Cheer Holding, Inc.

Glory Star New Media Group Holdings Limited (the "Company") operates in the rapidly growing e-commerce and online video content industries in China. The Company provides advertisement and content production services, and operates a mobile and online advertising, digital media, and entertainment business. The e-commerce market in China reached RMB15,242 billion ⁴ in 2018, growing at a compound annual growth rate (CAGR) of 17.6% ⁵ from 2014 to 2018. The online shopper population reached 610 million ⁶ in 2018, with 97% ⁷ being mobile shoppers, and is projected to reach 900 million ⁸ by 2021 at a CAGR of 13.8% ⁹. The online video user population in China reached 0.59 billion ¹⁰ by the end of 2018, with a CAGR of 17% ¹¹ from 2014 to 2018. The proprietary PGC (Professional Generated Content) video content-driven e-commerce platform market, where the Company operates, was approximately RMB2.6 billion ¹² in terms of GMV in 2018, with a CAGR of 191.5% ¹³ from 2016 to 2018, and is expected to grow to RMB19.5 billion ¹⁴ by 2023 at a CAGR of 47.6% ¹⁵.

The Company's core business model revolves around its CHEERS App, a content-driven e-commerce platform launched in 2018. The CHEERS App integrates an online store (e-Mall), video content, live streaming, and online games, leveraging a rich library of original professionally-produced content to attract and retain users. The Company generates revenue through service fees and commissions from third-party merchants on its e-Mall, advertising revenues from pre-video, in-video, banner, and pop-up advertisements, soft product placements, and in-app purchases for online games. The Company also generates revenue by licensing its series TV shows to TV stations with exclusive advertising times and charging advertising fees, and through production services for third-party advertising agencies.

The CHEERS App is the Company's core platform, offering an e-Mall, live streaming, online short videos, and online games. The e-Mall, launched in April 2019, carried over 13,180 Stock Keeping Units ("SKUs") ¹⁶ as of December 31, 2019, and recorded over RMB133.76 million (US$19.36 million) ¹⁷ in gross merchandise value ("GMV") for the year ended December 31, 2019. Its monthly GMV reached RMB33.73 million (US$4.82 million) ¹⁸ in December 2019, up from RMB1.3 million (US$0.2 million) ¹⁹ in April 2019. The Company has 4 live streaming shows in production, including Shopping Genius, Bargaining Genius, Guessing Game, and Unbeatable Lucky Card, each 90-minute segments ²⁰. The Company has also developed four (4) ²¹ online games for the CHEERS App.

The Company's content production includes series TV shows and drama & variety shows. The series TV shows, which began production in February 2017, include six (6) lifestyle shows: Cheers Food, Cheers Health, Cheers Fashion, Cheers Baby, Cheers Space, and Cheers World, each 30 minutes ²² in length. These shows are distributed on online video platforms, mobile apps, IPTV, and television channels, including satellite stations like Anhui Satellite Television and Shenzhen Satellite Television. The Company has partnered with third parties to produce and license original online drama and variety show series, such as My Greatest Hero, Hi! Rap Season 1 (developed in 2018), and Hi! Rap Season 2 (developed in 2019). As of February 28, 2020, the Company has distributed over 86,000 minutes ²³ of proprietary video content, achieving more than 7.5 billion views ²⁴ cumulatively. Downloads of the CHEERS App were approximately 6.2 million ²⁵ in 2018 and 72.5 million ²⁶ in 2019, with cumulative downloads exceeding 12 million ²⁷ and 85 million ²⁸ as of December 31, 2018 and 2019, respectively.

For the year ended December 31, 2019, the Company (TKK, prior to the Business Combination) reported net income of $3.28 million ²⁹. This consisted of interest income on marketable securities held in the Trust Account of $5.61 million ³⁰ and an unrealized gain on marketable securities held in the Trust Account of $19,313 ³¹, offset by operating costs of $2.35 million ³². For the period from February 5, 2018 (inception) through December 31, 2018, the Company had net income of $1.61 million ³³, with interest income on marketable securities held in the Trust Account of $1.95 million ³⁴, offset by operating costs of $0.28 million ³⁵ and an unrealized loss on marketable securities of $61,139 ³⁶. Cash used in operating activities was $1.72 million ³⁷ for the year ended December 31, 2019, and $0.37 million ³⁸ for the period from February 5, 2018 (inception) through December 31, 2018. As of December 31, 2019, the Company had cash of $34,527 ³⁹ held outside the trust account and marketable securities held in the trust account of $256.52 million ⁴⁰. Total liabilities were $1,930,410 ⁴¹ as of December 31, 2019, including a convertible promissory note of $1,100,000 ⁴² to a related party and advances from a related party of $250,000 ⁴³.

