| 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, plant 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, short-term investments, 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) Cash and cash equivalents Cash consists of cash on hand and cash in banks.
The Company maintains cash with various financial institutions in China. As of December 31, 2021 and December 31, 2022, cash balances
are $77,302 and $ 70,482, respectively, which are uninsured. The Company has not experienced any losses in bank accounts and believes
it is not exposed to any risks on its cash in bank accounts. (e) Short-term investment Short-term investment represents the investment
in structural deposits in a financial institution in the PRC which are redeemable at the option of the Company on any working day. The
Company accounts for all highly liquid investments with original maturities of greater than three months, but less than 12 months as
short-term investments. Interest income are included in earnings. (f) 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. (g) 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 years ended December 31, 2020, 2021 and 2022, $15,970, $7,375 and $128 were amortized to the cost of
sales, respectively, and as of December 31, 2021 and December 31, 2022, none (h) Property, plant and equipment, net Property, plant and equipment are stated at cost
less accumulated depreciation and depreciated on a straight-line basis over the estimated useful lives of the assets. Cost represents
the purchase price of the asset and other costs incurred to bring the asset into its existing use. The cost of repairs and maintenance
is expensed as incurred; major replacements and improvements are capitalized. When assets are retired or disposed of, the cost and accumulated
depreciation are removed from the accounts, and any resulting gains or losses are included in income/loss in the year of disposition.
Estimated useful lives are as follows:
Estimated Useful Life
Electric equipment 3 Years
Office equipment and furniture 3 - 5 Years
Leasehold improvement Shorter of useful life or lease term (i) 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. (j) 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 years ended December 31, 2020, 2021
and 2022. (k) Leases In February 2016, the Financial Accounting Standards
Board (the “FASB”) issued ASU 2016-02, Leases (Topic 842), which is effective for annual reporting periods (including interim
periods) beginning after December 15, 2018, and early adoption is permitted. The Company has adopted the Topic 842 on January 1, 2019
using a modified retrospective approach reflecting the application of the standard to leases existing at, or entered into after, the
beginning of the earliest comparative period presented in the consolidated financial statements. The Company leases its offices, which are classified
as operating leases in accordance with Topic 842. Under Topic 842, lessees are required to recognize the following for all leases (with
the exception of short-term leases) on the commencement date: (i) lease liability, which is a lessee’s obligation to make lease
payments arising from a lease, measured on a discounted basis; and (ii) right-of-use asset, which is an asset that represents the lessee’s
right to use, or control the use of, a specified asset for the lease term. At the commencement date, the Company recognizes
the lease liability at the present value of the lease payments not yet paid, discounted using the interest rate implicit in the lease
or, if that rate cannot be readily determined, the Company’s incremental borrowing rate for the same term as the underlying lease.
The right-of-use asset is recognized initially at cost, which primarily comprises the initial amount of the lease liability, plus any
initial direct costs incurred, consisting mainly of brokerage commissions, less any lease incentives received. All right-of-use assets
are reviewed for impairment. No impairment for right-of-use lease assets as of December 31, 2021 and December 31, 2022. The Company’s lease agreements do not contain
any material residual value guarantees or material restrictive covenants. (l) Advances from customers Advances from customers amounted to $536 and
$147 at December 31, 2021 and December 31, 2022, respectively, which represent advance payment received from our customers for goods
or services that had not yet been provided. The Company will recognize the advances as revenue
when it has transferred control of the goods or services to which the advances relate, and has no obligation under the contract to transfer
additional goods or services. (m) Value Added Tax Horgos and its China subsidiaries are subject
to VAT for providing services and sales of products. The amount of VAT liability is determined by
applying the applicable tax rates to the invoiced amount of services provided and sales of products (output VAT) less VAT paid on purchases
made with the relevant supporting invoices (input VAT). The Company reports revenue net of PRC’s VAT for all the periods presented
in the consolidated statements of operations. (n) 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 6 to 9 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. 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 years ended December 31, 2020, 2021 and 2022, respectively:
For the Years Ended December 31,
2020 2021 2022
Category of Revenue:
Advertising revenue $ 104,664 $ 132,918 $ 152,086
Customized content production revenue 10,200 5,326 -
Copyrights revenue 6,883 7,478 4,217
CHEERS e-Mall marketplace service revenue 1,517 6,807 306
Other revenue 499 483 470
Total $ 123,763 $ 153,012 $ 157,079
Timing of Revenue Recognition:
Services transferred over time $ 121,747 $ 145,722 $ 156,303
Services transferred at a point in time 1,517 6,807 306
Goods transferred at a point in time 499 483 470
Total $ 123,763 $ 153,012 $ 157,079 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. (o) Cost of revenues Cost of revenues consists primarily of production
cost of TV series, short stream video and live streaming, labour cost and related benefits, payments to various channel owners for broadcast,
