leasing services, selling immovables, transferring land use rights, or selling or importing specific goods; unless otherwise stipulated, 6% for taxpayers selling services or intangible assets.
On March 23, 2016, the MOF and the SAT published the Circular of the MOF and the SAT on Fully Launch of the Pilot Scheme for the Conversion of Business Tax to Value-added Tax and our annexes, pursuant to which entities and individuals that sell services, intangible assets, or immovables pay VAT instead of business tax since May 1, 2016.
According to the Circular of the MOF and the SAT on Adjusting Value-added Tax Rate, which was promulgated by the MOF and the SAT on April 4, 2018, and became effective on May 1, 2018, the tax rates for the taxable sales or goods import activity, which were subject to the tax rates of 17% and 11%, respectively, were adjusted to 16% and 10%, respectively.
According to the Circular on Policies in Relation to the Deepening of Value-added Tax Reforms, which was jointly promulgated by the MOF, the SAT and the General Administration of Customs on March 20, 2019, the tax rate of 16% and 10% originally applicable to general VAT taxpayers’ VAT taxable sales or goods import shall be adjusted to 13% and 9%, respectively.
76
Dividend Distribution
The EIT Law prescribes a standard withholding tax rate of 20% on dividends and other PRC sourced passive income of non-resident enterprises. The Implementation Rules reduced the rate from 20% to 10%. The central government of the PRC and the government of Hong Kong signed the Arrangement between the Mainland of the PRC and Hong Kong for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income on August 21, 2006, or the Arrangement. According to the Arrangement, no more than 5% withholding tax shall apply to dividends paid by a PRC company to a Hong Kong resident, provided that the recipient is a company that holds at least 25% of the equity interests of the PRC company and is deemed as the “beneficial owner” under the Arrangement. Notice on the Implementation of the Fifth Protocol of Arrangement between Chinese Mainland and Hong Kong SAR on Avoidance of Double Taxation and Prevention of Fiscal Evasion with Respect to Taxes on Income, Notice on the Implementation of the Fourth Protocol of Arrangement between Chinese Mainland and Hong Kong SAR on Avoidance of Double Taxation and Prevention of Fiscal Evasion with Respect to Taxes on Income (Announcement [2019] No.51 of the State Administration of Taxation), Announcement of the State Administration of Taxation on the Implementation of the Third Protocol of Arrangement between Chinese Mainland and Hong Kong SAR on Avoidance of Double Taxation and Prevention of Fiscal Evasion with Respect to Taxes on Income, Announcement [2011] No.1, Notice on the Implementation of the Second Protocol of Arrangement between Chinese Mainland and Hong Kong SAR on Avoidance of Double Taxation and Prevention of Fiscal Evasion with Respect to Taxes on Income (Guo Shui Han [2008] No. 685) and Circular of the State Administration of Taxation on Interpreting and Implementing Some Clauses in the Arrangement between Mainland China and Hong Kong SAR concerning Avoiding Double Taxation and Preventing Tax Evasion on Income(Guo Shui Han [2007] No. 403), which was partially repealed on January 4, 2011 and August 27, 2015, have amended the Arrangement accordingly.
On February 3, 2018, the SAT promulgated Announcement of the State Administration of Taxation on Issues Relating to “Beneficial Owner” in Tax Treaties, State Administration of Taxation Announcement [2018] No. 9, Circular 9, which clarifies that a beneficial owner shall be a person who has ownership and control over the income and the rights and property from which the income is derived. To prove “beneficial owner” status, the applicant shall submit the materials pursuant to the Administrative Measures for Entitlement to Treaty Benefits for Non-resident Taxpayers (the current valid version is Announcement of the State Taxation Administration [2019] No.35) promulgated by the SAT. Therein, where an applicant is a “beneficial owner” pursuant to the provisions of Article 3 of this Announcement, the applicant shall also provide, in addition to the tax resident identity of the applicant, the tax resident identity documents of the person who satisfies the criteria for “beneficial owner” and the person who satisfies the criteria, issued by the tax authorities in charge at the country (region) where he/she resides; where the applicant is a “beneficial owner” pursuant to the provisions of item (4) of Article 4 of this Announcement, the applicant shall also provide, in addition to the tax resident identity document of the applicant, the tax resident identity documents of the person who holds 100% of the applicant’s shares directly or indirectly and the multi-tier holders, issued by the tax authorities in charge at the country (region) for which the said person and the multi-tier holders are residents; the tax resident identity document shall prove that the person is a tax resident in the year in which the income is obtained or the preceding year.
Regulations on Tax regarding Indirect Transfer
On February 3, 2015, the SAT issued the Circular on Issues of Enterprise Income Tax on Indirect Transfers of Assets by Non-PRC Resident Enterprises, or Circular 7. Pursuant to Circular 7, an “indirect transfer” of assets, including equity interests in a PRC resident enterprise, by non-PRC resident enterprises, may be re-characterized and treated as a direct transfer of PRC taxable assets, if such arrangement does not have a reasonable commercial purpose and is established for the purpose of avoiding payment of PRC enterprise income tax. As a result, gains derived from such indirect transfer may be subject to PRC enterprise income tax. When determining whether there is a “reasonable commercial purpose” of the transaction arrangement, considerations include, inter alia, (i) whether the main value of the equity interest of the relevant offshore enterprise derives directly or indirectly from PRC taxable assets; (ii) whether the assets of the relevant offshore enterprise mainly consists of direct or indirect investment in China or if our income is mainly derived from China; and (iii) whether the offshore enterprise and our subsidiaries directly or indirectly holding PRC taxable assets have real commercial nature evidenced by their actual function and risk exposure. According to the Circular 7, where the payer fails to withhold any or sufficient tax, the transferor shall declare and pay such tax to the tax authority by itself within the statutory time limit. Late payment of applicable tax will subject the transferor to default interest. The Circular 7 does not apply to transactions of sale of shares by investors through a public stock exchange where such shares were acquired on a public stock exchange. On October 17, 2017, the SAT issued the Circular on Issues of Tax Withholding regarding Non-PRC Resident Enterprise Income Tax, or SAT Circular 37, which further elaborates the relevant implemental rules regarding the calculation, reporting and payment obligations of the withholding tax by the non-resident enterprises. Nonetheless, there remain uncertainties as to the interpretation and application of the SAT Circular 7. The SAT Circular 7 may be determined by the tax authorities to be applicable to our offshore transactions or sale of our shares or those of our offshore subsidiaries where non-resident enterprises, being the transferors, were involved.
77
Provisions Regarding Mergers and Acquisitions of Domestic Enterprises by Foreign Investors
On August 8, 2006, six PRC regulatory agencies, including MOFCOM, the State-owned Assets Supervision and Administration Commission of the State Council, the State Administration for Taxation, the State Administration for Industry and Commerce, the CSRC and SAFE, jointly adopted the Regulations on Mergers and Acquisitions of Domestic Enterprises by Foreign Investors, or the M&A Rules, which became effective on September 8, 2006, and were amended on June 26, 2009. The M&A Rules, among other things, include provisions that purport to require an offshore special purpose vehicle formed for the purpose of acquiring PRC domestic companies and controlled by PRC individuals to obtain the approval of the CSRC prior to the listing and trading of such special purpose vehicle’s securities on an overseas stock exchange. We believe that CSRC approval under the M&A Rules is not required as we are not a special purpose vehicle formed for listing purpose which have acquired PRC domestic companies’ equities with its share prior to the listing of its shares on the Nasdaq Stock Market.
However, we cannot assure you that the relevant PRC government authority, including the CSRC, would reach the same conclusion as we do. If the CSRC or other PRC regulatory authority subsequently determines that we need to obtain the CSRC’s approval or if CSRC or any other PRC government authorities will promulgate any interpretation or implementing rules before the Share Exchange that would require CSRC or other governmental approvals for the Share Exchange, we may face sanctions by the CSRC or other PRC regulatory agencies. In such event, these regulatory agencies may impose fines and penalties on our operations in the PRC, limit our operating privileges in the PRC, delay or restrict the repatriation of the proceeds from any future offerings into the PRC, or take other actions that could have a material adverse effect on our business, financial condition, results of operations, and prospects, as well as the trading price of our shares.
Measures Regarding Overseas Securities Offering and Listing by Domestic Companies
On February 17, 2023, the CSRC issued the Trial Administrative Measures of Overseas Securities Offering and Listing by Domestic Companies (the “Trial Administrative Measures”) and relevant supporting guidelines (collectively, the “New Administrative Rules Regarding Overseas Listings”), which came into force since March 31, 2023. The New Administrative Rules Regarding Overseas Listings refine the regulatory system for domestic company’s overseas offering and listing by subjecting both direct and indirect overseas offering and listing activities to the filing-based administration, and clearly defines the circumstances where provisions for direct and indirect overseas offering and listing apply and relevant regulatory requirements.
According to the New Administrative Rules Regarding Overseas Listings, among other things, a domestic company in the PRC that seeks to offer and list securities in overseas markets shall fulfill the filing procedure with the CSRC as per requirement of the Trial Administrative Measures. Where a domestic company seeks to directly offer and list securities in overseas markets, the issuer shall file with the CSRC. Where a domestic company seeks to indirectly offer and list securities in overseas markets, the issuer shall designate a major domestic operating entity, which shall, as the domestic responsible entity, file with the CSRC. Initial public offerings or listings in overseas markets shall be filed with the CSRC within 3 working days after the relevant application is submitted overseas.
If an issuer offers securities in the same overseas market where it has previously offered and listed securities subsequently, filings shall be made with the CSRC within 3 working days after the offering is completed. Upon occurrence of any material event, such as change of control, investigations or sanctions imposed by overseas securities regulatory agencies or other relevant competent authorities, change of listing status or transfer of listing segment, or voluntary or mandatory delisting, after an issuer has offered and listed securities in an overseas market, the issuer shall submit a report thereof to CSRC within 3 working days after the occurrence and public disclosure of such event.
78
The Trial Administrative Measures also provides that if the issuer both meets the following criteria, the overseas securities offering and listing conducted by such issuer will be deemed as indirect overseas offering by PRC domestic companies: (i) 50% or more of any of the issuer’s operating revenue, total profit, total assets or net assets as documented in its audited consolidated financial statements for the most recent fiscal year is accounted for by domestic companies; and (ii) the main parts of the issuer’s business activities are conducted in mainland China, or its main place(s) of business are located in mainland China, or the majority of senior management staff in charge of its business operations and management are PRC citizens or have their usual place(s) of residence located in mainland China. Where an issuer submits an application for initial public offering to competent overseas regulators, such issuer must file with the CSRC within three business days after such application is submitted. The Overseas Listing Trial Measures also requires subsequent reports to be filed with the CSRC on material events, such as change of control or voluntary or forced delisting of the issuer(s) who have completed overseas offerings and listings.
According to the Trial Administrative Measures, if a domestic company fails to fulfill filing procedure, or offers and lists securities in an overseas market in violation of the measures, the CSRC shall order rectification, issue warnings to such domestic company, and impose relevant fines. Directly liable persons-in-charge and other directly liable persons shall be warned and each imposed relevant fine. Besides, controlling shareholders and actual controllers of the domestic company that organize or instruct the aforementioned violations as well as directly liable persons-in-charge and other directly liable persons shall be imposed fines according to the measures.
On February 24, 2023, the CSRC promulgated the Provisions on Strengthening Confidentiality and Archives Administration of Overseas Securities Offering and Listing by Domestic Companies (the “Confidentiality and Archives Administration Provisions”), which also became effective on March 31, 2023. According to the Confidentiality and Archives Administration Provisions, domestic companies that carry out overseas offering and listing (either in direct or indirect means) and the securities companies and securities service providers (either incorporated domestically or overseas) that undertake relevant businesses shall institute a sound confidentiality and archives administration system, and take necessary measures to fulfill confidentiality and archives administration obligations. They shall not leak any state secret and working secret of government agencies, or harm national security and public interest. Therefore, a domestic company that plans to, either directly or through its overseas listed entity, publicly disclose or provide to relevant individuals or entities including securities companies, securities service providers and overseas regulators, any documents and materials that contain state secrets or working secrets of government agencies, shall first obtain approval from competent authorities according to law, and file with the secrecy administrative department at the same level. Moreover, if documents and materials that, if leaked, will be detrimental to national security or public interest, are involved, the domestic company shall strictly fulfill relevant procedures stipulated by applicable regulations.
Furthermore, the Confidentiality and Archives Administration Provisions stipulates that a domestic company that provides accounting archives or copies of accounting archives to any entities including securities companies, securities service providers and overseas regulators and individuals shall fulfill due procedures in compliance with applicable regulations. Working papers produced in the Chinese mainland by securities companies and securities service providers in the process of undertaking businesses related to overseas offering and listing by domestic companies shall be retained in the Chinese mainland. Where such documents need to be transferred or transmitted to outside the Chinese mainland, relevant approval procedures stipulated by regulations shall be followed.
C. Organizational Structure
We are a Cayman Islands exempted company structured as a holding company and conduct our operations in China through our PRC subsidiaries and VIEs. Through our Hong Kong subsidiary Glory Star HK, we own a direct equity interest in WFOE, our wholly-owned PRC subsidiary. WFOE has entered into a series of contractual arrangements with (i) Xing Cui Can and our shareholders, and (ii) Horgos and our shareholders, which provide us the power to direct the activities of the VIEs that most significantly affect the VIEs’ economic performance, and to receive substantially all the economic benefit of the VIEs. Any failure by the VIEs or their respective shareholders to perform their obligations under these contractual arrangements, and any failure by us to maintain control over the VIEs and direct their business activities would result in our inability to continue to consolidate our VIEs’ financial results of operations in our financial results of operations and would have a material adverse effect on our business.
79
The following diagram illustrates our corporate structure as of December 31, 2025. Unless otherwise indicated, equity interests depicted in this diagram are held 100%. The relationships between WFOE and Xing Cui Can, and WFOE and Horgos as illustrated in this diagram are governed by the VIE Contracts and do not constitute equity ownership.
On June 13, 2025, we dissolved Horgos Glary Prosperity Culture Co., Ltd. Beijing Branch due to its inactive operations. For the year ended December 31, 2025, we recognized minimal gain arising from the dissolution and recorded in the account of “other income, net” in the consolidated statements of income and comprehensive income.
80
Contractual Arrangements among WFOE, the VIEs and the VIEs Shareholders
Current PRC laws and regulations impose certain restrictions or prohibitions on foreign ownership of companies that engage in value-added telecommunication services, and certain other business. Glory Star HK is a company registered in Hong Kong. WFOE is considered a foreign-invested enterprise. To comply with PRC laws and regulations, we primarily conduct our business in China through the VIE’s based on the VIE Contracts. As a result of VIE Contracts, Glory Star HK exerts control over WFOE’s consolidated affiliated entities in the PRC and consolidates their operating results in our financial statements under U.S. GAAP. The following is a summary of the VIE Contracts that provide us provide us the power to direct the activities of the VIEs that most significantly affect the VIEs’ economic performance, and to receive substantially all the economic benefit of the VIEs from our operations.
Contracts that allow us to direct the activities of the VIEs
Business Cooperation Agreement. WFOE entered into separate business cooperation agreements with Xing Cui Can and Horgos, and their respective shareholders in September 2019, pursuant to which (1) each VIE shall not enter into any transaction which may materially affect such VIE’s assets, obligations, rights and operations without the written consent of WFOE; (2) each VIE and the VIE shareholders agree to accept suggestions by WFOE in respect of the employment and dismissal of such VIE’s employees, daily operations, dividend distribution and financial management of such VIE; and (3) the VIE and the VIE shareholders shall only appoint individuals designated by WFOE as the director, general manager, chief financial officer and other senior management members. In addition, each of the VIE shareholders agree that (i) unless required by WFOE, will not make any decisions or otherwise request the VIE to distribute any profits, funds, assets or property to the VIE shareholders, or (ii) issue any dividends or other distribution with respect to the shares of the VIE held by the VIE shareholders. The term of each business cooperation agreement is perpetual unless terminated by WFOE upon thirty (30) days advance notice, or upon the transfer of all shares of the respective VIEs to WFOE (or our designee).
Exclusive Option Agreement. WFOE entered into separate exclusive option agreements with Xing Cui Can and Horgos, and their respective shareholders in September 2019. Pursuant to these exclusive option agreements, the VIE shareholders have granted WFOE (or our designee) an option to acquire all or a portion of each of their equity interests in the VIEs at the price equivalent to the lowest price then permitted under PRC law. If the equity interests are transferred in installments, the purchase price for each installment shall be pro rata to the equity interests transferred. WFOE may, at our sole discretion, at any time exercise the option granted by the VIE shareholders. Moreover, WFOE may transfer such option to any third party. The VIE shareholders may not, among other obligations, change or amend the articles of association and bylaws of the VIE, increase or decrease the registered capital of the VIEs, sell, transfer, mortgage or dispose of their equity interest in any way, or incur, inherit, guarantee or assume any debt except for debts incurred in the ordinary course of business unless otherwise expressly agreed to by WFOE, and enter into any material contracts except in the ordinary course of business unless otherwise expressly agreed to by WFOE. The term of each of these exclusive option agreements is 10 years and will be extended automatically for successive 5 year terms except where WFOE provides prior written notice otherwise. The exclusive option agreements may be terminated by WFOE upon thirty (30) days advance notice, or upon the transfer of all shares of the respective VIEs to WFOE (or our designee).
Share Pledge Agreement. WFOE entered into separate share pledge agreements with Xing Cui Can and Horgos, and their respective shareholders in September 2019. Pursuant to these share pledge agreements, the VIE shareholders have pledged all of their equity interests in the VIEs as priority security interest in favor of WFOE to secure the performance of the VIEs and their shareholders’ performance of their obligations under, where applicable, (i) the Master Exclusive Service Agreement, (ii) the Business Cooperation Agreement, and (iii) the Exclusive Option Agreements (collectively the “Principal Agreements”). WFOE is entitled to exercise our right to dispose of the VIE shareholders’ pledged interests in the equity of the VIE in the event that either the VIE shareholders or the VIE fails to perform their respective obligations under the Principal Agreements. The equity pledge agreements will remain in full force and remain effective until the VIE and the VIE shareholders have satisfied their obligations under the Principal Agreements.
81
Proxy Agreements and Powers of Attorney. WFOE entered into separate Proxy Agreements and Powers of Attorney with Xing Cui Can and Horgos, and their respective shareholders in September 2019. Pursuant to the proxy agreements and powers of attorney, each VIE shareholder irrevocably nominates and appoints WFOE or any natural person designated by WFOE as our attorney-in-fact to exercise all rights of such VIE equity holder in such VIE, including, but not limited to, (i) execute and deliver any and all written decisions and to sign any minutes of meetings of the board or shareholder of the VIE, (ii) make shareholder’s decisions on any matters of the VIE, including without limitation, the sale, transfer, mortgage, pledge or disposal of any or all of the assets of the VIE, (iii) sell, transfer, pledge or dispose of any or all shares in the VIE, (iv) nominate, appoint, or remove the directors, supervisors and senior management members of the VIE when necessary, (v) oversee the business performance of the VIE, (vi) have full access to the financial information of the VIE, (vii) file any shareholder lawsuits or take other legal action against the VIE’s directors or senior management members, (viii) approve annual budget or declare dividends, (ix) manage and dispose of the assets of the VIE, (x) have the full rights to control and manage the VIE’s finance, accounting and daily operations, (xi) approve filing of any documents with the relevant governmental authorities or regulatory bodies, and (xii) any other rights provided by the VIE’s charters and/or the relevant laws and regulations on the VIE shareholders. The proxy agreements and powers of attorney shall remain in effect during the term of the Exclusive Service Agreements.
Confirmation and Guarantee Letter. Each of the VIE shareholders signed a confirmation and guarantee letter in September 2019, pursuant to which each VIE equity holder agreed to fully implement the arrangements set forth in the Principal Agreements, Share Pledge Agreement, and the Proxy Agreement and Power of Attorney, and agreed to not carry out any act which may be contrary to the purpose or intent of such agreements.
Spousal Consent. Each of the VIE shareholders’ spouses, if applicable, signed a spousal consent in September 2019 pursuant to which the spouse of each of the shareholders acknowledges that the equity interests in Horgos and Xing Cui Can held by the spouse will be disposed according to the arrangements set forth in the Principal Agreements, Share Pledge Agreement, and the Proxy Agreement and Power of Attorney and undertakes not to carry out any act with the intent to interfere with the arrangements set forth in aforementioned agreements, and agree to be bound by the aforementioned agreements if they receive any equity interests in Horgos and Xing Cui Can.
Contracts that enable us to receive substantially all of the economic benefit from the VIEs
Master Exclusive Service Agreements. WFOE entered into separate Exclusive Service Agreements with Xing Cui Can and Horgos in September 2019, pursuant to which WFOE provides exclusive technology support and services, staff training and consultation services, public relation services, market development, planning and consultation services, human resource management services, licensing of intellectual property, and other services as determined by the parties. In exchange, the VIEs pay service fees to WFOE equal to the pre-tax profits of the VIEs less (i) accumulated losses of the VIEs and their subsidiaries in the previous financial year, (ii) operating costs, expenses, and taxes, and (iii) reasonable operating profits under applicable PRC tax law and practices. During the term of these agreements, WFOE has the right to adjust the amount and time of payment of the service fees at our sole discretion without the consent of the VIEs. WFOE (or our service provider) will own any intellectual property arising from the performance of these agreements. The term of each of these Exclusive Service Agreements is perpetual unless terminated by WFOE upon thirty (30) days’ advance notice, or upon the transfer of all shares of the respective VIEs to WFOE (or our designee) 10 years under the Option Agreement.
Transfers of Cash to and from Our VIEs
CHEER Holdings is a holding company with no operations of its own. We conduct our operations in China primarily through our VIEs and their subsidiaries in China. We may rely on dividends and distributions to be paid by our VIEs to fund our cash and financing requirements, including the funds necessary to pay dividends and other cash distributions to our shareholders, to service any debt we may incur and to pay our operating expenses. If our VIEs and their subsidiaries incur debt on their own behalf in the future, the instruments governing the debt may restrict its ability to pay dividends or make other distributions to us.
CHEER Holdings (and Glory Star) is permitted under the laws of Cayman Islands to provide funding to our subsidiaries in Cayman Islands, Hong Kong and PRC through loans or capital contributions, subject to satisfaction of applicable government registration, approval and filing requirements. Glory Star HK is also permitted under the laws of Hong Kong to provide funding to Glory Star through dividend distribution without restrictions on the amount of the funds.
82
Glory Star has transferred cash of approximately $10.0 million from the net proceeds from our underwritten public offering that we completed in February 2021, where an aggregate of 3,810,976 of our Class A Ordinary Shares, together with warrants to purchase 3,810,976 of our Class A Ordinary Shares, were offered and sold at a public offering price of $3.28 per share and associated warrant (the “Public Offering”) to the WFOE in the form of capital contributions. No cash has been transferred from the WFOE to the VIES, and the VIEs has not distributed any earnings or settled any amounts owed under the VIE Agreements. If we, our subsidiaries and our VIEs plan to transfer more cash in the future, we expect such transfer to be through cash deposit or wire transfer.
We currently intend to retain all available funds and future earnings, if any, for the operation and expansion of our business and do not anticipate declaring or paying any dividends in the foreseeable future. Any future determination related to our dividend policy will be made at the discretion of our board of directors after considering our financial condition, results of operations, capital requirements, contractual requirements, business prospects and other factors the board of directors deems relevant, and subject to the restrictions contained in any future financing instruments.
Subject to the Companies Islands Companies Act, and our memorandum and articles of association, as amended and restated from time to time, our board of directors has discretion as to whether to distribute dividends. In addition, our shareholders may by ordinary resolution declare a dividend, but no dividend may exceed the amount recommended by our board of directors. Under Cayman Islands law, a Cayman Islands company may pay a dividend out of either profit or share premium account, provided that in no circumstances may a dividend be paid if this would result in the company being unable to pay its debts as they fall due in the ordinary course of business.
Under the current practice of the Inland Revenue Department of Hong Kong, no tax is payable in Hong Kong in respect of dividends paid by us. The laws and regulations of the PRC do not currently have any material impact on transfer of cash from Glory Star to Glory Star HK or from Glory Star HK to Glory Star. There are no restrictions or limitation under the laws of Hong Kong imposed on the conversion of HK dollar into foreign currencies and the remittance of currencies out of Hong Kong or across borders and to U.S. investors.
Current PRC regulations permit WFOE to pay dividends to our Hong Kong subsidiary only out of its accumulated after-tax profits, if any, determined in accordance with Chinese accounting standards and regulations. In addition, WFOE is required to set aside at least 10% of its after-tax profits each year, if any, to fund a statutory reserve until such reserve reaches 50% of its registered capital. WFOE could further set aside a portion of its after-tax profits to fund a discretionary reserve, although the amount to be set aside, if any, is determined at the discretion of its shareholder. Although the statutory reserves can be used, among other ways, to increase the registered capital and eliminate future losses in excess of retained earnings of the respective companies, the reserve funds are not distributable as cash dividends except in the event of liquidation.
The PRC government also imposes controls on the conversion of RMB into foreign currencies and the remittance of currencies out of the PRC. Therefore, we may experience difficulties in completing the administrative procedures necessary to obtain and remit foreign currency for the payment of dividends from our profits, if any. Furthermore, if WFOE incurs debt on its own in the future, the instruments governing the debt may restrict its ability to pay dividends or make other payments. If we or our subsidiaries are unable to receive all of the revenues from our operations through the current VIE Contracts, we may be unable to pay dividends on our Class A Ordinary Shares.
Cash dividends, if any, on our Class A Ordinary Shares will be paid in U.S. dollars. If we are considered a PRC tax resident enterprise for tax purposes, any dividends we pay to our overseas shareholders may be regarded as China-sourced income and as a result may be subject to PRC withholding tax at a rate of up to 10.0%.
In order for us to pay dividends to our shareholders, we will rely on payments made from Xing Cui Can and/or Horgos to WFOE, pursuant to VIE Contracts between them, and the distribution of such payments to Glory Star HK as dividends from WFOE. Certain payments from Xing Cui Can and/or Horgos to WFOE are subject to PRC taxes, including enterprise income taxes, VAT and certain other taxes, as the case maybe. As of the date of this annual report, our PRC subsidiary has not made any transfers or distributions.
83
Pursuant to the Arrangement between Mainland China and the Hong Kong Special Administrative Region for the Avoidance of Double Taxation and Tax Evasion on Income, or the Double Tax Avoidance Arrangement, the 10% withholding tax rate may be lowered to 5% if a Hong Kong resident enterprise owns no less than 25% of a PRC project. However, the 5% withholding tax rate does not automatically apply and certain requirements must be satisfied, including without limitation that (a) the Hong Kong project must be the beneficial owner of the relevant dividends; and (b) the Hong Kong project must directly hold no less than 25% share ownership in the PRC project during the 12 consecutive months preceding its receipt of the dividends. In current practice, a Hong Kong project must obtain a tax resident certificate from the Hong Kong tax authority to apply for the 5% lower PRC withholding tax rate. As the Hong Kong tax authority will issue such a tax resident certificate on a case-by-case basis, we cannot assure you that we will be able to obtain the tax resident certificate from the relevant Hong Kong tax authority and enjoy the preferential withholding tax rate of 5% under the Double Taxation Arrangement with respect to dividends to be paid by our PRC subsidiary to its immediate holding company, Glory Star HK. As of the date of this annual report, we have not applied for the tax resident certificate from the relevant Hong Kong tax authority. Glory Star HK intends to apply for the tax resident certificate when WFOE plans to declare and pay dividends to Glory Star HK.
D. Property, Plants and Equipment
Our principal executive office is located at 19F, Xinhua Technology Building, No. 8 Tuofangying Road, Jiangtai, Chaoyang District, Beijing, People’s Republic of China, which has approximately 985 square meters of office space. As of December 31, 2025, we also rent an additional three (3) facilities primarily used for office space. We lease a total of 1233.27 square meters of office space, including our principal executive office. We pay monthly rent of approximately $11,768.14per month. We believe that our current offices are suitable and adequate to operate our business at this time. We do not own any real property.
Item 4A. UNRESOLVED STAFF COMMENTS
Not applicable.
Item 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
Overview
We provide advertisement and content production services and operate a leading mobile and online advertising, media and entertainment business in China. Major production from us includes short videos, online variety show, online drama, living stream and CHEERS series. We are fast becoming one of the leading contents driven e-commerce platforms in China. We focus on creating original lifestyle content to monetize our advertising and e-commerce platform. We mainly offer and generate revenue from the copyright licensing of self-produced content, advertising and customized content production and CHEERS e-Mall marketplace service, membership fees, and others.
Operating activities
In February 2024, we launched the Year of the Dragon Edition of CHEERS Telepathy. This major upgrade included substantial advancements in model architecture, computing power, and content creation capabilities, including painting, text-to-image, image-to-image, commercial scenarios, dialogue, and long-form text generation.
In June 2024, we released CHEERS Telepathy 2.0. This version featured more advanced and complicated algorithms and models, more powerful application capacity, and more comprehensive AI interaction functionalities to improve user experience, as well as a richer, more diverse and authentic generation effect. As of September 2024, CHEERS Telepathy supports users in 12 countries and regions.
