| SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (a) Basis of presentation The accompanying consolidated
financial statements are prepared in accordance with accounting principles generally accepted in the United States of America ("U.S.
GAAP"). The consolidated financial statements include the financial statements of the Company, its subsidiaries, its VIEs
and its VIEs' subsidiaries. All inter-company transactions and balances have been eliminated upon consolidation. (b) Use of estimates The preparation of financial
statements in conformity with U.S. GAAP requires to make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period and accompanying notes, including allowance for doubtful accounts, allowance
for unamortized production content, the useful lives of property and equipment and intangible assets, impairment of long-lived
assets, valuation allowance for deferred tax assets and revenue recognition. Actual results could differ from those estimates. (c) Fair value Measurement The Company applies
ASC Topic 820, Fair Value Measurements and Disclosures which defines fair value, establishes a framework for measuring fair value
and expands financial statement disclosure requirements for fair value measurements. ASC Topic 820 defines
fair value as the price that would be received from the sale of an asset or paid to transfer a liability (an exit price) on the
measurement date in an orderly transaction between market participants in the principal or most advantageous market for the asset
or liability. ASC Topic 820 specifies
a hierarchy of valuation techniques, which is based on whether the inputs into the valuation technique are observable or unobservable.
The hierarchy is as follows: Level 1 inputs to the
valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets. Level 2 inputs to the
valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable
for the assets or liability, either directly or indirectly, for substantially the full term of the financial instruments. Level 3 inputs to the
valuation methodology are unobservable and significant to the fair value. Unobservable inputs are valuation technique inputs that
reflect the Company's own assumptions about the assumptions that market participants would use in pricing an asset or liability. Management of the Company
is responsible for considering the carrying amount of cash and cash equivalents, accounts receivable, prepayment and other current
assets, short-term bank loans, accounts payable, advances from customers, accrued liabilities and other payables and other taxes
payable based on the short-term maturity of these instruments to approximate their fair values because of their short-term nature. (d) Accounts Receivable, net Accounts receivable
represent the amounts that the Company has an unconditional right to consideration (including billed and unbilled amount) when
the Company has satisfied its performance obligation. The Company does not have any contract assets since revenue is recognized
when control of the promised services is transferred and the payment from customers is not contingent on a future event. The Company
maintains allowance for potential credit losses on accounts receivable. Management reviews the composition of accounts receivable
and analyses historical bad debt, customer concentrations, customer credit worthiness, current economic trends and changes in customer
payment patterns to estimate the allowance. Past due accounts are generally written off against the allowance for bad debts only
after all collection attempts have been exhausted and the potential for recovery is considered remote. (e) Unamortized produced content Produced content includes
direct production costs, production overhead and acquisition costs and is stated at the lower of unamortized cost or estimated
fair value. Produced content also includes cash expenditures made to enter into arrangements with third parties to co-produce certain
of its productions. The Company uses the
individual-film-forecast-computation method and amortizes the produced content based on the ratio of current period actual revenue
(numerator) to estimated remaining unrecognized ultimate revenue as of the beginning of the fiscal year (denominator) in accordance
with ASC 926. Ultimate revenue estimates for the produced content are periodically reviewed and adjustments, if any, will result
in prospective changes to amortization rates. When estimates of total revenues and other events or changes in circumstances indicate
that a film or television series has a fair value that is less than its unamortized cost, a loss is recognized currently for the
amount by which the unamortized cost exceeds the film or television series' fair value. For the three months ended March
31, 2019 and 2020, $3,430 and $3,369 were amortized to the cost of sales, and as of December 31, 2019 and March 31, 2020, no impairment
allowance was recorded. (f) Intangible asset, net Intangible asset is
stated at cost less accumulated amortization and amortized in a method which reflects the pattern in which the economic benefits
of the intangible asset are expected to be consumed or otherwise used up. The balance of intangible asset represents software related
to CHEERS App, a mobile application that allows its users to access its online store (e-Mall), video content, live streaming, and
online games. The software is acquired externally tailored to the Company's requirements and is amortized straight-line over
7 years in accordance with the way the Company estimates to generate economic benefits from such software. (g) Impairment of Long-lived Assets In accordance with ASC
Topic 360, the Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying
amount of the assets may not be fully recoverable, or at least annually. The Company recognizes an impairment loss when the sum
of expected undiscounted future cash flows is less than the carrying amount of the asset. The amount of impairment is measured
as the difference between the asset's estimated fair value and its book value. The Company did not record any impairment
charge for the three months ended March 31, 2019 and 2020. (h) Revenue Recognition The Company early adopted
the new revenue standard Accounting Standards Codification ("ASC") 606, Revenue from Contracts with Customers, on January
1, 2017. The core principle of this new revenue standard is that a company should recognize revenue to depict the transfer of promised
goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange
for those goods or services. The following five steps are applied to achieve that core principle:
● Step 1: Identify the contract with the customer
● Step 2: Identify the performance obligations in the
contract
● Step 3: Determine the transaction price
● Step 4: Allocate the transaction price to the performance
obligations in the contract
● Step 5: Recognize revenue when the company satisfies
a performance obligation The Company mainly offers
and generates revenue from the copyright licensing of self-produced content, advertising and customized content production and
others. Revenue recognition policies are discussed as follows: Copyright revenue The Company self produces
or coproduces TV series featuring lifestyle, culture and fashion, and licenses the copyright of the TV series on an episode basis
to the customer for broadcast over a period of time. Generally, the Company signs a contract with a customer which requires the
Company to deliver a series of episodes that are substantially the same and that have the same pattern of transfer to the customer.
