F-1/A: Cheer Holding Amends F-1, Details Unregistered Share Sales

Cheer Holding, Inc. filed an amendment to its F-1 registration statement, primarily to include legal opinions and disclose recent private placements of ordinary and Class B shares totaling $80,000,500.

Summary

• This is Amendment No. 2 to the Form F-1 Registration Statement (File No. 333-289372) filed by Cheer Holding, Inc.
• The amendment was filed solely to include Exhibits 4.5, 5.1, 5.2, 23.1, and 23.5; the preliminary prospectus remains unchanged and has been omitted.
• Indemnification provisions for officers and directors are detailed, aligning with Cayman Islands law, except for actual fraud, willful default, or willful neglect.
• The company expects to purchase directors and officers liability insurance.
• Officers and directors have waived any claim to monies in the trust account, except for funds due to their ownership of public shares.
• The SEC's opinion states that indemnification for liabilities under the Securities Act is against public policy and unenforceable.
• On April 18, 2023, 2,419,355 ordinary shares were sold to two accredited investors at $24.80 per share, raising $60,000,000. This price represented a 60% premium over the $15.50 privatization price approved on November 11, 2022.
• On August 16, 2023, 806,452 ordinary shares were sold to two non-U.S. accredited investors at $24.80 per share, raising $20,000,000.
• On September 9, 2024, 500,000 Class B Shares were sold to Mr. Bing Zhang, the company's Chairman, CEO, and CFO, at par ($0.001 per share) for an aggregate of $500.
• The registration statement covers the offering and sale of up to 8,000,000 units at an assumed offering price of US$1.50 per unit.
• Each unit consists of one Class A ordinary share (or a pre-funded warrant) and one Series A warrant and one Series B warrant, each exercisable at an assumed initial price of US$1.58 per Class A Ordinary Share.
• The offering also includes up to 8,000,000 Class A Ordinary Shares underlying the Pre-Funded Warrants and up to 73,000,000 Class A Ordinary Shares underlying the Series A and Series B Warrants.

Sentiment

Score: 6

Explanation: The filing is primarily procedural, updating legal exhibits and detailing past successful private placements. The prior capital raises at a significant premium are positive, while the delay in the effective date of the registration statement is a common procedural step for F-1 amendments, not necessarily a negative indicator of company performance.

Positives

• Successfully completed private placements in 2023, raising an aggregate of $80,000,000, indicating investor confidence.
• The 2023 private placement share price of $24.80 represented a significant 60% premium over the prior privatization price of $15.50.
• Issuance of Class B shares to Chairman, CEO, and CFO Mr. Bing Zhang demonstrates management's direct investment and alignment of interests.
• Legal opinions from Cayman Islands and U.S. counsel confirm the due authorization and valid issuance of the Class A Ordinary Shares, Units, and Warrants under relevant laws.

Negatives

• The SEC's stated opinion that indemnification for liabilities arising under the Securities Act is against public policy and unenforceable creates potential uncertainty for directors and officers.
• Indemnification obligations can only be satisfied if the company has sufficient funds outside of a trust account or consummates an initial business combination, which may limit immediate protection.
• The registration statement's effective date is being delayed, indicating the public offering process is not yet finalized.

Risks

• Enforcement of indemnification provisions for directors and officers may be limited by bankruptcy, insolvency, or other laws protecting creditors' rights.
• Equitable remedies, such as specific performance, may not be available in all circumstances, potentially limiting the enforceability of contractual obligations.
• The validity of shares may be subject to re-examination by a Cayman Islands court if an application for rectification of the register of members is made.
• The SEC's position that indemnification for Securities Act liabilities is against public policy could expose directors and officers to greater personal liability.
• The company's ability to satisfy indemnification claims is contingent on having sufficient funds outside of a trust account or completing an initial business combination.

Future Outlook

The proposed sale to the public is expected to commence as soon as practicable after the effective date of the registration statement. The company undertakes to file post-effective amendments to include updated prospectuses, reflect fundamental changes, or include material distribution information during any period of offers or sales. Additionally, post-effective amendments will be filed to include financial statements required for delayed or continuous offerings.

