F-1: Cheer Holding Files F-1 for Dilutive Unit Offering

Cheer Holding, Inc. is launching a best-efforts offering of up to 8 million units, including Class A shares or pre-funded warrants, and two series of warrants, with significant potential for shareholder dilution.

Summary

• Cheer Holding, Inc. is offering up to 8,000,000 units on a best-efforts basis at an assumed public offering price of $1.50 per unit.
• Each unit consists of one Class A ordinary share (or a pre-funded warrant in lieu thereof), one Series A warrant, and one Series B warrant.
• The pre-funded warrants are exercisable at a nominal price of $0.001 per share and are immediately exercisable until fully exercised.
• Both Series A and Series B warrants have an assumed initial exercise price of $1.58 per Class A Share and a term of one year.
• The Series A warrant exercise price is subject to adjustment if the company issues Class A shares or equivalents at a lower price, with a floor of $0.30.
• The Series B warrant includes an alternative cashless exercise option, allowing holders to receive up to 65,000,000 Class A Shares in aggregate, which will not generate proceeds for the company.
• Expected net proceeds from the offering are approximately $10,615,000, intended for general working capital, sales and marketing, and potential acquisitions.
• The company operates primarily through Variable Interest Entities (VIEs) in China, Horgos and Xing Cui Can, which involves unique legal and operational risks due to PRC laws and regulations.
• Recent business developments include the launch of CHEERS Telepathy AI content creation platform (Year of the Dragon Edition in Feb 2024, 2.0 in June 2024, 2.5 in Dec 2024) and recognition of its Beijing subsidiary as a National High-Tech Enterprise and Specialized and Innovative Enterprise.
• Key metrics as of June 30, 2025, include CHEERS Video App Downloads of 440 million, CHEERS e-Mall App Downloads of 70.4 million, and CHEERS Telepathy App Downloads of 14.1 million.
• Monthly Active Users (MAU) as of June 30, 2025, were 51.1 million for CHEERS Video, 6.9 million for CHEERS e-Mall, and 3.3 million for CHEERS Telepathy.
• The CHEERS e-Mall repurchase rate for the first half of 2025 was 38.8%, and average daily time spent on CHEERS Video was approximately 54.3 minutes.

Sentiment

Score: 3

Explanation: The filing presents a mixed financial picture with declining income but improved cash flow from operations. However, the significant potential for dilution from the Series B warrants, the inherent risks of the VIE structure, and the evolving regulatory landscape in China create substantial uncertainty and downside risk for investors. The offering price being below the last trading price also signals weakness.

Positives

• Significant growth in CHEERS Telepathy Monthly Active Users (MAU) from 0.9 million in H1 2024 to 3.3 million in H1 2025, indicating strong adoption of the AI content creation platform.
• Overall increase in app downloads across all platforms: CHEERS Video (430M to 440M), CHEERS e-Mall (60.7M to 70.4M), and CHEERS Telepathy (11.3M to 14.1M) from June 30, 2024, to June 30, 2025.
• Beijing subsidiary received recognition as a National High-Tech Enterprise (Dec 2023) and Specialized and Innovative Enterprise (April 2024), highlighting technological innovation and market competitiveness.
• Net cash provided by operating activities significantly improved to $3,920,000 for the six months ended June 30, 2025, compared to a negative $6,741,000 for the same period in 2024.
• Net increase in cash and cash equivalents of $5,568,000 for the six months ended June 30, 2025, a substantial improvement from a decrease of $8,145,000 in the prior year period.

Negatives

• Revenues slightly decreased to $70,993,000 for the six months ended June 30, 2025, from $71,055,000 in the prior year period.
• Total operating expenses increased to $62,669,000 for the six months ended June 30, 2025, from $59,416,000 in the prior year period.
• Income from operations significantly decreased to $8,324,000 for the six months ended June 30, 2025, from $11,639,000 in the prior year period.
• Net income substantially decreased to $7,756,000 for the six months ended June 30, 2025, from $12,417,000 in the prior year period.
• The Series B warrants include an alternative cashless exercise option that allows holders to receive up to 65,000,000 Class A Shares without the company receiving any proceeds, leading to substantial dilution for existing shareholders.
• There is no established public trading market for the Units, Pre-Funded Warrants, Series A Warrants, or Series B Warrants, limiting their liquidity.
• The offering is on a 'best-efforts' basis with no minimum amount of securities required to be sold, meaning the company may not raise sufficient capital for its business plans.
• The assumed public offering price of $1.50 per unit is below the last reported sale price of Class A Shares on Nasdaq ($1.75 on August 6, 2025), indicating a discount to market price.