Accordingly, the delivery of the series of episodes is defined as the only performance obligation in the contract. For the TV series produced
solely by the Company, the Company satisfies its performance obligation over time by measuring the progress toward the delivery
of the entire series of episodes which is made available to the licensee for exhibition after the license period has begun. Therefore,
the copyright revenue in a contract is recognized over time based on the progress of the number of episodes delivered. The Company also coproduces
TV series with other producers and licenses the copyright to third-party video broadcast platforms for broadcast. For TV series
produced by Glory Star Group with co-producers, the Company satisfies its performance obligations over time by the delivery of
the entire series of episodes to the customer, and requires the customer to pay consideration based on the number and the unit
price of valid subsequent views of the TV series that occur on a broadcast platform. Therefore, the copyright revenue is recognized
when the later of the valid subsequent view occurs or the performance obligation relating to the delivery of a number of episodes
has been satisfied. Advertising revenue The Company generates
revenue from sales of various forms of advertising on its TV series and streaming content by way of 1) advertisement displays,
or 2) the integration of promotion activities in TV series and content to be broadcast. Advertising contracts are signed to establish
the different contract prices for different advertising scenarios, consistent with the advertising period. The Company enters into
advertising contracts directly with the advertisers or the third-party advertising agencies that represent advertisers. For the contracts that
involve the third-party advertising agencies, the Company is principal as the Company is responsible for fulfilling the promise
of providing advertising services and has the discretion in establishing the price for the specified advertisement. Under a framework
contract, the Company receives separate purchase orders from advertising agencies before the broadcast. Accordingly, each purchase
order is identified as a separate performance obligation, containing a bundle of advertisements that are substantially the same
and that have the same pattern of transfer to the customer. Where collectability is reasonably assured, revenue is recognized monthly
over the service period of the purchase order. For contracts signed
directly with the advertisers, the Company commits to display a series of advertisements which are substantially the same or similar
in content and transfer pattern, and the display of the whole series of advertisements is identified as the single performance
obligation under the contract. The Company satisfies its performance obligations over time by measuring the progress toward the
display of the whole series of advertisements in a contract, and advertising revenue is recognized over time based on the number
of advertisements displayed. Payment terms and conditions
vary by contract types, and terms typically include a requirement for payment within a period from 3 to 6 months. Both direct advertisers
and third-party advertising agencies are generally billed at the end of the display period and require the Company to issue VAT
invoices in order to make their payments. However, because the
local government tax authority uses a quota system to manage the VAT tax, it normally either delays the VAT invoices issued or
does not issue sufficient VAT invoices. As such, the Company is not able to provide sufficient VAT invoices on a timely manner
and results in increased account receivables. Customized content production revenue The Company produces
customized short streaming videos according to its customers' requirement, and earns fixed fees based on delivery. Revenue
is recognized upon the delivery of short streaming videos. CHEERS E-mall marketplace service revenue The Company through
CHEERS E-mall, an online e-commerce platform, enables third-party merchants to sell their products to consumers in China. The Company
charges fees for platform services to merchants for sales transactions completed on the Cheer E-Mall including but not limited
to products displaying, promotion and transaction settlement services. The Company does not take control of the products provided
by the merchants at any point in the time during the transactions and does not have latitude over pricing of the merchandise. Transaction
services fee is determined as the difference between the platform sales price and the settlement price with the merchants. CHEERS
E-mall marketplace service revenue is recognized at a point of time when the Company's performance obligation to provide
marketplace services to the merchants are determined to have been completed under each sales transaction upon the consumers confirming
the receipts of goods. Payments for services are generally received before deliveries. The Company provides
coupons to consumers at our own discretion as incentives to promote CHEERS E-mall marketplace with validity usually around or less
than one week, which can only be used in future purchases of eligible merchandise offered on CHEERS E-mall to reduce purchase price
that are not specific to any merchant. Consumers are not customers of the Company, therefore incentives offered to consumers are
