Cheer Holding, Inc 6-K, filed Jul 31, 2024
Cheer Holding, Inc. (CHR)
About this 6-K
Cheer Holding, Inc filed this 6-K on July 31, 2024.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
REPORT OF FOREIGN PRIVATE ISSUER
PURSUANT TO RULE 13a-16 OR 15d-16
UNDER THE SECURITIES EXCHANGE ACT OF 1934
For the month of July
Commission File Number:
22F, Block B, Xinhua Technology Building,
No. 8 Tuofangying South Road,
Jiuxianqiao, Chaoyang District, Beijing, China 100016
(Address of principal executive office)
Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F:
Form 20-F ☒ Form 40-F ☐
Explanatory Note
CHEER HOLDING, INC. (the “Company”) is furnishing this Form 6-K to provide its six-month interim financial statements and to incorporate such financial statements into the Company’s registration statements referenced below.
This Form 6-K and Exhibits 99.1 and 99.2 attached hereto shall be deemed to be incorporated by reference into the Company’s registration statements on Form S-8 (File No. 333-237788) and on Form F-3 (File No. 333-279221), to be a part thereof from the date on which this report is submitted, to the extent not superseded by documents or reports subsequently filed or furnished.
Exhibit Index
| Exhibit No. | Exhibit Description | |
| 99.1 | Unaudited Interim Consolidated Financial Statements for the Six Months Ended June 30, 2024 and 2023. | |
| 99.2 | Operating and Financial Review and Prospectus in connection with the Unaudited Interim Consolidated Financial Statements for the Six Months Ended June 30, 2024 and 2023. | |
| 99.3 | Press Release - Cheer Holding Reports 2024 Half Year Results | |
| 101.INS | Inline XBRL Instance Document | |
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document | |
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document | |
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document | |
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document | |
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document | |
| 104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
1
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| CHEER HOLDING, INC. | ||
| By: | /s/ Bing Zhang | |
| Name: | Bing Zhang | |
| Title: | Chief Executive Officer | |
| Dated: July 31, 2024 | ||
2
Exhibit 99.1
CHEER HOLDING, INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(In U.S. dollars in thousands, except share and per share data)
June 30, 2024 | December 31, 2023 | |||||||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Restricted cash | ||||||||
| 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 | ||||||||
| Total non-current assets | ||||||||
| TOTAL ASSETS | $ | $ | ||||||
| Liabilities and Equity | ||||||||
| 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 | $ | $ | ||||||
| Equity | ||||||||
| 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 EQUITY | ||||||||
| TOTAL LIABILITIES AND EQUITY | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
1
CHEER HOLDING, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND
COMPREHENSIVE INCOME (LOSS)
(In U.S. dollars in thousands, except share and per share data)
| For the Six Months Ended June 30, | ||||||||
| 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 (expense) income, net | ( | ) | ||||||
| Total other income | ||||||||
| Income before income tax | ||||||||
| Income tax benefits (expenses) | ( | ) | ||||||
| Net income | ||||||||
| Less: net gain attributable to non-controlling interest | ||||||||
| Net income attributable to Cheer Holding. Inc’s shareholders | $ | $ | ||||||
| Other comprehensive loss | ||||||||
| Unrealized foreign currency translation loss | ( | ) | ( | ) | ||||
| Comprehensive income (loss) | ( | ) | ||||||
| Less: comprehensive loss attributable to non-controlling interests | ( | ) | ||||||
| Comprehensive income (loss) attributable to Cheer Holding. Inc’s shareholders | $ | $ | ( | ) | ||||
| Earnings per ordinary share | ||||||||
| $ | $ | |||||||
| Weighted average shares used in calculating earnings per ordinary share | ||||||||
| * | Retroactively restated to give effect to a share consolidation at a ratio of one-for-tenth ordinary shares effective on November 24, 2023 (Note 1). |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
2
CHEER HOLDING, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(In U.S. dollars in thousands, except share and per share data)
| Ordinary shares | Additional paid-in | Retained | Statutory | Accumulated other comprehensive (loss) | Total shareholders’ | Non- controlling | Total | |||||||||||||||||||||||||||||
| Shares* | Amount | capital | earnings | reserve | gain | equity | interests | Equity | ||||||||||||||||||||||||||||
| Balance as of December 31, 2022 | ( | ) | ||||||||||||||||||||||||||||||||||
| Contribution from shareholder | - | |||||||||||||||||||||||||||||||||||
| Issuance of shares through private placement | ||||||||||||||||||||||||||||||||||||
| Net income | - | |||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | - | ( | ) | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||||
| Balance as of June 30, 2023 | ( | ) | ||||||||||||||||||||||||||||||||||
| Balance as of December 31, 2023 | ( | ) | ||||||||||||||||||||||||||||||||||
| Withdrawal of contribution from shareholder | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||||||
| Share-based compensation to one employee** | ||||||||||||||||||||||||||||||||||||
| Cancellation of shares due to roundup of fraction shares in share consolidation** | ( | ) | ||||||||||||||||||||||||||||||||||
| Net income | - | |||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustment | - | ( | ) | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||||
| Balance as of June 30, 2024 | ( | ) | ||||||||||||||||||||||||||||||||||
| * |
| ** |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
3
CHEER HOLDING, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In U.S. dollars in thousands)
| For the Six Months Ended June 30, | ||||||||
| 2024 | 2023 | |||||||
| Net cash (used in) provided by operating activities | ( | ) | ||||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Purchase of property, plant and equipment | ( | ) | ||||||
| Loans made to a third party | ( | ) | ||||||
| Net cash used in investing activities | ( | ) | ||||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Proceeds from issuance of ordinary shares in connection with a private placement | ||||||||
| Proceeds from bank loans | ||||||||
| Repayments of bank loans | ( | ) | ( | ) | ||||
| Payment of loan origination fees | ( | ) | ( | ) | ||||
| Borrowings from a related party | ||||||||
| Contribution from shareholders | ||||||||
| Withdrawal of contribution from shareholder | ( | ) | ||||||
| Net cash provided by financing activities | ||||||||
| Effect of exchange rate changes | ( | ) | ( | ) | ||||
| Net (decrease) increase in cash and cash equivalents | ( | ) | ||||||
| Cash and cash equivalents, at beginning of period | ||||||||
| Cash and cash equivalents, at end of period | $ | |||||||
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | ||||||||
| Interests paid | $ | $ | ||||||
| Lease liabilities arising from obtaining right-of-use assets | $ | $ | ||||||
| Change in fair value of warrant liabilities | $ | $ | ( | ) | ||||
RECONCILIATION OF CASH, CASH EQUIVALENTS AND RESTRICTED CASH TO THE CONSOLIDATED BALANCE SHEETS
June 30, 2024 | December 31, 2023 | |||||||
| Cash and cash equivalents | $ | $ | ||||||
| Restricted cash | ||||||||
| $ | $ | |||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
4
CHEER HOLDING, INC.
NOTES TO UNAUDITED CONDENSED 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 November 30, 2018, under the laws of the Cayman Islands. CHR through its subsidiaries, the VIE and the VIE’s subsidiaries, provides advertisement and content production services and operate a leading mobile and online advertising, media and entertainment business in China.