Risks

• The company's Variable Interest Entity (VIE) structure in China may be less effective than direct ownership and is subject to significant uncertainties regarding interpretation and application of PRC laws and regulations, including foreign ownership limitations and regulatory reviews.
• There is a risk that the PRC government could disallow the VIE structure, which would materially change operations and could significantly depreciate or render worthless the Class A Shares.
• Uncertainty exists regarding whether the company's VIEs or subsidiaries will be subject to cybersecurity review by the Cyberspace Administration of China (CAC) for future offerings or if deemed critical information infrastructure operators.
• New PRC administrative rules regarding overseas listings (effective March 31, 2023) require CSRC filings for future offerings or material events, with no assurance of timely clearance or approval.
• The company is subject to legal and operational risks associated with being based in China, including potential material changes in operations or hindrance of ability to offer securities due to evolving regulations.
• The significant potential dilution from the alternative cashless exercise of Series B Warrants (up to 65,000,000 Class A Shares) could adversely affect the market price of Class A Shares.
• The Nasdaq Stock Market LLC may halt trading or delist the Class A Shares due to public interest concerns arising from the highly dilutive nature of this offering or failure to maintain listing standards.
• Management will have broad discretion over the use of net proceeds from the offering, which may not be used in a manner that maximizes shareholder value.
• The Series A and Series B Warrants are subject to redemption by the company under certain conditions, potentially leading to their termination if not exercised.
• The beneficial ownership limitations (4.99% or 9.99%) on the Pre-Funded Warrants and Series A/B Warrants may hinder holders' ability to exercise when most advantageous.
• Future equity offerings or acquisitions could result in further dilution to existing shareholders.
• The company's ability to pay dividends depends on funds from PRC subsidiaries and VIEs, which are subject to PRC regulations on profit distribution and currency conversion.

Future Outlook

The company intends to use the net proceeds from the offering for general working capital, sales and marketing expenses for user acquisition, other general corporate purposes, and potentially for acquisitions of complementary businesses, technologies, or other assets. The company's vision is to become a world-leading mobile media and entertainment company, providing an integrative platform featuring e-commerce and high-quality lifestyle entertainment, and plans to continue leveraging its CHEERS ecosystem, blockchain technologies, and strategic collaborations on AR/VR to develop a metaverse platform.

Management Comments

• Management believes their strategic integration of cutting-edge AI technologies positions the company as a leader in redefining content creation, digital ecosystems, and next-generation human-AI interaction.
• Management is committed to utilizing innovative product applications and technologies to drive long-term sustainable and scalable growth.
• The company intends to keep any future earnings to finance the expansion of its business and does not anticipate paying any cash dividends in the foreseeable future.

Industry Context

The company operates in the dynamic mobile media and entertainment sector in China, with a strategic focus on content-driven e-commerce and advanced AI technologies. Its development of 'CHEERS Telepathy' and plans for a metaverse platform align with broader industry trends towards AI-powered content creation, immersive digital experiences, and the convergence of e-commerce with entertainment. The company's reliance on a VIE structure and its exposure to evolving PRC regulations are significant factors distinguishing its operational context from companies with direct ownership in China or those operating in less regulated markets.

Management Changes

Corporate Governance

Legal Proceedings

• No pending or threatened legal proceedings against the company, its VIEs, or subsidiaries that would adversely affect the legality, validity, or enforceability of the offering or result in a Material Adverse Effect.
• No SEC investigations involving the company or its current/former directors or officers are pending or contemplated.

Related Party Transactions

• An interest-free borrowing of $1,100,000 from Mr. Zhang Bin, the company's chairman, chief executive officer, and interim chief financial officer, was paid off on March 31, 2025.

Stakeholder Impact

• Shareholders face significant potential dilution from the exercise of Series B warrants, particularly through the alternative cashless exercise which yields no proceeds to the company.
• Existing shareholders may experience a decrease in the market price of their Class A Shares due to the dilutive nature of the offering and the potential for future sales of newly issued shares.
• Investors are exposed to substantial risks related to the company's Variable Interest Entity (VIE) structure and the evolving, uncertain regulatory environment in China, which could impact the value of their investment.
• The company's status as a 'controlled company' and its reliance on Nasdaq exemptions may limit the influence of minority shareholders on corporate governance matters.
• Employees and management may benefit from the capital raise if it supports business expansion and strategic initiatives, but also face risks associated with the company's overall financial performance and regulatory challenges.

Next Steps

• The company will proceed with the best-efforts offering of up to 8,000,000 units.
• The company will apply to list or quote all of the Shares and Warrant Shares on the Nasdaq Capital Market and promptly secure their listing.
• The company will use its best efforts to maintain the listing or quotation of its shares on Nasdaq.
• The company will take all necessary steps to obtain consents and approvals for a reverse share split if it fails to satisfy Nasdaq's minimum bid price requirement, and effect such split prior to any delisting notice.

Key Dates

Recommendation

The offering introduces substantial dilution risk, particularly from the Series B warrants' alternative cashless exercise, which could issue up to 65 million shares without generating cash for the company. This, combined with the offering price being below the current market price, signals significant downward pressure on the stock. Furthermore, the inherent legal and regulatory uncertainties of operating through a VIE structure in China, coupled with the company's 'controlled company' status, present considerable governance and operational risks. While cash flow from operations improved, the decline in revenue and net income indicates underlying business challenges. For a seasoned investor, these factors collectively suggest a strong negative outlook.

Keywords

Cheer Holding, CHR, SEC Filing, F-1, Public Offering, Warrants, Pre-Funded Warrants, Class A Shares, AI Content, E-commerce, Media, Entertainment, China, VIE Structure, Nasdaq, Dilution, Capital Raise, Cybersecurity, Data Security, PRC Regulation