CHR — H1 2026 Financial Report Analysis

Profit up on paper, cash going the other way

Cheer Holding, Inc. (formerly Glory Star New Media) runs the CHEERS app and related video and e-commerce platforms in China. It earns its money almost entirely from selling advertising: in the first half of 2026, 100.0% of revenue came from advertising services. The company is incorporated in the Cayman Islands and reports to the SEC as a foreign private issuer. That means it publishes a half-year report (on Form 6-K) rather than quarterly 10-Qs. This analysis covers the six months to June 30, 2026, from the interim financial statements and management's review filed on July 28, 2026. The auditor reviewed those statements but did not audit them.

The press release leads with income from operations up 26.1% to $10.5M and net income up 4.0% to $8.1M, even though revenue fell 14.7% to $60.5M. Both statements are accurate. But the operating-income gain comes entirely from a cost that appeared last year and not this year. The business also used $30.2M of cash in its operations while it reported that $8.1M profit. And because the share count rose roughly twenty-fold, earnings per share fell 95%, from $100.42 to $4.92.

At a glance

• Operating profit before share-based pay fell 10.7%. The filing's own segment table shows segment operating income of $10.49M, against $11.75M a year ago. The reported operating-income gain exists only because H1 2025 included a $3.43M charge for paying employees in shares, and H1 2026 had none.
• $30.2M of operating cash outflow against $8.1M of profit. Money owed by customers rose $24.0M, which the company says was "due to delayed payments from one customer". Prepayments to vendors rose $21.0M.
• Six customers produced 100% of revenue. Their shares were 23%, 22%, 17%, 15%, 12% and 11%. Losing one would remove more than a tenth of sales.

The numbers

All figures are in US dollars. The company's operations are in China and it reports in RMB, which it translates into dollars.

Gross margin is the share of revenue left after the direct costs of producing and distributing content. Operating margin is the share left after all operating costs, before interest and tax. Share counts reflect two reverse splits, 1-for-50 in December 2025 and 1-for-3 in April 2026, applied to both years.

Where revenue fell

The company reports two segments:

Management's only explanation for the decline is "a decrease of orders from our customers", who "adopted cost saving strategies due to downward trend of macroeconomic environment." The filing does not give user numbers, ad volumes or pricing. A reader cannot tell whether advertisers bought fewer ads or paid less for each one.

The dollar figure understates the decline. The company earns in RMB, and the average exchange rate moved from 7.2526 RMB per dollar in H1 2025 to 6.8624 in H1 2026. A stronger RMB turns each RMB of sales into more dollars. Converting back at those average rates gives roughly RMB 415M of revenue against RMB 515M a year earlier. In local currency the fall is about 19%, not 14.7%.

Why margins rose while sales fell

Three lines account for the improvement:

• Cost of revenue fell 32.0%, to $14.12M from $20.77M. That is faster than revenue fell. The filing explains that the year-ago half carried "higher service fees ... incurred to attract increasing orders placed by our advertising customers." The 2026 gross margin of 76.7% partly reflects those fees not recurring. It is not evidence of a new efficiency.
• Selling and marketing fell 11.4%, to $31.30M. The company cut "promotion campaigns expenses" because it judged that extra promotion "may not achieve expected effects" while customers were cutting budgets. This is still the largest cost, at 51.7% of revenue.
• General and administrative costs fell 66.8%, to $1.41M from $4.24M. Nearly all of that drop is the $3.43M of share-based compensation booked in H1 2025.

Research and development went the other way, up 37.8% to $3.21M. The company attributes the increase to "continued investments in AI and IT infrastructure". In April 2026 it released CHEERS Telepathy 3.1.0, an AI content tool, and in July 2026 it launched Klon AI, an AI portrait app.

Below operating income, pre-tax profit rose 39.7% to $10.83M, helped by $0.31M of net interest income replacing a small expense. Tax then took most of that gain. Income tax was $2.77M, an effective rate of about 25.6%, against a $4,000 tax benefit a year earlier. The company says it "utilized net operating losses brought forward" and now reports taxable income. That is why net income rose only 4.0% when pre-tax income rose almost 40%.

