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