In December 2024, we released CHEERS Telepathy 2.5. This upgrade provided further technical and application advancements, integrating innovative AI tools for content creators.
In December 2023, our Beijing subsidiary was recognized as a National High-Tech Enterprise. In April 2024, our Beijing subsidiary was recognized as Specialized and Innovative Enterprise. The Company’s consecutive recognition as both National High-Tech Enterprise and Specialized and Innovative Enterprise specializing in advanced technologies underscores its leadership in technological innovation, robust market competitiveness, and dominant position within the media technology sector. These accolades highlight the Company’s ability to deliver cutting-edge, unique products through specialized expertise.
84
Financing and investing activities
On September 4, 2024, the Company effected the increase of the Company’s authorized share capital as from US$200,200 divided into 200,000,000 ordinary shares of a par value of US$0.001 each and 2,000,000 preferred shares of a par value of US$0.0001 each; to US$200,700 divided into 200,000,000 Class A ordinary shares of a par value of US$0.001 each (the “Class A Shares”), 500,000 Class B ordinary shares of a par value of US$0.001 each (the “Class B Shares”) and 2,000,000 preferred shares of a par value of US$0.0001 each; by the creation of 500,000 Class B ordinary shares of a par value of US$0.001 each. Class A Shares and Class B Shares shall at all times vote together as one class, and each Class A Share shall be entitled to one (1) vote and each Class B Share shall be entitled to one hundred (100) votes. Class B Shares are not convertible into Class A Shares, and may be redeemed by the Company at par value at the option of the holder. The Company has retroactively adjusted all share and per share data from ordinary share to Class A Ordinary Shares for all periods presented.
On September 9, 2024, the Company closed a Subscription Agreement (the “Subscription Agreement”) with Mr. Bing Zhang, the Company’s Chairman, Director, Chief Executive Officer and Chief Financial Officer. Pursuant to the Subscription Agreement, the Company agreed to issue and sell to Mr. Zhang an aggregate of 500,000 Class B Ordinary Shares of the Company, at par, for an aggregate purchase price of US$500, or US$0.001 per share (the “Share Purchase”).
On May 12, 2025, the shareholders of the Company, at the Annual General Meeting, approved to increase the number of authorized Class A share capital of the Company from US$200,000 to US$500,000, with the authorized share capital of the Company to be US$500,000 divided into 10,000,000 Class A ordinary shares of a par value of US$0.05 each.
On October 2, 2025, the Company closed on a best efforts public offering for the sale of 253,731 units, each consisting of one Class A ordinary share of the Company, par value $0.05 per share, or in lieu thereof, a pre-funded warrant to purchase one Class A Ordinary Share (each a “Pre-Funded Warrant”), one series A warrant to purchase one Class A Ordinary Share (each a “Series A Warrant”) and one series B warrant to purchase one Class A Ordinary Share (each a “Series B Warrant”) for gross proceeds of approximately $8.5 million, before deducting placement agent fees and other estimated expenses payable by the Company, excluding the exercise of any warrants offered. As of December 31, 2025, the Company has issued 1,533,487 Class A Ordinary Shares in the offering.
On November 6, 2025, the Company closed on a registered direct offering for the sale of 3,750,000 Class A Ordinary Shares, or in lieu thereof, a pre-funded warrant to purchase one Class A Ordinary Share for gross proceeds of approximately $15 million, before deducting placement agent fees and other estimated expenses payable by us, including the pre-paid exercise price of the pre-funded warrants offered. As of December 31, 2025, the Company has issued 2,900,000 Class A Ordinary Shares in the offering.
Share Consolidation
On December 22, 2025, the Company effected a share consolidation at a ratio of one-for-fiftieth (50) ordinary shares with a par value of US$0.0001 each in the Company’s issued and unissued share capital into one ordinary share with a par value of US$0.05 (“the Share Consolidation”). Immediately following the Share Consolidation, the authorized share capital of the Company to be US$500,700 divided into 10,000,000 Class A ordinary shares of a par value of US$0.05 each; 500,000 Class B ordinary shares of a par value of US$0.001 each; and 2,000,000 preferred shares of a par value of US$0.0001 each. The Company has retroactively adjusted all share and per share data from ordinary share to Class A Ordinary Shares for all periods presented.
85
Key Factors that Affect Operating Results
We believe that our results of operations are significantly affected by the following key factors:
Ability to maintain and grow users and user time spent on the CHEERS App
Our success depends on our ability to maintain and grow users and user time spent on the CHEERS App. To attract and retain users and compete against our competitors, we must continue to offer high-quality content, especially popular original content that provides our users with a superior online entertainment experience. To this end, we must continue to produce new original content and source new talent and producers in a cost effective manner. Given that we operate in a rapidly evolving industry, we must anticipate user preferences and industry trends and respond to such trends in a timely and effective manner.
Ability to obtain adequate capital to meet our capital needs
The operation of an internet video streaming content provider and producer of television shows requires significant and continuous investment in content production or acquisition and video production technology. Producing high-quality original content is costly and time-consuming and typically requires a long period of time in order to realize a return on investment, if at all.
Ability to provide our users with compelling content choices
In addition to our content production for television shows, we have experienced significant user growth for our mobile and on-line video and e-commerce products over the past several years. Our ability to continue to retain users and attract new users will depend in part on our ability to consistently provide our users with compelling content choices, as well as a quality experience for selecting and viewing video content.
Ability to maintain and enhance our brand
We believe that maintaining and enhancing our brand is of significant importance to the success of our business. Our well-recognized brand is critical to increasing our user base and, in turn, expanding our shoppers for our e-commerce platform and attractiveness to advertising customers and content providers. Since the internet video industry is highly competitive, maintaining and enhancing our brand depends largely on our ability to become and remain a market leader in China, which may be difficult and expensive to accomplish.
Segment information
We have two operating segments, namely CHEERS App Internet Business and Traditional Media Businesses. Our CHEERS App Internet Business generates advertising revenue from broadcasting IP short videos, live streaming and APP advertising through our CHEERS App and service revenue from our Cheers E-mall marketplace. Our Traditional Media Business mainly contributes to the advertising revenue from our Cheers TV-series, copyright revenue, customized content production revenue and others. The table below measures the performance of each segment based on metrics of revenues and earnings from operations and uses these results to evaluate the performance of, and to allocate resources to, each of the segments.
| For the Years Ended December 31, | ||||||||||||
| 2025 | 2024 | 2023 | ||||||||||
| Net revenues: | ||||||||||||
| Cheers App Internet Business | $ | 137,482 | $ | 135,796 | $ | 141,005 | ||||||
| Traditional Media Business | 11,353 | 11,400 | 11,322 | |||||||||
| Total consolidated net revenues | $ | 148,835 | $ | 147,196 | $ | 152,327 | ||||||
| Operating income: | ||||||||||||
| Cheers APP Internet Business | $ | 27,450 | $ | 25,218 | $ | 27,108 | ||||||
| Traditional Media Business | 2,267 | 2,118 | 2,177 | |||||||||
| Total segment operating income | 29,717 | 27,336 | 29,285 | |||||||||
| Unallocated item (1) | (3,429 | ) | (1,744 | ) | - | |||||||
| Total consolidated operating income | $ | 26,288 | $ | 25,592 | $ | 29,285 | ||||||
| * | The unallocated item for the years ended December 31, 2025, 2024 and 2023 presents the share-based compensation for employees, which is not allocated to segments. |
86
A. Operating Results
The following table summarizes our consolidated results of operations in absolute amount and as a percentage of our total net revenues for the periods indicated. Year-to-year comparisons of historical results of operations should not be relied upon as indicative of future performance. The numbers are expressed in U.S. dollars in thousands, except for percentages.
For the years ended December 31, 2025 and 2024 (In U.S. dollars in thousands)
| For the Years Ended December 31, | ||||||||||||||||||||||||
| 2025 | 2024 | Change | ||||||||||||||||||||||
| $ | % | $ | % | $ | % | |||||||||||||||||||
| Revenues | 148,835 | 100.00 | 147,196 | 100.00 | 1,639 | 1.1 | ||||||||||||||||||
| Operating expenses: | ||||||||||||||||||||||||
| Cost of revenues | (43,209 | ) | (29.03 | ) | (39,388 | ) | (26.76 | ) | (3,821 | ) | 9.7 | |||||||||||||
| Selling and marketing | (69,441 | ) | (46.66 | ) | (75,289 | ) | (51.15 | ) | 5,848 | (7.8 | ) | |||||||||||||
| General and administrative | (4,724 | ) | (3.17 | ) | (3,499 | ) | (2.38 | ) | (1,225 | ) | 35.0 | |||||||||||||
| Research and development | (5,173 | ) | (3.48 | ) | (3,428 | ) | (2.33 | ) | (1,745 | ) | 50.9 | |||||||||||||
| Total operating expenses | (122,547 | ) | (82.34 | ) | (121,604 | ) | (82.62 | ) | (943 | ) | 0.8 | |||||||||||||
| Income from operations | 26,288 | 17.66 | 25,592 | 17.38 | 696 | 2.7 | ||||||||||||||||||
| Other (expenses) income: | ||||||||||||||||||||||||
| Interest income, net | 69 | 0.05 | 262 | 0.18 | (193 | ) | (73.7 | ) | ||||||||||||||||
| Other (expenses) income, net | (663 | ) | (0.45 | ) | 80 | 0.05 | (743 | ) | (928.8 | ) | ||||||||||||||
| Total other (expenses) income | (594 | ) | (0.40 | ) | 342 | 0.23 | (936 | ) | (273.7 | ) | ||||||||||||||
| Income before income taxes | 25,694 | 17.26 | 25,934 | 17.61 | (240 | ) | (0.9 | ) | ||||||||||||||||
| Income tax (expense) benefit | (73 | ) | (0.05 | ) | 34 | 0.02 | (107 | ) | (314.7 | ) | ||||||||||||||
| Net income | 26,621 | 17.21 | 25,968 | 17.63 | (347 | ) | (1.3 | ) | ||||||||||||||||
Revenues
For the years ended December 31, 2025 and 2024, we primarily generated revenues from three revenue streams: advertising, copyright licensing, and CHEERS e-Mall market service. For the years ended December 31, 2025 and 2024, 98.9% and 98.0% of our revenues derived from advertising services.
Our revenues for the year ended December 31, 2025 were approximately $148.7 million, representing an increase of approximately $1.6 million, or 1.1% from approximately $147.2 million for the year ended December 31, 2024. The increase in revenues was mainly caused by an increase of approximately $1.8 million in advertising revenues as a result of acquisition one major customer in the second half of 2024, leading to more revenues generated during the year of 2025. Our customers adopted cost saving strategies due to downward trend of macroeconomic environment.
We expect to further expand our customers base with our efforts to enhance brand recognition and user traffic generation, leading to more exposure and high popularity of our Apps.
87
Operating expenses
Operating expenses consists of cost of revenues, selling and marketing, general and administrative and research and development expense.
Cost of revenues consists primarily of production cost of TV series, short stream video, live stream and network drama, labor cost and related benefits, payments to various channel owners for broadcast, purchase cost of goods and copyrights and costs associated with the operation of our online game and shopping platform CHEERS App such as bandwidth cost and amortization of intangible assets. Our cost of revenues increased by approximately $3.8 million, or 9.7%, from approximately $39.4 million for the year ended December 31, 2024 to approximately $43.2 million for the year ended December 31, 2025. The change in cost of revenues was primarily because (i) the increase was in line with the increase in revenues. However our gross margin decreased which was primarily due to decrease in the service fees to attract increasing orders placed by our advertising customers in the year of 2025. We expect to achieve a further increase in advertising revenues with our continuous investment in advertising business. However, it may take time to make further investments before we generate revenues.
Our sales and marketing expenses primarily consist of salaries and benefits of sales department, user acquisition expense, advertising fee, travelling expense and CHEERS e-Mall marketing expense. Our sales and marketing expenses decreased by approximately $5.9 million, from approximately $75.3 million for the year ended December 31, 2024 to approximately $69.4 million for the year ended December 31, 2025. The decrease was mainly caused by a decrease of promotion campaigns expenses of approximately $5.6 million because we believe higher promotion campaigns expenses may not achieve expected effects given the customers adopted cost saving strategies and a decrease of approximately $0.2 million in other expenses incurred by sales persons as a result of cost saving strategies within the Company.
Our general and administrative expenses consist primarily of salaries and benefits for members of our management, provision of expected credit losses, impairment of intangible assets and professional service fees. Our general and administrative expenses increased by approximately $1.2 million, to approximately $4.7 million for the year ended December 31, 2025 from approximately $3.5 million for the year ended December 31, 2024. The change was primarily caused by impairment of software of approximately $1.2 million.
Our research and development expenses consist primarily of salaries and benefits for our research and development department. Research and development expenses for the years ended December 31, 2025 and 2024 were approximately $5.2 million and approximately $3.4 million, respectively. Such increase was primarily due to the continued investment in the IT infrastructure, user-friendliness upgrades, and continual implementation on content driven strategies.
Income tax (expense) benefits
Income tax expenses for the year ended December 31, 2025 were approximately $73,000 because we reversed deferred tax assets arising from allowance for expected credit losses of accounts receivables doubtful receivables as a result of collection of these receivables from our customers. Income tax benefits for the year ended December 31, 2024 were approximately $34,000 because we recognized deferred tax benefits arising from allowance of prepayments.
88
Net Income
As a result of the foregoing, we had a net income of approximately $25.6 million in the year ended December 31, 2024, as compared to a net income of approximately $26.0 million in the year ended December 31, 2024.
For the years ended December 31, 2024 and 2023 (In U.S. dollars in thousands)
| For the Years Ended December 31, | ||||||||||||||||||||||||
| 2024 | 2023 | Change | ||||||||||||||||||||||
| $ | % | $ | % | $ | % | |||||||||||||||||||
| Revenues | 147,196 | 100.00 | 152,327 | 100.00 | (5,131 | ) | (3.37 | ) | ||||||||||||||||
| Operating expenses: | ||||||||||||||||||||||||
| Cost of revenues | (39,388 | ) | (26.76 | ) | (39,549 | ) | (25.96 | ) | 161 | (0.41 | ) | |||||||||||||
| Selling and marketing | (75,289 | ) | (51.15 | ) | (76,200 | ) | (50.02 | ) | 911 | (1.20 | ) | |||||||||||||
| General and administrative | (3,499 | ) | (2.38 | ) | (5,658 | ) | (3.71 | ) | 2,159 | (38.16 | ) | |||||||||||||
| Research and development | (3,428 | ) | (2.33 | ) | (1,635 | ) | (1.07 | ) | (1,793 | ) | 109.66 | |||||||||||||
| Total operating expenses | (121,604 | ) | (82.62 | ) | (123,042 | ) | (80.77 | ) | 1,438 | (1.17 | ) | |||||||||||||
| Income from operations | 25,592 | 17.38 | 29,285 | 19.23 | (3,693 | ) | (12.61 | ) | ||||||||||||||||
| Other income: | ||||||||||||||||||||||||
| Interest income, net | 262 | 0.18 | 3 | 0.00 | 259 | 8,633.33 | ||||||||||||||||||
| Change in fair value of warrant liability | - | 0.00 | 86 | 0.06 | (86 | ) | (100.00 | ) | ||||||||||||||||
| Other income, net | 80 | 0.05 | 1,215 | 0.80 | (1,135 | ) | (93.42 | ) | ||||||||||||||||
| Total other income | 342 | 0.23 | 1,304 | 0.86 | (962 | ) | (73.77 | ) | ||||||||||||||||
| Income before income taxes | 25,934 | 17.61 | 30,589 | 20.08 | (4,655 | ) | (15.22 | ) | ||||||||||||||||
| Income tax benefit (expense) | 34 | 0.02 | (61 | ) | (0.04 | ) | 95 | (155.74 | ) | |||||||||||||||
| Net income | 25,968 | 17.63 | 30,528 | 20.04 | (4,650 | ) | (14.94 | ) | ||||||||||||||||
Revenues
For the years ended December 31, 2024 and 2023, we primarily generated revenues from three revenue streams: advertising, copyright licensing, and CHEERS e-Mall market service. For the years ended December 31, 2024 and 2023, 98.0% and 97.9% of our revenues derived from advertising services.
Our revenues for the year ended December 31, 2024 were approximately $147.2 million, representing a decrease of approximately $5.1 million, or 3.37% from approximately $152.3 million for the year ended December 31, 2023. The decrease in revenues was mainly caused by a decrease of approximately $4.8 million in advertising revenues because our customers placed less advertising orders with us. Our customers adopted cost saving strategies due to downward trend of macroeconomic environment.
We expect to further expand our customers base with our efforts to enhance brand recognition and user traffic generation, leading to more exposure and high popularity of our Apps.
Operating expenses
Operating expenses consists of cost of revenues, selling and marketing, general and administrative and research and development expense.
Cost of revenues consists primarily of production cost of TV series, short stream video, live stream and network drama, labor cost and related benefits, payments to various channel owners for broadcast, purchase cost of goods and copyrights and costs associated with the operation of our online game and shopping platform CHEERS App such as bandwidth cost and amortization of intangible assets. Our cost of revenues slightly decreased by approximately $0.1 million, or 0.41%, from approximately $39.5 million for the year ended December 31, 2023 to approximately $39.4 million for the year ended December 31, 2024. The change in cost of revenues was in line with the changes in revenues. However our gross margin decreased which was primarily due to decrease in the service fees charged to our advertising customers in the year of 2024. We expect to achieve a further increase in advertising revenues with our continuous investment in advertising business. However, it may take time to make further investments before we generate revenues.
89
Our sales and marketing expenses primarily consist of salaries and benefits of sales department, user acquisition expense, advertising fee, travelling expense and CHEERS e-Mall marketing expense. Our sales and marketing expenses decreased by approximately $0.9 million, to approximately $75.3 million for the year ended December 31, 2024 from approximately $76.2 million for the year ended December 31, 2023. The decrease was mainly caused by depreciation of RMB during the year ended December 31, 2024, leading to a lower USD amount in translation of revenues from RMB into USD. Without the impact of fluctuation of foreign exchange rates, our sales and marketing expenses for the year ended December 31, 2024 increased by approximately 0.41% as compared with the sales and marketing expenses for the same period of 2023.
Our general and administrative expenses consist primarily of salaries and benefits for members of our management and bad debt provision expense for accounts receivable and professional service fees. Our general and administrative expenses decreased by approximately $2.2 million, to approximately $3.5 million for the year ended December 31, 2024 from approximately $5.7 million for the year ended December 31, 2023. The change was primarily caused by provision of expected credit losses against accounts receivable of approximately $2.1 million in the year of 2023, while we reversed the provision of $19,516 in the year of 2024.
Our research and development expenses consist primarily of salaries and benefits for our research and development department. Research and development expenses for the years ended December 31, 2024 and 2023 were approximately $3.4 million and approximately $1.6 million, respectively. Such increase was primarily due to the continued investment in the IT infrastructure, user-friendliness upgrades, and continual implementation on content driven strategies.
Income tax benefits (expense)
Income tax benefits for the year ended December 31, 2024 were approximately $34,000 because we recognized deferred tax benefits arising from allowance of prepayments. Income tax expenses for the year ended December 31, 2023 were approximately $61,000 because we reversed certain deferred tax assets arising from allowance for doubtful receivables as a result of collection of these receivables from our customers.
Net Income
As a result of the foregoing, we had a net income of approximately $26.0 million in the year ended December 31, 2024, as compared to a net income of approximately $30.5 million in the year ended December 31, 2023.
B. Liquidity and Capital Resources
As of December 31, 2025 and 2024, our principal sources of liquidity were cash and cash equivalents of approximately $242.1 million and $197.7 million, respectively. Working capital at December 31, 2025 was approximately $334.8 million. For the year ended December 31, 2025, we also raised net proceeds of approximately $21.0 million from a best efforts public offering and a registered direct offering. We intend to use these proceeds for general working capital and other general corporate purposes, including, but not limited to, sales and marketing expenses for user acquisition and to develop our overseas expansion plans.
On October 2, 2025, the Company closed on a best efforts public offering for the sale of 253,731 units, each consisting of one Class A ordinary share of the Company, par value $0.05 per share, or in lieu thereof, a pre-funded warrant to purchase one Class A Ordinary Share (each a “Pre-Funded Warrant”), one series A warrant to purchase one Class A Ordinary Share (each a “Series A Warrant”) and one series B warrant to purchase one Class A Ordinary Share (each a “Series B Warrant”) for gross proceeds of approximately $8.5 million, before deducting placement agent fees and other estimated expenses payable by the Company, excluding the exercise of any warrants offered. As of December 31, 2025, the Company has issued 1,533,487 Class A Ordinary Shares in the offering.
On November 6, 2025, the Company closed on a registered direct offering for the sale of 3,750,000 Class A Ordinary Shares, or in lieu thereof, a pre-funded warrant to purchase one Class A Ordinary Share for gross proceeds of approximately $15 million, before deducting placement agent fees and other estimated expenses payable by us, including the pre-paid exercise price of the pre-funded warrants offered. As of December 31, 2025, the Company has issued 2,900,000 Class A Ordinary Shares in the offering.
We believe that our current cash and cash equivalents and our anticipated cash flows from operations will be sufficient to meet our anticipated working capital requirements and capital expenditures for the next 12 months. If we determine that our cash requirements exceed the amount of cash and cash equivalents we have on hand at the time, we may seek to issue equity or debt securities or obtain credit facilities. The issuance and sale of additional equity would result in further dilution to our shareholders. The incurrence of indebtedness would result in increased fixed obligations and could result in operating covenants that might restrict our operations. We cannot assure you that financing will be available in amounts or on terms acceptable to us, if at all.
Substantially all of our cash and cash equivalents as of December 31, 2025 were held in China, of which all are denominated in Renminbi (RMB). In addition, we are a holding company with no material operations of our own. We conduct our operations primarily through our subsidiaries and VIEs in China. As a result, our ability to pay dividends, if any, depends upon dividends paid by our wholly-owned subsidiaries. We do not anticipate to pay any dividends in the future as any net income earned will be reinvested in the Company. In addition, our WFOE is permitted to pay dividends to us only out of their retained earnings, if any, as determined in accordance with PRC accounting standards and regulations. Under PRC law, our WFOE and each of its consolidated entities is required to set aside at least 10% of its after-tax profits each year, if any, to fund a statutory reserve until such reserve reaches 50% of its registered capital. Although the statutory reserves can be used, among other ways, to increase the registered capital and eliminate future losses in excess of retained earnings of the respective companies, the reserve funds are not distributable as cash dividends except in the event of liquidation. Remittance of dividends by a wholly foreign-owned company out of China is subject to examination by the banks designated by the SAFE. We currently plan to reinvest all earnings from our WFOE to business development and do not plan to request dividend distributions from the WFOE.
If we experience an adverse operating environment or incurred anticipated capital expenditure requirement, or if we accelerate our growth, then additional financing may be required. No assurance can be given, however, that the additional financing, if required, would be on favorable terms or available at all. Such financing may include the use of additional debt or the sale or additional securities. Any financing, which involves the sale of equity securities or instruments that are convertible into equity securities, could result in immediate and possibly significant dilutions to our existing shareholders.
90
Cash Flows
The following table summarizes our cash flows for the years indicated. The numbers are expressed in U.S. dollars in thousands, except for percentages.
| For the Years Ended December 31, (In U.S. dollars in thousands) | ||||||||||||
| 2025 | 2024 | 2023 | ||||||||||
| Net cash provided by operating activities | $ | 25,025 | $ | 22,875 | $ | 42,174 | ||||||
| Net cash used in investing activities | (7,797 | ) | (24,862 | ) | (3 | ) | ||||||
| Net cash provided by financing activities | 17,824 | 10,551 | 82,021 | |||||||||
| Effect of exchange rate changes | 9,370 | (5,429 | ) | (149 | ) | |||||||
| Net increase in cash and cash equivalents | 44,422 | 3,135 | 124,043 | |||||||||
| Cash and cash equivalents, at beginning of year | 197,660 | 194,525 | 70,482 | |||||||||
| Cash and cash equivalents, at end of year | $ | 242,082 | $ | 197,660 | $ | 194,525 | ||||||
We primarily fund our operations from our net revenues, bank loans and equity financing through private placements. For the years ended December 31, 2025, 2024 and 2023, our accounts receivable decreased by approximately $1.5 million, $1.9 million and $15.2 million, respectively. We intend to continue focusing on timelier collections of account receivable which should enhance our cash flows. We anticipate that the major capital expenditure in the near future is for the further enhancement of our CHEERS App. For the years ended December 31, 2025, 2024 and 2023, our prepayments and other current assets increased by approximately $14.0 million, $0.5 million and $22.3 million, respectively. The changes were primarily caused by changes in prepayments to our vendors for customer acquisition.
To enhance its proposed growth, we anticipate raising capital through the issuance of equity or debt securities or obtain credit facilities. The issuance and sale of additional equity would result in further dilution to our shareholders. The incurrence of indebtedness would result in increased fixed obligations and could result in operating covenants that might restrict our operations. We cannot assure you that financing will be available in amounts or on terms acceptable to us, if at all.
Operating Activities
Net cash provided by operating activities was approximately $25.0 million for the year ended December 31, 2025. This consisted primarily of (i) net income of approximately $25.6 million adjusted for non-cash depreciation and amortization expense of approximately $6.9 million, reversal of expected credit losses of approximately $2.9 million, impairment of intangible assets of approximately $1.2 million and share-based compensation expenses of approximately $3.4 million, and (ii) net changes in our operating assets and liabilities, principally consisting of a decrease of accounts receivable of approximately $1.5 million because we improved collection from customers, an increase of prepayments and other current assets of approximately $3.1 million due to increased prepayments to our vendors as a result of orders placed by our customers, and a decrease of other tax payable of approximately $6.7 million with an increase of payment of value-added tax expenses.
Net cash provided by operating activities was approximately $22.9 million for the year ended December 31, 2024. This consisted primarily of (i) net income of approximately $26.0 million adjusted for non-cash depreciation and amortization expense of approximately $3.8 million and share-based compensation expenses of approximately $1.7 million, and (ii) net changes in our operating assets and liabilities, principally consisting of a decrease of accounts receivable approximately $1.9 million because we improved collection from customers, a decrease of other tax payable of approximately $2.3 million with an increase of payment of value-added tax expenses, and an decrease of accounts payable of approximately $7.4 million because we improved payment process.
91
Net cash provided by operating activities was approximately $42.2 million for the year ended December 31, 2023. This consisted primarily of (i) net income of approximately $30.5 million adjusted for non-cash depreciation and amortization expense of approximately $3.4 million and provision of approximately $3.6 million against doubtful accounts, and (ii) net changes in our operating assets and liabilities, principally consisting of (a) a decrease of accounts receivable of approximately $15.2 million, which was because we improved collection from customers, (b) an increase of prepayments and other current assets in the amount of approximately $22.3 million because we increased our purchase of content production which required of prepayments, and (c) an increase of other tax payable of approximately $9.5 million, which increased in line with increase of revenues.
Investing Activities
Net cash used in investing activities was approximately $7.8 million for the year ended December 31, 2025, which was primarily incurred for purchase of intangible assets of approximately $7.8 million.
Net cash used in investing activities was approximately $24.9 million for the year ended December 31, 2024, which was primarily incurred for purchase of intangible assets of approximately $24.9 million.
Net cash used in investing activities was approximately $3,000 for the year ended December 31, 2023, which was primarily incurred for purchase of property and equipment.
Financing Activities
Net cash provided by financing activities was approximately $17.8 million for the year ended December 31, 2025, which was primarily attributable to proceeds of $21.0 million from issuance of ordinary shares in connection with a private placements, proceeds of approximately $7.7 million from short-term bank loans and proceeds of approximately $1.7 million from related parties, partially offset by repayments of short-term bank loans of approximately $12.5 million.
Net cash provided by financing activities was approximately $10.6 million for the year ended December 31, 2024, which was primarily attributable to capital contribution of approximately $5.5 million from shareholders and proceeds of approximately $12.5 million from short-term bank loans, partially offset by repayments of short-term bank loans of approximately $6.9 million and repayment of borrowings of approximately $0.5 million to a related party.
Net cash provided by financing activities was approximately $82.0 million for the year ended December 31, 2023, which was primarily attributable to proceeds of $80.0 million from issuance of ordinary shares in connection with a private placement, proceeds of approximately $4.7 million and $1.4 million, respectively, from short-term bank loans and long-term bank loans, borrowings of approximately $1.6 million from related parties, partially offset by repayments of short-term bank loans of $4.8 million.
Please refer to “Notes to Consolidated Financial Statements—Note 9. Bank Loans” for the details of loan terms and interest rates.
Off-Balance Sheet Arrangements.
We have not entered into any financial guarantees or other commitments to guarantee the payment obligations of any third parties. In addition, we have not entered into any derivative contracts that are indexed to our shares and classified as shareholder’s equity or that are not reflected in our consolidated financial statements. Furthermore, we do not have any retained or contingent interest in assets transferred to an unconsolidated entity that serves as credit, liquidity or market risk support to such entity. We do not have any variable interests in any unconsolidated entity that provides financing, liquidity, market risk or credit support to us or engages in leasing, hedging or product development services with us.