not considered consideration payable to customers. As the consumers are required to make future purchases of the merchants'
merchandise to redeem these coupons, the Company does not accrue any expense for coupons when granted and recognizes the amounts
of redeemed coupons as marketing expenses when future purchases are made. Other Revenues Other revenue primarily
consists of copyrights trading of purchased and produced TV-series and the sales of products on Taobao platform. For copyright
licensing of purchased and produced TV-series, the Company recognize revenue on net basis at a point of time upon the delivery
of master tape and authorization of broadcasting right. For sales of product, the company recognize revenue upon the transfer of
products according to the fixed price and production amount in sales orders. The following table
identifies the disaggregation of our revenue for the three months ended March 31, 2019 and 2020, respectively:
For the three months ended
2019 2020
(Unaudited) (Unaudited)
Category of Revenue:
Advertising revenue $ 10,402 $ 7,880
Copyrights revenue 2,725 992
Customized content production revenue 620 288
CHEERS E-mall marketplace service revenue - 50
Other revenue 6 547
Total $ 13,753 $ 9,757
Timing of Revenue Recognition:
Services transferred over time $ 13,747 $ 9,160
Services transferred at a point in time - 50
Goods transferred at a point in time 6 547
Total $ 13,753 $ 9,757 The Company applied
a practical expedient to expense costs as incurred for costs to obtain a contract with a customer when the amortization period
would have been one year or less. The Company does not have any significant incremental costs of obtaining contracts with customers
incurred and/or costs incurred in fulfilling contracts with customers within the scope of ASC Topic 606, that shall be recognized
as an asset and amortized to expenses in a pattern that matches the timing of the revenue recognition of the related contract. (i) Earnings per Share The Company computes
earnings per share ("EPS") in accordance with ASC 260, "Earnings per Share" ("ASC 260"). ASC
260 requires companies with complex capital structures to present basic and diluted EPS. Basic EPS is measured as net income/(loss)
attributable to ordinary shareholders divided by the weighted average common shares outstanding for the period. Diluted EPS is
similar to basic EPS but presents the dilutive effect on a per share basis of potential common shares (e.g., convertible securities,
earnout shares and warrants) as if they had been converted at the beginning of the periods presented, or issuance date, if later.
Potential common shares that have an anti-dilutive effect (i.e., those that increase income per share or decrease loss per share)
are excluded from the calculation of diluted EPS. There is no anti-dilutive effect for the three months ended March 31, 2019 and
2020. (j) Recent Accounting Pronouncements In June 2016, the FASB
issued ASU No. 2016-13, "Measurement of Credit Losses on Financial Instruments (Topic 326)", which significantly changes
the way entities recognize impairment of many financial assets by requiring immediate recognition of estimated credit losses expected
to occur over their remaining life, instead of when incurred. In November 2018, the FASB issued ASU No. 2018-19, "Codification
Improvements to Topic 326, Financial Instruments—Credit Losses", which amends Subtopic 326-20 (created by ASU No.2016-13)
to explicitly state that operating lease receivables are not in the scope of Subtopic 326-20. Additionally, in April 2019, the
FASB issued ASU No.2019-04, "Codification Improvements to Topic 326, Financial Instruments—Credit Losses, Topic 815,
Derivatives and Hedging, and Topic 825, Financial Instruments", in May 2019, the FASB issued ASU No. 2019-05, "Financial
Instruments—Credit Losses (Topic 326): Targeted Transition Relief", and in November 2019, the FASB issued ASU No. 2019-10,
"Financial Instruments—Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842): Effective
Dates", and ASU No. 2019-11, "Codification Improvements to Topic 326, Financial Instruments—Credit Losses",
to provide further clarifications on certain aspects of ASU No. 2016-13 and to extend the nonpublic entity effective date of ASU
No. 2016-13. The changes (as amended) are effective for the Company for annual and interim periods in fiscal years beginning after
December 15, 2022, and the Company is in the process of evaluating the potential effect on its consolidated financial statements. In December 2019, the
FASB issued ASU No. 2019-12, "Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes" ("ASU 2019-12"),
which is intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to
the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. This guidance
is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020, with early adoption
permitted. The Company is currently assessing the impact of adopting this standard, but based on a preliminary assessment, does
not expect the adoption of this guidance to have a material impact on its consolidated financial statements. Other accounting standards
that have been issued or proposed by FASB that do not require adoption until a future date are not expected to have a material
impact on the consolidated financial statements upon adoption. The Company does not discuss recent pronouncements that are not
anticipated to have an impact on or are unrelated to its consolidated financial condition, results of operations, cash flows or
disclosures. |