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 (10) ordinary shares with a par value of US$
| 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”) | % | |||||||||
| Horgos Glary Prosperity Culture Co., Ltd, Beijing Branch (“Glary Prosperity BJ”) | % | |||||||||
| 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 six months ended June 30, 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. |
5
CHEER HOLDING, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In U.S. dollars in thousands, except share and per share data)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation
The unaudited condensed consolidated financial statements have been prepared in accordance with the rules and regulations of the Security and Exchange Commission and accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial reporting. Certain information and footnote disclosures normally included in financial statements prepared in conformity with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations. Accordingly, these statements should be read in conjunction with the Company’s audited consolidated financial statements for the year ended December 31, 2023 filed on March 14, 2024.
In the opinion of the management, the accompanying unaudited condensed consolidated financial statements reflect all normal recurring adjustments, which are necessary for a fair presentation of financial results for the interim periods presented. The Group believes that the disclosures are adequate to make the information presented not misleading. The accompanying unaudited condensed consolidated financial statements have been prepared using the same accounting policies as used in the preparation of the Company’s consolidated financial statements for the year ended December 31, 2023. The results of operations for the six months ended June 30, 2024 and 2023 are not necessarily indicative of the results for the full years.
Financial statement amounts and balances of the VIEs and the VIEs’ subsidiaries
Total assets and liabilities presented on the
Company’s unaudited condensed consolidated balance sheets and revenue, expense, net income presented on the Company’s unaudited
condensed consolidated statements of income as well as the cash flow from operating, investing and financing activities presented on the
unaudited condensed consolidated statements of cash flows are substantially the financial position, operation and cash flow of the VIEs
and the VIEs’ subsidiaries. CHR has not provided any financial support to the VIEs and the VIEs’ subsidiaries for the six
months ended June 30, 2024 and 2023.
June 30, 2024 | December 31, 2023 | |||||||
| Total assets | $ | $ | ||||||
| Total liabilities | $ | $ | ||||||
| For the Six Months Ended June 30, | ||||||||
| 2024 | 2023 | |||||||
| Total revenues | $ | $ | ||||||
| Net income | $ | $ | ||||||
| Net cash (used in) provided by operating activities | $ | ( | ) | $ | ||||
| Net cash used in investing activities | $ | $ | ( | ) | ||||
| Net cash provided by financing activities | $ | $ | ||||||
The VIEs and the VIEs’ subsidiaries contributed
6
CHEER HOLDING, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In U.S. dollars in thousands, except share and per share data)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)
Financial statement amounts and balances of the VIEs and the VIEs’ subsidiaries (cont.)
There are no terms in any arrangements, considering both explicit arrangements and implicit variable interests that require the Company or its subsidiaries to provide financial support to the VIEs. However, the Company has provided and will continue to provide financial support to the VIEs considering the business requirements of the VIEs, as well as the Company’s own business objectives in the future.
There are no assets held in the VIEs and the VIEs’ subsidiaries that can be used only to settle obligations of the VIEs and the VIEs’ subsidiaries, except for registered capital and the PRC statutory reserves. As the VIEs and the VIEs’ subsidiaries are incorporated as a limited liability company under the PRC Company Law, creditors of the VIEs and the VIEs’ subsidiaries do not have recourse to the general credit of the Company for any of the liabilities of the VIEs and the VIEs’ subsidiaries. Relevant PRC laws and regulations restrict the VIEs and the VIEs’ subsidiaries from transferring a portion of their net assets, equivalent to the balance of its statutory reserve and its share capital, to the Company in the form of loans and advances or cash dividends.
Accounts Receivable, net
On 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 adoption of the guidance had no impact on the allowance for credit losses for accounts receivable.
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 an individual basis because the Company had limited customers and each of them has difference characteristics, primarily based on business line and geographical area. 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, credit quality of the Company’s customers based on ongoing credit evaluations, 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 doubtful accounts after management has determined that the likelihood of collection is not probable.
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 six months ended June 30, 2024 and 2023, $
7
CHEER HOLDING, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In U.S. dollars in thousands, except share and per share data)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont.)
Accounts payable
Accounts payable represent liabilities for goods and services provided to the Company prior to the end of financial period which are unpaid. They are classified as current liabilities if payment is due within one year or less (or in the normal operating cycle of the business if longer). Otherwise, they are presented as non-current liabilities.
Accounts payable are initially recognized at fair value, and subsequently carried at amortized cost using the effective interest method.
Contract liabilities
Contract liabilities amounted to $
The Company will recognize the advances as revenue when it has transferred control of the goods or services to which the advances relate, and has no obligation under the contract to transfer additional goods or services.
Revenue Recognition
The Company early adopted the new revenue standard Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers, on January 1, 2017. 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 |
8
CHEER HOLDING, INC.
NOTES TO UNAUDITED CONDENSED 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.)
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:
Copyright revenue
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.
9
CHEER HOLDING, INC.
NOTES TO UNAUDITED CONDENSED 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.)
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.
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.
10
CHEER HOLDING, INC.
NOTES TO UNAUDITED CONDENSED 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.)
| For the Six Months Ended June 30, | ||||||||
| 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.
11
CHEER HOLDING, INC.
NOTES TO UNAUDITED CONDENSED 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
six months ended June 30, 2024, five customers accounted for
As of June 30, 2024, six customers accounted
for
As
of June 30, 2024, three 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.
12
CHEER HOLDING, INC.
NOTES TO UNAUDITED CONDENSED 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 (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 unaudited condensed consolidated balance sheet
amounts, with the exception of equity, at June 30, 2024 and December 31, 2023 were translated at RMB
Recent Accounting Pronouncements
In December 2023, the FASB issued ASU 2023-09, which is an update to Topic 740, Income Taxes. The amendments in this update related to the rate reconciliation and income taxes paid disclosures improve the transparency of income tax disclosures by requiring (1) adding disclosures of pretax income (or loss) and income tax expense (or benefit) to be consistent with U.S. Securities and Exchange Commission (SEC) Regulation S-X 210.4-08(h), Rules of General Application—General Notes to Financial Statements: Income Tax Expense, and (2) removing disclosures that no longer are considered cost beneficial or relevant. For public business entities, the amendments in this Update are effective for annual periods beginning after December 15, 2024. For entities other than public business entities, the amendments are effective for annual periods beginning after December 15, 2025. Early adoption is permitted for annual financial statements that have not yet been issued or made available for issuance. The amendments in this Update should be applied on a prospective basis. Retrospective application is permitted.
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 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.
In March 2023, the FASB issued new accounting guidance, ASU 2023-01, for leasehold improvements associated with common control leases, which is effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Early adoption is permitted for both interim and annual financial statements that have not yet been made available for issuance. The new guidance introduced two issues: terms and conditions to be considered with leases between related parties under common control and accounting for leasehold improvements. The goals for the new issues are to reduce the cost associated with implementing and applying Topic 842 and to promote diversity in practice by entities within the scope when applying lease accounting requirements.
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.