92
Capital Expenditures
Our capital expenditures were approximately $10.8 million, $24.9 million and $3,000 for the years ended December 31, 2025, 2024 and 2023, respectively. In these periods, our capital expenditures were mainly used to purchase property, equipment and intangible assets. We will continue to make capital expenditures to meet the expected growth of our business.
C. Research and development
We have a team of experienced engineers who are primarily based at our headquarters in Beijing. We compete aggressively for engineering talent and work closely with top IT firms through outsourcing to address challenges such as AI recommended search engine, block chain scoring e-mall, network games battle platform, data warehouse, social networking E-commence V3.0, video media warehouse. In the years ended December 31, 2025, 2024 and 2023, our research and development expenditures were approximately $5.2 million, $3.4 million and $1.6 million, respectively. In addition, intangible asset was approximately $56.8 million and $40.5 million as of December 31, 2025 and 2024, respectively. The increase in intangible assets was a result of the capitalization of research and development expenditures. We plan to continue investing in and improving our CHEERS App to further increase user friendliness, functionality and efficiency.
D. Trend information
See “—A. Operating Results” of this Item 5 and “Item 3.D. Key Information—Risk Factors” of this annual report.
E. Critical Accounting Estimates
We prepare our financial statements in accordance with U.S. GAAP, which requires our management to make judgments, estimates and assumptions. We continually evaluate these judgments, estimates and assumptions based on our own historical experience, knowledge and assessment of current business and other conditions, our expectations regarding the future based on available information and various assumptions that we believe to be reasonable, which together form our basis for making judgments about matters that are not readily apparent from other sources. Since the use of estimates is an integral component of the financial reporting process, our actual results could differ from those estimates. Some of our accounting policies require a higher degree of judgment than others in their application.
The selection of critical accounting policies, the judgments and other uncertainties affecting application of those policies and the sensitivity of reported results to changes in conditions and assumptions are factors that should be considered when reviewing our financial statements. We believe the following accounting policies involve the most significant judgments and estimates used in the preparation of our financial statements. You should read the following description of critical accounting policies, judgments and estimates in conjunction with our consolidated financial statements and other disclosures included in this report.
A list of critical accounting policies, judgements and estimates that are relevant to us is included in note 2 of our consolidated financial statements included elsewhere in this report.
Recently issued accounting pronouncements
A list of recently issued accounting pronouncements that are relevant to us is included in note 2 of our consolidated financial statements included elsewhere in this report.
93
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
A. Directors and Senior Management
The following table set forth the names and ages as of our current directors, executive officers and significant employees as of the date of this annual report.
| Name | Age | Position | ||
| Bing Zhang | 58 | Director (Chairman), Chief Executive Officer and interim Chief Finance Officer | ||
| Jia Lu | 45 | Director and Senior Vice President of Glory Star Media (Beijing) Co., Ltd. | ||
| Ke Chen | 47 | Independent Director | ||
| Zhihong Tan | 58 | Independent Director | ||
| Yong Li | 56 | Independent Director |
The address and telephone number of each director and executive officer of the Company is: 19F, Block B, Xinhua Technology Building, No. 8 Tuofangying South Road, Jiuxianqiao, Chaoyang District, Beijing, China 100016 (Tel:+ 86-10-87700500).
The following is a brief biography of each of our executive officers and directors:
Mr. Bing Zhang became our chairman, director and chief executive officer in February 2020 upon the consummation of the Business Combination. Mr. Zhang has been the chairman of CHEER Group since 2019 and he also serves as the chief executive officer of Horgos and Xing Cui Can since 2016. Mr. Zhang has also served as interim chief financial officer since July 2022. From 2011 to 2016, Mr. Zhang was the Vice President of Trends Group as well as Chairman of Board of Directors and General Manager of Trends Star (Beijing) Cultural Media Co., Ltd. Mr. Bing Zhang holds an EMBA Degree of Tsinghua SEM and a Bachelor Degree of Hunan University.
Mr. Jia Lu became our director in February 2020. Mr. Lu is a director and senior vice president of Glory Star Media (Beijing) Co., Ltd., and a director of Horgos Glory Star Media Co., Ltd., Horgos Glary Wisdom Marketing Planning Co., Ltd., Glary Wisdom (Beijing) Marketing Planning Co., Ltd. since 2018, and director of Horgos Glary Prosperity Culture Co., Ltd. since 2017, and senior vice president of Glory Star Media (Beijing) Co., Ltd. Since 2016. From 2011 to 2016, Mr. Lu served as Vice General Manager at Trends Star (Beijing) Cultural Media Co., Ltd. Mr. Lu holds a Bachelor degree of Beijing film academy.
Mr. Ke Chen, became our independent director in September 2020. Mr. Chen is a partner at the Beijing Chang-An Law Firm (“Chang-An”), Beijing P.R. China, since 2017 and as its deputy director of the financial securities department from 2014 to 2017. Prior to that time Mr. Chen was an associate at Hogan Lovells since 2004. Mr. Chen focuses his legal practice on banking, stock securities, fund, project finance, merger and acquisition, corporate finance, foreign direct investments, outbound investments, construction, real-estate and regulatory and compliance work. Mr. Chen received a LLB in 2002 and a LLM in 2003 from the University of Buckingham.
Mr. Zhihong Tan, became our independent director in April 2022. Mr. Tan currently serves as the vice president of Hunan Renjian Enterprise Group since 2014. From 1992 to 2000, Mr. Tan was the manager of Hunan Foreign-funded Enterprise Materials Company, and from 2000 to 2010, he was the general manager of Hunan Tianlai Village Culture and Entertainment Company. In addition, Mr. Tan was also the general manager of Tianfu Real Estate Company from 2010 to 2013. Mr. Tan graduated from Hunan University of Finance and Economics with a bachelor’s degree in Price Theory. Mr. Tan also hold an ACCA international certified public accountant certificate.
Mr. Yong Li, became our independent director in February 2020. Mr. Li is the deputy director of Intelligent Communication Commission of China TV Artists Association (CTAA), Partner of Chengmei Capital and Chairman of Guyuan Culture since June 2019. From 2014 to 2018, Mr. Li served as Chief Inspector/General Manager of Dragon TV Center, Oriental Entertainment Media Group Co., Ltd. From 2011 to 2014, Mr. Li served as the general manager of Shanghai New Media & Entertainment Co. LTD. In addition, Mr. Li was the first to launch “independent producer system” in Shanghai, which has significantly promoted the development of China’s entertainment and media industry. Mr. Li holds a master degree in business from China Europe International Business School in 2006 and a Bachelor of Art in Journalism from Communication University of China in 1991.
Family Relationships
None of the directors or executive officers have a family relationship as defined in Item 401 of Regulation S-K.
94
B. Compensation
In 2025, we paid an aggregate of $90,271.36 in cash to our executive officers. We did not grant any awards under our equity incentive plans to our executive officers in 2025. We have not set aside or accrued any amount to provide pension, retirement or other similar benefits to our executive officers and directors. Our PRC subsidiaries and consolidated variable interest entities are required by law to make contributions equal to certain percentages of each employee’s salary for his or her pension insurance, medical insurance, unemployment insurance and other statutory benefits and a housing provident fund.
Benefit Plans
We do not have any profit sharing plan or similar plans for the benefit of our officers, directors or employees. However, we may establish such plan in the future.
Aggregated Option/Stock Appreciation Right (SAR) exercised and Fiscal year-end Option/SAR value table
Neither our executive officers nor the other individuals listed in the tables above, exercised options or SARs during the last fiscal year.
Equity Compensation Plan Information
On February 14, 2020, our board of directors approved our 2019 Equity Incentive Plan (“2019 Plan”), which was approved by our shareholders on December 23, 2019. The 2019 Plan allows for the award of stock and options, up to 7,466 Class A Ordinary Shares. As of December 31, 2025, there are no Class A Ordinary Shares available for issuance under the 2019 Plan.
On July 15, 2024, our board of directors approved our 2024 Equity Incentive Plan (“2024 Plan”), which was approved by our shareholders on August 28, 2024. The 2024 Plan allows for the award of stock and options, up to 40,000 Class A Ordinary Shares. As of December 31, 2025, awards representing 27,000 Class A Ordinary Shares have been issued under the 2024 Plan.
Long-term incentive plans
No long term incentive awards were granted by us in the last fiscal year.
Pension Benefits
None of our named executive officers participate in or have account balances in qualified or nonqualified defined benefit plans sponsored by it.
Nonqualified Deferred Compensation
None of our named executive officers participate in or have account balances in nonqualified defined contribution plans or other deferred compensation plans maintained by it.
Compensation of Non-Executive Directors
We entered into respective independent director agreements with our independent directors, Messrs. Zhihong Tan, Yong Li and Ke Chen in connection with their appointments as independent directors of the Company. Pursuant to the independent director agreements, each independent director shall be entitled to a fee of $2,000 per month ($24,000 per year). In addition, we also granted each independent director 4 of our Class A Ordinary Shares pursuant to the terms and conditions of a restricted stock award agreement pursuant to our 2019 Equity Incentive Plan. Each independent director is also entitled to reimbursement for-out of-pocket expenses incurred. In 2025, we paid an aggregate of $72,000 in cash to our independent directors. We did not grant any restrictive stock units or other equity awards under our 2024 Plan to our independent directors in 2025.
95
Employment Agreements with Executive Officers
We entered into an Employment Agreement with our chief executive officer, Bing Zhang, effective December 20, 2019. Mr. Zhang is an “at-will” employee.
Glory Star Media (Beijing) Co., Ltd entered into an Employment Agreement with our Director and its Senior Vice President, Jia Lu, effective December 20, 2019. Mr. Lu is an “at-will” employee.
There were no performance based cash bonuses paid for years ended December 31, 2025 and 2024.
For the year ended December 31, 2025, no equity awards were granted to our executive officers under the 2019 Plan or 2024 Plan.
C. Board Practices
Board of Directors
Our board of directors is divided into three classes with only one class of directors being elected in each year and each class (except for those directors appointed prior to our first annual meeting of shareholders) serving a three-year term. The term of office for Class I directors, consisting of Messrs. Jia Lu and Zhihong Tan, will expire at the 2026 annual meeting. The term of office of the Class II directors, consisting of Messrs. Yong Li and Bing Zhang, unless re-elected will expire at the 2027 annual meeting, and the term of office of the Class III directors, consisting of Mr. Ke Chen will expire at the 2028 annual meeting.
Our officers are elected by the board of directors and serve at the discretion of the board of directors, rather than for specific terms of office. Our board of directors is authorized to appoint persons to the offices set forth in our memorandum and articles of association as it deems appropriate. Our memorandum and articles of association provide that our officers may consist of a Chief Executive Officer, President, Chief Financial Officer, Vice Presidents, Secretary, Assistant Secretaries, Treasurer and such other offices as may be determined by the board of directors.
Director Independence
Currently, each of Messrs. Zhihong Tan, Yong Li and Ke Chen would be considered an “independent director” under the NASDAQ listing rules, which is defined generally as a person other than an officer or employee of the company or its subsidiaries or any other individual having a relationship, which, in the opinion of the company’s board of directors would interfere with the director’s exercise of independent judgment in carrying out the responsibilities of a director. Our independent directors will have regularly scheduled meetings at which only independent directors are present.
Committees of the Board of Directors
Our board of directors has three standing committees: an audit committee, a nominating committee and a compensation committee. Subject to phase-in rules and certain limited exceptions, the rules of NASDAQ and Rule 10A-3 of the Exchange Act require that the audit committee of a listed company be comprised solely of independent directors, and the rules of NASDAQ require that the compensation committee and nominating committee of a listed company be comprised solely of independent directors.
96
Audit Committee
We have established an audit committee of the board of directors, which consists of Messrs. Zhihong Tan, Yong Li and Ke Chen, each of whom is an independent director under NASDAQ’s listing standards. Mr. Tan is the Chairperson of the audit committee.
The audit committee’s duties, which are specified in our Audit Committee Charter, include, but are not limited to:
| ● | reviewing and discussing with management and the independent auditor the annual audited financial statements, and recommending to the board whether the audited financial statements should be included in our annual report; |
| ● | discussing with management and the independent auditor significant financial reporting issues and judgments made in connection with the preparation of our financial statements; |
| ● | discussing with management major risk assessment and risk management policies; |
| ● | monitoring the independence of the independent auditor; |
| ● | verifying the rotation of the lead (or coordinating) audit partner having primary responsibility for the audit and the audit partner responsible for reviewing the audit as required by law; |
| ● | reviewing and approving all related-party transactions; |
| ● | inquiring and discussing with management our compliance with applicable laws and regulations; |
| ● | pre-approving all audit services and permitted non-audit services to be performed by our independent auditor, including the fees and terms of the services to be performed; |
| ● | appointing or replacing the independent auditor; |
| ● | determining the compensation and oversight of the work of the independent auditor (including resolution of disagreements between management and the independent auditor regarding financial reporting) for the purpose of preparing or issuing an audit report or related work; |
| ● | establishing procedures for the receipt, retention and treatment of complaints received by us regarding accounting, internal accounting controls or reports which raise material issues regarding our financial statements or accounting policies; and |
| ● | approving reimbursement of expenses incurred by our management team in identifying potential target businesses. |
Financial Experts on Audit Committee
The audit committee will at all times be composed exclusively of “independent directors” who are “financially literate” as defined under NASDAQ listing standards. NASDAQ listing standards define “financially literate” as being able to read and understand fundamental financial statements, including a company’s balance sheet, income statement and cash flow statement.
97
In addition, we must certify to NASDAQ that the committee has, and will continue to have, at least one member who has past employment experience in finance or accounting, requisite professional certification in accounting, or other comparable experience or background that results in the individual’s financial sophistication. The board of directors has determined that Messrs. Zhihong Tan, Yong Li and Ke Chen each qualify as an “audit committee financial expert,” as defined under rules and regulations of the SEC.
Nominating Committee
We have established a nominating committee of the board of directors, which consists of Messrs. Zhihong Tan, Yong Li and Ke Chen, each of whom is an independent director under NASDAQ’s listing standards. Mr. Chen is the Chairperson of the nominating committee. The nominating committee is responsible for overseeing the selection of persons to be nominated to serve on our board of directors. The nominating committee considers persons identified by its members, management, shareholders, investment bankers and others.
Guidelines for Selecting Director Nominees
The guidelines for selecting nominees, which are specified in the Nominating Committee Charter, generally provide that persons to be nominated:
| ● | should have demonstrated notable or significant achievements in business, education or public service; |
| ● | should possess the requisite intelligence, education and experience to make a significant contribution to the board of directors and bring a range of skills, diverse perspectives and backgrounds to its deliberations; and |
| ● | should have the highest ethical standards, a strong sense of professionalism and intense dedication to serving the interests of the shareholders. |
The nominating committee will consider a number of qualifications relating to management and leadership experience, background and integrity and professionalism in evaluating a person’s candidacy for membership on the board of directors. The nominating committee may require certain skills or attributes, such as financial or accounting experience, to meet specific board needs that arise from time to time and will also consider the overall experience and makeup of its members to obtain a broad and diverse mix of board members. The nominating committee does not distinguish among nominees recommended by shareholders and other persons.
Compensation Committee
We have established a compensation committee of the board of directors, which consists of Messrs. Zhihong Tan, Yong Li and Ke Chen, each of whom is an independent director under NASDAQ’s listing standards. Mr. Li is the Chairperson of the compensation committee. The compensation committee’s duties, which are specified in our Compensation Committee Charter, include, but are not limited to:
| ● | reviewing and approving on an annual basis the corporate goals and objectives relevant to our Chief Executive Officer’s compensation, evaluating our Chief Executive Officer’s performance in light of such goals and objectives and determining and approving the remuneration (if any) of our Chief Executive Officer’s based on such evaluation; |
| ● | reviewing and approving the compensation of all of our other executive officers; |
| ● | reviewing our executive compensation policies and plans; |
| ● | implementing and administering our incentive compensation equity-based remuneration plans; |
| ● | assisting management in complying with our proxy statement and annual report disclosure requirements; |
| ● | approving all special perquisites, special cash payments and other special compensation and benefit arrangements for our executive officers and employees; |
| ● | if required, producing a report on executive compensation to be included in our annual proxy statement; and |
| ● | reviewing, evaluating and recommending changes, if appropriate, to the remuneration for directors. |
98
Special Committee
Our Board of Directors received the following non-binding proposals (the “Non-Binding Proposals”): (i) a preliminary non-binding proposal letter, dated November 1, 2025, from Zhongsheng Dingxin Investment Fund Management (Beijing) Co., Ltd., an existing shareholder of the Company, proposing to acquire all of the outstanding Class A Ordinary Shares for US$0.56 in cash per Class A Ordinary Share, and (ii) a preliminary non-binding proposal letter, dated November 4, 2025, from Excel Ally Ventures Limited proposing to acquire all of the outstanding Class A Ordinary Shares for US$0.52 in cash per Class A Ordinary Share. We have established a special committee of the board of directors, which consists of Messrs. Bing Zhang, Zhihong Tan and Yong Li. Mr. Zhang is our chairman and chief executive officer, and Messrs. Tan and Li are each an independent director under NASDAQ’s listing standards, all of whom are disinterested directors with respect to the Non-Binding Proposals. Mr. Zhang is the Chairperson of the special committee. The purpose of the special committee is to evaluate and consider the Non-Binding Proposals as well as other potential strategic alternatives that the Company may pursue which may be more beneficial for the Company. The Special Committee will have the right to retain advisors, including an independent financial advisor and independent legal counsel, to assist it in its evaluation.
In December 2025, both offerors indicated that, due to material adverse changes in our share price and dilution of our share capital, the current circumstances are fundamentally different from those existing at the time of the original proposals. Consequently, the offerors are unable to proceed with the transaction under the previously offered terms. The offeror stated that they would re-evaluate the feasibility of any potential transaction based on the Company's subsequent developments, subject to further review and decision by their respective internal investment committees.
In March 2026, the Special Committee determined to formally cease all discussions and considerations regarding the Non-Binding Proposals, and Mr. Zhang has notified the offerors accordingly.
Board Leadership Structure and Role in Risk Oversight
No policy exists requiring combination or separation of leadership roles and our governing documents do not mandate a particular structure. This has allowed our Board the flexibility to establish the most appropriate structure for the Company at any given time.
The Board is actively involved in overseeing our risk management processes. The Board focuses on our general risk management strategy and ensures that appropriate risk mitigation strategies are implemented by management. Further, operational and strategic presentations by management to the Board include consideration of the challenges and risks of our businesses, and the Board and management actively engage in discussion on these topics. In addition, each of the Board’s committees considers risk within its area of responsibility.
Involvement in Certain Legal Proceedings
To the best of our knowledge, during the past ten years, none of our directors or executive officers were involved in any of the following: (1) any bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time; (2) any conviction in a criminal proceeding or being subject to a pending criminal proceeding (excluding traffic violations and other minor offenses); (3) being subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities; and (4) being found by a court of competent jurisdiction (in a civil action), the Securities and Exchange Commission or the Commodities Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended or vacated.
Compensation committee Interlocks and Insider Participation
None of our officers currently serves, or in the past year has served, as a member of the compensation committee of any entity that has one or more officers serving on our Board of Directors.
Code of Ethics
We have adopted a Code of Ethics applicable to our directors, officers and employees. We have filed a copy of our Code of Ethics and our Audit Committee Charter, Nominating Committee Charter and Compensation Committee Charter with the SEC and have made it available on our website at http://ir.gsmg.co. In addition, a copy of the Code of Ethics will be provided without charge upon request from us. Requests for a copy of the Code of Ethics may be made by writing to the Company at Cheer Holding, Inc., 19F, Block B, Xinhua Technology Building, No. 8 Tuofangying South Road, Jiuxianqiao, Chaoyang District, Beijing, China.
99
D. Employees
As of December 31, 2025, we had 116 full-time employees. The table below sets forth a breakdown of the numbers of employees by functions as of December 31, 2025:
| Department | Headcount | Percentage of Total | ||||||
| Human Resource and General Management Department | 5 | 4.3 | % | |||||
| Financial Management Department | 6 | 5.2 | % | |||||
| Investor Relations and Legal Department | 2 | 1.7 | % | |||||
| Research and Development Department | 39 | 33.6 | % | |||||
| Content Marketing and Live Streaming Department | 22 | 19.0 | % | |||||
| CHEERS Platform and e-Mall Department | 42 | 36.2 | % | |||||
| Total | 116 | 100.00 | % | |||||
We have entered into written employment contracts with all of our employees in accordance with PRC Labor Law and Contract Law. None of our employees is covered by collective bargaining contracts. We believe that we maintain a good working relationship with our employees and we have not experienced any significant labor disputes or any difficulty in recruiting staff for our operations.
As required by PRC regulations, we participate in various government statutory social security plans, including a pension contribution plan, a medical insurance plan, an unemployment insurance plan, a work-related injury insurance plan, a maternity insurance plan and a housing provident fund. We are required under PRC law to contribute to social security plans at specified percentages of the salaries, bonuses and certain allowances of our employees up to a maximum amount specified by the local government from time to time. An employer that fails to make social insurance contributions may be ordered to rectify the non-compliance and pay the required contributions within a stipulated deadline and be subject to a late fee.
E. Share Ownership
The following table sets forth information with respect to the beneficial ownership, within the meaning of Rule 13d-3 under the Exchange Act, of our Ordinary Shares as of the date of this annual report.
| ● | each of our directors and executive officers who beneficially own our Ordinary Shares; and | |
| ● | each person known to us to own beneficially more than 5.0% of our Ordinary Shares. |
Beneficial ownership includes voting or investment power with respect to the securities. Except as indicated below, and subject to applicable community property laws, the persons named in the table have sole voting and investment power with respect to all Ordinary Shares shown as beneficially owned by them. The calculations in the table below are based on 4,686,248 Class A Ordinary Shares and 500,000 Class B Ordinary Shares outstanding as of March 16, 2026.
Information with respect to beneficial ownership has been furnished by each director, officer, or beneficial owner of 5% or more of our Ordinary Shares. Beneficial ownership is determined in accordance with the rules of the SEC and generally requires that such person have voting or investment power with respect to securities. In computing the number of Ordinary Shares beneficially owned by a person listed below and the percentage ownership of such person, Ordinary Shares underlying options, warrants, or convertible securities held by each such person that are exercisable or convertible within 60 days of the date of this annual report are deemed outstanding, but are not deemed outstanding for computing the percentage ownership of any other person.
100
| Class A Ordinary Shares | Percentage of Beneficial Ownership of Class A Ordinary Shares | Class B Ordinary Shares | Percentage of Beneficial Ownership of Class B Ordinary Shares | Percentage of Aggregate Voting Power** | ||||||||||||||||
| Name and Address(1) of Beneficial Owner | Number | % | Number | % | % | |||||||||||||||
| Directors and Officers | ||||||||||||||||||||
| Bing Zhang(2) | 39,426 | * | % | 500,000 | 100.0 | % | 91.5 | % | ||||||||||||
| Jia Lu(3) | 13,109 | * | - | - | * | |||||||||||||||
| Ke Chen | 4 | * | - | - | * | |||||||||||||||
| Zhihong Tan | 4 | * | - | - | * | |||||||||||||||
| Yong Li | 4 | * | - | - | * | |||||||||||||||
| All directors and executive officers as a group (five individuals): | 52,547 | 1.1 | % | 500,000 | 100.0 | % | 91.5 | % | ||||||||||||
| 5% or more holder(s) | - | - | ||||||||||||||||||
| Brueckner Frank Ulrich(4) | 560,024 | 12.0 | % | - | - | 1.0 | % | |||||||||||||
| Michael Bigger(5) | 275,340 | 5.9 | % | - | - | * | ||||||||||||||
| * | Less than 1% |
| ** | For each person and group included in this column, percentage of voting power is calculated by dividing the voting power beneficially owned by such person or group by the voting power of all of our outstanding Class A Ordinary Shares and Class B Ordinary Shares voting together as a single class. Each holder of our Class A Ordinary Shares is entitled to one vote per share. Each holder of Class B Ordinary Shares is entitled to 100 votes per share. Our Class A Ordinary Shares and Class B Ordinary Shares vote together as a single class on all matters submitted to a vote of our shareholders. Our Class A and Class B Ordinary Shares are not convertible. |
| (1) | Unless otherwise indicated, the business address of each of the individuals is 19th Floor, Block B, Xinhua Technology Building, No. 8 Tuofangying South Road, Jiuxianqiao, Chaoyang District, Beijing, China 100016. |
| (2) | Mr. Bing Zhang is our chairman, chief executive officer and interim chief financial officer. Represents (i) 1,520 Class A Ordinary Shares held by Mr. Zhang in street name, and (ii) 37,906 Class A Ordinary Shares held by Happy Starlight Limited (“HSL”), of which Mr. Zhang is the sole shareholder and director. |
| (3) | Mr. Jia Lu is our director and senior vice president of Glory Star Media (Beijing) Co., Ltd. Represents (i) 1 Class A Ordinary Shares held by Mr. Lu in street name, and (ii) 13,108 Class A Ordinary Shares held by Enjoy Starlight Limited, of which Mr. Lu is the sole shareholder and director. |
| (4) |
Based on information available on Schedule 13G filed by Mr. Ulrich on January 30, 2026. Represents 560,024 Class A Ordinary Shares beneficially held by Mr. Ulrich. The address of the Reporting Persons is Im Hebetal 12 D 07778 Tautenburg, Germany. |
| (5) | Mr. Bigger is the managing member of Bigger Capital Fund GP, LLC (“Bigger GP”), which is the general partner of Bigger Capital Fund, LP (“Bigger Capital”), and the managing member of District 2 Holdings LLC (“District 2 Holdings”), which is the managing member of District 2 GP LLC (“District 2 GP”), the general partner of District 2 Capital Fund LP (“District 2 CF”). Based on information available on Amendment No. 1 to Schedule 13G jointly filed by Mr. Bigger, Bigger Capital, Bigger GP, District 2 CP, District 2 Capital LP, the investment manager of District 2 CF, District 2 GP, and District 2 Holdings (collectively, the “Reporting Persons”) with the SEC on February 11, 2026. Represents 275,340 Class A Ordinary Shares, consisting of (i) 137,670 Class A Ordinary Shares beneficially owned by Bigger Capital, and (ii) 137,670 Class A Ordinary Shares beneficially owned by District 2 CF. Does not include 525,000 Class A Ordinary Shares issuable upon exercise of Pre-Funded Warrants, which are subject to a 9.99% beneficial ownership limitation and are beneficially owned by District 2 CF. The address of the Reporting Persons is 11700 West Charleston Blvd., #170-659, Las Vegas, NV, 89135. |
101
F. Disclosure of a Registrant’s Action to Recover Erroneously Awarded Compensation
Not applicable.
Item 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
A. Major Shareholders
Please refer to “Item 6. Directors, Senior Management and Employees—E. Share Ownership.”
B. Related Party Transactions
We conduct our operations in China through our PRC subsidiaries and VIEs. For a description of these contractual arrangements, see “Item 4. Information on the Company—C. Organizational Structure.”
For a description of certain relationships with related parties, see “Item 4. Information on the Company—A. History and Development of the Company.”
Except as otherwise disclosed below or referenced in this annual report, there were no related party transaction in 2024 and 2025.
Entry into Subscription Agreement for Class B Ordinary Shares
On September 9, 2024, the Company entered into a Subscription Agreement (the “Subscription Agreement”) with Mr. Bing Zhang, the Company’s Chairman, Director, Chief Executive Officer and Chief Financial Officer. Pursuant to the Subscription Agreement, the Company agreed to issue and sell to Mr. Zhang an aggregate of 500,000 Class B Ordinary Shares of the Company, at par, for an aggregate purchase price of US$500, or US$0.001 per share (the “Share Purchase”). The closing of the Share Purchase occurred on September 9, 2024.
Class A Ordinary Shares and Class B Ordinary Shares shall at all times vote together as one class, and each Class A Ordinary Share shall be entitled to one (1) vote and each Class B Ordinary Share shall be entitled to one hundred (100) votes. Class B Ordinary Shares are not convertible into Class A Ordinary Shares, and may be redeemed by the Company at par value at the option of the holder.
The Share Purchase was approved by the Company’s shareholders on August 28, 2024, and authorized and approved by the Board on September 4, 2024. The Share Purchase is intended to support the Company’s management team’s ability to implement a sustainable development strategy to fully integrate the Company’s multi-platform portfolio to become one of the most innovative internet companies in China. This structure will assist in the continuity of management in order to implement its short- and long-term business plan without being distracted by external financial market factors which, many times, are out of management’s control.
The Class B Ordinary Shares have not been registered under the Securities Act of 1933, as amended (“Securities Act”), and may not be offered or sold in the United States absent a registration statement or exemption from registration. The Class B Ordinary Shares issued in connection with the Subscription Agreement are exempt from the registration requirements of the Securities Act, pursuant to Regulation S of the Securities Act.
Amounts Due to Chairman
For the years ended December 31, 2025 and 2023, the Company borrowed loans of $700 and $1,600 from Mr. Bing Zhang, respectively. The borrowings were interest free and were repayable on demand and did not require of guarantees or pledges from the Company. For the year ended December 31, 2024, the Company repaid loans of $500 to Mr. Bing Zhang.
For the years ended December 31, 2025, the Company also borrowed loans of $950 from Happy Starlight Limited. The borrowing was interest free and were repayable on demand and did not require of guarantees or pledges from the Company.