purchase cost of goods and copyrights and costs associated with the operation of the Company’s online game and shopping platform
CHERRS App such as bandwidth cost and amortization of intangible assets. (p) Share-based compensation The Company periodically grants restricted ordinary
shares to eligible employees and non-employee consultants. The Group accounts for share-based awards issued to employees and non-employee
consultants in accordance with ASC Topic 718 Compensation – Stock Compensation. The share-based awards are measured at the grant
date fair value of the awards and recognized as expenses a) immediately at grant date if no vesting conditions are required; or b) using
the straight line method over the requisite service period, which is the vesting period. Share-based compensation in relation to the restricted
ordinary shares is measured based on the fair value of its ordinary shares on the date of the grant. The Group recognizes the compensation
cost, net of estimated forfeitures, over a vesting term for service-based restricted shares. Forfeitures are estimated at the time of
grant and revised in the subsequent periods if actual forfeitures differ from those estimates. (q) Income Taxes The Company accounts for income taxes using the
asset/liability method prescribed by ASC 740, “Income Taxes.” Under this method, deferred tax assets and liabilities are
determined based on the difference between the financial reporting and tax bases of assets and liabilities using enacted tax rates that
will be in effect in the period in which the differences are expected to reverse. The Company records a valuation allowance to offset
deferred tax assets if, based on the weight of available evidence, it is more-likely-than-not that some portion, or all, of the deferred
tax assets will not be realized. The effect on deferred taxes of a change in tax rates is recognized as income or loss in the period
that includes the enactment date. The provisions of ASC 740-10-25, “Accounting
for Uncertainty in Income Taxes,” prescribe a more-likely-than not threshold for consolidated financial statement recognition and
measurement of a tax position taken (or expected to be taken) in a tax return. This interpretation also provides guidance on the recognition
of income tax assets and liabilities, classification of current and deferred income tax assets and liabilities, accounting for interest
and penalties associated with tax positions, and related disclosures. The Company does not believe that there was any uncertain tax position
at December 31, 2021 and 2022. The Company’s operating subsidiaries in
PRC are subject to examination by the relevant tax authorities. According to the PRC Tax Administration and Collection Law, the statute
of limitations is three years if the underpayment of taxes is due to computational errors made by the taxpayer or the withholding agent.
The statute of limitations is extended to five years under special circumstances, where the underpayment of taxes is more than RMB 100,000
($15,685). In the case of transfer pricing issues, the statute of limitation is ten years. There is no statute of limitation in the case
of tax evasion. As of December 31, 2022, the tax years ended December 31, 2018 through December 31, 2022 for the Company’s PRC
subsidiaries remain open for statutory examination by PRC tax authorities. (r) Non-controlling Interest A non-controlling interest in a subsidiary of
the Company represents the portion of the equity (net assets) in the subsidiary not directly or indirectly attributable to the Company.
Non-controlling interests are presented as a separate component of equity on the Consolidated Balance Sheet and net income and other
comprehensive income are attributed to controlling and non-controlling interests. (s) 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, earn out shares, warrants and stock options) 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 years ended December 31, 2020, 2021 and 2022. (t) Related Parties Parties are considered to be related to the Company
if the parties, directly or indirectly, through one or more intermediaries, control, are controlled by, or are under common control with
the Company. Related parties also include principal owners of the Company, its management, members of the immediate families of principal
owners of the Company and its management and other parties with which the Company may deal with if one party controls or can significantly
influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from
fully pursuing its own separate interests. The Company discloses all significant related party transactions in Note 11. (u) Concentration and Credit Risk Substantially all of the Company’s operating
activities are transacted into RMB, which is not freely convertible into foreign currencies. All foreign exchange transactions take place
either through the People’s Bank of China or other banks authorized to buy and sell foreign currencies at the exchange rates quoted
by the People’s Bank of China. Approval of foreign currency payments by the People’s Bank of China or other regulatory institutions
require submitting a payment application form together with suppliers’ invoices, shipping documents and signed contracts. The Company maintains certain bank accounts in
the PRC, Hong Kong and Cayman, which are not insured by Federal Deposit Insurance Corporation (“FDIC”) insurance or other
insurance. As of December 31, 2021, and December 31, 2022, $74,963 and $70,199 of the Company’s cash were on deposit at financial
institutions in the PRC where there currently is no rule or regulation requiring such financial institutions to maintain insurance to
cover bank deposits in the event of bank failure. Accounts receivable are typically unsecured and
derived from revenue earned from customers, thereby exposed to credit risk. The risk is mitigated by the Company’s assessment of
its customers’ creditworthiness and its ongoing monitoring of outstanding balances. The Company’s sales are made to customers
that are located primarily in China. The Company has a concentration of its revenues and receivables with specific customers. For the
years ended December 31, 2020, 2021 and 2022, a major customer accounted for 14%, 20% and 21% of the Company’s total revenue, respectively.