13
CHEER HOLDING, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In U.S. dollars in thousands, except share and per share data)
3. ACCOUNTS RECEIVABLE, NET
June 30, 2024 | December 31, 2023 | |||||||
| Accounts receivable | $ | $ | ||||||
| Less: allowance for expected credit losses | ( | ) | ( | ) | ||||
| Accounts receivables, net | $ | $ | ||||||
June 30, 2024 | June 30, 2023 | |||||||
| Opening balance | $ | $ | ||||||
| Provision of allowance for expected credit losses | ||||||||
| Writing off allowance for expected credit losses | - | ( | ) | |||||
| Foreign exchange adjustment | ( | ) | ( | ) | ||||
| Ending balance | $ | $ | ||||||
4. PREPAYMENT AND OTHER CURRENT ASSETS
June 30, 2024 | December 31, 2023 | |||||||
| Advances to vendors | $ | $ | ||||||
| Staff advance | ||||||||
| Others | ||||||||
| Subtotal | $ | $ | ||||||
| Less: allowance for expected credit losses | ( | ) | ( | ) | ||||
| Prepayment and other assets, net | ||||||||
For the six months ended June 30, 2024 and 2023, the Company did not provide allowance against the advances to vendors.
14
CHEER HOLDING, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In U.S. dollars in thousands, except share and per share data)
5. PROPERTY, PLANT AND EQUIPMENT, NET
June 30, 2024 | December 31, 2023 | |||||||
| Electronic equipment | $ | $ | ||||||
| Office equipment and furniture | ||||||||
| Leasehold improvement | ||||||||
| Less: accumulated depreciation | ( | ) | ( | ) | ||||
| $ | $ | |||||||
For the six months ended June 30, 2024 and 2023,
depreciation expense amounted to $
6. INTANGIBLE ASSETS, NET
June 30, 2024 | December 31, 2023 | |||||||
| Electronic equipment | $ | $ | ||||||
| Less: accumulated depreciation | ( | ) | ( | ) | ||||
| $ | $ | |||||||
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 and Cheer Chat App, which were acquired externally tailored to the Company’s requirements and is amortized straight-line
over
For the six months ended June 30, 2024 and 2023,
amortization expense amounted to $
| For the six months ending December 31, 2024 | $ | |||
| For the year ending December 31, 2025 | ||||
| For the year ending December 31, 2026 | ||||
| For the year ending December 31, 2027 | ||||
| Thereafter | ||||
| Total | $ |
15
CHEER HOLDING, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In U.S. dollars in thousands, except share and per share data)
7. ACCRUED LIABILITIES AND OTHER PAYABLES
June 30, 2024 | December 31, 2023 | |||||||
| Payroll payables | $ | $ | ||||||
| Other payables | ||||||||
| $ | $ | |||||||
8. OTHER TAXES PAYABLE
June 30, 2024 | December 31, 2023 | |||||||
| VAT payable | $ | $ | ||||||
| Income tax payable | ||||||||
| Business tax payable | ||||||||
| Others | ||||||||
| $ | $ | |||||||
9. BANK LOANS, CURRENT AND NON CURRENT
June 30, 2024 | December 31, 2023 | |||||||
| Short-term bank loans: | ||||||||
| Loan from Xiamen International Bank | $ | $ | ||||||
| Loan from China Citic Bank | ||||||||
| Loan from Huaxia Bank | ||||||||
| Loan from China Merchants Bank | ||||||||
| Long-term bank loans: | ||||||||
| Loan from China Construction Bank | ||||||||
| $ | $ | |||||||
Short-term bank loans
For
the six months ended June 30, 2024, the Company entered into loan agreements with three banks, pursuant to the Company borrowed an aggregate
of $
For
the six months ended June 30, 2023, the Company entered into loan agreements with two banks, pursuant to the Company borrowed an aggregate
of $
16
CHEER HOLDING, INC.
NOTES TO UNAUDITED CONDENSED 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 June 30, 2024, the guarantee information for bank borrowings were as below:
The loans from Xiamen International Bank were guaranteed by Horgos, and Mr. Zhang Bing, the Chairman of the Company’s board of directors.
The loan from China Citic Bank was guaranteed by Horgos and Mr. Zhang Bing.
The loan from Huaxia Bank was guaranteed by Mr. Zhangbin, and Beijing Zhongguancun Sci-tech Financing Guarantee Co., Ltd, for whom a counter guarantee was provided by Horgos and Mr. Zhang Bing.
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.
June 30, 2024 | December 31, 2023 | |||||||
| Right-of-use assets | ||||||||
| Lease liabilities current | ||||||||
| Lease liabilities non-current | ||||||||
| $ | $ | |||||||
| Remaining lease term and discount rate: | ||||
| Weighted average remaining lease term (years) | ||||
| Weighted average discount rate | % | |||
For the six months ended June 30, 2024 and 2023,
the Company incurred total operating lease expenses of $
17
CHEER HOLDING, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In U.S. dollars in thousands, except share and per share data)
10. LEASES (cont.)
| For the six months ending December 31, 2024 | $ | |||
| For the year ending December 31, 2025 | ||||
| For the year ending December 31, 2026 | ||||
| Total lease payments | ||||
| Less: imputed interest | ( | ) | ||
| Present value of lease liabilities | $ |
11. RELATED PARTY TRANSACTIONS
For the six months ended June 30, 2024 and 2023, the Company did not enter into related party arrangements with any related parties. As of June 30, 2024 and December 31, 2023, the Company had no balances due from or due to related parties.
12. INCOME TAXES
The Company evaluates the level of authority for each uncertain tax position (including the potential application of interest and penalties) based on the technical merits, and measures the unrecognized benefits associated with the tax positions. For the six months ended June 30, 2024 and 2023, the Company had no unrecognized tax benefits. Due to uncertainties surrounding future utilization, the Company estimates there will not be sufficient future income to realize the deferred tax assets arising from net operating losses for the VIEs and the VIEs’ subsidiaries. The Company maintains a full valuation allowance on its net deferred tax assets arising from net operating losses as of June 30, 2024 and December 31, 2023.
As
of June 30, 2024 and December 31, 2023, the Company had deferred tax assets of $
The Company does not anticipate any significant increase to its liability for unrecognized tax benefit within the next 12 months. The Company will classify interest and penalties related to income tax matters, if any, in income tax expense.
| For the Six Months Ended June 30, | ||||||||
| 2024 | 2023 | |||||||
| Current income tax expenses | $ | $ | ||||||
| Deferred income tax benefits (expense) | ( | ) | ||||||
| $ | $ | ( | ) | |||||
Uncertain tax positions
The Company accounts for uncertainty in income
taxes using a two-step approach to recognizing and measuring uncertain tax positions. The first step is to evaluate the tax position for
recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained
on audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the
largest amount that is more than
18
CHEER HOLDING, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In U.S. dollars in thousands, except share and per share data)
13. SHARE-BASED COMPENSATION TO EMPLOYEES
On June 26, 2024, the Company granted
For the six months ended June 30, 2023, the Company did not grant share-based compensation to employees and the Company did not recognize share-based compensation expenses.
14. EQUITY
Preferred Shares
The Company is authorized to issue
Ordinary Shares
The Company is authorized to issue
On May 9, 2023, the Company closed private
placements with two (2) accredited investors (the “Investors”). The Company issued an aggregate of
On November 24, 2023, the Company effected a share
consolidation at a ratio of one-for-tenth (10) ordinary shares with a par value of US$
On September 5, 2023, the Company closed
private placements with two (2) accredited investors (the “Investors”). The Company issued an aggregate of
In December 2023, the Company issued additional
On
June 26, 2024, the Company granted
As of June 30, 2024 and December 31, 2023, there
were
19
CHEER HOLDING, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In U.S. dollars in thousands, except share and per share data)
14. EQUITY (cont.)
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
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 30-day trading period referred to above and continuing each day thereafter until the date of redemption. |
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.