102
Loan Guarantee
As of December 31, 2025, the guarantee information for bank borrowings were as below:
The loans from Huaxia Bank Co., Ltd. West Railway Station Branch were guaranteed by Beijing Zhongguancun Technology Financing Guarantee Co., Ltd, and Mr. Bing Zhang, the Chairman of the Company’s board of directors.
The loans from China Citic Bank were guaranteed by Horgos and Mr. Bing Zhang.
Employment Agreements
See “Item 6. Directors, Senior Management and Employees—B. Compensation—Employment Agreements.”
C. Interests of Experts and Counsel
Not applicable.
Item 8. FINANCIAL INFORMATION
A. Consolidated Statements and Other Financial Information
See “Item 18. Financial Statements.”
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. To the best knowledge of management, there are no material legal proceedings pending against us.
There are no proceedings in which any of our directors, officers, or any beneficial shareholder of more than five percent (5%) of our voting securities is an adverse party or has a material interest adverse to us.
Dividend Policy
We presently do not expect to declare or pay such dividends in the foreseeable future and expect to reinvest all undistributed earnings to expand our operations, which our management believes would be of the most benefit to our shareholders. The declaration of dividends, if any, will be subject to the discretion of our Board of Directors, which may consider such factors as our results of operations, financial condition, capital needs and acquisition strategy, among others.
103
B. Significant Changes
Except as disclosed elsewhere in this annual report, we have not experienced any significant changes since the date of our audited consolidated financial statements included in this annual report.
Item 9. THE OFFER AND LISTING
A. Offer and Listing Details.
Our Class A Ordinary Share is listed on the Nasdaq Capital Market under the symbol “CHR.”
B. Plan of Distribution
Not applicable.
C. Markets
Our Class A Ordinary Share is listed on the Nasdaq Capital Market under the symbol “CHR.”
D. Selling Shareholders
Not applicable.
E. Dilution
Not applicable.
F. Expenses of the Issue
Not applicable.
Item 10. ADDITIONAL INFORMATION
A. Share Capital
Not applicable.
B. Memorandum and Articles of Association
We incorporate by reference into this annual report the description of our Third Amended and Restated Memorandum of Association incorporated by reference to Exhibit 3.1 to the Form 6-K filed with the Commission on September 10, 2024.
C. Material Contracts
On September 9, 2024, the Company entered into a Subscription Agreement (the “Subscription Agreement”) with Mr. Bing Zhang, the Company’s Chairman, Director, Chief Executive Officer and Chief Financial Officer. Pursuant to the Subscription Agreement, the Company agreed to issue and sell to Mr. Zhang an aggregate of 500,000 Class B Ordinary Shares of the Company, at par, for an aggregate purchase price of US$500, or US$0.001 per share (the “Share Purchase”). The closing of the Share Purchase occurred on September 9, 2024. The Share Purchase was approved by the Company’s shareholders on August 28, 2024, and authorized and approved by the Board on September 4, 2024. The Share Purchase is intended to support the Company’s management team’s ability to implement a sustainable development strategy to fully integrate the Company’s multi-platform portfolio to become one of the most innovative internet companies in China. This structure will assist in the continuity of management in order to implement its short- and long-term business plan without being distracted by external financial market factors which, many times, are out of management’s control.
104
The Class B Ordinary Shares have not been registered under the Securities Act of 1933, as amended (“Securities Act”), and may not be offered or sold in the United States absent a registration statement or exemption from registration. The Class B Ordinary Shares issued in connection with the Subscription Agreement are exempt from the registration requirements of the Securities Act, pursuant to Regulation S of the Securities Act.
On October 1, 2025, the Company priced a best efforts public offering for the sale of 253,731 units, each consisting of one Class A Ordinary Share, a pre-funded warrant (each a “Pre-Funded Warrant”), one series A warrant to purchase one Class A Ordinary Share (each a “Series A Warrant”) and one series B warrant to purchase one Class A Ordinary Share (each a “Series B Warrant”) for aggregate gross proceeds to the Company of approximately $8.5 million, before deducting placement agent fees and other estimated expenses payable by the Company, excluding the exercise of any warrants offered. Each of the Series A Warrant and the Series B Warrant had an initial exercise price of $0.7035 per Class A Ordinary Share and are exercisable beginning on the date of the issuance date and will expire on the one-year anniversary of the issuance date. The exercise price of the Series A and Series B Warrants and the number of Class A Ordinary Shares issuable upon exercise of the Series A and Series B Warrants will be also be subject to adjustment in the event of share subdivisions, share dividends and other recapitalization events. If at the time of any exercise of either the Series A or Series B Warrants, there is no effective registration statement registering, or the prospectus contained therein is not available for the issuance of the Class A Ordinary Shares underlying the Series A and Series B Warrants to the holder, in lieu of making the cash payment to us upon such exercise, the holder may elect instead to receive upon a “cashless exercise” (either in whole or in part) the number of Class A Ordinary Shares determined according to the formula set forth in the Series A and Series B Warrants. A holder of the Series B Warrants may also effect an exercise at a “zero exercise price” at any time while the Series B Warrants are outstanding. Under the zero exercise price option, the holder of Series B Warrants has the right to receive 0.10247 Class A Ordinary Shares for each Series B Warrant exercised, which will be more than such number of Class A Ordinary Shares that is issuable upon cash exercise or cashless exercise. Under the zero exercise price option of the Series B Warrants, the maximum number of Class A Ordinary Shares that may be issued to the holders of Series B Warrants is 1,300,000 in the aggregate. The offering closed on October 2, 2025.
On November 5, 2025, we priced a registered direct offering for the sale of our Class A Ordinary Shares or pre-funded warrants in lieu thereof for aggregate gross proceeds to the Company of approximately $15 million, before deducting placement agent fees and other estimated expenses payable by us, including the pre-paid exercise price of the pre-funded warrants offered. The offering was comprised of 3,750,000 Class A Ordinary Shares, or in lieu thereof, a pre-funded warrant to purchase one Class A Ordinary Share. The offering closed on November 6, 2025.
Other than as described above, we have not entered into any material contracts other than in the ordinary course of business and other than those described in “Item 4. Information on the Company” or elsewhere in this annual report.
D. Exchange Controls
See “Item 3. Key Information—D. Risk Factors—Risks Relating to Doing Business in China.”
E. Taxation
Cayman Islands Tax Considerations
The following is a discussion on certain Cayman Islands income tax consequences of an investment in the securities of the Company. The discussion is a general summary of present law, which is subject to prospective and retroactive change. It is not intended as tax advice, does not consider any investor’s particular circumstances, and does not consider tax consequences other than those arising under Cayman Islands law.
Under Existing Cayman Islands Laws
Payments of dividends and capital in respect of our securities will not be subject to taxation in the Cayman Islands and no withholding will be required on the payment of a dividend or capital to any holder of the securities nor will gains derived from the disposal of the securities be subject to Cayman Islands income or corporate tax. The Cayman Islands currently has no income, corporate or capital gains tax and no estate duty, inheritance tax or gift tax.
105
No stamp duty is payable in respect of the issue of our ordinary shares or on an instrument of transfer in respect of such shares.
The Company has been incorporated under the laws of the Cayman Islands as an exempted company with limited liability and, as such, has applied for and received an undertaking from the Financial Secretary of the Cayman Islands in the following form:
The Tax Concessions Act
(As Revised)
Undertaking as to Tax Concessions
In accordance with the provision of Section 6 of The Tax Concessions Act (As Revised), the Financial Secretary undertakes with Cheer Holding, Inc. (the “Company”):
| 1. | That no law which is hereafter enacted in the Islands imposing any tax to be levied on profits, income, gains or appreciations shall apply to the Company or its operations; and |
| 2. | In addition, that no tax to be levied on profits, income, gains or appreciations or which is in the nature of estate duty or inheritance tax shall be payable: |
| 2.1 | On or in respect of the shares, debentures or other obligations of the Company; or |
| 2.2 | by way of the withholding in whole or part, of any relevant payment as defined in Section 6(3) of the Tax Concessions Act (As Revised). |
These concessions shall be for a period of 20 years from the date hereof.
Hong Kong Taxation
On March 21, 2018, the Hong Kong Legislative Council passed The Inland Revenue (Amendment) (No. 7) Bill 2017 (the “Bill”) which introduces the two-tiered profits tax rates regime. The Bill was signed into law on March 28, 2018 and was gazette on the following day. Under the two-tiered profits tax rates regime, the first 2 million Hong Kong Dollar (“HKD”) of profits of the qualifying group entity will be taxed at 8.25%, and profits above HKD2 million will be taxed at 16.5%.
People’s Republic of China Taxation
Under the PRC Enterprise Income Tax Law and its implementation rules, an enterprise established outside of the PRC with a “de facto management body” within the PRC is considered a resident enterprise and will be subject to the enterprise income tax at the rate of 25% on its global income. The implementation rules define the term “de facto management body” as the body that exercises full and substantial control over and overall management of the business, productions, personnel, accounts and properties of an enterprise. In April 2009, the State Administration of Taxation issued a circular, known as Circular 82, which provides certain specific criteria for determining whether the “de facto management body” of a PRC-controlled enterprise that is incorporated offshore is located in China. Although this circular only applies to offshore enterprises controlled by PRC enterprises or PRC enterprise groups, not those controlled by PRC individuals or foreigners, the criteria set forth in the circular may reflect the State Administration of Taxation’s general position on how the “de facto management body” test should be applied in determining the tax resident status of all offshore enterprises. According to Circular 82, an offshore incorporated enterprise controlled by a PRC enterprise or a PRC enterprise group will be regarded as a PRC tax resident by virtue of having its “de facto management body” in China only if all of the following conditions are met: (i) the primary location of the day-to-day operational management is in the PRC; (ii) decisions relating to the enterprise’s financial and human resource matters are made or are subject to approval by organizations or personnel in the PRC; (iii) the enterprise’s primary assets, accounting books and records, company seals, and board and shareholder resolutions, are located or maintained in the PRC; and (iv) at least 50% of voting board members or senior executives habitually reside in the PRC.
106
We do not believe that we meet all of the conditions above. We are a holding company incorporated outside the PRC in the Cayman Islands. As a holding company, our key assets are our ownership interests in our subsidiaries, and our key assets are located, and our records (including the resolutions of its board of directors and the resolutions of its shareholders) are maintained, outside the PRC. For the same reasons, we believe our other entities outside of China are not PRC resident enterprises either. However, the tax resident status of an enterprise is subject to determination by the PRC tax authorities and uncertainties remain with respect to the interpretation of the term “de facto management body.” There can be no assurance that the PRC government will ultimately take this view.
However, if the PRC tax authorities determine that we are a PRC resident enterprise for enterprise income tax purposes, we may be required to withhold a 10% withholding tax from dividends we pay to our shareholders that are non-resident enterprises. Such 10% tax rate could be reduced by applicable tax treaties or similar arrangements between China and the jurisdiction of our shareholders. For example, for shareholders eligible for the benefits of the tax treaty between China and Hong Kong, the tax rate is reduced to 5% for dividends if relevant conditions are met. In addition, non-resident enterprise shareholders may be subject to a 10% PRC tax on gains realized on the sale or other disposition of shares, if such income is treated as sourced from within the PRC. It is unclear whether our non-PRC individual shareholders would be subject to any PRC tax on dividends or gains obtained by such non-PRC individual shareholders in the event we are determined to be a PRC resident enterprise. If any PRC tax were to apply to such dividends or gains, it would generally apply at a rate of 20% unless a reduced rate is available under an applicable tax treaty. However, it is also unclear whether non-PRC shareholders of the Company would be able to claim the benefits of any tax treaties between their country of tax residence and the PRC in the event that the Company is treated as a PRC resident enterprise.
Provided that we are not deemed to be a PRC resident enterprise, shareholders who are not PRC residents will not be subject to PRC income tax on dividends distributed by us or gains realized from the sale or other disposition of our shares. However, under Circular 7 and SAT Circular 37, where a non-resident enterprise conducts an “indirect transfer” by transferring taxable assets, including, in particular, equity interests in a PRC resident enterprise, indirectly by disposing of the equity interests of an overseas holding company, the non-resident enterprise, being the transferor, or the transferee or the PRC entity which directly owned such taxable assets may report to the relevant tax authority such indirect transfer. Using a “substance over form” principle, the PRC tax authority may disregard the existence of the overseas holding company if it lacks a reasonable commercial purpose and was established for the purpose of reducing, avoiding or deferring PRC tax. As a result, gains derived from such indirect transfer may be subject to PRC enterprise income tax, and the transferor obligated to withhold the applicable taxes, currently at a rate of 10% for the transfer of equity interests in a PRC resident enterprise. We and our non-PRC resident investors may be at risk of being required to file a return and being taxed under Circular 7 and SAT Circular 37, and we may be required to expend valuable resources to comply with Circular7 and SAT Circular 37, or to establish that we should not be taxed under these circulars.
Material United States Federal Income Tax Considerations
The summary below does not represent a detailed description of the United States federal income tax consequences applicable to you if you are subject to special treatment under the United States federal income tax laws, including if you are:
| ● | a bank; |
| ● | a financial institution; |
| ● | an insurance company; |
| ● | a regulated investment company; |
| ● | a real estate investment trust; |
107
| ● | a dealer in securities or currencies; | |
| ● | a person that has elected the mark-to-market method of accounting for your securities; | |
| ● | a U.S. expatriate or former long-term resident of the U.S.; | |
| ● | a government or agency or instrumentality thereof; | |
| ● | a tax-exempt organization; | |
| ● | a person liable for alternative minimum tax; | |
| ● | a person holding our ordinary shares as part of a hedging, integrated or conversion transaction, a constructive sale or a straddle; | |
| ● | a person who owns or is deemed to own 10% or more of our stock (by vote or value); | |
| ● | a person who acquired our ordinary shares pursuant to the exercise of any employee share option or otherwise as compensation; | |
| ● | a partnership or other pass-through entity for United States federal income tax purposes; | |
| ● | a person whose “functional currency” is not the U.S. dollar; or | |
| ● | a person required to accelerate the recognition of any item of gross income with respect to our ordinary shares as a result of such income being recognized on an applicable financial statement. |
The summary below does not contain a detailed description of all the United States federal income tax consequences to you in light of your particular circumstances and does not materially address the Medicare tax on net investment income, United States federal estate and gift taxes or the effects of any state, local or non-United States tax laws. If you are considering the purchase, ownership or disposition of our ordinary shares, you should consult your own tax advisors concerning the United States federal income tax consequences to you in light of your particular situation as well as any consequences arising under other United States federal tax laws and the laws of any other taxing jurisdiction.
Material Tax Consequences Applicable to U.S. Holders of Our Ordinary Shares
The following summary describes the material United States federal income tax consequences of the ownership of our ordinary shares as of the date of this annual report. The discussion set forth below is applicable only to United States Holders (“U.S. Holder(s)”) that hold ordinary shares as capital assets. As used herein, the term “U.S. Holder” means a beneficial owner of an ordinary share that is for United States federal income tax purposes:
| ● | an individual citizen or resident of the United States; | |
| ● | a corporation (or other entity treated as a corporation for United States federal income tax purposes) created or organized in or under the laws of the United States, any state thereof or the District of Columbia; | |
| ● | an estate the income of which is subject to United States federal income taxation regardless of its source; or |
108
| ● | a trust if it is subject to the primary supervision of a court within the United States and one or more United States persons has or have the authority to control all substantial decisions of the trust, or if it has a valid election in effect under applicable United States Treasury regulations to be treated as a United States person. |
The discussion below is based upon the provisions of the Internal Revenue Code of 1986, as amended, or the Code, and regulations, rulings and judicial decisions thereunder as of the date of this annual report, and the relevant authorities may be replaced, revoked or modified so as to result in United States federal income tax consequences different from those discussed below.
If a partnership holds our ordinary shares, the tax treatment of a partner will generally depend upon the status of the partner and the activities of the partnership. If you are a partner of a partnership holding our ordinary shares, you should consult your tax advisors.
Taxation of Dividends and Other Distributions on our Ordinary Shares
Subject to the discussion under “Passive Foreign Investment Company” below, the gross amount of distributions on the ordinary shares (including any amounts withheld to reflect PRC withholding taxes) will be taxable as dividends, to the extent paid out of our current or accumulated earnings and profits, as determined under United States federal income tax principles. The income (including withheld taxes) will be includable in your gross income as ordinary income on the day actually or constructively received by you, in the case of the ordinary shares. The dividends will not be eligible for the dividends received deduction allowed to corporations under the Code. The following discussion assumes that all dividends will be paid in U.S. dollars.
Subject to applicable limitations (including a minimum holding period requirement), dividends received by non-corporate United States investors from a qualified foreign corporation may be treated as “qualified dividend income” that is subject to reduced rates of taxation. A foreign corporation is treated as a qualified foreign corporation with respect to dividends received from that corporation on ordinary shares that are readily tradable on an established securities market in the United States. United States Treasury Department guidance indicates that our ordinary shares (which are listed on the Nasdaq Capital Market) are readily tradable on an established securities market in the United States. Thus, we believe that any dividends we pay on our ordinary shares will be eligible for these reduced tax rates. A qualified foreign corporation also includes a foreign corporation that is eligible for the benefits of certain income tax treaties with the United States. In the event that we were deemed to be a PRC resident enterprise under the EIT Law, although no assurance can be given, we might be eligible for the benefits of the income tax treaty between the United States and the PRC, which is hereinafter referred to as the Treaty, and if we were eligible for such benefits, dividends we pay on our ordinary shares would be eligible for the reduced rates of taxation. See “People’s Republic of China Taxation” above. You should consult your own tax advisors regarding the application of these rules given your particular circumstances.
Non-corporate U.S. Holders will not be eligible for reduced rates of taxation on any dividends received from us if we are a PFIC in the taxable year in which the dividends are paid or in the preceding taxable year. See “Passive Foreign Investment Company” below.
In the event that we were deemed to be a PRC resident enterprise under the EIT Law, you might be subject to PRC withholding taxes on dividends paid to you with respect to the ordinary shares. See “People’s Republic of China Taxation” above. In that case, subject to certain conditions and limitations, PRC withholding taxes on dividends would be treated as foreign taxes eligible for credit against your United States federal income tax liability. For purposes of calculating the foreign tax credit, dividends paid on the ordinary shares will be treated as foreign-source income and will generally constitute passive category income. However, in certain circumstances, if you have held the ordinary shares for less than a specified minimum period during which you are not protected from risk of loss, or you are obligated to make payments related to the dividends, you will not be allowed a foreign tax credit for any PRC withholding taxes imposed on dividends paid on the ordinary shares. If you are eligible for Treaty benefits, any PRC taxes on dividends will not be creditable against your United States federal income tax liability to the extent withheld at a rate exceeding the applicable Treaty rate. The rules governing the foreign tax credit are complex. You are urged to consult your tax advisor regarding the availability of the foreign tax credit under your particular circumstances.
109
To the extent that the amount of any distribution exceeds our current and accumulated earnings and profits for a taxable year, as determined under United States federal income tax principles, the distribution will first be treated as a tax-free return of capital, causing a reduction in the adjusted basis of the ordinary shares (thereby increasing the amount of gain, or decreasing the amount of loss, to be recognized by you on a subsequent disposition of the ordinary shares), and the balance in excess of adjusted basis will be taxed as capital gain recognized on a sale or exchange, as described under “Taxation of Capital Gains and Dispositions of Ordinary Shares” below. Consequently, any distributions in excess of our current and accumulated earnings and profits would generally not give rise to foreign source income and you would generally not be able to use the foreign tax credit arising from any PRC withholding tax imposed on those distributions unless the credit can be applied (subject to applicable limitations) against United States federal income tax due on other foreign source income in the appropriate category for foreign tax credit purposes. However, we do not expect to keep earnings and profits in accordance with United States federal income tax principles. Therefore, you should expect that a distribution will generally be reported as a dividend (as discussed above).
Distributions of ordinary shares or rights to subscribe for ordinary shares that are received as part of a pro rata distribution to all of our shareholders generally will not be subject to United States federal income tax. Consequently, these distributions generally will not give rise to foreign source income, and you generally will not be able to use the foreign tax credit arising from any PRC withholding tax imposed on the distributions unless the credit can be applied (subject to applicable limitations) against United States federal income tax due on other foreign source income in the appropriate category for foreign tax credit purposes.
Taxation of Capital Gains and Dispositions of Ordinary Shares
For United States federal income tax purposes, you will recognize taxable gain or loss on any sale, exchange or other disposition of ordinary shares in an amount equal to the difference between the amount realized for the ordinary shares (including any amounts withheld to reflect PRC withholding taxes) and your tax basis in the ordinary shares. Subject to the discussion under “Passive Foreign Investment Company” below, this gain or loss will generally be capital gain or loss. Capital gains of individuals derived with respect to capital assets held for more than one year are eligible for reduced rates of taxation. The deductibility of capital losses is subject to limitations. Any gain or loss recognized by you will generally be treated as United States source gain or loss. However, if we were treated as a PRC resident enterprise for EIT Law purposes and PRC tax were imposed on any gain, and if you are eligible for the benefits of the Treaty, you may elect to treat this gain as PRC source gain under the Treaty. If you are not eligible for the benefits of the Treaty or you fail to make the election to treat any gain as PRC source, then you may not be able to use the foreign tax credit arising from any PRC tax imposed on the disposition of our ordinary shares unless the credit can be applied (subject to applicable limitations) against tax due on other income derived from foreign sources. You will be eligible for the benefits of the Treaty if, for purposes of the Treaty, you are a resident of the United States, and you meet other requirements specified in the Treaty. Because the determination of whether you qualify for the benefits of the Treaty is fact-intensive and depends upon your particular circumstances, you are specifically urged to consult your tax advisors regarding your eligibility for the benefits of the Treaty. You are also urged to consult your tax advisor regarding the tax consequences in case any PRC tax is imposed on gain on a disposition of our ordinary shares, including the availability of the foreign tax credit and the election to treat any gain as PRC source, under your particular circumstances.
Medicare Tax
Certain U.S. Holders that are individuals, estates or trusts and whose income exceeds certain thresholds generally are subject to a 3.8% tax on all or a portion of their net investment income, which may include their gross dividend income and net gains from the disposition of our ordinary shares.
Ownership, Disposition and Exercise of Warrants
Exercise of Warrants
A U.S. Holder generally will not recognize gain or loss upon the acquisition of an ordinary share (“Warrant Share”) on the exercise of a warrant for cash. A U.S. Holder’s initial tax basis in the Warrant Share received on exercise of a warrant will be equal to the sum of (i) the U.S. Holder’s tax basis in the warrant, plus (ii) the exercise price paid by the U.S. Holder on the exercise of the warrant. A U.S. Holder’s holding period for the Warrant Share received on the exercise of a warrant will begin on the day after the warrant is exercised.
110
Disposition of Warrants
Subject to the PFIC rules, upon the sale or other taxable disposition of a warrant, a U.S. Holder generally will recognize capital gain or loss in an amount equal to the difference between the amount of cash plus the fair market value of any property received and such U.S. Holder’s tax basis in the warrant sold or otherwise disposed of. Such capital gain or loss will be long-term capital gain or loss if, at the time of the sale or other taxable disposition, the U.S. Holder’s holding period for the warrant is more than one year. Preferential tax rates apply to long-term capital gains of non-corporate U.S. Holders. There are currently no preferential tax rates for long-term capital gains of a U.S. Holder that is taxable as a corporation for U.S. federal income tax purposes. Deductions for capital losses are subject to significant limitations under the Code.
Expiration of Warrants Without Exercise
Subject to the PFIC rules, upon the lapse or expiration of a warrant, a U.S. Holder will recognize a loss in an amount equal to such U.S. Holder’s tax basis in the warrant. Any such loss generally will be a capital loss and will be a long-term capital loss if, at the time of the lapse or expiration, the U.S. Holder’s holding period for the warrant is more than one year. Deductions for capital losses are subject to significant limitations under the Code.
Adjustments to the Warrants
The warrant provides for an adjustment to the number of Warrant Shares for which a warrant may be exercised or to the exercise price of a warrant upon certain events. Subject to the PFIC rules discussed below, an adjustment that has the effect of preventing dilution of the interest of the warrant holders generally will not be taxable to a U.S. Holder. However, an adjustment may be treated as a constructive distribution to a U.S. Holder if and to the extent that such adjustment has the effect of increasing such U.S. Holder’s proportionate interest in our assets or earnings and profits. Subject to the PFIC rules discussed below, any such constructive distribution would be taxable under the rules described above under the heading “Taxation of Dividends and Other Distributions on our Ordinary Shares.”
Passive Foreign Investment Company (“PFIC”)
Based on the projected composition of our income and assets and the valuation of our assets, we do not expect to be a PFIC for our current taxable year, and we do not expect to become one in the future, although there can be no assurance in this regard.
In general, we will be a PFIC for any taxable year in which:
| ● | at least 75% of our gross income is passive income; or | |
| ● | at least 50% of the value (determined on a quarterly basis) of our assets is attributable to assets that produce or are held for the production of passive income. |
For this purpose, passive income generally includes dividends, interest, royalties and rents (other than royalties and rents derived in the active conduct of a trade or business and not derived from a related person). In addition, cash and other assets readily convertible into cash are generally considered passive assets. If we own at least 25% (by value) of the stock of another corporation, we will be treated, for purposes of the PFIC tests, as owning our proportionate share of the other corporation’s assets and receiving our proportionate share of the other corporation’s income. Although we do not expect to be a PFIC, it is not entirely clear how the contractual arrangements between us and our variable interest entities will be treated for purposes of the PFIC rules. If it were determined that we do not own the stock of our variable interest entities for United States federal income tax purposes (for instance, because the relevant PRC authorities do not respect these arrangements), we may be treated as a PFIC.
111
The determination of whether we are a PFIC is made annually. Accordingly, it is possible that we may become a PFIC in the current or any future taxable year due to changes in our asset or income composition. If we are a PFIC for any taxable year during which you hold our ordinary shares, you will be subject to special tax rules discussed below.
If we are a PFIC for any taxable year during which you hold our ordinary shares and you do not make a timely mark-to-market election (as discussed below), you will be subject to special tax rules with respect to any “excess distribution” received and any gain realized from a sale or other disposition, including a pledge of ordinary shares. Distributions received in a taxable year that are greater than 125% of the average annual distributions received during the shorter of the three preceding taxable years or your holding period for the ordinary shares will be treated as excess distributions. Under these special tax rules:
| ● | the excess distribution or gain will be allocated ratably over your holding period for the ordinary shares; | |
| ● | the amount allocated to the current taxable year, and any taxable year prior to the first taxable year in which we were a PFIC, will be treated as ordinary income; and | |
| ● | the amount allocated to each other year will be subject to tax at the highest tax rate in effect for that year for individuals or corporations, as applicable, and the interest charge generally applicable to underpayments of tax will be imposed on the resulting tax attributable to each relevant year. |
Although the determination of whether we are a PFIC is made annually, if we are a PFIC for any taxable year in which you hold our ordinary shares, you will generally be subject to the special tax rules described above for that year and for each subsequent year in which you hold the ordinary shares (even if we do not qualify as a PFIC in such subsequent years). However, if we cease to be a PFIC, you can avoid the continuing impact of the PFIC rules by making a special election to recognize gain as if your ordinary shares had been sold on the last day of the last taxable year during which we were a PFIC. You are urged to consult your own tax advisors about this election.
In certain circumstances, in lieu of being subject to the special tax rules discussed above, you may make a mark-to-market election with respect to your ordinary shares, provided such ordinary shares are treated as “marketable stock.” The ordinary shares generally will be treated as marketable stock if the ordinary shares are regularly traded on a “qualified exchange or other market” (within the meaning of the applicable Treasury regulations). Under current law, the mark-to-market election may be available to U.S. Holders of ordinary shares since they are listed on the Nasdaq Capital Market, which constitutes a qualified exchange.
If you make an effective mark-to-market election, for each year that we are a PFIC you will include as ordinary income the excess of the fair market value of your ordinary shares at the end of the year over your adjusted tax basis in the ordinary shares. You will be entitled to deduct as an ordinary loss in each relevant year the excess of your adjusted tax basis in the ordinary shares over their fair market value at the end of the year, but only to the extent of the net amount previously included in income as a result of the mark-to-market election. If you make an effective mark-to-market election, in each year that we are a PFIC: (i) any gain you recognize upon the sale or other disposition of your ordinary shares will be treated as ordinary income and (ii) any loss will be treated as ordinary loss, but only to the extent of the net amount previously included in income as a result of the mark-to-market election.
Your adjusted tax basis in the ordinary shares will be increased by the amount of any income inclusion and decreased by the amount of any deductions under the mark-to-market rules. If you make a mark-to-market election, it will be effective for the taxable year for which the election is made and all subsequent taxable years unless the ordinary shares are no longer regularly traded on a qualified exchange or the Internal Revenue Service, or the IRS, consents to the revocation of the election. However, because a mark-to-market election cannot be made for any lower-tier PFICs that we may own (as discussed below), you will generally continue to be subject to the special tax rules discussed above with respect your indirect interest in any such lower-tier PFIC. You are urged to consult your tax advisor about the availability of the mark-to-market election, and whether making the election would be advisable in your particular circumstances.
