Cheer Holding / Glory Star — FY2021 Form 20-F Summary
Reporting-period note: The supplied filing is the annual report of Glory Star New Media Group Holdings Limited (Nasdaq: GSMG; CHEERS brand), for the fiscal year ended December 31, 2021—not a standalone 2021 Q4 report. The filing was signed March 8, 2022, and reports under U.S. GAAP. No separate quarterly results are provided in the supplied text.
Business context
The Cayman Islands holding company conducts its China operations through subsidiaries and variable interest entities (VIEs), including Horgos and Xing Cui Can, under contractual arrangements rather than direct equity ownership. Its businesses span digital advertising and media, content production and licensing, and the CHEERS video and e-commerce platforms. Management is also developing adjacent products, including metaverse/NFT initiatives, CheerCar and CheerChat.
Financial performance and liquidity
| Metric | FY2020 | FY2021 |
|---|---|---|
| Revenue | $123.8 million | $153.0 million |
| Cost of revenue / gross margin | $38.5 million / 68.9% | $34.9 million / 77.2% |
| Operating expenses | $93.1 million | $116.7 million |
| Operating income / margin | $30.7 million / 24.8% | $36.3 million / 23.7% |
| Net income | $49.0 million | $35.4 million |
| Net cash from operating activities | $8.7 million | $46.5 million |
| Cash and cash equivalents at year-end | $17.7 million | $77.3 million |
| Total liabilities | $38.9 million | $35.7 million |
- Revenue increased 23.6%. Advertising revenue rose 27.0% to $132.9 million; CHEERS e-Mall marketplace service revenue increased to $6.8 million from $1.5 million. Copyright revenue was $7.5 million, and customized content production revenue was $5.3 million.
- Selling and marketing expense rose 76.9% to $77.5 million, chiefly from marketing and user-acquisition spending. It equaled 50.7% of revenue. General and administrative expense fell to $3.3 million from $10.1 million, partly because no comparable 2021 option grants were made.
- Net income declined 27.8%, despite higher operating income. FY2020 included a $19.7 million noncash gain from remeasuring private placement warrants; the corresponding FY2021 gain was $0.8 million. FY2021 basic and diluted EPS were each $0.54, versus $0.91 and $0.83, respectively, in restated FY2020.
- Operating cash flow strengthened as accounts receivable declined by $19.9 million, after increasing substantially in FY2020. Investing activities used $1.1 million; financing activities provided $13.3 million, including $15.3 million of equity proceeds.
- Year-end current assets were $153.5 million and current liabilities $34.6 million, implying working capital of $119.0 million and a current ratio of about 4.4. Year-end bank loans were $5.0 million, all current; the company also reported $1.4 million of lease liabilities and $0.5 million due to related parties. Cash was primarily held in China and was uninsured.
Material changes and unusual items
- The CHEERS App grew to approximately 271 million cumulative downloads from 169 million, and average monthly active users increased to 47.6 million from 37.7 million. E-Mall GMV rose to $409 million from $132 million; GMV is order value and is not equivalent to recognized revenue.
- CHEERS APP Internet Business revenue increased to $135.3 million from $83.6 million, while Traditional Media Business revenue decreased to $17.7 million from $40.2 million. Traditional Media operating income fell to $4.2 million from $11.7 million.
- The company restated FY2020 financial statements after determining that private placement warrants should be accounted for as liabilities and remeasured at fair value. The restatement added $19.7 million to FY2020 income and recorded an $0.8 million warrant liability at year-end 2020.
- Shares outstanding increased from 57.9 million to 68.1 million during 2021, including equity offerings and 5.0 million earn-out shares. The company raised approximately $11.3 million net in its February 2021 offering and $1.7 million net from the March over-allotment; a separate August subscription agreement was only partly funded.
Outlook, risks and controls
- Management said existing cash and anticipated operating cash flows should cover working capital and capital expenditures for the next 12 months. It gave no quantified revenue, earnings or margin guidance, and said it expects to reinvest earnings rather than pay dividends.
- Management described continued investment in CHEERS, user acquisition and content, and development of metaverse/NFT, CheerCar and CheerChat offerings. These initiatives are subject to execution, funding, market-acceptance and regulatory uncertainties.
- Key risks include dependence on China advertising and third-party platforms; customer and receivable concentration; content costs and competition; uninsured operating and bank-deposit risks; currency and cash-transfer restrictions; and PRC regulatory uncertainty involving data, overseas listings and VIE arrangements. The company states that substantially all consolidated results and cash flows are attributable to its VIEs.
- The filing says management found a material weakness in financial reporting due to insufficient personnel with U.S. GAAP and SEC-reporting expertise. Management concluded disclosure controls and internal control over financial reporting were not effective at December 31, 2021; remediation plans include hiring and training. The external auditor did not attest to ICFR. The FY2021 financial-statement audit opinion was unqualified and issued by Singapore-based Assentsure PAC, which the filing says is PCAOB-inspectable.
- The company reported no material legal proceedings pending. It also reported no PRC cybersecurity investigation or notice as of the report date, while warning that evolving rules and future financing or listing activity could create additional review requirements.
Important facts for investors to verify
- Confirm the issuer identity: the supplied 20-F names Glory Star New Media Group Holdings Limited, not “Cheer Holding, Inc.”, and covers the full 2021 fiscal year rather than Q4 alone.
- Review the FY2020 warrant-related restatement and distinguish reported net income from operating performance and cash generation.
- Assess the sustainability and returns of the sharp increase in marketing spend, and the quality and collection timing of receivables given customer concentration.
- Verify the status of the material weakness remediation and whether subsequent filings report effective controls or further accounting adjustments.
- Evaluate VIE enforceability, PRC regulatory developments, cash availability outside China, and the consequences of potential equity dilution and unexercised or outstanding warrants.