20
CHEER HOLDING, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In U.S. dollars in thousands, except share and per share data)
14. EQUITY (cont.)
Public Warrants (cont.)
The exercise price and number of ordinary shares issuable upon exercise of the warrants may be adjusted in certain circumstances including in the event of a capitalization of shares, extraordinary dividend or recapitalization, reorganization, merger or consolidation. However, the warrants will not be adjusted for issuances of ordinary shares at a price below their exercise price or issuance of potential extension warrants in connection with an extension of the period of time for the Company to complete a Business Combination. Additionally, in no event will the Company be required to net cash settle the warrants. If the Company is unable to complete a Business Combination within the Combination Period and the Company liquidates the funds held in the Trust Account, holders of warrants will not receive any of such funds with respect to their warrants, nor will they receive any distribution from the Company’s assets held outside of the Trust Account with the respect to such warrants. Accordingly, the warrants may expire worthless.
As of June 30, 2024 and December 31, 2023, the
Company had
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, Shenzhen
Leshare, Glary Prosperity, Horgos Technology and Xing Cui Can operate in the PRC, are required to reserve
Non-controlling interest
As of June 30, 2024 and December 31, 2023, the
Company’s non-controlling interest represented
21
CHEER HOLDING, INC.
NOTES TO UNAUDITED CONDENSED 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.
As of June 30, 2024 and December 31, 2023, the
Company had
Warrant Liability | ||||
| Estimated fair value at December 31, 2022 | $ | |||
| Change in estimated fair value | ( | ) | ||
| Estimated fair value at June 30, 2023 | $ | |||
| Estimated fair value at December 31, 2023 | $ | |||
| Change in estimated fair value | ||||
| Estimated fair value at June 30, 2024 | $ | |||
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 Six Months Ended June 30, | ||||||||
| 2024 | 2023 | |||||||
| Category of Revenue: | ||||||||
| Stock price | $ | $ | ||||||
| Exercise price | $ | $ | ||||||
| Risk-free interest rate | % | % | ||||||
| Expected term (in years) | ||||||||
| Expected dividend yield | ||||||||
| Expected volatility | % | % | ||||||
22
CHEER HOLDING, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In U.S. dollars in thousands, except share and per share data)
16. SEGMENT INFORMATION
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”), or decision making group, 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. Management, including the chief operating decision maker, reviews operation results by the revenue of different services.
Based on management’s assessment, the Company
has determined that it has
| For the Six Months Ended June 30, | ||||||||
| 2024 | 2023 | |||||||
| Net revenues: | ||||||||
| Cheers APPs Internet Business | $ | $ | ||||||
| Traditional Media Business | ||||||||
| Total consolidated net revenues | $ | $ | ||||||
| Operating income: | ||||||||
| Cheers APPs Internet Business | $ | $ | ||||||
| Traditional Media Business | ||||||||
| Total segment operating income | ||||||||
| Unallocated item * | ( | ) | ||||||
| Total consolidated operating income | $ | $ | ||||||
| * |
23
CHEER HOLDING, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In U.S. dollars in thousands, except share and per share data)
17. COMMITMENTS
Capital expenditure commitments
The
Company has commitments for capital expenditures totaling $
24
Exhibit 99.2
OPERATING AND FINANCIAL REVIEW AND PROSPECTS
IN CONNECTION WITH THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2024 and JUNE 30, 2023
The following discussion and analysis should be read in conjunction with our unaudited consolidated financial statements and their related notes that appear elsewhere in this report on Form 6-K and with the discussion and analysis of our financial condition and results of operations contained in our Annual Report on Form 20-F for the fiscal year ended December 31, 2023 filed with the Securities and Exchange Commission on March 14, 2023, and as amended on April 18, 2024 (the “2023 Form 20-F”). This discussion may contain forward-looking statements based upon current expectations that involve risks and uncertainties. The information in this report contains forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical fact in this announcement are forward-looking statements. These forward-looking statements involve known and unknown risks and uncertainties and are based on current expectations and projections about future events and financial trends that the Company believes may affect its financial condition, results of operations, business strategy and financial needs. Investors can identify these forward-looking statements by words or phrases such as “may,” “will,” “expect,” “anticipate,” “aim,” “estimate,” “intend,” “plan,” “believe,” “potential,” “continue,” “is/are likely to” or other similar expressions. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those discussed in the 2023 Form 20-F under the section titled “Risk Factors” and in other parts of the 2023 Form 20-F. In this report, Cheer Holding, Inc. is referred to as “we,” “us,” “our,” or the “Company.” The Company undertakes no obligation to update forward-looking statements to reflect subsequent occurring events or circumstances, or changes in its expectations, except as may be required by law. Although the Company believes that the expectations expressed in these forward-looking statements are reasonable, it cannot assure you that such expectations will turn out to be correct, and the Company cautions investors that actual results may differ materially from the anticipated results.
Risk Factors
An investment in our common stock involves a high degree of risk. You should carefully consider the risks set forth below and in the section captioned “Risk Factors” in our 2023 Form 20-F before making an investment decision. If any of the risks actually occur, our business, financial condition or results of operations could suffer. In that case, the trading price of our common stock could decline, and you may lose all or part of your investment.
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 currently 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. For example, we rely a third-party blockchain for the operation of our CheerReal platform. 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. Our ability to operate our non-fungible tokens (NFT) marketplace is dependent on our ability to utilize an accepted and secured blockchain. If alternate technology cannot be obtained or developed, we may not be able to offer certain functionality as part of our business operations, which could adversely affect our business, financial condition and results of operations. Failure to develop a secured and reliable blockchain, will adversely affect our ability to create a marketplace where our users can trade and purchase NFTs.
In addition, we incorporate artworks and technology from third parties into the NFT marketplace. 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.
There can be no assurance that the market for NFTs will be developed and/or sustained, which may materially adversely affect our business operations.
We do not provide a marketplace to the sale of NFT. Our users can trade NFTs that it purchased on CheerReal, but we do not support or promote the selling of NFTs from our users. The market for digital assets, including, without limitation, NFTs, is still nascent. Accordingly, the market for NFTs may not develop, of if a market does develop, such value be maintained. If a market does not develop for NFTs, it may be difficult or impossible for our users to sell their NFTs that it acquired on CheerReal, which may adversely affect our business operations.
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, which may adversely affect our business, operating results, and financial condition.
The Securities and Exchange Commission (“SEC”) and its staff have taken the position that certain digital assets fall within the definition of a “security” under the U.S. federal securities laws. The legal test for determining whether any given digital asset is a security is a highly complex, fact-driven analysis and the outcome is difficult to predict. The SEC generally does not provide advance guidance or confirmation on the status of any particular asset as a security. With respect to various digital assets, there is currently no certainty under the applicable legal test that such assets are not securities, notwithstanding the conclusions we may draw based on our risk-based assessment regarding the likelihood that a particular asset could be deemed a “security” under applicable laws.
The classification of a digital asset as a security under applicable law has wide-ranging implications for the regulatory obligations that flow from the offer, sale and trading of such assets. For example, a digital asset that is a security in the United States may generally only be offered or sold in the United States pursuant to a registration statement filed with the SEC or in an offering that qualifies for an exemption from registration. Persons that effect transactions in assets that are securities in the United States may be subject to registration with the SEC as a “broker” or “dealer.” Platforms that bring together purchasers and sellers to trade digital assets that are securities in the United States are generally subject to registration as national securities exchanges, or must qualify for an exemption, such as by being operated by a registered broker-dealer as an alternative trading system, or ATS, in compliance with rules for ATSs. Persons facilitating clearing and settlement of securities may be subject to registration with the SEC as a clearing agency. Foreign jurisdictions may have similar licensing, registration, and qualification requirements.