112
Alternatively, you can sometimes avoid the rules described above by electing to treat a PFIC as a “qualified electing fund” under Section 1295 of the Code. However, this option is not available to you because we do not intend to comply with the requirements necessary to permit you to make this election.
In addition, non-corporate U.S. Holders will not be eligible for reduced rates of taxation on any dividends received from us if we are a PFIC in the taxable year in which the dividends are paid or in the preceding taxable year. You will generally be required to file IRS Form 8621 if you hold our ordinary shares in any year in which we are classified as a PFIC.
If we are a PFIC for any taxable year during which you hold our ordinary shares and any of our non-United States subsidiaries is also a PFIC, you will be treated as owning a proportionate amount (by value) of the shares of the lower-tier PFIC for purposes of the application of these rules. You are urged to consult your tax advisors about the application of the PFIC rules to any of our subsidiaries.
You are urged to consult your tax advisors concerning the United States federal income tax consequences of holding ordinary shares if we are considered a PFIC in any taxable year.
Information Reporting and Backup Withholding
In general, information reporting will apply to dividends in respect of our ordinary shares and the proceeds from the sale, exchange or other disposition of our ordinary shares that are paid to you within the United States (and in certain cases, outside the United States), unless you are an exempt recipient. A backup withholding tax may apply to these payments if you fail to provide a taxpayer identification number or certification of exempt status or, in the case of dividend payments, if you fail to report in full dividend and interest income.
Any amounts withheld under the backup withholding rules will be allowed as a refund or a credit against your United States federal income tax liability provided the required information is furnished to the IRS in a timely manner.
Under the Hiring Incentives to Restore Employment Act of 2010, certain U.S. Holders are required to report information relating to ordinary shares, subject to certain exceptions (including an exception for ordinary shares held in accounts maintained by certain financial institutions), by attaching a complete IRS Form 8938, Statement of Specified Foreign Financial Assets, with their tax return for each year in which they hold ordinary shares. You are urged to consult your own tax advisors regarding information reporting requirements relating to your ownership of the ordinary shares.
F. Dividends and Paying Agents
Not applicable.
G. Statement by Experts
Not applicable.
H. Documents on Display
We are subject to the periodic reporting and other informational requirements of the Exchange Act. Under the Exchange Act, we are required to file reports and other information with the SEC. Specifically, we are required to file annually a Form 20-F within four months after the end of each fiscal year. Copies of reports and other information, when so filed, may be inspected without charge and may be obtained at prescribed rates at the public reference facilities maintained by the SEC at Judiciary Plaza, 100 F Street, N.E., Washington, D.C. 20549. The public may obtain information regarding the Washington, D.C. Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC also maintains a web site at http://www.sec.gov that contains reports, proxy and information statements, and other information regarding registrants that make electronic filings with the SEC using its EDGAR system. As a foreign private issuer, we are exempt from the rules of the Exchange Act prescribing, among other things, the furnishing and content of proxy statements to shareholders, and our executive officers and directors are exempt from short-swing profit recovery provisions contained in Section 16 of the Exchange Act, and our principal shareholders are exempt from the reporting and short-swing profit recovery provision contained in Section 16 of the Exchange Act . In addition, we will not be required under the Exchange Act to file periodic reports and financial statements with the SEC as frequently or as promptly as U.S. companies whose securities are registered under the Exchange Act.
113
In accordance with Nasdaq Stock Market Rule 5250(d), we will post this Annual Report on Form 20-F on our website at http://ir.gsmg.co. In addition, we will provide hard copies of our annual report free of charge to shareholders upon request.
I. Subsidiary Information
For a listing of our subsidiaries, see “Item 4. Information on the Company—C. Organizational Structure.”
J. Annual Report to Security Holders
If we are required to provide an annual report to security holders in response to the requirements of Form 6-K, we will submit the annual report to security holders in electronic format in accordance with the EDGAR Filer Manual.
Item 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Foreign Exchange Risk
Our functional currency is the RMB. Any significant revaluation of RMB against U.S. dollar may materially the value of, and any dividends payable on, our Ordinary Shares in U.S. dollars in the future. See “Item 3. Key Information—D. Risk Factors—Risks Relating to Doing Business in China—Fluctuations in the foreign currency exchange rate between U.S. Dollars and Renminbi could adversely affect our financial condition” and “Item 3. Key Information—D. Risk Factors—Risks Relating to Doing Business in China—Restrictions on foreign exchange under PRC laws may limit our ability to convert cash derived from our operating activities into foreign currencies and may materially and adversely affect the value of your investment.”
Concentration Risk
The Company has a concentration of its revenues and receivables with specific customers. For the year ended December 31, 2025, six customers accounted for 22%, 17%, 16%, 16%, and 10% of the Company’s total revenue, respectively. For the year ended December 31, 2024, five customers accounted for 24%, 21%, 16%, 15% and 11% of the Company’s total revenue, respectively. For the year ended December 31, 2023, four customers accounted for 25%, 17%, 13% and 12% of the Company’s total revenue, respectively.
As of December 31, 2025, four customers accounted for 22%, 20%, 19% and 14% of the net accounts receivable balance, respectively. As of December 31, 2024, four customers accounted for 24%, 22%, 16% and 13% of the net accounts receivable balance, respectively.
As of December 31, 2025, two vendors accounted for 44% and 41% of the accounts payable, respectively. As of December 31, 2024, three vendors accounted for 53%, 27% and 11% of the accounts payable, respectively.
Risks related to our VIE structure
Uncertainties in the PRC legal system could limit our ability to enforce the contractual arrangements. If the legal structure and contractual arrangements were found to be in violation of PRC laws and regulations, the PRC government could:
| ● | revoke the agreements constituting the VIE Contracts; | |
| ● | revoke the business and operating licenses of our PRC subsidiary and VIEs; |
114
| ● | require us to discontinue or restrict operations related to value-added telecommunications services business and certain other businesses; | |
| ● | restrict our right to collect revenue generated from value-added telecommunications services business and certain other businesses; | |
| ● | restrict or prohibit our use of the proceeds from overseas offering to finance Horgos and Xing Cui Can’s business and operations; | |
| ● | levy fines on us and/or confiscate the proceeds that they deem to have been obtained through noncompliant operations; | |
| ● | impose additional conditions or requirements with which our PRC subsidiary and VIE may not be able to comply; | |
| ● | require us or our PRC subsidiary and VIE to restructure the relevant ownership structure or operations; or | |
| ● | take other regulatory or enforcement actions that could be harmful to our business. |
Our ability to conduct its consulting services business may be negatively affected if the PRC government were to carry out of any of the aforementioned actions. As a result, we may not be able to consolidate our VIEs in our consolidated financial statements as we may lose the ability to direct the activities of the VIEs and their subsidiaries that most significantly affect the VIEs’ economic performance and we may lose the ability to receive economic benefits from our VIEs.
Item 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
A. Debt Securities
Not Applicable.
B. Warrants and Rights
Not applicable.
C. Other Securities
Not applicable.
D. American Depositary Shares
Not applicable.
115
PART II
Item 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
None.
Item 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
In May 2024, we filed a registration statement on Form F-3, as amended (File Number 333-279221), which was declared effective on September 12, 2024, to offer Class A Ordinary Shares, preferred shares, debt securities, warrants, units consisting of Class A Ordinary Shares, preferred shares, debt securities or warrants, or any other combination of these securities at an aggregate offering price of up to $200,000,000. We intend to use the net proceeds from such offerings in the manner as disclosed in our registration statement on Form F-3, as amended (File Number 333-279221).
On September 4, 2024, our board of directors authorized and approved the amendment and restatement of the Second Amended and Restated Memorandum and Articles of Association of the Company by the deletion in their entirety and the substitution in their place of the Third Amended and Restated Memorandum and Articles of Association (the “MAA”) to effect the increase of the Company’s authorized share capital as from US$200,200 divided into 200,000,000 ordinary shares of a par value of US$0.001 each and 2,000,000 preferred shares of a par value of US$0.0001 each; to US$200,700 divided into 200,000,000 Class A ordinary shares of a par value of US$0.001 each (the “Class A Ordinary Shares”), 500,000 Class B ordinary shares of a par value of US$0.001 each (the “Class B Ordinary Shares”) and 2,000,000 preferred shares of a par value of US$0.0001 each; by the creation of 500,000 Class B ordinary shares of a par value of US$0.001 each with the rights attaching to such shares as set out in the MAA (the “Charter Amendment”). Pursuant to the Charter Amendment:
| ● | Class A Ordinary Shares and Class B Ordinary Shares shall at all times vote together as one class on all resolutions submitted to a vote by the shareholders; |
| ● | Each Class A Ordinary Shares shall be entitled to one (1) vote on all matters subject to vote at general meetings of the Issuer, and each Class B Ordinary Share shall be entitled to one hundred (100) votes on all matters subject to vote at general meetings of the Issuer; |
| ● | Upon winding up of the Issuer, holders of Class A Ordinary Shares shall be entitled to participate in the surplus assets of the Issuer, and holders of Class B Ordinary Shares shall only be entitled to repayment of capital; |
| ● | In terms of dividends, holders of Class A Ordinary Shares shall be entitled the right to receive dividend, and holders of Class B Ordinary Shares shall not be entitled to any dividends; |
| ● | As to redemption, a Class B Share may be redeemed at par value at the option of the holder; and |
| ● | Class A Ordinary Shares and Class B Ordinary Shares are not convertible. |
The Charter Amendment was approved by our shareholders on August 28, 2024.
On September 9, 2024, the Company entered into a Subscription Agreement (the “Subscription Agreement”) with Mr. Bing Zhang, the Company’s Chairman, Director, Chief Executive Officer and Chief Financial Officer. Pursuant to the Subscription Agreement, the Company agreed to issue and sell to Mr. Zhang an aggregate of 500,000 Class B Ordinary Shares of the Company, at par, for an aggregate purchase price of US$500, or US$0.001 per share (the “Share Purchase”). The closing of the Share Purchase occurred on September 9, 2024.
Class A Ordinary Shares and Class B Ordinary Shares shall at all times vote together as one class, and each Class A Ordinary Share shall be entitled to one (1) vote and each Class B Ordinary Share shall be entitled to one hundred (100) votes. Class B Ordinary Shares are not convertible into Class A Ordinary Shares, and may be redeemed by the Company at par value at the option of the holder.
The Share Purchase was approved by the Company’s shareholders on August 28, 2024, and authorized and approved by our board of directors on September 4, 2024. The Share Purchase is intended to support our management team’s ability to implement a sustainable development strategy to fully integrate the Company’s multi-platform portfolio to become one of the most innovative internet companies in China. This structure will assist in the continuity of management in order to implement its short- and long-term business plan without being distracted by external financial market factors which, many times, are out of management’s control.
116
On May 12, 2025, at our annual general shareholder meeting of Cheer Holding, Inc., our shareholders authorized and approved an increase in the number of authorized Class A ordinary shares, par value US$0.001 per share, from 200,000,000 to 500,000,000. In connection with this approval, the shareholder resolution (“Amendment Resolution”) was filed with the Registrar of Companies of the Cayman Islands on May 13, 2025, and incorporated into the Third Amended and Restated Memorandum and Articles of Association (the “MAA”). This filing of the Amendment Resolution to the MAA effected an increase of the Company’s authorized share capital from US$200,700, divided into 200,000,000 Class A ordinary shares of a par value of US$0.001 each (the “Class A Shares”), 500,000 Class B ordinary shares of a par value of US$0.001 each (the “Class B Shares”), and 2,000,000 preferred shares of a par value of US$0.0001 each, to US$500,700, divided into 500,000,000 Class A Shares, 500,000 Class B Shares, and 2,000,000 preferred shares of a par value of US$0.0001 each.
Item 15. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in company reports filed or submitted under the Exchange Act is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.
As required by Rules 13a-15 and 15d-15 under the Exchange Act, our Chief Executive Officer and Chief Financial Officer carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of December 31, 2025. Based upon that evaluation, our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has concluded that, due to the material weakness described below, as of December 31, 2025, our disclosure controls and procedures were not effective. We will undertake the remedial steps to address the material weakness in our disclosure controls and procedures as set forth below under “Changes in Internal Control over Financial Reporting.”
Management’s Annual Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended. Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of financial statements for external purposes in accordance with Generally Accepted Accounting Principles (GAAP) in the United States of America and includes those policies and procedures that
| (1) | pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of our company; |
| (2) | provide reasonable assurance that transactions are recorded as necessary to permit preparation of consolidated financial statements in accordance with GAAP, and that receipts and expenditures of our company are being made only in accordance with authorizations of our management and directors; and |
| (3) | provide reasonable assurance regarding prevention or timely detection of the unauthorized acquisition, use or disposition of our company’s assets that could have a material effect on the consolidated financial statements. |
117
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risks that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
As required by Section 404 of the Sarbanes-Oxley Act of 2002 and related rules as promulgated by the Securities and Exchange Commission, our management assessed the effectiveness of internal control over financial reporting as of December 31, 2024 using the criteria set forth in the report “Internal Control—Integrated Framework (2013)” published by the Committee of Sponsoring Organizations of the Treadway Commission (known as COSO).
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis. During our assessment of internal control over financial reporting as of December 31, 2025, we identified a material weakness related to (i) our lack of sufficient financial reporting and accounting personnel with appropriate knowledge of the generally accepted accounting principles in the United States (“U.S. GAAP”), (ii) SEC reporting requirements to properly address complex U.S. GAAP accounting issues and to prepare and review our consolidated financial statements and related disclosures to fulfill U.S. GAAP and SEC financial reporting requirements, and (iii) a lack of separation of duties. We currently do not have a Chief Financial Officer, and Mr. Bing Zhang, our Chairman and Chief Executive Officer, has assumed responsibility for our principal financial and accounting functions. Until we are able to engage a qualified financial officer, and/or engage additional qualified financial reporting and accounting personnel, we may continue to experience material weaknesses in our disclosure controls.
Because of the material weaknesses described above, our management has concluded that we had not maintain effective internal control over financial reporting as of December 31, 2025, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO.
Attestation Report of the Registered Public Accounting Firm
This annual report on Form 20-F does not include an attestation report of internal controls from our independent registered public accounting firm. We ceased to qualify as an “emerging growth company” pursuant to the JOBS Act on December 31, 2023. However, since our public float was not over $75 million as of June 30, 2025, we are exempted from the auditor attestation requirement under Section 404 of the Sarbanes-Oxley Act of 2002 for the assessment of our internal control over financial reporting for the year ended December 31, 2025.
Changes in Internal Control over Financial Reporting
In preparing our consolidated financial statements, a material weakness described above was identified in our internal control over financial reporting as of December 31, 2025. As defined in standards established by the PCAOB, a “material weakness” is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis.
To remedy our identified material weakness in connection with preparation of our consolidated financial statements, we try to adopt several measures to improve our internal control over financial reporting, including (i) hiring additional accounting personnel with experience in U.S. GAAP and SEC reporting requirements, (ii) providing more regular training on an ongoing basis to our accounting personnel that cover a broad range of accounting and financial reporting topics; and (iii) searching to hire a chief financial officer with experience in U.S. GAAP and SEC Reporting requirements.
Other than as described above, no changes in our internal controls over financial reporting occurred during the period covered by this annual report that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.
118
Our management has worked, and will continue to work to strengthen our internal controls over financial reporting. There were no other changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Item 16. [RESERVED]
Item 16A. AUDIT COMMITTEE FINANCIAL EXPERT
Messrs. Zhihong Tan, Yong Li and Ke Chen each qualifies as an “audit committee financial expert” as defined in Item 16A of Form 20-F. Messrs. Zhihong Tan, Yong Li and Ke Chen each satisfies the “independence” requirements of Section 5605(a)(2) of the NASDAQ Listing Rules as well as the independence requirements of Rule 10A-3 under the Exchange Act. Mr. Tan is the Chairperson of the audit committee.
Item 16B. CODE OF ETHICS
We have adopted a Code of Ethics applicable to our directors, officers and employees. We have filed a copy of our Code of Ethics and our Audit Committee Charter, Nominating Committee Charter and Compensation Committee Charter with the SEC and have made it available on our website at http://ir.gsmg.co. In addition, a copy of the Code of Ethics will be provided without charge upon request from us. Requests for a copy of the Code of Ethics may be made by writing to the Company at Cheer Holding, Inc., 19F, Block B, Xinhua Technology Building, No. 8 Tuofangying South Road, Jiuxianqiao, Chaoyang District, Beijing, China.
Item 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The following table sets forth the aggregate fees by categories specified below in connection with certain professional services rendered and billed by our independent registered public accounting firm for the periods indicated.
| For the Fiscal Years Ended December 31, | ||||||||
| 2024 | 2025 | |||||||
| (in thousands of U.S. Dollars) | ||||||||
| Audit Fees(1) | $ | 225 | $ | 200 | ||||
| Audit-Related Fees | - | - | ||||||
| Tax Fees | - | - | ||||||
| All Other Fees | - | - | ||||||
| Total | $ | 225 | $ | 200 | ||||
| (1) | Audit fees include the aggregate fees billed in each of the fiscal years for professional services rendered by our independent registered public accounting firm for the audit of our annual financial statements, review of the interim financial statements and for the audits of our financial statements in connection with the issuance of the consent letter for our S-8 and F-3 filings with SEC. |
The policy of our audit committee is to pre-approve all audit and non-audit services provided by Enrome LLP, our independent registered public accounting firm, including audit services, audit-related services, tax services and other services as described above.
Item 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
Not applicable.
119
Item 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
On December 2, 2024, our Board approved a share repurchase program authorizing a repurchase of up to $50 million of our Class A Ordinary Shares over the 36 months that follows (the “Share Repurchase Program”). Repurchases under the Share Repurchase Program may be made through open market purchases or privately negotiated transactions in accordance with applicable U.S. federal securities laws. The timing and method of repurchases, and the exact number of Class A Ordinary Shares to be purchased will be determined by the Company’s management, in its discretion, and will depend upon market conditions and other factors. The Share Repurchase Program may be suspended, adjusted, or discontinued at any time. As of the date of this annual report, no Class A Ordinary Shares have been repurchased under the program.
Item 16F. CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT
None.
Item 16G. CORPORATE GOVERNANCE
As a Cayman Islands company listed on the Nasdaq Capital Market, we are subject to the Nasdaq Capital Market corporate governance listing standards. However, Nasdaq Capital Market rules permit a foreign private issuer like us to follow the corporate governance practices of its home country. Certain corporate governance practices in the Cayman Islands, which is our home country, may differ significantly from the Nasdaq Capital Market corporate governance listing standards. We intend to follow the following home country practices in lieu of the Nasdaq Listing Rules as follows:
| ● | Nasdaq Listing Rule 5605(b)(1) requires listed companies to have, among other things, a majority of its board members be independent. As a foreign private issuer, however, we are permitted to, and we may follow home country practice in lieu of the above requirements, or we may choose to comply with the above requirement within one year of listing. The corporate governance practice in our home country, the Cayman Islands, does not require a majority of our board to consist of independent directors. Currently, a majority of our board members are independent. |
| ● | We do not intend to follow Nasdaq’s requirements regarding shareholder approval for certain issuances of securities under Nasdaq Listing Rule 5635. Under our Memorandum and Articles of Association, our board of directors is authorized to issue securities including in connection with certain events such as the acquisition of shares or assets of another company, the establishment of or amendments to equity-based compensation plans for employees, a change of control of us, rights issues at or below market price, certain private placements and issuance of convertible notes, and the issuance of 20% or more of our outstanding ordinary shares. |
Other than those described above, there are no significant differences between our corporate governance practices and those followed by U.S. domestic companies under Nasdaq Capital Market corporate governance listing standards. We may in the future decide to use the foreign private issuer exemption with respect to some or all the other Nasdaq corporate governance rules. As a result, our shareholders may be afforded less protection than they otherwise would under the Nasdaq corporate governance listing standards applicable to U.S. domestic issuers. We may utilize these exemptions for as long as we continue to qualify as a foreign private issuer.
Item 16H. MINE SAFETY DISCLOSURE
Not applicable.
Item 16I. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
Not Applicable.
120
ITEM 16J. INSIDER TRADING POLICIES
The Company has
ITEM 16K. CYBERSECURITY
Cybersecurity Risk Management and Strategy
We recognize the importance
of assessing, identifying, and managing material risks associated with cybersecurity threats, as such term is defined in Item 106(a) of
Regulation S-K. These risks include, among other things: operational risks, intellectual property theft, fraud, extortion, harm to employees
or customers and violation of data privacy or security laws.
We are a holding company and our operations are conducted all in China by through our VIE, Horgos Glory. Horgos has implemented comprehensive internal policies and measures on protection of cyber security, data privacy and personal information to make sure its compliance with relevant PRC laws and regulations. The main internal policies and measures are as follows:
| (i) | for customer data processing, our VIE and its subsidiaries deploys the access control mechanism on the server side, adopts the principle of minimum authorization for the staff who may contact end users’ personal data; |
| (ii) | the operating systems and database systems of our VIE and its subsidiaries have password complexity requirements; |
| (iii) | Horgos has established an Information Security Committee and appointed Jia Lu to be the head of the committee; |
| (iv) | Horgos has formulated a cybersecurity contingency plan and will conduct training and safety drills every year in preparation for any emergency cybersecurity incidents; and |
| (v) | our VIE and its subsidiaries have established data privacy policies to ensure that its collection of data is conducted in accordance with applicable laws and regulations and that the collection is for legitimate purposes as set out in its agreements. |
In compliance with PRC laws and regulations with respect to data security in all material aspects, we have implemented comprehensive internal policies and measures on protection of cyber security, data privacy and personal information as listed above.
In addition, while we take
various measures to comply with all applicable data privacy and protection laws and regulations, there is no guarantee that our current
security measures and those of our
Any failure to prevent or mitigate security breaches, cyber-attacks or other unauthorized access to our systems or disclosure of our customers’ data, including their personal information, could result in loss or misuse of such data, interruptions to our service system, diminished customer experience, loss of customer confidence and trust, impairment of our technology infrastructure, and harm our reputation and business, resulting in significant legal and financial exposure and potential lawsuits and could cause the value of such securities to significantly decline or be worthless. In addition, any violation of the provisions and requirements under relevant laws and regulations with respect to cyber security, data security and personal information protection may subject us to rectifications, warnings, fines, confiscation of illegal gains, suspension of the related business, revocation of licenses, cancellation of qualifications being entered into the relevant credit record or even criminal liabilities.
Cybersecurity Governance
121
PART III
Item 17. FINANCIAL STATEMENTS
We have elected to provide financial statements pursuant to Item 18.
Item 18. FINANCIAL STATEMENTS
The consolidated financial statements of Cheer Holding, Inc., and its subsidiaries are included at the end of this annual report.
Item 19. EXHIBITS
EXHIBIT INDEX
122
| * | Filed herewith. |
| ** | Furnished herewith. |
| + | Indicates a management contract or any compensatory plan, contract or arrangement. |
123
SIGNATURES
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.
| Cheer Holding, Inc. | ||
| By: | /s/ Bing Zhang | |
| Name: | Bing Zhang | |
| Title: | Chief Executive Officer | |
| Date: March 20, 2026 | ||
124
TABLE OF CONTENTS
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Directors of
Cheer Holding, Inc.
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Cheer Holding, Inc. and its subsidiaries (the “Company”) as of December 31, 2025 and 2024, and the related consolidated statements of income and comprehensive income, shareholders’ equity, and cash flows for each of the years ended December 31, 2025 and 2024, and the related notes (collectively referred to as, the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of Company as of December 31, 2025 and 2024, and the results of its operations and its cash flows for each of the years ended December 31, 2025 and 2024, in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”).
Basis for Opinion
These consolidated financial statements are the responsibility of Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
Critical audit matters are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. We determined that there are no critical audit matters.
/s/
March 20, 2026
We have served as the Company’s auditor since 2024.
F-2
 |
Assentsure PAC |
To the Shareholders and the Board of Directors of
Cheer Holding, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated statements of income and comprehensive income, shareholders’ equity, and cash flows of Cheer Holding, Inc. and its subsidiaries (collectively, the “Company”, formerly known as “Glory Star New Media Group Holdings Limited”) for the year ended December 31, 2023, and the related notes (collectively referred to as the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the results of its operations and its cash flows for the year ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”).
We were not engaged to audit, review, or apply any procedures to the adjustments to the 2023 amounts and disclosures added to retrospectively apply the change in accounting related to the share reclassification of Class A and Class B ordinary shares and the share consolidation as described in Note 1. Accordingly, we do not express an opinion or any other form of assurance on whether such adjustments are appropriate or whether the accounting treatment has been properly applied. Those adjustments were audited by other auditors.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audit provides a reasonable basis for our opinion.
Critical Audit Matters
Critical audit matters are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. We determined that there are no critical audit matters.
/s/ Assentsure PAC
We have served as the Company’s auditor since 2021
Singapore,
March 14, 2024
PCAOB ID Number 6783
F-3
CHEER HOLDING, INC.
CONSOLIDATED BALANCE SHEETS
(In U.S. dollars in thousands, except share and per share data)
| As of December 31, | ||||||||
| 2025 | 2024 | |||||||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable, net | ||||||||
| Prepayment and other current assets, net | ||||||||
| Total current assets | ||||||||
| Property, plant and equipment, net | ||||||||
| Intangible assets, net | ||||||||
| Deferred tax assets | ||||||||
| Unamortized produced content, net | ||||||||
| Right-of-use assets | ||||||||
| Other non-current assets | ||||||||
| Total non-current assets | ||||||||
| TOTAL ASSETS | $ | $ | ||||||
| Liabilities and Shareholders’Equity | ||||||||
| Current liabilities: | ||||||||
| Short-term bank loans | $ | $ | ||||||
| Accounts payable | ||||||||
| Contract liabilities | ||||||||
| Accrued liabilities and other payables | ||||||||
| Due to related parties | ||||||||
| Other taxes payable | ||||||||
| Lease liabilities current | ||||||||
| Total current liabilities | ||||||||
| Long-term bank loan | ||||||||
| Lease liabilities non-current | ||||||||
| Total non-current liabilities | ||||||||
| TOTAL LIABILITIES | $ | $ | ||||||
| Shareholders’ Equity | ||||||||
| $ | $ | |||||||
| Class A Ordinary shares (par value of $ | ||||||||
| Class B Ordinary shares (par value of $ | ||||||||
| Additional paid-in capital | ||||||||
| Statutory reserve | ||||||||
| Retained earnings | ||||||||
| Accumulated other comprehensive loss | ( | ) | ( | ) | ||||
| TOTAL CHEER HOLDING, INC SHAREHOLDERS’ EQUITY | ||||||||
| Non-controlling interest | ||||||||
| TOTAL SHAREHOLDERS’ EQUITY | ||||||||
| TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | $ | $ | ||||||
| * |
The accompanying notes are an integral part of these consolidated financial statements.
F-4
CHEER HOLDING, INC.
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(In U.S. dollars in thousands, except share and per share data)
| For the Years Ended December 31, | ||||||||||||
| 2025 | 2024 | 2023 | ||||||||||
| Revenues | $ | $ | $ | |||||||||
| Operating expenses: | ||||||||||||
| Cost of revenues | ( | ) | ( | ) | ( | ) | ||||||
| Selling and marketing | ( | ) | ( | ) | ( | ) | ||||||
| General and administrative | ( | ) | ( | ) | ( | ) | ||||||
| Research and development | ( | ) | ( | ) | ( | ) | ||||||
| Total operating expenses | ( | ) | ( | ) | ( | ) | ||||||
| Income from operations | ||||||||||||
| Other income (expenses): | ||||||||||||
| Interest income, net | ||||||||||||
| Change in fair value of warrant liability | ||||||||||||
| Other (expenses) income, net | ( | ) | ||||||||||
| Total other (expenses) income | ( | ) | ||||||||||
| Income before income tax | ||||||||||||
| Income tax (expense) benefit | ( | ) | ( | ) | ||||||||
| Net income | ||||||||||||
| Less: net gain attributable to non-controlling interest | ||||||||||||
| Net income attributable to Cheer Holding, Inc.’s shareholders | $ | $ | $ | |||||||||
| Other comprehensive gain (loss) | ||||||||||||
| Unrealized foreign currency translation gain (loss) | ( | ) | ( | ) | ||||||||
| Comprehensive income | ||||||||||||
| Less: comprehensive gain (loss) attributable to non-controlling interests | ( | ) | ||||||||||
| Comprehensive income attributable to Cheer Holding, Inc.’s shareholders | $ | $ | $ | |||||||||
| Earnings per ordinary share | ||||||||||||
| Basic and dilutive* | $ | $ | $ | |||||||||
| Weighted average shares used in calculating earnings per ordinary share | ||||||||||||
| Basic and dilutive* | ||||||||||||
| * |
The accompanying notes are an integral part of these consolidated financial statements.