The top five customers accounted for 80% of net accounts receivable as of December 31, 2021, with each customer representing 24%, 21%,
20%, 9% and 7% of the net accounts receivable balance, respectively. As of December 31, 2022, the top five customers accounted for 76%
of net accounts receivable, with each customer representing 27%, 19%,11%,10% and 9% of the net accounts receivable balance. As of December 31, 2021 and 2022, one major supplier
accounted for 53% and 30% of accounts payable, respectively. (v) Foreign Currency Translation The reporting currency of the Company is the
U.S. dollar (“USD”). The functional currency of subsidiaries, VIEs and VIEs’ subsidiaries located in China is the Chinese
Renminbi (“RMB”). For the entities whose functional currency is the RMB, result of operations and cash flows are translated
at average exchange rates during the period, assets and liabilities are translated at the unified exchange rate at the end of the period,
and equity is translated at historical exchange rates. As a result, amounts relating to assets and liabilities reported on the statements
of cash flows may not necessarily agree with the changes in the corresponding balances on the balance sheets. Translation adjustments
resulting from the process of translating the local currency financial statements into U.S. dollars are included in determining comprehensive
income/loss. Transactions denominated in foreign currencies are translated into the functional currency at the exchange rates prevailing
on the transaction dates. Assets and liabilities denominated in foreign currencies are translated into the functional currency at the
exchange rates prevailing at the balance sheet date with any transaction gains and losses that arise from exchange rate fluctuations
on transactions denominated in a currency other than the functional currency are included in the results of operations as incurred. All of the Company’s revenue and expense
transactions are transacted in the functional currency of the operating subsidiaries. The Company does not enter into any material transaction
in foreign currencies. Transaction gains or losses have not had, and are not expected to have, a material effect on the results of operations
of the Company. The consolidated balance sheet amounts, with
the exception of equity, at December 31, 2021 and December 31, 2022 were translated at RMB 6.3757 to $1.00 and at RMB 6.9646 to $1.00,
respectively. Equity accounts were stated at their historical rates. The average translation rates applied to consolidated statements
of operations and cash flows for the years ended December 31, 2020, 2021 and 2022 were RMB 6.9042 to $1.00, RMB 6.4531 to $1.00 and RMB
6.7261 to $1.00, respectively. (w) Recent Accounting Pronouncements In October 2021, the FASB issued ASU No. 2021-08,
Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers (ASU 2021-08),
which clarifies that an acquirer of a business should recognize and measure contract assets and contract liabilities in a business combination
in accordance with Topic 606, Revenue from Contracts with Customers. The new amendments are effective for fiscal years beginning after
December 15, 2023, including interim periods within those fiscal years. The amendments should be applied prospectively to business combinations
occurring on or after the effective date of the amendments, with early adoption permitted. The Company is currently evaluating the impact
of the new guidance on the consolidated financial statements. In June 2022, the FASB issued ASU 2022-03, “Fair
Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions”, which clarifies
that a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security
and, therefore, is not considered in measuring fair value. The amendments also clarify that an entity cannot, as a separate unit of account,
recognize and measure a contractual sale restriction. This guidance also requires certain disclosures for equity securities subject to
contractual sale restrictions. The new guidance is required to be applied prospectively with any adjustments from the adoption of the
amendments recognized in earnings and disclosed on the date of adoption. This guidance is effective for fiscal years beginning after 15 December
2023, including interim periods within those fiscal years. Early adoption is permitted. The Company does not
expect that the adoption of this guidance will have a material impact on the financial position, results of operations and cash flows. 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. |