If the SEC, foreign regulatory authority, or a court were to determine that a supported digital asset offered, sold, or traded by one of our customers on a platform provided by us is a security, our customer would not be able to offer such asset for trading until it was able to do so in a compliant manner, which would require significant expenditures by the customer. In addition, we or our customer could be subject to judicial or administrative sanctions for failing to offer or sell the digital asset in compliance with the registration requirements, or for acting as a broker, dealer, or national securities exchange without appropriate registration. Such an action could result in injunctions, cease and desist orders, as well as civil monetary penalties, fines, disgorgement, criminal liability, and reputational harm which could negatively impact our business, operating results, and financial condition.
2
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.
In April 2023, we completed a major upgrade to our self-developed digital collection non-fungible tokens (“NFT”) application, CheerReal. The update is now available on both Android and iOS and comes with improved security, advanced technology, enhanced functionality, and a more user-friendly interface. CheerReal is an initial issuance platform for NFT digital artwork collections and is not a secondary market for the sale and purchase of NFTs. NFT artwork collections available for initial issuance on the CheerReal platform are licensed by thirty-party artists for the initial NFT issuance on CheerReal, or are NFT artworks created by us. Only authorized officials of the CheerReal platform can create an NFT artwork collection; third-party artists and users cannot create any NFT collections on the platform. Upon purchase of an NFT on CheerReal, users obtain an authenticated digital artwork and can exchange them with other users. There is no secondary market for the NFTs and the purchase and sale of NFTs among users is not allowed on CheerReal. In addition, NFTs purchased on CheerReal cannot be transferred outside the platform; however, users will be able to exchange, or gift, NFTs on the platform to other users. CheerReal does not charge an additional fee for exchanges of NFTs among its users.
In July 2023, we launched CHEERS Telepathy, a groundbreaking artificial intelligence (AI) content creation platform that incorporates multimodal functions. Powered by CHEERS AI’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 February 2024, we upgraded CHEERS Telepathy to the new Year of the Dragon Edition. This major iteration brings substantial advancements in model architecture, computing power, and content creation capabilities, with these enhanced features, CHEERS Telepathy aims to set new standards for the realm of generative AI.
In June 2024, we released CHEERS Telepathy 2.0, which features more advanced and complicated algorithms and models, more powerful application capacity, and more comprehensive AI interaction functionalities. This marks a breakthrough in the underlying technology of the platform, and a qualitative leap at the application level, bringing an unprecedented user experience, as well as a richer, more diverse and authentic generation effect.
In 2024, our Beijing subsidiary has been recognized once again as National High-Tech Enterprise, the consecutive recognition serves as a testament to our unwavering commitment to technological innovation, research and development prowess, and industry leadership. This prestigious recognition will expedite the transformation of the Company’s technological advancements into practical solutions, bolstering its overall competitiveness and yielding positive results for its business growth.
On April 6, 2023, the Company sent a notice of termination to the Parent (the “Notice of Termination”), notifying the Parent that the Company proposes to terminate the Merger Agreement pursuant to Section 9.1(b)(ii) of the Merger Agreement due to the Parent and the Merger Sub’s breaches of the Merger Agreement, including, but not limited to, Section 7.2(a). The breaches have resulted in the failure of the conditions set forth in Section 8.3(b) and cannot be cured before the termination date of the Merger Agreement. Pursuant to the Notice of Termination, as a result of such termination, the Parent is obligated to pay $1,055,897 (the “Parent Termination Fee”) to the Company.
On April 7, 2023, the Parent sent a response letter to the Company (the “Response Letter”) that while it disagrees with the allegations made in the Notice of Termination, the Parent acknowledges that the Company has the right to terminate the Merger Agreement pursuant to Section 9.1(h) of the Merger Agreement and thus agrees to pay the Parent Termination Fee pursuant to Section 9.2(b)(iv) of the Merger Agreement on that basis. As a result of the termination of the Merger Agreement, the proposed Going Private Transaction was terminated.
On May 9, 2023, the Company closed private placements with two (2) accredited investors (the “Investors”). The Company issued an aggregate of 2,419,355 ordinary shares (after giving effect to Share Consolidation) of the Company, par value $0.001, at a price per share of $24.80 for gross proceeds of $60,000,000.
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On September 5, 2023, the Company closed private placements with two (2) accredited investors (the “Investors”). The Company issued an aggregate of 806,451 ordinary shares (after giving effect to Share Consolidation) of the Company, par value approximately $0.001, at a price per share of $24.80 (after giving effect to share consolidation effected in November 2023) for gross proceeds of $20,000,000.
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.
Share Consolidation
On November 24, 2023, the Company effected a share consolidation at a ratio of one-for-tenth (10) ordinary shares with a par value of $0.0001 each in the Company’s issued and unissued share capital into one ordinary share with a par value of approximately $0.001 (“the Share Consolidation”). Immediately following the Share Consolidation, the authorized share capital of the Company to be $20,200 divided into 20,000,000 ordinary shares of a par value of $0.001 each and 2,000,000 preferred shares of a par value of $0.0001 each.
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 generate creative ideas for original content and supervise content origination and production process
We face fierce competition for qualified personnel in a limited pool of high-quality creative talent. To make sure our original content production capabilities would not be materially and adversely impacted, we must be able to compete effectively for highly qualified personnel or attract and retain top talent at reasonable costs. We need to offer popular original content that addresses our users’ tastes and preferences in a cost effective manner so to avoid reduction in user traffic and our business, financial condition.
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.