F-5
CHEER HOLDING, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(In U.S. dollars in thousands, except share and per share data)
| Cheer Holding, Inc.’s Shareholders | ||||||||||||||||||||||||||||||||||||||||||||
| Class
A ordinary shares |
Class
B ordinary shares |
Additional paid-in |
Retained | Statutory | Accumulated other comprehensive |
Total Cheer Holding, Inc.s’ shareholder’ |
Non-controlling | Total Shareholders’ |
||||||||||||||||||||||||||||||||||||
| Shares* | Amount | Shares | Amount | capital | earnings | reserve | (loss) | equity | interests | Equity | ||||||||||||||||||||||||||||||||||
| Balance as of December 31, 2022 | ( |
) | ||||||||||||||||||||||||||||||||||||||||||
| Withdrawal of contribution from shareholder | - | - | ( |
) | ( |
) | ( |
) | ||||||||||||||||||||||||||||||||||||
| Issuance of shares through private placement | ||||||||||||||||||||||||||||||||||||||||||||
| Issuance of shares due to roundup of fractional shares in share consolidation | - | - | - | |||||||||||||||||||||||||||||||||||||||||
| Net income for the year | - | - | ||||||||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | - | - | ( |
) | ( |
) | ( |
) | ( |
) | ||||||||||||||||||||||||||||||||||
| Balance as of December 31, 2023 | ( |
) | ||||||||||||||||||||||||||||||||||||||||||
| Capital contribution from shareholders | - | - | ||||||||||||||||||||||||||||||||||||||||||
| Share-based compensation** | ||||||||||||||||||||||||||||||||||||||||||||
| Cancellation of shares due to roundup of fractional shares in share consolidation** | ( |
) | ( |
) | - | |||||||||||||||||||||||||||||||||||||||
| Net income for the year | - | - | ||||||||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | - | - | ( |
) | ( |
) | ( |
) | ( |
) | ||||||||||||||||||||||||||||||||||
| Balance as of December 31, 2024 | ( |
) | ||||||||||||||||||||||||||||||||||||||||||
| Share-based compensation | - | - | - | |||||||||||||||||||||||||||||||||||||||||
| Issuance of shares through public offerings | - | - | - | |||||||||||||||||||||||||||||||||||||||||
| Issuance of shares due to roundup of fractional shares in share consolidation | ||||||||||||||||||||||||||||||||||||||||||||
| Net income for the year | - | - | ||||||||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | - | - | ||||||||||||||||||||||||||||||||||||||||||
| Balance as of December 31, 2025 | ( |
) | ||||||||||||||||||||||||||||||||||||||||||
| * |
| ** |
The accompanying notes are an integral part of these consolidated financial statements.
F-6
CHEER HOLDING, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In U.S. dollars in thousands)
| For the Years Ended December 31, | ||||||||||||
| 2025 | 2024 | 2023 | ||||||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||||||
| Net income | $ | $ | $ | |||||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||||
| (Reversal of provision) provision for credit losses | ( | ) | ( | ) | ||||||||
| Provision for unamortized produced content | ||||||||||||
| Depreciation and amortization | ||||||||||||
| Impairment of intangible assets | ||||||||||||
| Amortization of right-of-use assets | ||||||||||||
| Loss from early termination of right-of-use assets | ||||||||||||
| Deferred income tax expense (benefits) | ( | ) | ||||||||||
| Share based compensation for employees | ||||||||||||
| Written off of property and equipment | ||||||||||||
| Amortization of loan origination fees | ||||||||||||
| Change in fair value of warrant liability | ( | ) | ||||||||||
| Income from waive of other payables | ( | ) | ( | ) | ||||||||
| Changes in assets and liabilities | ||||||||||||
| Accounts receivable | ||||||||||||
| Prepayment and other current assets | ( | ) | ( | ) | ( | ) | ||||||
| Unamortized produced content | ( | ) | ||||||||||
| Accounts payable | ( | ) | ||||||||||
| Contract liabilities | ( | ) | ( | ) | ( | ) | ||||||
| Accrued liabilities and other payables | ( | ) | ( | ) | ||||||||
| Other taxes payable | ( | ) | ( | ) | ||||||||
| Lease liabilities | ( | ) | ( | ) | ( | ) | ||||||
| Net cash provided by operating activities | ||||||||||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||||||
| Purchase of property, plant and equipment | ( | ) | ( | ) | ||||||||
| Purchase of intangible assets | ( | ) | ( | ) | ||||||||
| Net cash used in investing activities | ( | ) | ( | ) | ( | ) | ||||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||||||
| Proceeds from short-term bank loans | ||||||||||||
| Repayments of short-term bank loans | ( | ) | ( | ) | ( | ) | ||||||
| Proceeds from long-term bank loans | ||||||||||||
| Payment of loan origination fees | ( | ) | ( | ) | ||||||||
| Contribution (withdrawal of) from shareholders | ( | ) | ||||||||||
| Borrowings from related parties | ||||||||||||
| Repayments to related parties | ( | ) | ||||||||||
| Proceeds from issuance of ordinary shares in connection with a private placement | ||||||||||||
| Net cash provided by financing activities | ||||||||||||
| Effect of exchange rate changes | ( | ) | ( | ) | ||||||||
| Net increase in cash and cash equivalents | ||||||||||||
| Cash and cash equivalents, at beginning of year | ||||||||||||
| Cash and cash equivalents, at end of year | $ | $ | $ | |||||||||
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | ||||||||||||
| Interests paid | $ | $ | $ | |||||||||
| Income tax paid | $ | $ | $ | |||||||||
| SUPPLEMENTAL DISCLOSURE OF NON-CASH FLOW INFORMATION: | ||||||||||||
| Acquisition of intangible assets from prepayments | $ | $ | $ | |||||||||
| Right-of-use assets obtained in exchange for operating lease liabilities | $ | $ | $ | |||||||||
The accompanying notes are an integral part of these consolidated financial statements.
F-7
CHEER HOLDING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In U.S. dollars in thousands, except share and per share data)
1. ORGANIZATION AND PRINCIPAL ACTIVITIES
Cheer Holding, Inc. (“CHR” or the
“Company”) is an exempted company incorporated on
On November 1, 2023, the Company changed its legal name from Glory Star New Media Group Holdings Limited. to Cheer Holding, Inc. In connection with the name change, the Company also changed its trading symbol for tis ordinary shares from “GSMG” to “CHR”. The Company’s warrants continue to trade under the ticker symbol “GSMGW”. Effective on November 9, 2023, the Company traded on open market under new name and trading symbol.
On November 24, 2023, the Company effected a share
consolidation at a ratio of one-for-tenth (
On September 4, 2024,
On May 12, 2025, the shareholders of the Company,
at the Annual General Meeting, approved to increase the authorized share capital of the Company from US$
On December 22, 2025, the Company effected a share
consolidation at a ratio of one-for-fiftieth (
F-8
CHEER HOLDING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In U.S. dollars in thousands, except share and per share data)
1. ORGANIZATION AND PRINCIPAL ACTIVITIES (cont.)
As of December 31, 2025, the Company’s subsidiaries, the VIEs and the VIE’s subsidiaries were as the following:
| Date of incorporation | Place of incorporation | Percentage of legal/beneficial ownership by the Company | Principal activities | |||||||||
| Subsidiaries: | ||||||||||||
| Glory Star New Media Group HK Limited (“Glory Star HK”) | % | |||||||||||
| Glory Star New Media (Beijing) Technology Co., Ltd. (“WFOE”) | % | |||||||||||
| VIEs: | ||||||||||||
| Xing Cui Can International Media (Beijing) Co., Ltd. (“Xing Cui Can”) | % | |||||||||||
| Horgos Glory Star Media Co., Ltd. (“Horgos”) | % | |||||||||||
| VIEs’ subsidiaries | ||||||||||||
| Glory Star Media (Beijing) Co., Ltd. (“Glory Star Beijing”) | % | |||||||||||
| Leshare Star (Beijing) Technology Co., Ltd. (“Beijing Leshare”) | % | |||||||||||
| Horgos Glary Prosperity Culture Co., Ltd. (“Glary Prosperity”) | % | |||||||||||
| Glory Star (Horgos) Media Technology Co., Ltd (“Horgos Technology”) | % | |||||||||||
| * | On March 17, 2023, we wrote off Shenzhen Leshare Investment Co.,Ltd. due to business adjustment. For the year ended December 31, 2023, we recognized minimal gain arising from the writing off and recorded in the account of “other income, net” in the consolidated statements of income and comprehensive income. |
| * | On June 13, 2025, we dissolved Horgos Glary Prosperity Culture Co., Ltd. Beijing Branch due to its inactive operations. For the year ended December 31, 2025, we recognized minimal gain arising from the dissolution and recorded in the account of “other income, net” in the consolidated statements of income and comprehensive income. |
F-9
CHEER HOLDING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In U.S. dollars in thousands, except share and per share data)
1. ORGANIZATION AND PRINCIPAL ACTIVITIES (cont.)
In September 2019, WFOE has entered into a series of contractual arrangements with (i) Xing Cui Can and its shareholders, and (ii)
Horgos and its shareholders, which allow the Company to exercise the power to direct the activities of the Xing Cui Can and Horgos (the
“VIEs”) that most significantly affect the VIEs’ economic performance and receive substantially all the economic benefits
of the VIEs. These contractual agreements include Business Cooperation Agreement, Exclusive Option Agreement, Share Pledge Agreement,
Proxy Agreement and Power of Attorney and Master Exclusive Service Agreement (collectively “VIEs Agreements”). The Company,
together with its wholly-owned subsidiary Glory Star HK and WFOE and its VIEs and VIEs’ subsidiaries were effectively controlled
by the same shareholders after the reorganization.
The VIE contractual arrangements
Current PRC laws and regulations impose certain restrictions or prohibitions on foreign ownership of companies that engage in value-added telecommunication services, and certain other business. Glory Star Beijing is considered a foreign-invested enterprise. To comply with PRC laws and regulations, the Company primarily conducts its business in China through Xing Cui Can and Horgos and its subsidiaries, based on a series of contractual arrangements. The following is a summary of the contractual arrangements that provide the Company with the power to direct the activities of the VIEs that most significantly affect the VIEs’ economic performance and that enables it to receive substantially all the economic benefits from its operations.
Each of the VIEs Agreements is described in detail below:
Business Cooperation Agreement
WFOE entered into separate business cooperation agreements with Xing Cui Can and Horgos, and their respective shareholders in September 2019, pursuant to which (1) each VIE shall not enter into any transaction which may materially affect such VIE’s assets, obligations, rights and operations without the written consent of WFOE; (2) each VIE and the VIE shareholders agrees to accept suggestions by WFOE in respect of the employment and dismissal of such VIE’s employees, daily operations, dividend distribution and financial management of such VIE; and (3) the VIE and the VIE shareholders shall only appoint individuals designated by WFOE as the director, general manager, chief financial officer and other senior management members. In addition, each of the VIE shareholders agree that (i) unless required by WFOE, will not make any decisions or otherwise request the VIE to distribute any profits, funds, assets or property to the VIE shareholders, (ii) or issue any dividends or other distribution with respect to the shares of the VIE held by the VIE shareholders. The term of each of these business cooperation agreements are perpetual unless terminated by WFOE upon thirty (30) days advance notice, or upon the transfer of all shares of the respective VIEs to WFOE (or its designee).
Exclusive Option Agreement
WFOE entered into a separate exclusive option
agreement with Xing Cui Can and Horgos, and their respective shareholders in September 2019. Pursuant to these exclusive option agreements,
the VIE shareholders have granted WFOE (or its designee) an option to acquire all or a portion of each of their equity interests in the
VIEs at the price equivalent to the lowest price then permitted under PRC law. If the equity interests are transferred in installments,
the purchase price for each installment shall be pro rata to the equity interests transferred. WFOE may, at its sole discretion, at any
time exercise the option granted by the VIE shareholders. Moreover, WFOE may transfer such option to any third party. The VIE shareholders
may not, among other obligations, change or amend the articles of association and bylaws of the VIE, increase or decrease the registered
capital of the VIEs, sell, transfer, mortgage or dispose of their equity interest in any way, or incur, inherit, guarantee or assume
any debt except for debts incurred in the ordinary course of business unless otherwise expressly agreed to by WFOE, and enter into any
material contracts except in the ordinary course of business unless otherwise expressly agreed to by WFOE. The term of each of these
exclusive option agreements is
F-10
CHEER HOLDING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In U.S. dollars in thousands, except share and per share data)
1. ORGANIZATION AND PRINCIPAL ACTIVITIES (cont.)
Share Pledge Agreement
WFOE entered into a separate share pledge agreement with Xing Cui Can and Horgos, and their respective shareholders in September 2019. Pursuant to these share pledge agreements, the VIE shareholders have pledged all of their equity interests in the VIEs as priority security interest in favor of WFOE to secure the performance of the VIEs and their shareholders’ performance of their obligations under, where applicable, (i) Master Exclusive Service Agreement, (ii) Business Cooperation Agreement, and (iii) the Exclusive Option Agreement (collectively the “Principal Agreements”). WFOE is entitled to exercise its right to dispose of the VIE shareholders’ pledged interests in the equity of the VIE in the event that either the VIE shareholders or the VIE fails to perform their respective obligations under the Principal Agreements. The equity pledges on the VIE’s equity interests are in the process of being registered with the Market Supervision Administration Authority in China. The equity pledge agreements will remain in full force and remain effective until the VIE and the VIE shareholders have satisfied their obligations under the Principal Agreements.
Proxy Agreement and Power of Attorney
WFOE entered into a separate Proxy Agreement and Power of Attorney with Xing Cui Can and Horgos, and their respective shareholders in September 2019. Pursuant to the proxy agreement and power of attorney, each VIE shareholders irrevocably nominates and appoints WFOE or any natural person designated by WFOE as its attorney-in-fact to exercise all rights of such VIE equity holder has in such VIE, including, but not limited to, (i) execute and deliver any and all written decisions and to sign any minutes of meetings of the board or shareholder of the VIE, (ii) to make shareholder’s decision on any matters of the VIE, including without limitations, the sale, transfer, mortgage, pledge or disposal of any or all of the assets of the VIE, (iii) to sell, transfer, pledge or dispose of any or all shares in the VIE, (iv) to nominate, appoint, or remove the directors, supervisors and senior management members of the VIE when necessary, (v) to oversee the business performance of the VIE, (vi) to have full access to the financial information of the VIE, (vii) to file any shareholder lawsuits or to take other legal actions against the VIE’s directors or senior management members, (viii) to approve annual budget or declare dividends, (ix) to manage and dispose of the assets of the VIE, (x) to have the full rights to control and manage the VIE’s finance, accounting and daily operations, (xi) to approve filing of any documents with the relevant governmental authorities or regulatory bodies, and (xii) any other rights provided by the VIE’s charters and/or the relevant laws and regulations on the VIE shareholders. The proxy agreement and power of attorney shall remain in effect during the term of the Exclusive Service Agreement.
Confirmation and Guarantee Letter
Each of the VIE shareholders signed a confirmation and guarantee letter in September 2019, pursuant to which each VIE equity holder agreed that to fully implement the arrangements set forth in the Principal Agreements, Share Pledge Agreement, and the Proxy Agreement and Power of Attorney, and agrees to not carry out any act which may be contrary to the purpose or intent of such agreements.
Master Exclusive Service Agreement
WFOE entered into separate exclusive service
agreement with Xing Cui Can and Horgos in September 2019, pursuant to which WFOE provides exclusive technology support and services,
staff training and consultation services, public relation services, market development, planning and consultation services, human resource
management services, licensing of intellectual property, and other services as determined by the parties. In exchange, the VIEs pay service
fees to WFOE equal to the pre-tax profits of the VIEs less (i) accumulated losses of the VIEs and their subsidiaries in the previous
financial year, (ii) operating costs, expenses, and taxes, and (iii) reasonable operating profit under applicable PRC tax law and
practices. During the term of these agreements, WFOE has the right to adjust the amount and time of payment of the service fees at its
sole discretion without the consent of the VIEs. WFOE (or its service provider) will own any intellectual property arising from the performance
of these agreements. The term of each of these exclusive service agreements are perpetual unless terminated by WFOE upon thirty (
F-11
CHEER HOLDING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In U.S. dollars in thousands, except share and per share data)
1. ORGANIZATION AND PRINCIPAL ACTIVITIES (cont.)
Risks in relation to the VIE structure
In accordance with accounting standards regarding consolidation of variable interest entities (“VIEs”), VIEs are generally entities that lack sufficient equity to finance their activities without additional financial support from other parties or whose equity holders lack adequate decision-making ability. All VIEs with which the Company is involved must be evaluated to determine the primary beneficiary of the risks and rewards of the VIE. The primary beneficiary is required to consolidate the VIE for financial reporting purposes. The Company believes that the contractual arrangements with its VIEs and their respective shareholders are in compliance with PRC laws and regulations and are legally enforceable. However, uncertainties in the PRC legal system could limit the Company’s ability to enforce the contractual arrangements. If the legal structure and contractual arrangements were found to be in violation of PRC laws and regulations, the PRC government could:
| ● | revoke the business and operating licenses of the Company’s PRC subsidiary and VIEs; |
| ● | discontinue or restrict the operations of any related-party transactions between the Company’s PRC subsidiary and VIEs; |
| ● | limit the Company’s business expansion in China by way of entering into contractual arrangements; |
| ● | impose fines or other requirements with which the Company’s PRC subsidiary and VIEs may not be able to comply; |
| ● | require the Company or the Company’s PRC subsidiary and VIEs to restructure the relevant ownership structure or operations; or |
| ● | restrict or prohibit the Company’s use of the proceeds of the additional public offering to finance. |
Total assets and liabilities presented on the
Company’s consolidated balance sheets and revenue and net income presented on consolidated statements of income and comprehensive
income as well as the cash flow from operating, investing and financing activities presented on the consolidated statements of cash flows
are substantially the financial position, operation and cash flow of the Company’s VIEs and subsidiaries of VIEs. The Company has
not provided any financial support to VIEs for the years ended December 31, 2025, 2024 and 2023.
| As of December 31, | ||||||||
| 2025 | 2024 | |||||||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable, net | ||||||||
| Prepayment and other current assets, net | ||||||||
| Total current assets | ||||||||
| Property, plant and equipment, net | ||||||||
| Intangible assets, net | ||||||||
| Deferred tax assets | ||||||||
| Right-of-use assets | ||||||||
| Other non-current assets | ||||||||
| Total non-current assets | ||||||||
| TOTAL ASSETS | $ | $ | ||||||
| Liabilities | ||||||||
| Current liabilities: | ||||||||
| Short-term bank loans | $ | $ | ||||||
| Accounts payable | ||||||||
| Contract liabilities | ||||||||
| Accrued liabilities and other payables | ||||||||
| Other taxes payable | ||||||||
| Lease liabilities current | ||||||||
| Total current liabilities | ||||||||
| Long-term bank loan | ||||||||
| Lease liabilities non-current | ||||||||
| Total non-current liabilities | ||||||||
| TOTAL LIABILITIES | $ | $ | ||||||
F-12
CHEER HOLDING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In U.S. dollars in thousands, except share and per share data)
1. ORGANIZATION AND PRINCIPAL ACTIVITIES (cont.)
Risks in relation to the VIE structure (cont.)
The VIEs hold assets with no carrying value in the consolidated balance sheet that are important to the Company’s ability to produce revenue (referred to as unrecognized revenue-producing assets). Unrecognized revenue-producing assets held by the VIEs mainly include the ICP License and the Internet Culture Operating License. Recognized revenue-producing assets held by the VIEs mainly include software related to CHEERS App.
| For the Years Ended December 31, | ||||||||||||
| 2025 | 2024 | 2023 | ||||||||||
| Total revenues | $ | $ | $ | |||||||||
| Net income | $ | $ | $ | |||||||||
| Net cash provided by operating activities | $ | $ | $ | |||||||||
| Net cash used in investing activities | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||
| Net cash provided by financing activities | $ | ( | ) | $ | $ | ( | ) | |||||
For the years ended December 31, 2025, 2024 and
2023, net cash generated from financing activities in the VIEs consist of: (i) borrowings from banks of $
In accordance with various contractual agreements,
the Company has the power to direct the activities of the VIEs and their subsidiaries and can have assets transferred out of the VIEs.
Therefore, the Company considers that there are no assets in the respective VIEs that can be used only to settle obligations of the respective
VIEs, except for the registered capital of the VIEs amounted to approximately $
There is no VIEs in the Group where the Company or any subsidiary has a variable interest but is not the primary beneficiary.
Basis of presentation
The accompanying consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”).
The consolidated financial statements include the financial statements of the Company and its subsidiaries, which include the Hong Kong-registered entities, and PRC-registered entities directly or indirectly owned by the Company. All transactions and balances among the Company and its subsidiaries have been eliminated upon consolidation. The results of subsidiaries acquired or disposed of are recorded in the consolidated income statements from the effective date of acquisition or up to the effective date of disposal, as appropriate.
A subsidiary is an entity in which (i) the Company directly or indirectly controls more than 50% of the voting power; or (ii) the Company has the power to appoint or remove the majority of the members of the board of directors or to cast a majority of votes at the meetings of the board of directors or to govern the financial and operating policies of the investee pursuant to a statute or under an agreement among the shareholders or equity holders.
F-13
CHEER HOLDING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In U.S. dollars in thousands, except share and per share data)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of estimates
The preparation of financial statements in conformity with U.S. GAAP requires to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. On an ongoing basis, management reviews these estimates and assumptions using the currently available information. Changes in facts and circumstances may cause the Company to revise its estimates. In accordance with ASC 250, the changes in estimates will be recognized in the same period of changes in facts and circumstances. The Company bases its estimates on past experiences and on various other assumptions that are believed to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Estimates are used when accounting for items and matters including, but not limited to, allowance for credit losses, valuation and recognition of share-based compensation expenses, the useful lives of property, plant and equipment and intangible assets, impairment of long-lived assets, valuation allowance for deferred tax assets. Actual results could differ from those estimates.
Fair value Measurement
The Company applies ASC Topic 820, Fair Value Measurements and Disclosures which defines fair value, establishes a framework for measuring fair value and expands financial statement disclosure requirements for fair value measurements.
ASC Topic 820 defines fair value as the price that would be received from the sale of an asset or paid to transfer a liability (an exit price) on the measurement date in an orderly transaction between market participants in the principal or most advantageous market for the asset or liability.
ASC Topic 820 specifies a hierarchy of valuation techniques, which is based on whether the inputs into the valuation technique are observable or unobservable. The hierarchy is as follows:
Level 1 inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.
Level 2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the assets or liability, either directly or indirectly, for substantially the full term of the financial instruments.
Level 3 inputs to the valuation methodology are unobservable and significant to the fair value. Unobservable inputs are valuation technique inputs that reflect the Company’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.
Management of the Company considers the carrying
amount of cash and cash equivalents, accounts receivable, other receivables, short-term bank loans, accounts payable, due to related
parties and other payables based on the short-term maturity of these instruments to approximate their fair values because of their short-term
nature. For long-term bank loans, the fair value approximates their carrying value at the year-end as the fair value is estimated by
used discounted cash flow, in which interest rates used to discount the bank loans approximate market rates.
F-14
CHEER HOLDING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In U.S. dollars in thousands, except share and per share data)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)
Cash and cash equivalents
Cash and cash equivalents primarily consist of bank deposits, as well as highly liquid investments, with original maturities of three months or less, which are unrestricted as to withdrawal and use. The Company maintains most of the bank accounts in the PRC.
Accounts Receivable, net
Accounts receivable are recorded at the gross billing amount less an allowance for any uncollectible accounts due from the customers. Accounts receivable do not bear interest.
Since January 1, 2023, the Company adopted Accounting Standards Update (“ASU”) No. 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), using the modified retrospective transition method. ASU 2016-13 replaces the existing incurred loss impairment model with an expected loss methodology, which will result in more timely recognition of credit losses. Upon adoption, the Company changed the impairment model to utilize a forward-looking current expected credit losses (CECL) model in place of the incurred loss methodology for financial instruments measured at amortized cost and receivables resulting from the application of ASC 606, including contract assets.
The Company maintains an allowance for credit losses and records the allowance for credit losses as an offset to accounts receivable and the estimated credit losses charged to the allowance is classified as “General and administrative expenses” in the unaudited condensed consolidated statements of income and comprehensive income. The Company assesses collectability by reviewing accounts receivable on aging schedules because the accounts receivable were primarily consisted of receivables arising from advertising revenue. In determining the amount of the allowance for credit losses, the Company considers historical collectability based on past due status, the age of the balances, current economic conditions, reasonable and supportable forecasts of future economic conditions, and other factors that may affect the Company’s ability to collect from customers. Delinquent account balances are written-off against the allowance for expected credit loss after management has determined that the likelihood of collection is not probable.
For the years ended December 31, 2025 and 2024, the Company did not provide expected credit losses against accounts receivable.
Unamortized produced content
Produced content includes direct production costs, production overhead and acquisition costs and is stated at the lower of unamortized cost or estimated fair value. Produced content also includes cash expenditures made to enter into arrangements with third parties to co-produce certain of its productions.
The Company uses the individual-film-forecast-computation
method and amortizes the produced content based on the ratio of current period actual revenue (numerator) to estimated remaining unrecognized
ultimate revenue as of the beginning of the fiscal year (denominator) in accordance with ASC 926. Ultimate revenue estimates for the
produced content are periodically reviewed and adjustments, if any, will result in prospective changes to amortization rates. When estimates
of total revenues and other events or changes in circumstances indicate that a film or television series has a fair value that is less
than its unamortized cost, a loss is recognized currently for the amount by which the unamortized cost exceeds the film or television
series’ fair value. For the years ended December 31, 2025, 2024 and 2023, $
F-15
CHEER HOLDING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In U.S. dollars in thousands, except share and per share data)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)
Property, plant and equipment, net
Property, plant and equipment, are stated at
cost less accumulated depreciation. Depreciation expenses are computed using the straight-line method over the estimated useful lives
of the assets with a
| Estimated Useful Life | |||
| Electric equipment | |||
| Office equipment and furniture | |||
| Leasehold improvement |
The cost and related accumulated depreciation of assets sold or otherwise retired are eliminated from the accounts and any gain or loss is included in the consolidated statements of income and comprehensive income. Expenditures for maintenance and repairs are charged to earnings as incurred, while additions, renewals and betterments, which are expected to extend the useful life of assets, are capitalized. The Company also re-evaluates the periods of depreciation to determine whether subsequent events and circumstances indicate a change in estimates of useful lives. No such events were identified for the years ended December 31, 2025 and 2024.
Intangible asset, net
Intangible asset is stated at cost less accumulated
amortization and amortized in a method which reflects the pattern in which the economic benefits of the intangible asset are expected
to be consumed or otherwise used up. The balance of intangible asset represents software related to CHEERS App, a mobile application that
allows its users to access its online store (e-Mall), video content, live streaming, and online games. The software is acquired externally
tailored to the Company’s requirements and is amortized straight-line over
Impairment of long-lived Assets
In accordance with ASC Topic 360, the Company
reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may
not be fully recoverable, or at least annually. The Company recognizes an impairment loss when the sum of expected undiscounted future
cash flows is less than the carrying amount of the asset. The amount of impairment is measured as the difference between the asset’s
estimated fair value and its book value. For the year ended December 31, 2025, the Company provided impairment of $
Leases
The Company accounted for leases in accordance
with ASC 842, Leases (“ASC Topic 842”). The Company elected the package of practical expedients permitted under the transition
guidance within ASC Topic 842, which among other things, allows the Company to carry forward certain historical conclusions reached under
ASC Topic 840 regarding lease identification, classification, and the accounting treatment of initial direct costs. The Company elected
not to record assets and liabilities on its consolidated balance sheets for any new or existing lease arrangements with lease terms of
twelve months or less. The Company recognizes lease expenses for such leases on a straight-line basis over the lease term.
F-16
CHEER HOLDING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In U.S. dollars in thousands, except share and per share data)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)
Leases (cont.)
Operating lease assets are included within “Operating lease right-of-use assets”, and the corresponding operating lease liabilities are included within “operating lease liabilities” for the current portion, and within “Operating lease liabilities, non-current” for the long-term portion on the consolidated balance sheets as of June 30, 2025 and 2024. Finance lease assets are included within “Property and equipment, net” and the corresponding finance lease liabilities are included within “Finance lease liabilities” for the current portion, and within “Finance lease liabilities, non-current” for the long-term portion on the consolidated balance sheets as of December 31, 2025 and 2024.
The initial lease liability is equal to the future fixed minimum lease payments discounted using the Company’s incremental borrowing rate, on a secured basis. The lease term includes optional renewal periods and early termination payments when it is reasonably certain that the Company will exercise those rights. The initial measurement of the right-of-use asset is equal to the initial lease liability plus any initial direct costs and prepayments, less any lease incentives.
Value Added Tax
Horgos and its China subsidiaries are subject to VAT for providing services and sales of products.
The amount of VAT liability is determined by applying the applicable tax rates to the invoiced amount of services provided and sales of products (output VAT) less VAT paid on purchases made with the relevant supporting invoices (input VAT). The Company reports revenue net of PRC’s VAT for all the periods presented in the consolidated statements of income and other comprehensive income.
Revenue Recognition
The Company adopted Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers, to recognize revenues. The core principle of this new revenue standard is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. The following five steps are applied to achieve that core principle:
| ● | Step 1: Identify the contract with the customer |
| ● | Step 2: Identify the performance obligations in the contract |
| ● | Step 3: Determine the transaction price |
| ● | Step 4: Allocate the transaction price to the performance obligations in the contract |
| ● | Step 5: Recognize revenue when the company satisfies a performance obligation |
F-17
CHEER HOLDING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In U.S. dollars in thousands, except share and per share data)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)
Revenue Recognition (cont.)