The Company anticipates needing approximately $75 million ⁴⁴ to support its working capital needs in the next twelve (12) months. Historically, working capital requirements have been funded through profits, bank loans, and private placement of capital. As of June 30, 2019, the Company had approximately $38.2 million ⁴⁵ in working capital.

The Company's growth strategy is centered on expanding its user and customer bases and exploring new market opportunities. This includes continuing to produce new original content and sourcing new talent and producers in a cost-effective manner to offer high-quality content and a superior online entertainment experience. The Company also plans to introduce new features or service offerings and change the mix of existing features and services.

Operationally, the Company needs to continuously expand and enhance its infrastructure and technology, and improve its operational and financial systems, procedures, compliance, and controls to manage its rapid growth. This also involves expanding, training, and managing its growing employee base, and maintaining and expanding relationships with distributors, advertising customers, and other third parties. The Company's ability to adapt to continuous technological changes and user behavior, particularly on mobile devices, is crucial. This includes successfully deploying apps on popular mobile operating systems and incurring additional costs and expenses for developing tools and software for access to its e-commerce platform by various devices and systems.

The Company's capital allocation plans include continued investment in content production or acquisition and video production technology. On February 14, 2020, the Company's board of directors approved its 2019 Equity Incentive Plan, which allows for the award of stock and options, up to 3,732,590 ⁴⁶ ordinary shares. The Company does not plan to declare or pay any cash dividends on its ordinary shares in the foreseeable future and intends to retain any future earnings for funding growth.

The Company explicitly flagged several structural headwinds and execution risks to its growth plan. These include the capital-intensive nature of the industry and the requirement for significant cash to fund operations and produce/acquire high-quality video content. Failure to obtain adequate capital could materially and adversely affect strategic growth plans. The Company also highlighted the risk of not being able to retain users and attract new users if it fails to provide compelling content choices and a quality viewing experience. Competition for qualified personnel in a limited pool of high-quality creative talent is a concern, as is the ability to offer popular original content cost-effectively. The Company also noted the risk of not being able to offer branded products at attractive prices on its e-commerce platform or if its reputation for selling authentic, high-quality products suffers.

The Company faces material risks including those related to the ongoing COVID-19 pandemic, which has caused significant volatility in markets, delayed the audit of financial statements, and may impede timely SEC filings. Operational risks include the highly competitive market, potential failure to anticipate user preferences and provide high-quality content, the capital-intensive nature of the industry requiring significant cash, and the inability to retain or attract new advertising customers. The Company's reliance on third-party platforms for video content distribution and payment processing also presents risks. Furthermore, the Company is vulnerable to unforeseen costs and potential liability from content it produces, licenses, and distributes, including claims for negligence, copyright, and trademark infringement. Regulatory risks include the potential for PRC authorities to find content objectionable, leading to penalties, and uncertainties in the interpretation and enforcement of PRC laws, particularly regarding the VIE Contracts, which could be deemed non-compliant. Economic slowdowns in China and trade disputes between the United States and China could adversely affect consumer spending and advertising budgets. The Company also faces risks related to the protection of intellectual property rights, the performance and reliability of China's internet infrastructure, and cybersecurity breaches. Delays in issuing VAT invoices due to Chinese taxing authorities may materially and adversely affect cash flow. The Company's preferential tax treatments are subject to discontinuation, which could increase the income tax rate up to 25% ⁴⁷.

Management's message to shareholders emphasizes the Company's vision to become a world-leading mobile media and entertainment company, providing an integrative platform for e-commerce and high-quality lifestyle entertainment. They highlight the rapid growth of the CHEERS App, with downloads increasing from approximately 6.2 million ⁴⁸ in 2018 to 72.5 million ⁴⁹ in 2019, and cumulative views exceeding 7.5 billion ⁵⁰. Management believes they have met the financial performance targets for the 2019 fiscal year, which would entitle sellers to earnout payments of up to an additional 5,000,000 ⁵¹ ordinary shares. Key strategic priorities include leveraging the rich library of original professionally-produced content to drive user engagement and expand the CHEERS App ecosystem, continuing to produce, create, and add to its content library, and expanding into e-commerce services by integrating them with professionally-produced content.