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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 Six Months Ended June 30, (In U.S. dollars in thousands) | ||||||||
| 2024 | 2023 | |||||||
| Net revenues: | ||||||||
| Cheers APPs Internet Business | $ | 61,506 | $ | 61,608 | ||||
| Traditional Media Business | 9,549 | 5,827 | ||||||
| Total consolidated net revenues | $ | 71,055 | $ | 67,435 | ||||
| Operating income: | ||||||||
| Cheers APPs Internet Business | $ | 10,580 | $ | 7,959 | ||||
| Traditional Media Business | 1,643 | 753 | ||||||
| Total segment operating income | 12,223 | 8,712 | ||||||
| Unallocated item * | (584 | ) | - | |||||
| Total consolidated operating income | $ | 11,639 | $ | 8,712 | ||||
| * | The unallocated item for the six months ended June 30, 2024 and 2023 presents the share-based compensation for employees, which is not allocated to segments. |
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. Period-to-period 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 Six Months Ended June 30, | ||||||||||||||||||||||||
| In U.S. dollars in thousands | ||||||||||||||||||||||||
| 2024 | 2023 | Change | ||||||||||||||||||||||
| US$ | % | US$ | % | US$ | % | |||||||||||||||||||
| Revenues | 71,055 | 100.00 | 67,435 | 100.00 | 3,620 | 5.37 | ||||||||||||||||||
| Operating expenses: | ||||||||||||||||||||||||
| Cost of revenues | (18,885 | ) | (26.58 | ) | (16,946 | ) | (25.13 | ) | (1,939 | ) | 11.44 | |||||||||||||
| Selling and marketing | (37,559 | ) | (52.86 | ) | (38,870 | ) | (57.64 | ) | 1,311 | (3.37 | ) | |||||||||||||
| General and administrative | (1,611 | ) | (2.27 | ) | (2,266 | ) | (3.36 | ) | 655 | (28.91 | ) | |||||||||||||
| Research and development | (1,361 | ) | (1.92 | ) | (641 | ) | (0.95 | ) | (720 | ) | 112.32 | |||||||||||||
| Total operating expenses | (59,416 | ) | (83.63 | ) | (58,723 | ) | (87.08 | ) | (693 | ) | 1.18 | |||||||||||||
| Income from operations | 11,639 | 16.37 | 8,712 | 12.92 | 2,927 | (33.60 | ) | |||||||||||||||||
| Total other income, net | 200 | 0.28 | 124 | 0.19 | 76 | 61.29 | ||||||||||||||||||
| Income before income taxes | 11,839 | 16.65 | 8,836 | 13.11 | 3,003 | 33.99 | ||||||||||||||||||
| Income tax benefits (expenses) | 578 | 0.81 | (37 | ) | (0.05 | ) | 615 | (1,662.16 | ) | |||||||||||||||
| Net income | 12,417 | 17.46 | 8,799 | 13.06 | 3,618 | 41.12 | ||||||||||||||||||
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Revenues
For the June 30, 2024 and 2023, we primarily generated revenues from three revenue streams: advertising, copyright licensing, and CHEERS e-Mall market service. For the six months ended June 30, 2024 and 2023, 99.7% and 96.2% of our revenue derived from advertising services.
Our revenues for the six months ended June 30, 2024 were approximately $71.1 million, representing an increase of approximately $3.7 million, or 5.37% from approximately $67.4 million for the six months ended June 30, 2023. The increase in revenues was mainly caused by an increase of approximately $6.0 million in advertising revenues as a result of continuous efforts to expand our customer base through improving our content production quality, partially net off against a decrease of approximately $2.5 million in copyrights revenues as we did not provide copyright licensing services in the first half of 2024.
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 increased by approximately $2.0 million, or 11.44%, from approximately $16.9 million for the six months ended June 30, 2023 to approximately $18.9 million for the six months ended June 30, 2024. The increase in cost of revenues was attributable to the increase in revenues generated from advertising services. However our gross margin decreased which was primarily due to decrease in the high-margin service of copyright licensing in the first half 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.
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 $1.3 million, to approximately $37.6 million for the six months ended June 30, 2024 from approximately $38.9 million for the six months ended June 30, 2023. The decrease was mainly due to a decrease in promotion service charge because we reduced cost in marketing and promotion as we believe we have gained reputation among our target customers.
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 from approximately $2.3 million for the six months ended June 30, 2023 to approximately $1.6 million for the six months ended June 30, 2024. The decrease in general and administrative expenses was mainly attributable to the decrease approximately $1.1 million in provision against doubtful allowance as we wrote off accounts receivable due from one customer in the first half of 2023, partially net off against an increase of approximately $0.6 million in share-based compensation expenses because we granted restricted shares to one employee in June 2024.
Our research and development expenses consist primarily of salaries and benefits for our research and development department. Research and development expenses for the six months ended June 30, 2024 and 2023 were approximately $1.4 million and approximately $0.6 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.
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Income tax benefits (expense)
Income tax benefits for the six months ended June 30, 2024 were approximately $0.6 million because we recognized deferred tax benefits arising from allowance of prepayments. Income tax expenses for the six months ended June 30, 2023 were US$0.04 million because we reversed certain deferred tax assets arising from allowance for doubtful receivables as a result of writing off these receivables from our customers.
Net Income
As a result of the foregoing, we had reported a net income of US$12.4 million and US$8.8 million, respectively, for the six months ended June 30, 2024 and 2023.
B. Liquidity and Capital Resources
As of June 30, 2024 and December 31, 2023, our principal sources of liquidity were cash and cash equivalents of approximately $186.1 million and $194.2 million, respectively. Working capital as of June 30, 2024 was approximately $268.5 million. 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 June 30, 2024 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.
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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 Six Months Ended (In U.S. dollars in thousands) | ||||||||
| 2024 | 2023 | |||||||
| Net cash (used in) provided by operating activities | $ | (6,741 | ) | $ | 27,179 | |||
| Net cash used in investing activities | - | (62 | ) | |||||
| Net cash provided by financing activities | 2,972 | 60,009 | ||||||
| Effect of exchange rate changes | (4,376 | ) | (5,167 | ) | ||||
| Net (decrease) increase in cash and cash equivalents | (8,145 | ) | 81,959 | |||||
| Cash and cash equivalents, at beginning of period | 194,525 | 70,482 | ||||||
| Cash and cash equivalents, at end of period | $ | 186,380 | $ | 152,441 | ||||
We primarily fund our operations from our net revenues, bank loans and equity financing through private placements. During the six months ended June 30, 2024, our account receivables decreased by approximately $1.4 million. 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 six months ended June 30, 2024, our prepayments and other current assets increased by approximately $16.6 million, which was 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 used in operating activities was approximately $6.7 million for the six months ended June 30, 2024, derived mainly from (i) net income of approximately $12.4 million for the six months ended June 30, 2024 adjusted for depreciation and amortization expenses of approximately $1.7 million and deferred tax benefits of approximately $0.6 million, and (ii) net changes in our operating assets and liabilities, principally comprising of an increase of approximately $17.8 million in prepayments to our vendors because we increased our purchase of content production which required of repayments, a decrease of approximately $6.9 million in accounts payables as we improved our payment process, and an increase of approximately $4.4 million in other tax payable with increase in revenues.
Net cash provided by operating activities was approximately $27.2 million for the six months ended June 30, 2023, derived mainly from (i) net income of approximately $8.8 million for the six months ended June 30, 2023 adjusted for depreciation and amortization expenses of approximately $1.6 million, and (ii) net changes in our operating assets and liabilities, principally comprising of a decrease of approximately $28.5 million in accounts receivable because we improvement our collections from customers, and an increase of approximately $3.5 million in prepayments to our vendors because we increased our purchase of content production which required of repayments.
Investing Activities
For the six months ended June 30, 2024, we did not report cash provided by or used in investing activities. Net cash used in investing activities was approximately $0.06 million for the six months ended June 30, 2023, which was primarily derived from the loans of approximately $0.06 million to a third party.
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Financing Activities
Net cash provided by financing activities was approximately $3.0 million for the six months ended June 30, 2024, which was primarily derived from proceeds of approximately $7.1 million from bank borrowings, borrowings of approximately $0.2 million from a related party, partially net off by a repayment of bank borrowings of approximately $4.2 million.
Net cash provided by financing activities was US$60.0 million for the six months ended June 30, 2023, which was primarily derived from proceeds of US$60 million raised from the private placement closed in May 2023, proceeds of US$2.6 million from bank borrowings, borrowings of US$1.0 million from a related party, partially net off by a repayment of bank borrowings of US$4.0 million.
Please refer to “Notes to Unaudited Condensed 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 unaudited condensed 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.