Copyright revenue
The Company mainly offers and generates revenue from the copyright licensing of self-produced content, advertising and customized content production and others. Revenue recognition policies are discussed as follows:
The Company self produces or coproduces TV series featuring lifestyle, culture and fashion, and licenses the copyright of the TV series on an episode basis to the customer for broadcast over a period of time. Generally, the Company signs a contract with a customer which requires the Company to deliver a series of episodes that are substantially the same and that have the same pattern of transfer to the customer. Accordingly, the delivery of the series of episodes is defined as the only performance obligation in the contract.
For the TV series produced solely by the Company, the Company satisfies its performance obligation over time by measuring the progress toward the delivery of the entire series of episodes which is made available to the licensee for exhibition after the license period has begun. Therefore, the copyright revenue in a contract is recognized over time based on the progress of the number of episodes delivered.
The Company also coproduces TV series with other producers and licenses the copyright to third-party video broadcast platforms for broadcast. For TV series produced by the Company with co-producers, the Company satisfies its performance obligations over time by the delivery of the entire series of episodes to the customer, and requires the customer to pay consideration based on the number and the unit price of valid subsequent views of the TV series that occur on a broadcast platform. Therefore, the copyright revenue is recognized when the later of the valid subsequent view occurs or the performance obligation relating to the delivery of a number of episodes has been satisfied.
Advertising revenue
The Company generates revenue from sales of various forms of advertising on its TV series and streaming content by way of 1) advertisement displays, or 2) the integration of promotion activities in TV series and content to be broadcast. Advertising contracts are signed to establish the different contract prices for different advertising scenarios, consistent with the advertising period. The Company enters into advertising contracts directly with the advertisers or the third-party advertising agencies that represent advertisers.
For the contracts that involve the third-party advertising agencies, the Company is principal as the Company is responsible for fulfilling the promise of providing advertising services and has the discretion in establishing the price for the specified advertisement. Under a framework contract, the Company receives separate purchase orders from advertising agencies before the broadcast. Accordingly, each purchase order is identified as a separate performance obligation, containing a bundle of advertisements that are substantially the same and that have the same pattern of transfer to the customer. Where collectability is reasonably assured, revenue is recognized monthly over the service period of the purchase order.
For contracts signed directly with the advertisers, the Company commits to display a series of advertisements which are substantially the same or similar in content and transfer pattern, and the display of the whole series of advertisements is identified as the single performance obligation under the contract. The Company satisfies its performance obligations over time by measuring the progress toward the display of the whole series of advertisements in a contract, and advertising revenue is recognized over time based on the number of advertisements displayed.
Payment terms and conditions vary by contract types, and terms typically include a requirement for payment within a period from 6 to 9 months. Both direct advertisers and third-party advertising agencies are generally billed at the end of the display period and require the Company to issue VAT invoices in order to make their payments.
Customized content production revenue
The Company produces customized short streaming
videos according to its customers’ requirement, and earns fixed fees based on delivery. Revenue is recognized upon the delivery
of short streaming videos.
F-18
CHEER HOLDING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In U.S. dollars in thousands, except share and per share data)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)
Revenue Recognition (cont.)
CHEERS E-mall marketplace service revenue
The Company through CHEERS E-mall, an online e-commerce platform, enables third-party merchants to sell their products to consumers in China. The Company charges fees for platform services to merchants for sales transactions completed on the Cheer E-Mall including but not limited to products displaying, promotion and transaction settlement services. The Company does not take control of the products provided by the merchants at any point in the time during the transactions and does not have latitude over pricing of the merchandise. Transaction services fee is determined as the difference between the platform sales price and the settlement price with the merchants. CHEERS E-mall marketplace service revenue is recognized at a point of time when the Company’s performance obligation to provide marketplace services to the merchants are determined to have been completed under each sales transaction upon the consumers confirming the receipts of goods. Payments for services are generally received before deliveries.
The Company provides coupons to consumers at our own discretion as incentives to promote CHEERS E-mall marketplace with validity usually around or less than one week, which can only be used in future purchases of eligible merchandise offered on CHEERS E-mall to reduce purchase price that are not specific to any merchant. Consumers are not customers of the Company, therefore incentives offered to consumers are not considered consideration payable to customers. As the consumers are required to make future purchases of the merchants’ merchandise to redeem these coupons, the Company does not accrue any expense for coupons when granted and recognizes the amounts of redeemed coupons as marketing expenses when future purchases are made.
Other Revenues
Other revenue primarily consists of copyrights trading of purchased and produced TV-series and the sales of products on Taobao platform. For copyright licensing of purchased and produced TV-series, the Company recognize revenue on net basis at a point of time upon the delivery of master tape and authorization of broadcasting right. For sales of product, the company recognize revenue upon the transfer of products according to the fixed price and production amount in sales orders.
The following table identifies the disaggregation of our revenue for the years ended December 31, 2025, 2024 and 2023, respectively:
| For the Years Ended December 31, | ||||||||||||
| 2025 | 2024 | 2023 | ||||||||||
| Category of Revenue: | ||||||||||||
| Advertising revenue | $ | $ | $ | |||||||||
| Copyrights revenue | ||||||||||||
| CHEERS e-Mall marketplace service revenue | ||||||||||||
| Other revenue | ||||||||||||
| Total | ||||||||||||
| Timing of Revenue Recognition: | ||||||||||||
| Services transferred over time | ||||||||||||
| Services transferred at a point in time | ||||||||||||
| Goods transferred at a point in time | ||||||||||||
| Total | $ | $ | $ | |||||||||
The Company applied a practical expedient to
expense costs as incurred for costs to obtain a contract with a customer when the amortization period would have been one year or less.
The Company does not have any significant incremental costs of obtaining contracts with customers incurred and/or costs incurred in fulfilling
contracts with customers within the scope of ASC Topic 606, that shall be recognized as an asset and amortized to expenses in a pattern
that matches the timing of the revenue recognition of the related contract.
F-19
CHEER HOLDING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In U.S. dollars in thousands, except share and per share data)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)
Cost of revenues
Cost of revenues consists primarily of production cost of TV series, short stream video and live streaming, labor cost and related benefits, payments to various channel owners for broadcast, purchase cost of goods and copyrights and costs associated with the operation of the Company’s online game and shopping platform CHEERS App such as bandwidth cost and amortization of intangible assets.
Share-based compensation
The Company applies ASC 718 (“ASC 718”), Compensation - Stock Compensation, to account for its employee share-based payments. In accordance with ASC 718 -10, the share-based payment transactions with employees and non-employees, such as share options, be measured based on the grant-date fair value of the equity instrument issued and recognized as compensation expense over the requisite service period, with a corresponding addition to equity. Under this method, compensation cost related to employee share options or similar equity instruments is measured at the grant date based on the fair value of the award and is recognized over the period during which an employee is required to provide service in exchange for the award, which generally is the vesting period. Unrestricted stock awards are fully vested upon issuance, and compensation expense is recognized equal to the fair value of the award on the grant date. The fair value of unrestricted stock is determined based on the closing market price of the Company’ common stock on the grant date.
Income Taxes
The Company accounts for income taxes using the asset/liability method prescribed by ASC 740, “Income Taxes.” Under this method, deferred tax assets and liabilities are determined based on the difference between the financial reporting and tax bases of assets and liabilities using enacted tax rates that will be in effect in the period in which the differences are expected to reverse. The Company records a valuation allowance to offset deferred tax assets if, based on the weight of available evidence, it is more-likely-than-not that some portion, or all, of the deferred tax assets will not be realized. The effect on deferred taxes of a change in tax rates is recognized as income or loss in the period that includes the enactment date.
The provisions of ASC 740-10-25, “Accounting for Uncertainty in Income Taxes,” prescribe a more-likely-than not threshold for consolidated financial statement recognition and measurement of a tax position taken (or expected to be taken) in a tax return. This interpretation also provides guidance on the recognition of income tax assets and liabilities, classification of current and deferred income tax assets and liabilities, accounting for interest and penalties associated with tax positions, and related disclosures. The Company does not believe that there was any uncertain tax position at December 31, 2025 and 2024.
The Company’s operating subsidiaries in
PRC are subject to examination by the relevant tax authorities. According to the PRC Tax Administration and Collection Law, the statute
of limitations is three years if the underpayment of taxes is due to computational errors made by the taxpayer or the withholding agent.
The statute of limitations is extended to five years under special circumstances, where the underpayment of taxes is more than RMB
F-20
CHEER HOLDING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In U.S. dollars in thousands, except share and per share data)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)
Non-controlling Interest
A non-controlling interest in a subsidiary of the Company represents the portion of the equity (net assets) in the subsidiary not directly or indirectly attributable to the Company. Non-controlling interests are presented as a separate component of equity on the consolidated balance sheet and consolidated statements of income and comprehensive income are attributed to controlling and non-controlling interests.
Earnings per Share
The Company computes earnings per share (“EPS”) in accordance with ASC 260, “Earnings per Share” (“ASC 260”). ASC 260 requires companies with complex capital structures to present basic and diluted EPS. Basic EPS is measured as net income attributable to ordinary shareholders divided by the weighted average common shares outstanding for the period. Diluted EPS is similar to basic EPS but presents the dilutive effect on a per share basis of potential common shares (e.g., convertible securities, earn out shares, warrants and stock options) as if they had been converted at the beginning of the periods presented, or issuance date, if later. Potential common shares that have an anti-dilutive effect (i.e., those that increase income per share or decrease loss per share) are excluded from the calculation of diluted EPS. There is no anti-dilutive effect for the years ended December 31, 2025, 2024 and 2023.
Related Parties
Parties are considered to be related to the Company if the parties, directly or indirectly, through one or more intermediaries, control, are controlled by, or are under common control with the Company. Related parties also include principal owners of the Company, its management, members of the immediate families of principal owners of the Company and its management and other parties with which the Company may deal with if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests. The Company discloses all significant related party transactions in Note 11.
Segment reporting
An operating segment is a component of the Company that engages in business activities from which it may earn revenue and incur expenses and is identified on the basis of the internal financial reports that are provided to and regularly reviewed by the Company’s chief operating decision maker in order to allocate resources and assess performance of the segment.
In accordance with ASC 280, Segment Reporting, operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker (“CODM”), in deciding how to allocate resources and in assessing performance. The Company uses the “management approach” in determining reportable operating segments. The management approach considers the internal organization and reporting used by the Company’s chief operating decision maker for making operating decisions and assessing performance as the source for determining the Company’s reportable segments. The Company’s CODM has been identified as the chief executive officer (the “CEO”), who reviews consolidated results when making decisions about allocating resources and assessing performance of the Company.
For the years ended December 31, 2025, 2024 and
2023, the Company identified two segments, namely (i) Cheers APP internet business, and (ii) traditional media businesses.
F-21
CHEER HOLDING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In U.S. dollars in thousands, except share and per share data)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)
Concentration and Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk are cash and cash equivalents, and accounts receivable arising from its normal business activities. The Company places its cash and cash equivalents in what it believes to be credit-worthy financial institutions.
The Company’s operations are carried out
in the PRC. Accordingly, our business, financial condition, and results of operations may be influenced by the political, economic, and
legal environment in the PRC, and by the general state of the economy of the PRC. Our operations in the PRC are subject to specific
considerations and significant risks not typically associated with companies in North America. The Company’s results may be adversely
affected by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion and
remittance abroad, and rates and methods of taxation, among other things. Financial instruments which potentially subject us to concentrations
of credit risk consist principally of cash and cash equivalent. All of our cash is maintained with state-owned banks, commercial banks
or third-party service provider certified by the People’s bank of China, such as Alipay, within the PRC. Per PRC regulations,
the maximum insured bank deposit amount is RMB
Accounts receivable are typically unsecured and derived from revenue earned from customers, thereby exposed to credit risk. The risk is mitigated by the Company’s assessment of its customers’ creditworthiness and its ongoing monitoring of outstanding balances.
The Company’s sales are made to customers
that are located primarily in China. The Company has a concentration of its revenues and receivables with specific customers. For the
year ended December 31, 2025, six customers accounted for
As of December 31, 2025, four customers accounted
for
As of December 31, 2025, two vendors accounted
for
Foreign Currency Translation
The reporting currency of the Company is the
U.S. dollar (“USD”). The functional currency of subsidiaries, VIEs and VIEs’ subsidiaries located in China is the Chinese
Renminbi (“RMB”). For the entities whose functional currency is the RMB, result of operations and cash flows are translated
at average exchange rates during the period, assets and liabilities are translated at the unified exchange rate at the end of the period,
and equity is translated at historical exchange rates. As a result, amounts relating to assets and liabilities reported on the statements
of cash flows may not necessarily agree with the changes in the corresponding balances on the balance sheets. Translation adjustments
resulting from the process of translating the local currency financial statements into U.S. dollars are included in determining comprehensive
income/loss. Transactions denominated in foreign currencies are translated into the functional currency at the exchange rates prevailing
on the transaction dates. Assets and liabilities denominated in foreign currencies are translated into the functional currency at the
exchange rates prevailing at the balance sheet date with any transaction gains and losses that arise from exchange rate fluctuations
on transactions denominated in a currency other than the functional currency are included in the results of operations as incurred.
F-22
CHEER HOLDING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In U.S. dollars in thousands, except share and per share data)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)
Foreign Currency Translation (cont.)
All of the Company’s revenue and expense transactions are transacted in the functional currency of the operating subsidiaries. The Company does not enter into any material transaction in foreign currencies. Transaction gains or losses have not had, and are not expected to have, a material effect on the results of operations of the Company.
The consolidated balance sheet amounts, with
the exception of equity, at December 31, 2025 and 2024 were translated at RMB
Recent Accounting Pronouncements
In December 2025, the FASB issued ASU 2025-12, which is to correct, clarify, and otherwise improve U.S. GAAP. ASU 2025-12 includes 33 improvements that span a wide range of topics, including Clarifying diluted earnings per share (EPS) calculation when a loss from continuing operations exists, Clarifying disclosure requirements for lease receivables from sales-type or direct financing leases, Revising the calculation of the reference amount for beneficial interests to prevent double counting credit losses, Clarifying the permissible methods to account for treasury stock retirements, and Clarifying the guidance for transfers of receivables from contracts with customers. The amendments in this Update are effective for all entities for annual reporting periods beginning after December 15, 2026, and interim reporting periods within those annual reporting periods. Early adoption is permitted in both interim and annual reporting periods in which financial statements have not yet been issued or made available for issuance. If an entity adopts the amendments in this Update in an interim period, it must adopt them as of the beginning of the annual reporting period that includes that interim reporting period. An entity may elect to early adopt the amendments on an issue-by-issue basis. For example, an entity may decide to early adopt certain amendments and adopt the remaining amendments at the effective date. An entity should apply the amendments in this Update (except for the amendments to Topic 260, Earnings Per Share, related to Issue 4) using one of the following transition methods: (i) Prospectively to all transactions recognized on or after the date that the entity first applies the amendments, or (ii) Retrospectively to the beginning of the earliest comparative period presented. An entity should adjust the opening balance of retained earnings (or other appropriate components of equity or net assets in the statement of financial position) as of the beginning of the earliest comparative period presented. The Company is currently evaluating these new disclosure requirements and does not expect the adoption to have a material impact.
In December 2025, the FASB issued ASU 2025-11, which is intended to improve the navigability of the guidance in ASC 270 and clarify when it applies. Under the amendments, an entity is subject to ASC 270 if it provides interim financial statements and notes in accordance with GAAP. The ASU also addresses the form and content of such financial statements, adds lists to ASC 270 of the interim disclosures required by all other Codification topics, and establishes a principle under which an entity must disclose events since the end of the last annual reporting period that have a material impact on the entity. As the Board stated in the proposed guidance and reiterates in the ASU, the amendments are not intended to change the fundamental nature of interim reporting or expand or reduce current interim disclosure requirements. For public business entities, the amendments in ASU 2025-11 are effective for interim reporting periods within annual reporting periods beginning after December 15, 2027. For entities other than public business entities, for interim reporting periods within annual reporting periods beginning after December 15, 2028. Early adoption is permitted for all entities. The Company is currently evaluating these new disclosure requirements and does not expect the adoption to have a material impact.
On
July 30, 2025, the FASB issued ASU 2025-05, which amends ASC
326-20 to provide a practical expedient for all entities which elect a practical expedient that assumes that current conditions
as of the balance sheet date do not change for the remaining life of the asset in developing reasonable and supportable forecasts as
part of estimating expected credit losses, and an accounting policy election for all entities, other than a public business entity, that
elect the practical expedient related to the estimation of expected credit losses for current accounts receivable and current contract
assets that arise from transactions accounted for under ASC 606. Under ASU 2025-05, an entity is required to disclose whether it
has elected to use the practical expedient and, if so, whether it has also applied the accounting policy election. An entity that makes
the accounting policy election is required to disclose the date through which subsequent cash collections are evaluated. ASU 2025-05
is effective for annual reporting periods beginning after December 15, 2025, and interim reporting periods within those annual reporting
periods, with early adoption permitted. Entities should apply the new guidance prospectively. The Company is currently evaluating these
new disclosure requirements and does not expect the adoption to have a material impact.
F-23
CHEER HOLDING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In U.S. dollars in thousands, except share and per share data)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)
Recent Accounting Pronouncements (cont.)
In January 2025, the FASB issued ASU 2025-01, “Income Statement – Comprehensive Income – Expense Disaggregation Disclosure (Subtopic 220-40): Clarifying the Effective Date.” This pronouncement revises the effective date of ASU 2024-03 and clarify that all public business entities are required to adopt the guidance in annual reporting periods beginning after December 15, 2026, and interim periods within annual reporting periods beginning after December 15, 2027. Entities within the ASU’s scope are permitted to early adopt the accounting standard update. The Company is currently evaluating these new disclosure requirements and does not expect the adoption to have a material impact.
In November 2024, the FASB issued ASU 2024-03, “Income Statement — Reporting Comprehensive Income (Subtopic 220-40): Disaggregation of Income Statement Expenses.” This pronouncement introduces new disclosure requirements aimed at enhancing transparency in financial reporting by requiring disaggregation of specific income statement expense captions. Under the new guidance, entities are required to disclose a breakdown of certain expense categories, such as: employee compensation; depreciation; amortization, and other material components. The disaggregated information can be presented either on the face of the income statement or in the notes to the financial statements, often using a tabular format. The ASU is effective for fiscal years beginning after December 15, 2026, and interim periods within those fiscal years. In January 2025, the FASB issued ASU 2025-01, “Income Statement – Comprehensive Income – Expense Disaggregation Disclosure (Subtopic 220-40): Clarifying the Effective Date.” This pronouncement revises the effective date of ASU 2024-03 and clarifies that all public business entities are required to adopt the guidance in annual reporting periods beginning after December 15, 2026, and interim periods within annual reporting periods beginning after December 15, 2027. Entities within the ASU’s scope are permitted to early adopt the accounting standard update. The Company is currently evaluating these new disclosure requirements and does not expect the adoption to have a material impact.
In October 2023, the FASB issued ASU 2023-06, Disclosure Improvements — Codification Amendments in Response to SEC’s Disclosure Update and Simplification Initiative which amend the disclosure or presentation requirements of codification subtopic 230-10 Statement of Cash Flows — Overall, 250-10 Accounting Changes and Error Corrections — Overall, 260-10 Earnings Per Share — Overall, 270-10 Interim Reporting — Overall, 440-10 Commitments — Overall, 470-10 Debt — Overall, 505-10 Equity — Overall, 815-10 Derivatives and Hedging — Overall, 860-30 Transfers and Servicing — Secured Borrowing and Collateral, 932-235 Extractive Activities — Oil and Gas — Notes to Financial Statements, 946-20 Financial Services — Investment Companies — Investment Company Activities, and 974-10 Real Estate — Real Estate Investment Trusts — Overall. The amendments represent changes to clarify or improve disclosure and presentation requirements of the above subtopics. Many of the amendments allow users to more easily compare entities subject to the SEC’s existing disclosures with those entities that were not previously subject to the SEC’s requirements. Also, the amendments align the requirements in the codification with the SEC’s regulations. For entities subject to existing SEC disclosure requirements or those that must provide financial statements to the SEC for securities purposes without contractual transfer restrictions, the effective date aligns with the date when the SEC removes the related disclosure from Regulation S-X or Regulation S-K. Early adoption is not allowed. For all other entities, the amendments will be effective two years later from the date of the SEC’s removal.
Other accounting standards that have been issued
or proposed by FASB that do not require adoption until a future date are not expected to have a material impact on the consolidated financial
statements upon adoption. The Company does not discuss recent pronouncements that are not anticipated to have an impact on or are unrelated
to its consolidated financial condition, results of operations, cash flows or disclosures.
F-24
CHEER HOLDING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In U.S. dollars in thousands, except share and per share data)
3. ACCOUNTS RECEIVABLE, NET
As of December 31, 2025 and 2024, accounts receivable consisted of the following:
| As of December 31, | ||||||||
| 2025 | 2024 | |||||||
| Accounts receivable | $ | $ | ||||||
| Less: allowance for expected credit losses | ( | ) | ||||||
| Accounts receivables, net | $ | $ | ||||||
For the years ended December 31, 2025, 2024 and 2023, the movement of allowance for expected credit losses is as the following:
| For the Years Ended December 31, | ||||||||||||
| 2025 | 2024 | 2023 | ||||||||||
| Opening balance | $ | $ | $ | |||||||||
| Reversal of provision for expected credit losses | ( | ) | ( | ) | ( | ) | ||||||
| Foreign exchange adjustment | ( | ) | ( | ) | ||||||||
| Ending balance | $ | $ | $ | |||||||||
4. PREPAYMENT AND OTHER CURRENT ASSETS, NET
As of December 31, 2025 and 2024, prepayment and other current assets consisted of the following:
| As of December 31, | ||||||||
| 2025 | 2024 | |||||||
| Advances to vendors | $ | $ | ||||||
| Staff advance | ||||||||
| Others | ||||||||
| Subtotal | ||||||||
| Less: allowance for credit loss and allowance | ( | ) | ||||||
| Prepayment and other assets, net | $ | $ | ||||||
For the years ended December 31, 2025, 2024 and 2023, the movement of allowance for expected credit losses is as the following:
| For the Years Ended December 31, | ||||||||||||
| 2025 | 2024 | 2023 | ||||||||||
| Opening balance | $ | $ | $ | |||||||||
| Provision for expected credit losses | ||||||||||||
| Reversal of expected credit losses | ( | ) | ||||||||||
| Writing off against other receivables | ( | ) | ||||||||||
| Foreign exchange adjustment | ( | ) | ( | ) | ||||||||
| Ending balance | $ | $ | $ | |||||||||
F-25
CHEER HOLDING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In U.S. dollars in thousands, except share and per share data)
5. PROPERTY, PLANT AND EQUIPMENT, NET
As of December 31, 2025 and 2024, property, plant and equipment consisted of the following:
| As of December 31, | ||||||||
| 2025 | 2024 | |||||||
| Electronic equipment | $ | $ | ||||||
| Office equipment and furniture | ||||||||
| Leasehold improvement | ||||||||
| Less: accumulated depreciation | ( | ) | ( | ) | ||||
| $ | $ | |||||||
For the years ended December 31, 2025, 2024 and
2023, depreciation expense amounted to $
6. INTANGIBLE ASSETS, NET
As of December 31, 2025 and 2024, intangible assets consisted of the following:
| As of December 31, | ||||||||
| 2025 | 2024 | |||||||
| Intangible assets | $ | $ | ||||||
| Less: accumulated amortization | ( | ) | ( | ) | ||||
| Less: accumulated impairment | ( | ) | ||||||
| $ | $ | |||||||
The balance of intangible assets mainly represents
software related to CHEERS App, primarily consisting of e-mall, online game, video media library and data warehouse modules, etc., CheerCar
App, NFT App, Cheer Chat App, and AI App which were acquired externally tailored to the Company’s requirements and is amortized
straight-line over
For the years ended December 31, 2025, 2024,
and 2023, amortization expense amounted to $
The following is a schedule, by fiscal years, of amortization amount of intangible asset as of December 31, 2025:
| 2026 | $ | |||
| 2027 | ||||
| 2028 | ||||
| 2029 | ||||
| 2030 and thereafter | ||||
| Total | $ |
7. ACCRUED LIABILITIES AND OTHER PAYABLES
As of December 31, 2025 and 2024, accrued liabilities and other payables consisted of the following:
| As of December 31, | ||||||||
| 2025 | 2024 | |||||||
| Payroll payables | $ | $ | ||||||
| Other payables | ||||||||
| $ | $ | |||||||
F-26
CHEER HOLDING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In U.S. dollars in thousands, except share and per share data)
8. OTHER TAXES PAYABLE
As of December 31, 2025 and 2024, other taxes payable consisted of the following:
| As of December 31, | ||||||||
| 2025 | 2024 | |||||||
| VAT payable | $ | $ | ||||||
| Income tax payable | ||||||||
| Business tax payable | ||||||||
| Others | ||||||||
| $ | $ | |||||||
9. BANK LOANS, CURRENT AND NON CURRENT
Bank loans represent the amounts due to various banks that are due within and over one year. As of December 31, 2025 and 2024, bank loans consisted of the following:
| As of December 31, | ||||||||
| 2025 | 2024 | |||||||
| Short-term bank loans: | ||||||||
| Loan from China Citic Bank | $ | $ | ||||||
| Loan from Bank of Beijing | ||||||||
| Loan from Xiamen International Bank | ||||||||
| Loan from Huaxia Bank | ||||||||
| Loan from China Construction Bank | ||||||||
| $ | $ | |||||||
| Long-term bank loans: | ||||||||
| Loan from China Construction Bank | $ | $ | ||||||
| $ | $ | |||||||
Short-term bank loans
For the year ended December 31, 2025, the Company
entered into loan agreements with three banks, pursuant to the Company borrowed an aggregate of $
For the year ended December 31, 2024, the Company
entered into loan agreements with four banks, pursuant to the Company borrowed an aggregate of $
For the year ended December 31, 2023, the Company
entered into loan agreements with two banks, pursuant to the Company borrowed an aggregate of $
Interest expenses amounted to $
F-27
CHEER HOLDING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In U.S. dollars in thousands, except share and per share data)
9. BANK LOANS, CURRENT AND NON CURRENT (cont.)
Long-term bank loans
For the year ended December 31, 2023, the
Company entered into loan agreements with one bank, pursuant to the Company borrowed a three-year bank borrowing of $
Guarantee information
As of December 31, 2025, the guarantee information for bank borrowings were as below:
The loans from Huaxia Bank Co., Ltd. West Railway Station Branch were guaranteed by Beijing Zhongguancun Technology Financing Guarantee Co., Ltd, and Mr. Bing Zhang, the Chairman of the Company’s board of directors.
The loans from China Citic Bank were guaranteed by Horgos and Mr. Bing Zhang.
10. LEASES
The Company leases offices space under non-cancelable
operating leases, with terms ranging from
The Company determines whether a contract is or contains a lease at inception of the contract and whether that lease meets the classification criteria of a finance or operating lease. When available, the Company uses the rate implicit in the lease to discount lease payments to present value; however, most of the Company’s leases do not provide a readily determinable implicit rate. Therefore, the Company discount lease payments based on an estimate of its incremental borrowing rate.
The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants.
Supplemental balance sheet information related to operating lease was as follows:
| As of December 31, | ||||||||
| 2025 | 2024 | |||||||
| Right-of-use assets | $ | $ | ||||||
| Lease liabilities current | ||||||||
| Lease liabilities non-current | ||||||||
| $ | $ | |||||||
The weighted average remaining lease terms and discount rates for the operating lease were as follows as of December 31, 2025 and 2024:
| As of December 31, | ||||||||
| 2025 | 2024 | |||||||
| Remaining lease term and discount rate: | ||||||||
| Weighted average remaining lease term (years) | ||||||||
| Weighted average discount rate | % | % | ||||||
For the years ended December 31, 2025, 2024 and
2023, the Company incurred total operating lease expenses of $
F-28
CHEER HOLDING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In U.S. dollars in thousands, except share and per share data)
10. LEASES (cont.)
The following is a schedule, by years, of maturities of lease liabilities as of December 31, 2025:
| December 31, 2025 |
||||
| For the year ending Dember 31, 2026 | $ | |||
| For the year ending Dember 31, 2027 | ||||
| Total lease payments | ||||
| Less: Imputed interest | ( |
) | ||
| Present value of lease liabilities | $ | |||
11. RELATED PARTY TRANSACTIONS
1) Nature of relationships with related parties
The table below sets forth the major related parties and their relationships with the Company, with which the Company entered into transactions during the years ended December 31, 2025, 2024 and 2023, or recorded balances as of December 31, 2025 and 2024.
| Name | Relationship with the Company | |
| Mr. Bing Zhang | ||
| Happy Starlight Limited |
2) Transactions with related parties
For the years ended December 31, 2025 and 2023,
the Company borrowed loans of $
For the years ended December 31, 2025, the Company
also borrowed loans of $
3) Balances with related parties
As of December 31, 2025 and 2024, the balances with related party were as follows:
| As of December 31, | ||||||||
| 2025 | 2024 | |||||||
| Loans payable due to related parties | ||||||||
| Mr. Bing Zhang | $ | $ | ||||||
| Happy Starlight Limited | ||||||||
| $ | $ | |||||||
| Other payable | ||||||||
| Others | $ | $ | ||||||
| $ | $ | |||||||
F-29
CHEER HOLDING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In U.S. dollars in thousands, except share and per share data)
12. INCOME TAXES
Cayman Islands
CHR and Glory Star are incorporated in the Cayman Islands. Under the current laws of the Cayman Islands, CHR and Glory Star are not subject to income or capital gains taxes. In addition, dividend payments are not subject to withholdings tax in the Cayman Islands.