Management Comments

• The Registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended or until the registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to such Section 8(a), may determine.
• Our officers and directors have agreed to waive any right, title, interest or claim of any kind in or to any monies in the trust account, and have agreed to waive any right, title, interest or claim of any kind they may have in the future as a result of, or arising out of, any services provided to us and will not seek recourse against the trust account for any reason whatsoever (except to the extent they are entitled to funds from the trust account due to their ownership of public shares).

Industry Context

This F-1/A filing is a procedural amendment for a foreign private issuer's initial public offering in the U.S. The details regarding units, warrants, and prior private placements are typical of companies seeking to raise capital and structure their public market entry. The indemnification clauses and the SEC's stance on Securities Act liabilities are standard regulatory considerations for all U.S.-listed companies. As a company based in China, Cheer Holding navigates specific regulatory and geopolitical considerations often associated with U.S. listings for Chinese entities.

Comparison to Industry Standards

• The indemnification provisions for directors and officers are typical for public companies, aiming to protect management from liabilities incurred in their roles. However, the SEC's opinion that indemnification for Securities Act liabilities is against public policy is a standard regulatory position for all companies listing in the U.S., not specific to Cheer Holding.
• The private placements at a 60% premium over a prior privatization price suggest strong investor confidence at the time of those placements, which can be a positive signal compared to companies struggling to raise capital, though specific comparable transactions are not detailed in the filing.
• The offering structure, including units with Class A shares, pre-funded warrants, and Series A/B warrants, is a common mechanism used by companies, particularly emerging growth companies, to attract a diverse investor base and offer flexible investment terms during an IPO process.

Corporate Governance

Legal Proceedings

• The SEC has opined that indemnification for liabilities arising under the Securities Act is against public policy and therefore unenforceable. The company undertakes to submit this question to a court of appropriate jurisdiction if a claim for indemnification is asserted, unless settled by controlling precedent.

Related Party Transactions

• On September 9, 2024, the company issued and sold 500,000 Class B Shares to Mr. Bing Zhang, the company's Chairman, Director, Chief Executive Officer, and Chief Financial Officer, at par ($0.001 per share) for an aggregate purchase price of $500.

Stakeholder Impact

• **Shareholders**: Potential dilution from the public offering of units and the exercise of warrants. Existing shareholders benefit from the company's ability to raise capital and the prior private placements at a premium.
• **Directors and Officers**: Indemnification provisions and D&O insurance offer protection against liabilities, though the SEC's stance on Securities Act indemnification creates a degree of legal uncertainty.
• **Prospective Investors**: The offering of units with Class A shares and warrants provides a structured investment opportunity, with terms detailed in the registration statement.
• **Regulatory Bodies (SEC)**: The company's undertakings regarding post-effective amendments and the handling of indemnification claims demonstrate compliance with SEC requirements and ongoing engagement with regulatory oversight.

Next Steps

• File a further amendment to specifically state the registration statement's effective date or await SEC determination.
• Commence the proposed sale to the public as soon as practicable after the effective date of the registration statement.
• File post-effective amendments during any period of offers or sales to include updated prospectuses, reflect fundamental changes, or include material distribution information.
• File post-effective amendments to include financial statements required for delayed or continuous offerings.
• Remove unsold securities from registration at the termination of the offering.
• If a claim for indemnification against Securities Act liabilities is asserted, and not settled by controlling precedent, the company will submit the question of enforceability to a court of appropriate jurisdiction.

Key Dates

Recommendation

This F-1/A filing is a procedural amendment primarily for legal and disclosure purposes, not a release of new financial results or strategic operational updates. While it details past successful private placements, it doesn't offer fresh insights into the company's current performance or immediate future prospects that would significantly alter an investment thesis. The ongoing nature of the registration process and the procedural updates suggest a 'hold' stance until more substantive information, such as pricing of the public offering or operational results, becomes available.

Keywords

Cheer Holding, F-1/A, SEC filing, private placement, ordinary shares, Class B shares, warrants, capital raise, corporate governance, indemnification, Cayman Islands law, US securities law, IPO, registration statement