Capital Expenditures
Our capital expenditures were $nil and $4 for the six months ended June 30, 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. For the six months ended June 30, 2024 and 2023, our research and development expenditures were approximately $1.4 million and approximately $0.6 million, respectively. In addition, intangible asset was approximately $18.2 million and $20.3 million as of June 30, 2024 and December 31, 2023, 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 Operating And Financial Review And Prospects and “Item 3.D. Key Information—Risk Factors” of 2023 Form 20-F.
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.
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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 unaudited condensed 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 unaudited condensed 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 unaudited condensed consolidated financial statements included elsewhere in this report.
Statement Regarding Unaudited Financial Information
The unaudited financial information set forth above is subject to adjustments that may be identified when audit work is performed on the Company’s year-end financial statements, which could result in significant differences from this unaudited financial information.
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Exhibit 99.3
Cheer Holding Reports 2024 Half Year Results
BEIJING, July 31, 2024 (GLOBE NEWSWIRE) -- Cheer Holding, Inc. (NASDAQ: CHR) (“Cheer Holding,” or the “Company”), a leading provider of advanced mobile internet infrastructure and platform services, today announced its financial results for the six months ended June 30, 2024.
Operating Highlights
Total Downloads of CHEERS Apps was approximately 510 million as of June 30, 2024, representing a growth of 17.1% from June 30, 2023. Specifically:
CHEERS Video
| ● | Accumulated downloads of CHEERS Video grew by 10.8% YoY to approximately 430 million as of June 30, 2024. |
| ● | Monthly Active Users of CHEERS Video increased by 2.5% YoY to approximately 51.1 million. |
| ● | Daily Time Spent on CHEERS Video was approximately 55 minutes. |
CHEERS e-Mall
| ● | Accumulated downloads of CHEERS e-Mall grew by 34.2% YoY to 60.7 million as of June 30, 2024. |
| ● | Monthly Active Users of CHEERS e-Mall increased by 49.9% YoY to approximately 6.9 million. |
| ● | Repurchase Rate on CHEERS e-Mall was 38.9%. |
CheerReal
| ● | Accumulated downloads of CheerReal surged by 234.8% YoY to approximately 14.5 million as of June 30, 2024. |
| ● | Monthly Active Users of CheerReal increased by 14.7% YoY to approximately 1.4 million. |
| ● | Number of Digital Art Collections listed on CheerReal raised by 237% to 1,180 units. |
CHEERS Telepathy
| ● | Accumulated downloads of CHEERS Telepathy was approximately 11.3 million as of June 30, 2024. |
| ● | Monthly Active Users of CHEERS Telepathy was approximately 900 thousand. |
| ● | Monthly Visits were approximately 3.4 million. |
CHEERS Open Data
| ● | Total API calls was 58 million as of June 30, 2024. |
| ● | Daily API calls was more than 320 thousand. |
Financial Highlights
| ● | Revenues for the first half 2024 reached approximately $71.1 million. |
| ● | Net income reached $12.4 million. |
Selected Financial Results
Revenues
Our revenues for the six months ended June 30, 2024 were approximately $71.1 million, representing an increase of approximately $3.6 million, or 5.37% from approximately $67.4 million for the six months ended June 30, 2023.
The increase was mainly caused by an increase of approximately $6.0 million in advertising revenues as a result of continuous efforts to expand our customer base, partially net off against a decrease of approximately $2.5 million in copyrights revenues as we did not provide copyright licensing services in the first half of 2024.
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 increased by 11.44% during the first half of 2024, driven by the increase in advertising revenues, despite a decrease in high-margin copyright licensing that reduced gross margin. |
| ● | Sales and marketing expenses decreased by approximately $1.3 million, to approximately $37.6 million for the six months ended June 30, 2024. The decrease was mainly due to a decrease in promotion service charge, because the Company reduced cost in marketing and promotion as we believe we have gained reputation among our target customers. |
| ● | General and administrative expenses decreased to approximately $1.6 million for the six months ended June 30, 2024. The decrease in general and administrative expenses was mainly attributable to a decrease of approximately $1.1 million in provision against doubtful allowance, which was partially offset by an increase of $0.6 million in share-based compensation granted to one employee. |
| ● | Research and development expenses for the six months ended June 30, 2024 and 2023 were approximately $1.4 million and approximately $0.6 million, respectively, as the Company continued investing in IT infrastructure, user experience, and content strategies. |
Net Income
As a result of the foregoing, the Company reported a net income of $12.4 million and $8.8 million, respectively, for the six months ended June 30, 2024 and 2023.
Cash, cash equivalents and working capital
As of June 30, 2024 and December 31, 2023, the Company’s principal sources of liquidity were cash and cash equivalents of approximately $186.1 million and $194.2 million, respectively. Working capital as of June 30, 2024 was approximately $268.5 million.
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About Cheer Holding, Inc.
As a preeminent provider of next-generation mobile internet infrastructure and platform services in China, Cheer Holding is dedicated to building a digital ecosystem that integrates “platforms, applications, technology, and industry” into a cohesive digital eco-system, thereby creating a new, open business environment for web3.0 that leverages AI technology. The Company is developing a 5G+VR+AR+AI shared universe space that builds on cutting-edge technologies including blockchain, cloud computing, extended reality, and digital twin.
Cheer Holding’s portfolio includes a wide range of products and services, such as AI-powered content creation platform CHEERS Telepathy, CHEERS Lifestyle, CHEERS e-Mall, Yaoshi TTX, CheerReal, CHEERS Open Data Platform, CheerCar, CheerChat, CHEERS Fresh Group-Buying E-commerce Platform, Polaris Intelligent Cloud, Digital Innovation Research Institute, AI-animated short drama series, CHEERS video matrix, IP short video matrix, variety show series, CHEERS Livestreaming, and more. These offerings provide diverse application scenarios that seamlessly blend “online/offline” and “virtual/reality” elements.
With “CHEERS+” at the core of Cheer Holding’s digital ecosystem, the Company is committed to utilizing innovative product applications and technologies to drive its long-term sustainable and scalable growth.
For more information, please visit http://ir.gsmg.co/.
Safe Harbor Statement
Certain statements made in this release are “forward looking statements” within the meaning of the “safe harbor” provisions of the United States Private Securities Litigation Reform Act of 1995. When used in this press release, the words “estimates,” “projected,” “expects,” “anticipates,” “forecasts,” “plans,” “intends,” “believes,” “seeks,” “may,” “will,” “should,” “future,” “propose” and variations of these words or similar expressions (or the negative versions of such words or expressions) are intended to identify forward-looking statements. These forward-looking statements are not guarantees of future performance, conditions or results, and involve a number of known and unknown risks, uncertainties, assumptions and other important factors, many of which are outside the Company’s control, that could cause actual results or outcomes to differ materially from those discussed in the forward-looking statements. Important factors, among others, are: the ability to manage growth; ability to identify and integrate other future acquisitions; ability to obtain additional financing in the future to fund capital expenditures; fluctuations in general economic and business conditions; costs or other factors adversely affecting our profitability; litigation involving patents, intellectual property, and other matters; potential changes in the legislative and regulatory environment; a pandemic or epidemic; the occurrence of any event, change or other circumstances that could affect the Company’s ability to continue successful development and launch of its metaverse experience centers; the possibility that the Company may not succeed in developing its new lines of businesses due to, among other things, changes in the business environment and technological developments, competition, changes in regulation, or other economic and policy factors; disruptions or other business interruptions that may affect the operations of our products and services, the possibility that the Company’s new lines of business may be adversely affected by other economic, business, and/or competitive factors; other factors, risks and uncertainties set forth in documents filed by the Company with the Securities and Exchange Commission from time to time, including the Company’s latest Annual Report on Form 20-F filed with the SEC on March 22, 2023, as amended. The Company undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by applicable law. Such information speaks only as of the date of this release.