Hong Kong
On March 21, 2018, the Hong Kong Legislative
Council passed The Inland Revenue (Amendment) (No. 7) Bill 2017 (the “Bill”) which introduces the two-tiered profits
tax rates regime. The Bill was signed into law on March 28, 2018 and was gazette on the following day. Under the two-tiered profits tax
rates regime, the first
PRC
WFOE, Horgos, Glory Star Beijing, Beijing Leshare,
Glory Prosperity, Glory Prosperity BJ, Shenzhen Leshare, Horgos Glary Wisdom, Horgos Technology and Xing Cui Can were incorporated in
the PRC and are subject to PRC Enterprise Income Tax (“EIT”) on the taxable income in accordance with the relevant PRC income
tax laws. On March 16, 2007, the National People’s Congress enacted a new enterprise income tax law, which took effect on
January 1, 2008.
The reconciliations of the statutory income tax rate and the Company’s effective income tax rate are as follows:
| For the Years Ended December 31, | ||||||||||||
| 2025 | 2024 | 2023 | ||||||||||
| Net income before provision for income taxes | $ | $ | $ | |||||||||
| PRC statutory tax rate | % | % | % | |||||||||
| Income tax at statutory tax rate | ||||||||||||
| Expenses not deductible for tax purpose | ||||||||||||
| Effect of accelerated deductions on research and development expenses | ( | ) | ( | ) | ||||||||
| Changes in valuation allowance | ||||||||||||
| Effect of warrant liability revaluation | ( | ) | ||||||||||
| Effect of preferential tax rates granted to the PRC entities (a) | ( | ) | ( | ) | ( | ) | ||||||
| Income tax (benefit) expense | ( | ) | ||||||||||
| Effective income tax rate | % | ( | )% | % | ||||||||
| (a) |
F-30
CHEER HOLDING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In U.S. dollars in thousands, except share and per share data)
12. INCOME TAXES (cont.)
PRC (cont.)
The current PRC EIT Law imposes a
As of December 31, 2025 and 2024, the Company had not recorded any withholding tax on the retained earnings of its foreign invested enterprises in the PRC, since the Company intends to reinvest its earnings to further expand its business in mainland China, and its foreign invested enterprises do not intend to declare dividends to their immediate foreign holding companies.
The tax effect of temporary difference under ASC 740 “Accounting for Income Taxes” that give rise to deferred tax asset as of December 31, 2025 and 2024 was as follows:
| As of December 31, | ||||||||
| 2025 | 2024 | |||||||
| Deferred tax assets: | ||||||||
| Allowance for credit losses | $ | $ | ||||||
| Total deferred tax assets, net | $ | $ | ||||||
The provisions of ASC 740-10-25, “Accounting for Uncertainty in Income Taxes,” prescribe a more-likely-than-not threshold for consolidated financial statement recognition and measurement of a tax position taken (or expected to be taken) in a tax return. This interpretation also provides guidance on the recognition of income tax assets and liabilities, classification of current and deferred income tax assets and liabilities, accounting for interest and penalties associated with tax positions, and related disclosures. The Company does not believe that there was any uncertain tax position as of December 31, 2025 and 2024.
13. SHARE-BASED COMPENSATION TO EMPLOYEES
On January 7, 2025, the Company granted
On June 26, 2024, as approved by the board resolution,
the Company granted
On September 9, 2024, the Company issued
For the year ended December 31, 2023, the Company did not grant ordinary shares to employees or non-employees.
As of December 31, 2025, there are unrecognized compensation expense.
F-31
CHEER HOLDING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In U.S. dollars in thousands, except share and per share data)
14. EQUITY
Preferred Shares
The Company is authorized to issue
Ordinary Shares
The Company was authorized to issue
On November 24, 2023, the Company effected a
On September 4, 2024, the Company effected the
increase of the Company’s authorized share capital as from US$
On May 12, 2025, the shareholders of the Company,
at the Annual General Meeting, approved to increase the authorized Class A share capital of the Company from US$
On December 22, 2025, the Company effected a
Giving the effects of the share consolidation,
there were
On May 9, 2023, the Company closed private
placements with two (2) accredited investors (the “Investors”). The Company issued an aggregate of
On September 5, 2023, the Company closed
private placements with two (2) accredited investors (the “Investors”). The Company issued an aggregate of
F-32
CHEER HOLDING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In U.S. dollars in thousands, except share and per share data)
14. EQUITY (cont.)
Ordinary Shares (cont.)
In December 2023, the Company issued additional
On June 26, 2024 and January 7, 2025, the Company
granted
On October 2, 2025, the Company closed on a best
efforts public offering for the sale of
On November 6, 2025, the Company closed on a registered
direct offering for the sale of
The above two private placements incurred offering
cost of $
On September 9, 2024, the Company closed a Subscription
Agreement (the “Subscription Agreement”) with Mr. Bing Zhang, the Company’s Chairman, Director, Chief Executive Officer
and Chief Financial Officer. Pursuant to the Subscription Agreement, the Company agreed to issue and sell to Mr. Zhang an aggregate of
As of December 31, 2025 and 2024, there were
As of December 31, 2025 and 2024, there were
Public Warrants
Pursuant to the Initial Public Offering, TKK
sold
Public Warrants may only be exercised for a whole
number of shares. No fractional ordinary shares will be issued upon exercise of the Public Warrants. The Public Warrants will become
exercisable on the later of (a) the completion of a Business Combination and (b) 12 months from the closing of the Initial Public Offering.
No Public Warrants will be exercisable for cash unless the Company has an effective and current registration statement covering the ordinary
shares issuable upon exercise of the Public Warrants and a current prospectus relating to such ordinary shares. Notwithstanding the foregoing,
if a registration statement covering the ordinary shares issuable upon the exercise of the Public Warrants is not effective within 90
days from the consummation of a Business Combination, the holders may, until such time as there is an effective registration statement
and during any period when the Company shall have failed to maintain an effective registration statement, exercise the Public Warrants
on a cashless basis pursuant to an available exemption from registration under the Securities Act. If an exemption from registration
is not available, holders will not be able to exercise their Public Warrants on a cashless basis. The Public Warrants will expire
F-33
CHEER HOLDING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In U.S. dollars in thousands, except share and per share data)
14. EQUITY (cont.)
Public Warrants (cont.)
The Company may redeem the Public Warrants:
| ● | in whole and not in part; |
| ● | at a price of $ |
| ● | at any time while the Public Warrants are exercisable; |
| ● | upon no less than |
| ● | if, and only if, the reported last sale price of the Company’s ordinary shares equals or exceeds $ |
| ● | if, and only if, there is a current registration statement in effect with respect to the ordinary shares underlying such warrants at the time of redemption and for the entire |
If the Company calls the Public Warrants for redemption, management will have the option to require all holders that wish to exercise the Public Warrants to do so on a “cashless basis,” as described in the warrant agreement.
On February 14, 2025, the
Rights
Each holder of a Public Right will automatically
receive one-tenth (1/10) of an ordinary share upon consummation of a Business Combination, even if the holder of a Public Right converted
all ordinary shares held by him, her or it in connection with a Business Combination or an amendment to the Company’s Amended and
Restated Memorandum and Articles of Association with respect to its pre-business combination activities. Upon the closing of the Business
Combination, the Company issued
Statutory reserve
Horgos, Beijing Glory Star, Beijing Leshare,
Glary Prosperity, Horgos Technology and Xing Cui Can operate in the PRC, are required to reserve
Non-controlling interest
As of December 31, 2025 and 2024, the Company’s
non-controlling interest represented
F-34
CHEER HOLDING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In U.S. dollars in thousands, except share and per share data)
15. PRIVATE PLACEMENT WARRANTS
Simultaneously with the closing of the Initial
Public Offering, Symphony Holdings Limited (“Symphony”) purchased an aggregate of
The Private Placement Warrants are identical to the Public Warrants underlying the Units sold in the Initial Public Offering, except that the Private Placement Warrants (i) are not redeemable by the Company and (ii) may be exercised for cash or on a cashless basis, so long as they are held by the initial purchaser or any of its permitted transferees. If the Private Placement Warrants are held by holders other than the initial purchasers or any of their permitted transferees, the Private Placement Warrants will be redeemable by the Company and exercisable by the holders on the same basis as the Public Warrants. In addition, the Private Placement Warrants may not be transferable, assignable or salable until the consummation of a Business Combination, subject to certain limited exceptions.
On February 14, 2025, the
The warrant liability related to such private
placement warrants was remeasured to its fair value at each reporting period. The change in fair value was recognized in the unaudited
condensed consolidated statements of income. For the years ended December 31, 2025 and 2024, the change in fair value of the warrant
liability was . For the year ended December 31, 2023, the Company recorded a decrease in fair value of warrant liabilities of
$
The fair value of the private warrants was estimated
using the binomial option valuation model. The application of the binomial option valuation model requires the use of a number of inputs
and significant assumptions including volatility. Significant judgment is required in determining the expected volatility of the common
share. Due to the limited history of trading of the Company’s common share, the Company determined expected volatility based on
a peer group of publicly traded companies.
| For the Years Ended December 31, | ||||||||
| 2025 | 2024 | |||||||
| Stock price | $ | $ | ||||||
| Exercise price | $ | $ | ||||||
| Risk-free interest rate | % | % | ||||||
| Expected term (in years) | ||||||||
| Expected dividend yield | % | % | ||||||
| Expected volatility | % | % | ||||||
F-35
CHEER HOLDING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In U.S. dollars in thousands, except share and per share data)
16. SEGMENT INFORMATION
Based on management’s assessment, the Company
has determined that it has
The CODM measures the performance of each segment
based on metrics of revenues and earnings from operations and uses these results to evaluate the performance of, and to allocate resources
to, each of the segments.
The table below provides a summary of the Company’s operating segment results for the years ended December 31, 2025, 2024 and 2023:
| For the Years Ended December 31, | ||||||||||||
| 2025 | 2024 | 2023 | ||||||||||
| Net revenues: | ||||||||||||
| Cheers App Internet Business | $ | $ | $ | |||||||||
| Traditional Media Business | ||||||||||||
| Total consolidated net revenues | $ | $ | $ | |||||||||
| Operating income: | ||||||||||||
| Cheers APP Internet Business | $ | $ | $ | |||||||||
| Traditional Media Business | ||||||||||||
| Total segment operating income | ||||||||||||
| Unallocated item (1) | ( | ) | ( | ) | ||||||||
| Total consolidated operating income | $ | $ | $ | |||||||||
| * |
F-36
CHEER HOLDING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In U.S. dollars in thousands, except share and per share data)
17. COMMITMENTS
Operating lease commitments
The total future minimum lease payments including the agreed property management fee under the non-cancellable operating lease with respect to the contractual obligations as of December 31, 2025 are payable as follows:
| December 31, 2025 | ||||
| Within 1 year | $ | |||
| 2 – 5 years | ||||
| Total | $ | |||
Capital expenditure commitments
The Company has commitments for capital expenditures
totaling $
18. SUBSEQUENT EVENTS
These consolidated financial statements were approved by management and available for issuance on March 20, 2026. The Company has evaluated subsequent events through this date and concluded that there are no additional reportable subsequent events other than that disclosed in above.
F-37
Exhibit 2.2
DESCRIPTION OF SECURITIES
Cheer Holding, Inc. (the “Company”, “we,” or “our”) is a Cayman Islands exempted company with limited liability and our affairs are governed by our Memorandum and Articles of Association and the law of the Cayman Islands, including the Cayman Islands Companies Act (As Revised).
Our authorized share capital is US$500,700 divided into 10,000,000 Class A ordinary shares of a par value of US$0.05 each (the “Class A Shares”); 500,000 Class B ordinary shares of a par value of US$0.001 each (the “Class B Shares”); and 2,000,000 preferred shares of a par value of US$0.0001 each. As of December 31, 2025, there are 4,686,248 Class A Shares issued and outstanding and 500,000 Class B Shares issued and outstanding. There are no preferred shares issued and outstanding. The following are summaries of material provisions of our Memorandum and Articles of Association which are currently effective and the Cayman Islands Companies Act (As Revised) insofar as they relate to the material terms of our ordinary shares and preferred shares.
The following description is a summary and should be read in conjunction with our current Memorandum and Articles of Association, which have been publicly filed with the U.S. Securities and Exchange Commission (“SEC”).
Ordinary Shares
Our ordinary shares are issued in registered form and are issued when registered in our register of members. Our shareholders who are non-residents of the Cayman Islands may freely hold and vote their shares.
Dividends
The holders of our Class A Shares are entitled to such dividends as may be declared by our board of directors. As a matter of Cayman Islands law, dividends may be declared and paid only out of funds legally available therefor, namely out of either profit or our share premium account, provided that in no circumstances may a dividend be paid if this would result in our being unable to pay our debts as they fall due in the ordinary course of business. The holder of Class B Shares shall not be entitled to any dividends.
Voting Rights
Except for any vote in relation to variation of class rights, Class A Shares and Class B Shares shall vote together as one class on all resolutions submitted to a vote by the shareholders. Each Class A Share shall be entitled to one (1) vote on a poll on all matters subject to vote at general meetings of the Company, and each Class B Share shall be entitled to one hundred (100) votes on a poll on all matters subject to vote at general meetings of the Company;
Voting at any shareholders’ meeting is by show of hands unless a poll is demanded. A poll may be demanded by the chairman of such meeting, at least five (5) shareholders entitled to vote or any one or more shareholders who together hold not less than 10% of our voting share capital present in person or by proxy.
A quorum required for a meeting of shareholders consists of two (2) shareholders present. Shareholders may be present in person or by proxy or, if the shareholder is a legal entity, by its duly authorized representative. Shareholders’ meetings may be convened by our board of directors on its own initiative or upon a request to the directors by shareholders holding at the date of deposit of the requisition not less one-third in par value of our voting share capital in issue. Advance notice of at least seven clear days is required for the convening of our annual general shareholders’ meeting and any other general shareholders’ meeting.
An ordinary resolution to be passed at a meeting by the shareholders where a poll is taken requires the affirmative vote of a simple majority of the votes attaching to the ordinary shares cast at a meeting, while a special resolution where a poll is taken requires the affirmative vote of no less than two-thirds of the votes attaching to the ordinary shares cast at a meeting. Both ordinary resolutions and special resolutions may also be passed by a unanimous written resolution signed by all of our shareholders who hold voting shares, as permitted by Cayman Islands law and our Memorandum and Articles of Association. A special resolution will be required for important matters such as a change of name or making changes to our Memorandum and Articles of Association. Holders of the ordinary shares may, among other things, divide or consolidate their shares by ordinary resolution.
Transfer of Ordinary Shares
Subject to the restrictions set out below, any of our shareholders may transfer all or any of his or her ordinary shares by an instrument of transfer in the usual or ordinary form or any other form approved by our board of directors.
Our board of directors may, in its absolute discretion, decline to register any transfer of any ordinary share which is not fully paid up or on which we have a lien. Our board of directors may also decline to register any transfer of any ordinary share unless:
| ● | the instrument of transfer is lodged with us, accompanied by the certificate for the ordinary shares to which it relates and such other evidence as our board of directors may reasonably require to show the right of the transferor to make the transfer; |
| ● | the instrument of transfer is in respect of only one class of shares; |
| ● | the instrument of transfer is properly stamped, if required; and |
| ● | in the case of a transfer to joint holders, the number of joint holders to whom the ordinary share is to be transferred does not exceed four. |
If our board of directors refuses to register a transfer they shall, within two months after the date on which the instrument of transfer was lodged, send to the transferee notice of such refusal.
The registration of transfers may be suspended and the register closed at such times and for such periods as our board of directors may from time to time determine, provided, however, that the registration of transfers shall not be suspended nor the register closed for more than 30 days as our board of directors may determine.
Liquidation
On a return of capital on winding up or otherwise (other than on conversion, redemption or purchase of shares), assets available for distribution shall be distributed among the holders of our Class A Shares on a pro rata basis, and holders of Class B Shares shall only be entitled to repayment of capital. If our assets available for distribution are insufficient to repay all of the paid-up capital, the assets will be distributed so that the losses are borne by our shareholders proportionately.
Calls on Shares and Forfeiture of Shares
Our board of directors may from time to time make calls upon shareholders for any amounts unpaid on their shares in a notice served to such shareholders at least 14 days prior to the specified time or times of payment. The shares that have been called upon and remain unpaid are subject to forfeiture.
Redemption, Purchase and Surrender of Ordinary Shares
We may issue shares on terms that such shares are subject to redemption, at our option or at the option of the holders thereof, on such terms and in such manner as may be determined, before the issue of such shares, by our board of directors; provided, however, that Class B Shares may only be redeemed at par value at the option of the holder. We may also repurchase any of our shares (including any redeemable shares) provided that the manner and terms of such purchase have been approved by our board of directors or by ordinary resolution of our shareholders, or are otherwise authorized by our Memorandum and Articles of Association. Under the Cayman Islands Companies Act, the redemption or repurchase of any share may be paid out of our profits or out of the proceeds of a fresh issue of shares made for the purpose of such redemption or repurchase, or out of capital (including share premium account and capital redemption reserve) if we can, immediately following such payment, pay our debts as they fall due in the ordinary course of business. In addition, under the Cayman Islands Companies Act (As Revised) no such share may be redeemed or repurchased (a) unless it is fully paid up, (b) if such redemption or repurchase would result in there being no shares outstanding, or (c) if the company has commenced liquidation. In addition, we may accept the surrender of any fully paid share for no consideration.
2
Variations of Rights of Shares
The rights attached to any class or series of shares (unless otherwise provided by the terms of issue of the shares of that class or series) may, subject to our Memorandum and Articles of Association, be varied with the consent in writing of the holders of not less than two thirds of the issued shares of that class or series or with the sanction of a special resolution passed at a general meeting of the holders of the shares of that class or series. The rights conferred upon the holders of the shares of any class issued shall not, unless otherwise expressly provided by the terms of issue of the shares of that class, be deemed to be varied by the creation or issue of further shares ranking pari passu with such existing class of shares.
Issuance of Additional Shares
Our Memorandum and Articles of Association authorizes our board of directors to issue additional ordinary shares from time to time as our board of directors shall determine, to the extent of available authorized but unissued shares.
Our Memorandum and Articles of Association also authorizes our board of directors to establish from time to time one or more series of preferred shares and to determine, with respect to any series of preferred shares, the terms and rights of that series, including:
| ● | the designation of the series; |
| ● | the number of shares of the series; |
| ● | the dividend rights, dividend rates, conversion rights, voting rights; and |
| ● | the rights and terms of redemption and liquidation preferences. |
Our board of directors may issue preferred shares without action by our shareholders to the extent authorized but unissued. Issuance of these shares may dilute the voting power of holders of ordinary shares.
Inspection of Books and Records
Holders of our ordinary shares will have no general right under Cayman Islands law to inspect or obtain copies of our list of shareholders or our corporate records. However, we will provide our shareholders with annual audited financial statements and certain other documents that we file with the SEC. See “Where You Can Find Additional Information.”
Anti-Takeover Provisions
Some provisions of our Memorandum and Articles of Association may discourage, delay or prevent a change of our control that shareholders may consider favorable, including provisions that:
| ● | authorize our board of directors to issue preferred shares in one or more series and to designate the price, rights, preferences, privileges and restrictions of such preferred shares without any further vote or action by our shareholders; and |
| ● | limit the ability of shareholders to requisition (one-third in par value of the issued voting shares) and convene general meetings of shareholders. |
However, as a matter of Cayman Islands law, our directors may only exercise the rights and powers granted to them under our Memorandum and Articles of Association for a proper purpose and for what they believe in good faith to be in the best interests of the Company.
3
General Meetings of Shareholders and Shareholder Proposals
Our shareholders’ general meetings may be held in such place within or outside the Cayman Islands as our board of directors considers appropriate.
As a Cayman Islands exempted company, we are not obliged by the Cayman Islands Companies Act (As Amended) to call shareholders’ annual general meetings. Our Memorandum and Articles of Association provide that we shall hold an annual general meeting in each calendar year, which shall be convened by the board of directors, but so that the maximum period between such annual general meetings shall not exceed fifteen (15) months. Our board of directors shall give not less than seven clear days’ written notice of a shareholders’ meeting to those persons whose names appear as members in our register of members on the date the notice is given (or on any other date determined by our directors to be the record date for such meeting) and who are entitled to vote at the meeting.
Cayman Islands law provides shareholders with only limited rights to requisition a general meeting, and does not provide shareholders with any right to put any proposal before a general meeting. However, these rights may be provided in a company’s articles of association. Our Memorandum and Articles of Association allow our shareholders holding voting shares representing in aggregate not less than one-third in par value of our voting share capital in issue, to requisition an extraordinary general meeting of our shareholders, in which case our directors are obliged to call such meeting and to put the resolutions so requisitioned to a vote at such meeting; however, our Memorandum and Articles of Association do not provide our shareholders with any right to put any proposals before annual general meetings or extraordinary general meetings not requisitioned by such shareholders.
Exempted Company
We are an exempted company with limited liability under the Companies Act. The Companies Act distinguishes between ordinary resident companies and exempted companies. Any company that is registered in the Cayman Islands but conducts business mainly outside of the Cayman Islands may apply to be registered as an exempted company. The requirements for an exempted company are essentially the same as for an ordinary company except for the exemptions and privileges listed below:
| ● | an exempted company does not have to file an annual return of its shareholders with the Registrar of Companies; |
| ● | an exempted company’s register of members is not open to inspection; |
| ● | an exempted company does not have to hold an annual general meeting; |
| ● | an exempted company may issue shares with no par value; |
| ● | an exempted company may obtain an undertaking against the imposition of any future taxation (such undertakings are usually given for 30 years in the first instance); |
| ● | an exempted company may register by way of continuation in another jurisdiction and be deregistered in the Cayman Islands; |
| ● | an exempted company may register as a limited duration company; and |
| ● | an exempted company may register as a segregated portfolio company. |
“Limited liability” means that the liability of each shareholder is limited to the amount unpaid by the shareholder on the shares of the company (except in exceptional circumstances, such as involving fraud, the establishment of an agency relationship or an illegal or improper purpose or other circumstances in which a court may be prepared to pierce or lift the corporate veil).
4
Register of Members
Under Cayman Islands law, we must keep a register of members and there will be entered therein:
| ● | the names and addresses of the members, a statement of the shares held by each member, and of the amount paid or agreed to be considered as paid, on the shares of each member and the voting rights of shares of each member; |
| ● | whether voting rights are attached to the share in issue; |
| ● | the date on which the name of any person was entered on the register as a member; and |
| ● | the date on which any person ceased to be a member. |
Under Cayman Islands law, the register of members of our company is prima facie evidence of the matters set out therein (i.e., the register of members will raise a presumption of fact on the matters referred to above unless rebutted) and a member registered in the register of members will be deemed as a matter of Cayman Islands law to have legal title to the shares as set against its name in the register of members. Upon the closing of this public offering, the register of members will be immediately updated to reflect the issue of shares by us. Once our register of members has been updated, the shareholders recorded in the register of members will be deemed to have legal title to the shares set against their name. However, there are certain limited circumstances where an application may be made to a Cayman Islands court for a determination on whether the register of members reflects the correct legal position. Further, the Cayman Islands court has the power to order that the register of members maintained by a company should be rectified where it considers that the register of members does not reflect the correct legal position. If an application for an order for rectification of the register of members were made in respect of our ordinary shares, then the validity of such shares may be subject to re-examination by a Cayman Islands court.
Preferred Shares
Our Memorandum and Articles of Association authorizes 2,000,000 preferred shares of which none are issued and outstanding as the date of this prospectus.
The directors may authorize the division of shares into any number of classes and the different classes shall be authorized, established and designated by the directors.
Listing
Our Class A Shares is listed on the Nasdaq Capital Market under the symbol “CHR”.
Our Transfer Agent
The transfer agent for our Class A Shares and Class B Shares is Continental Stock Transfer & Trust Company, One State Street, 30th Floor, New York, New York 10004.
5
Exhibit 8.1
LIST OF SUBSIDIARIES
The following list sets forth the subsidiaries of CHEER HOLDING, INC. as of December 31, 2025:
| Company | State of Incorporation | |
| Glory Star New Media Group Limited | Cayman Islands | |
| Glory Star New Media Group HK Limited | Hong Kong | |
| Glory Star New Media (Beijing) Technology Co. Ltd | China | |
| Xin Cui Can International Media (Beijing) Co. Ltd (1) | China | |
| Horgos Glory Star Media Co., Ltd (1) | China | |
| Glory Star Media (Beijing) Co., Ltd (2) | China | |
| Leshare Star (Beijing) Technology Co., Ltd (2) | China | |
| Glory Star (Horgos) Media Technology Co.,Ltd. (2) | China | |
| Horgos Glary Prosperity Culture Co., Ltd (2) | China |
| (1) | Controlled through a series of contractual arrangements with Glory Star New Media (Beijing) Technology Co. Ltd. |
| (2) | Subsidiary of Horgos Glory Star Media Co., Ltd |
| (3) | Subsidiary of Horgos Glary Prosperity Culture Co., Ltd |
Exhibit 12.1
CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 302 OF THE
SARBANES-OXLEY ACT OF 2002
I, Bing Zhang, certify that:
1. I have reviewed this annual report on Form 20-F of CHEER HOLDING, INC. (the “Company”);
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this report;
4. The Company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Company and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the Company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the Company’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting; and
5. The Company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Company’s auditors and the audit committee of the Company’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Company’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal control over financial reporting.
Date: March 20, 2026
| By: | /s/ Bing Zhang | |
| Name: | Bing Zhang | |
| Title: | Chief Executive Officer and Chief Financial Officer (Principal Executive Officer and Principal Financial Officer) |
Exhibit 13.1
CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 906 OF
THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of CHEER HOLDING, INC. (the “Company”) on Form 20-F the year ended December 31, 2025, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Bing Zhang, Chief Executive Officer and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: March 20, 2026
| By: | /s/ Bing Zhang | |
| Name: | Bing Zhang | |
| Title: | Chief Executive Officer and Chief Financial Officer (Principal Executive Officer and Principal Financial Officer) |
Exhibit 15.1
 |
Assentsure PAC |
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (File Nos. 333-237788 and 333-282386) and Form F-3 (File No. 333-279221) of Cheer Holding, Inc. (the “Company”) of our report dated March 14, 2024, relating to the related consolidated statements of income and comprehensive income, changes in shareholders’ equity, and cash flows for the year ended December 31, 2023, which report appears in this annual report on Form 20-F for the year ended December 31, 2025.
We also consent to the reference of Assentsure PAC, as an independent registered public accounting firm, as experts in matters of accounting and auditing.
Very truly yours,
/s/ Assentsure PAC
Singapore
March 20, 2026
Exhibit 15.2
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (File Nos. 333-237788 and 333-282386) and Form F-3 (File No. 333-279221) of Cheer Holding, Inc. (the “Company”) of our report dated March 20, 2026, relating to the consolidated balance sheets of the Company as of December 31, 2025, and the related consolidated statements of income and comprehensive income, changes in shareholders’ equity, and cash flows for the years ended December 31, 2024 and 2025, which report appears in this annual report on Form 20-F for the year ended December 31, 2025.
| /s/ Enrome LLP | |
| Singapore | |
| March 20, 2026 |
Exhibit 15.3
March 20, 2026
To: CHEER HOLDING, INC. (the “Company”)
19F, Block B, Xinhua Technology Building
No. 8 Tuofangying South Road
Jiuxianqiao, Chaoyang District, Beijing China 100016
Ladies and Gentlemen:
We hereby consent to the reference of our name under the headings “Note”, “Item 3. Key Information—D. Risk Factors—Risks Related to Our Corporate Structure”, and “Item 3. Key Information—D. Risk Factors—Risks Relating to Doing Business in China” in the Company’s Annual Report on Form 20-F for the year ended December 31, 2025 (the “Annual Report”), which will be filed with the Securities and Exchange Commission (the “SEC”) in the month March, 2026, and further consent to the incorporation by reference of the summaries of our opinions under the headings “Note”, “Item 3. Key Information—D. Risk Factors—Risks Related to Our Corporate Structure”, and “Item 3. Key Information—D. Risk Factors—Risks Relating to Doing Business in China” in the Annual Report into the Registration Statements on Form S-8 (File Nos. 333-237788 and 333-282386) and on Form F-3 (File No. 333-279221). We also consent to the filing of this consent letter with the SEC as an exhibit to the Annual Report.
In giving such consent, we do not thereby admit that we come within the category of persons whose consent is required under Section 7 of the Securities Act of 1933, or under the Securities Exchange Act of 1934, in each case, as amended, or the regulations promulgated thereunder.
| Yours faithfully, | |
| /s/ Jingtian & Gongcheng | |
| Jingtian & Gongcheng | |
| Beijing, China | |
| March 20, 2026 |