| SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of presentation The unaudited condensed consolidated financial
statements have been prepared in accordance with the rules and regulations of the Security and Exchange Commission and accounting principles
generally accepted in the United States of America (“U.S. GAAP”) for interim financial reporting. Certain information and
footnote disclosures normally included in financial statements prepared in conformity with U.S. GAAP have been condensed or omitted pursuant
to such rules and regulations. Accordingly, these statements should be read in conjunction with the Company’s audited consolidated
financial statements for the year ended December 31, 2022 filed on March 23, 2023. In the opinion of the management, the accompanying
unaudited condensed consolidated financial statements reflect all normal recurring adjustments, which are necessary for a fair presentation
of financial results for the interim periods presented. The Group believes that the disclosures are adequate to make the information presented
not misleading. The accompanying unaudited condensed consolidated financial statements have been prepared using the same accounting policies
as used in the preparation of the Company’s consolidated financial statements for the year ended December 31, 2022. The results
of operations for the six months ended June 30, 2022 and 2023 are not necessarily indicative of the results for the full years. Financial statement amounts and balances
of the VIEs and the VIEs’ subsidiaries Total assets and liabilities presented on the
Company’s unaudited condensed consolidated balance sheets and revenue, expense, net income presented on the Company’s unaudited
condensed consolidated statements of income as well as the cash flow from operating, investing and financing activities presented on the
unaudited condensed consolidated statements of cash flows are substantially the financial position, operation and cash flow of the VIEs
and the VIEs’ subsidiaries. Glory Star has not provided any financial support to the VIEs and the VIEs’ subsidiaries for the
six months ended June 30, 2022 and 2023. The following financial statements amounts and balances of the VIEs and the VIEs’ subsidiaries
were included in the unaudited condensed consolidated financial statements as of December 31, 2022 and June 30, 2023, and for the six
months ended June 30, 2023 and 2022: June 30, December 31, 2023 2022 Total assets $ 261,493 $ 188,597 Total liabilities $ 31,640 $ 38,872
For the Six Months Ended
2023 2022
Total revenues $ 67,437 $ 69,933
Net income $ 10,004 $ 11,356
Net cash provided by (used in) operating activities $ 24,796 $ (26,452 )
Net cash used in investing activities $ (61 ) $ (383 )
Net cash provided by financing activities $ 60,385 $ 710 The VIEs and the VIEs’ subsidiaries contributed
100% and 100% of the consolidated revenues for the six months ended June 30, 2023 and 2022. As of June 30, 2023 and December 31, 2022,
the VIEs and the VIEs’ subsidiaries accounted for an aggregate of 98.2% and 91.6%, respectively, of the consolidated total assets,
and 94.6% and 116.2%, respectively, of the consolidated total liabilities. There are no terms in any arrangements, considering
both explicit arrangements and implicit variable interests that require the Company or its subsidiaries to provide financial support to
the VIEs. However, the Company has provided and will continue to provide financial support to the VIEs considering the business requirements
of the VIEs, as well as the Company’s own business objectives in the future. There are no assets held in the VIEs and the VIEs’
subsidiaries that can be used only to settle obligations of the VIEs and the VIEs’ subsidiaries, except for registered capital and
the PRC statutory reserves. As the VIEs and the VIEs’ subsidiaries are incorporated as a limited liability company under the PRC
Company Law, creditors of the VIEs and the VIEs’ subsidiaries do not have recourse to the general credit of the Company for any
of the liabilities of the VIEs and the VIEs’ subsidiaries. Relevant PRC laws and regulations restrict the VIEs and the VIEs’
subsidiaries from transferring a portion of their net assets, equivalent to the balance of its statutory reserve and its share capital,
to the Company in the form of loans and advances or cash dividends. 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. 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 six months ended June 30, 2023 and 2022, $10,617 and $11,978 were amortized to the cost of sales, respectively. For
the six months ended June 30, 2023 and 2022, the Company accrued impairment of $21 and $ nil Accounts payable Accounts payable represent liabilities for goods
and services provided to the Company prior to the end of financial period which are unpaid. They are classified as current liabilities
if payment is due within one year or less (or in the normal operating cycle of the business if longer). Otherwise, they are presented
as non-current liabilities. Accounts payable are initially recognized at fair value, and subsequently
carried at amortized cost using the effective interest method. 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 six months ended June 30, 2023 and 2022, respectively:
For the Six Months Ended
2023 2022
Category of Revenue:
Advertising revenue $ 64,863 $ 67,231
Copyrights revenue 2,451 2,209
CHEERS e-Mall marketplace service revenue 110 252
Other revenue 11 241
Total $ 67,435 $ 69,933
Timing of Revenue Recognition:
Services transferred over time $ 67,314 $ 69,440
Services transferred at a point in time 110 252
Goods transferred at a point in time 11 241
Total $ 67,435 $ 69,933 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. 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 June 30, 2023, $152,066 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
six months ended June 30, 2023, four customers accounted for 20%, 19%, 17% and 13% of the Company’s total revenue, respectively.
For the six months ended June 30, 2022, four customers accounted for 22%, 20%, 18% and 18% of the Company’s total revenue, respectively. As of June 30, 2023, four customers accounted
for 22%, 19%, 16% and 13% of the net accounts receivable balance. As of December 31, 2022, four customers accounted for 27%, 19%, 11%,
and 10% of the net accounts receivable balance. The Company has a concentration of its purchases
and payables with specific vendors. For the six months ended June 30, 2023, three vendors accounted for 33%, 26%, and 23% of the Company’s
total purchases, respectively. For the six months ended June 30, 2022, four vendors accounted for 29%, 18%, 17% and 17% of the Company’s
total purchases, respectively. As of June 30, 2023, four vendors accounted for 37%, 22%, 13% and 10%
of accounts payable, respectively. As of December 31, 2022, four vendors accounted for 30%, 22%, 17% and 10% of accounts payable, respectively. 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 June 30, 2023 and December 31, 2022 were translated at RMB 7.2513 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 six months ended June 30, 2023 and 2022 were RMB 6.9283 to $1.00 and RMB 6.4835 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. In
March 2023 Leases (Topic 842): Common Control Arrangements,
that
gives them the option of using the written terms and conditions of a common-control arrangement when determining whether a lease exists
and the subsequent accounting for the lease, including the lease’s classification and Amends the accounting for leasehold improvements
in common-control arrangements for all entities. The Combined Companies continues to evaluate the impact of ASU 2023-01 on its financial
position, results of operations or 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. |