For investor and media inquiries, please contact:
Wealth Financial Services LLC
Connie Kang, Partner
Email: ckang@wealthfsllc.com
Tel: +86 1381 185 7742 (CN)
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CHEER HOLDING, INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(In U.S. dollars in thousands, except share and per share data)
June 30, 2024 | December 31, 2023 | |||||||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 186,089 | $ | 194,227 | ||||
| Restricted cash | 291 | 298 | ||||||
| Accounts receivable, net | 79,818 | 81,170 | ||||||
| Prepayment and other current assets | 47,803 | 31,179 | ||||||
| Total current assets | 314,001 | 306,874 | ||||||
| Property, plant and equipment, net | 53 | 85 | ||||||
| Intangible assets, net | 18,176 | 20,255 | ||||||
| Deferred tax assets | 601 | 41 | ||||||
| Unamortized produced content, net | 16 | - | ||||||
| Right-of-use assets | 394 | 377 | ||||||
| Total non-current assets | 19,240 | 20,758 | ||||||
| TOTAL ASSETS | $ | 333,241 | $ | 327,632 | ||||
| Liabilities and Equity | ||||||||
| Current liabilities: | ||||||||
| Short-term bank loans | $ | 6,880 | $ | 4,216 | ||||
| Accounts payable | 2,671 | 9,599 | ||||||
| Contract liabilities | 126 | 130 | ||||||
| Accrued liabilities and other payables | 3,881 | 3,764 | ||||||
| Other taxes payable | 31,774 | 28,178 | ||||||
| Lease liabilities current | 144 | 330 | ||||||
| Total current liabilities | 45,476 | 46,217 | ||||||
| Long-term bank loan | 1,376 | 1,408 | ||||||
| Lease liabilities non-current | 241 | - | ||||||
| Total non-current liabilities | 1,617 | 1,408 | ||||||
| TOTAL LIABILITIES | $ | 47,093 | $ | 47,625 | ||||
| Equity | ||||||||
| Ordinary shares (par value of $0.001 per share; 200,000,000 shares authorized as of June 30, 2024 and December 31, 2023; 10,301,921 and 10,070,012 shares issued and outstanding as of June 30, 2024 and December 31, 2023, respectively) | $ | 10 | $ | 10 | ||||
| Additional paid-in capital | 106,795 | 106,215 | ||||||
| Statutory reserve | 1,411 | 1,411 | ||||||
| Retained earnings | 193,578 | 181,162 | ||||||
| Accumulated other comprehensive loss | (15,723 | ) | (8,869 | ) | ||||
| TOTAL CHEER HOLDING, INC SHAREHOLDERS’ EQUITY | 286,071 | 279,929 | ||||||
| Non-controlling interest | 77 | 78 | ||||||
| TOTAL EQUITY | 286,148 | 280,007 | ||||||
| TOTAL LIABILITIES AND EQUITY | $ | 333,241 | $ | 327,632 | ||||
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CHEER HOLDING, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND
COMPREHENSIVE INCOME (LOSS)
(In U.S. dollars in thousands, except share and per share data)
| For the Six Months Ended June 30, | ||||||||
| 2024 | 2023 | |||||||
| Revenues | $ | 71,055 | $ | 67,435 | ||||
| Operating expenses: | ||||||||
| Cost of revenues | (18,885 | ) | (16,946 | ) | ||||
| Selling and marketing | (37,559 | ) | (38,870 | ) | ||||
| General and administrative | (1,611 | ) | (2,266 | ) | ||||
| Research and development | (1,361 | ) | (641 | ) | ||||
| Total operating expenses | (59,416 | ) | (58,723 | ) | ||||
| Income from operations | 11,639 | 8,712 | ||||||
| Other income (expenses): | ||||||||
| Interest income, net | 223 | 32 | ||||||
| Change in fair value of warrant liability | - | 79 | ||||||
| Other (expense) income, net | (23 | ) | 13 | |||||
| Total other income | 200 | 124 | ||||||
| Income before income tax | 11,839 | 8,836 | ||||||
| Income tax benefits (expenses) | 578 | (37 | ) | |||||
| Net income | 12,417 | 8,799 | ||||||
| Less: net gain attributable to non-controlling interest | 1 | 52 | ||||||
| Net income attributable to Cheer Holding. Inc’s shareholders | $ | 12,416 | $ | 8,747 | ||||
| Other comprehensive loss | ||||||||
| Unrealized foreign currency translation loss | (6,856 | ) | (8,907 | ) | ||||
| Comprehensive income (loss) | 5,561 | (108 | ) | |||||
| Less: comprehensive loss attributable to non-controlling interests | (1 | ) | - | |||||
| Comprehensive income (loss) attributable to Cheer Holding. Inc’s shareholders | $ | 5,562 | $ | (108 | ) | |||
| Earnings per ordinary share | ||||||||
| Basic and Diluted | $ | 1.23 | $ | 1.17 | ||||
| Weighted average shares used in calculating earnings per ordinary share | ||||||||
| Basic and Diluted | 10,058,846 | 7,507,504 | ||||||
5
CHEER HOLDING, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In U.S. dollars in thousands)
| For the Six Months Ended June 30, | ||||||||
| 2024 | 2023 | |||||||
| Net cash (used in) provided by operating activities | (6,741 | ) | 27,179 | |||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Purchase of property, plant and equipment | - | (4 | ) | |||||
| Loans made to a third party | - | (58 | ) | |||||
| Net cash used in investing activities | - | (62 | ) | |||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Proceeds from issuance of ordinary shares in connection with a private placement | - | 60,000 | ||||||
| Proceeds from bank loans | 7,071 | 2,598 | ||||||
| Repayments of bank loans | (4,242 | ) | (4,041 | ) | ||||
| Payment of loan origination fees | (58 | ) | (11 | ) | ||||
| Borrowings from a related party | 205 | 1,000 | ||||||
| Contribution from shareholders | - | 463 | ||||||
| Withdrawal of contribution from shareholder | (4 | ) | - | |||||
| Net cash provided by financing activities | 2,972 | 60,009 | ||||||
| Effect of exchange rate changes | (4,376 | ) | (5,167 | ) | ||||
| Net (decrease) increase in cash and cash equivalents | (8,145 | ) | 81,959 | |||||
| Cash and cash equivalents, at beginning of period | 194,525 | 70,482 | ||||||
| Cash and cash equivalents, at end of period | $ | 186,380 | 152,441 | |||||
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | ||||||||
| Interests paid | $ | 199 | $ | 77 | ||||
| Lease liabilities arising from obtaining right-of-use assets | $ | 466 | $ | 202 | ||||
| Change in fair value of warrant liabilities | $ | - | $ | (79 | ) | |||
RECONCILIATION OF CASH, CASH EQUIVALENTS AND RESTRICTED CASH TO THE CONSOLIDATED BALANCE SHEETS
June 30, 2024 | December 31, 2023 | |||||||
| Cash and cash equivalents | $ | 186,089 | $ | 194,227 | ||||
| Restricted cash | 291 | 298 | ||||||
| $ | 186,380 | $ | 194,525 | |||||
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