20-F: Cheer Holding Unveils 2024 Equity Incentive Plan and Reports on Financial Health in Annual Filing

Cheer Holding introduces a new equity incentive plan to attract top talent and details its financial standing in its annual 20-F filing.

Summary

• Cheer Holding, Inc. has filed its 20-F report, detailing the company's operations and financial performance.
• A new 2024 Equity Incentive Plan has been adopted to attract and retain personnel, with a maximum of 2,000,000 ordinary shares available.
• The company's Class A Ordinary Shares are registered on the Nasdaq Stock Market under the symbol CHR.
• As of December 31, 2024, there were 10,285,868 Class A Ordinary Shares and 500,000 Class B Ordinary Shares outstanding.
• The company's revenue decreased by 3.37% from 2023 to 2024, totaling $147.2 million.
• Net income for 2024 was $26.0 million, a decrease from $30.5 million in 2023.
• The company's cash and cash equivalents totaled $197.7 million as of December 31, 2024.
• A share repurchase program has been authorized for up to $50 million of Class A Ordinary Shares over the next 36 months.
• The company acknowledges risks associated with its VIE structure and doing business in China.
• The company is subject to cybersecurity and data privacy regulations in China.
• The company is also subject to the Holding Foreign Companies Accountable Act (HFCAA) and related PCAOB inspection requirements.

Sentiment

Score: 6

Explanation: The sentiment is neutral. While the company highlights its strategic initiatives and technological advancements, it also acknowledges financial setbacks and regulatory risks.

Positives

• The 2024 Equity Incentive Plan aims to attract and retain top talent.
• The company maintains a significant cash balance of $197.7 million.
• A share repurchase program could potentially increase shareholder value.
• The company is actively working to improve its AI initiatives and technology infrastructure.
• The company has been recognized as a National High-Tech Enterprise and Specialized and Innovative Enterprise.

Negatives

• Revenue decreased by 3.37% in 2024.
• Net income decreased in 2024.
• The company acknowledges risks associated with its VIE structure and doing business in China.
• The company is subject to cybersecurity and data privacy regulations in China.
• The company is also subject to the Holding Foreign Companies Accountable Act (HFCAA) and related PCAOB inspection requirements.
• The company's dual-class voting structure concentrates voting control with holders of Class B Ordinary Shares.

Risks

• The VIE structure carries risks related to PRC government regulations and enforcement.
• Uncertainties in the interpretation and enforcement of PRC laws could limit legal protections.
• The company faces competition in the online video and e-commerce markets.
• Failure to protect intellectual property rights could adversely affect revenues and competitive position.
• The company is subject to payment processing risk.
• Security breaches and cyberattacks could damage the company's reputation and negatively impact its business.
• The company's controlling shareholder has substantial influence over the company.
• The company may be treated as a resident enterprise for PRC tax purposes.
• The company's Class A Ordinary Shares could be delisted from Nasdaq.
• The company may be or become a passive foreign investment company.

Future Outlook

The company plans to continue investing in and improving its CHEERS App to further increase user friendliness, functionality and efficiency. The company also plans to continue leveraging its CHEERS ecosystem, blockchain technologies and strategic collaborations with various partners on AR and VR technologies, to develop a metaverse platform.

Management Comments

• The Share Purchase is intended to support our management teams ability to implement a sustainable development strategy to fully integrate the Companys multi-platform portfolio to become one of the most innovative internet companies in China.
• This structure will assist in the continuity of management in order to implement its shortand long-term business plan without being distracted by external financial market factors which, many times, are out of managements control.

Industry Context

The announcement reflects the ongoing trends in the Chinese media and entertainment industry, including the integration of e-commerce with content, the increasing importance of AI, and the evolving regulatory landscape.

Comparison to Industry Standards

• Comparable companies in the Chinese internet sector, such as Alibaba (BABA) and Tencent, also face similar regulatory and competitive pressures.
• The company's focus on AI-driven content creation aligns with industry trends seen in companies like Baidu and SenseTime.
• The company's e-commerce initiatives can be compared to those of Pinduoduo (PDD) and JD.com, which also leverage social and content-driven strategies.
• The company's efforts to comply with cybersecurity and data privacy regulations are consistent with the challenges faced by other Chinese companies listed in the U.S.

Corporate Governance

Legal Proceedings

• A lawsuit filed against the company in New York State Court asserting two causes of action: (i) aiding and abetting breach of fiduciary duties and (ii) negligence and gross negligence.
• The Court granted the company's motion to dismiss, concluding that Mr. Lu's claims should be entertained in a court in the Cayman Islands.
• In October 2024, Mr. Lu filed an amended complaint to assert violations of U.S. securities laws in connection with securities filings related to the Going Private Transaction.

Related Party Transactions

• On September 9, 2024, the Company entered into a Subscription Agreement with Mr. Bing Zhang, the Companys Chairman, Director, Chief Executive Officer and Chief Financial Officer.
• As of December 31, 2024, the Company had amount of $1.1 million due to Mr. Bing Zhang, the Chairman of the Companys board of directors and Chief Executive Officer.
• In January 2025, the Company borrowed approximately $0.7 million (equivalent to RMB 5 million) from Huaxia Bank. The bank borrowing was guaranteed by Beijing Zhongguancun Technology Financing Guarantee Co., LTD, and Mr. Zhang Bing, the Companys Chief Executive Officer and Chairman.

Stakeholder Impact

• Shareholders may experience dilution from future equity issuances.
• Employees may benefit from the new equity incentive plan.
• Customers may see improvements in the CHEERS App and new product offerings.
• The company's suppliers and creditors may be affected by changes in the company's financial performance and liquidity.

Next Steps

• The company plans to continue investing in and improving its CHEERS App.
• The company plans to continue leveraging its CHEERS ecosystem, blockchain technologies and strategic collaborations with various partners on AR and VR technologies, to develop a metaverse platform.
• The company will continue to pay close attention to the legislative and regulatory developments in the PRC and strive to comply with the latest regulatory requirements.

Key Dates