What the headline numbers hide

1. The "26.1% operating income growth" is a comparison effect. On the company's own segment table, both segments earned less operating income than a year ago. Combined segment income fell from $11.75M to $10.49M. The consolidated figure rose only because the unallocated $3.43M share-based compensation charge of H1 2025 had no counterpart in H1 2026. Measured like-for-like, operating profit fell about 11% on a revenue decline of about 15% (about 19% in RMB). Margins held up reasonably well, but the business did not grow its profit.

2. Profit did not turn into cash. Operating cash flow was negative $30.19M against $8.06M of net income. Two items drove the gap:

• Receivables. These are amounts billed to customers but not yet collected. They rose $24.0M in the half and reached $106.40M on the balance sheet at June 30, up from $79.68M in December. The company attributes the increase to "delayed payments from one customer." That balance is about 1.8 times the half-year's revenue, or roughly ten and a half months of sales at the current pace. Six customers account for 10% to 22% each of the receivable balance.
• Prepayments to vendors. These rose $21.0M "because we increased our purchase of AI App." The prepayments balance reached $56.75M. A further $10.59M of earlier prepayments was converted into intangible assets (software and content rights) without any cash changing hands, which lifted intangibles to $42.45M from $34.73M.

That second point affects how to read the cash flow statement. Cheer's spending on AI apps passes through operating cash flow as vendor prepayments and only later appears as an asset. Reported capital expenditure was therefore just $23,000. The true investment outlay is far larger, and it already sits inside the $30.19M operating outflow.

3. Shareholders own far smaller slices of the profit. Weighted average Class A shares rose from 77,222 to 1,639,946 after the late-2025 share offerings and warrant exercises. That is why EPS fell 95% while net income rose. During the half the company issued another 283,334 shares to settle outstanding warrants, for only $43,000 recorded in equity. Class A shares outstanding went from 214,711 at June 30, 2025 to 1,845,453 at June 30, 2026, about 8.6 times as many. On July 7, 2026, shareholders also raised the authorized Class A share count from 3,333,333 to 50,000,000. That leaves room for many more share issues.

4. Large cash balance, limited access. The $213.8M of cash is large compared with total liabilities of $30.3M. However, the filing says "substantially all" of it is held in China in RMB. Getting it out as dividends depends on PRC rules and SAFE approval. The company says it does not plan to pay dividends and plans to reinvest earnings. This explains why a company already holding more than $200M of cash still raised about $23.5M gross through two share offerings in October and November 2025: the cash it already had sits inside China.

5. Customer concentration rose. In H1 2025 the six largest customers made up 94% of revenue. In H1 2026 they made up 100%.

After the period: a change of control

On September 16, 2026, Chairman and CEO Bing Zhang sold all 500,000 Class B shares to Lioness Limited, a Hong Kong company, for $500 in total. Each Class B share carries 100 votes, compared with one for each Class A share. The filing says the Class B shares hold about 96.44% of the voting power. Voting control of the company therefore passed to a new holder for a nominal sum. Mr. Zhang gave personal reasons, including health, and said the buyer's "international network" could help overseas growth. He stays on as Chairman, CEO and interim CFO. Class A holders have almost no say in any decision the new controlling holder makes.

Takeaway: Cheer's first half was a shrinking advertising business with stable margins. Revenue fell about 19% in local currency and like-for-like operating profit about 11%. The reported profit growth comes from a non-repeating charge in 2025, and $30M of cash went out the door into slow-paying receivables and AI-app prepayments. For a Class A shareholder, per-share earnings fell 95% on dilution, and voting control has since changed hands for $500.

What to watch

Management gave no revenue or profit guidance. Its only forward-looking statements are that it expects "to further expand our customers base" and that more advertising investment "may take time" to pay off. The company says its cash is sufficient for the next 12 months.

The next full report should be the FY2026 annual report on Form 20-F. Based on last year's filing date of March 20, it is likely in late March 2027. Things to check in it:

• Is the delayed customer paying? If receivables keep growing faster than revenue, a write-down becomes more likely. The balance is now above $100M.
• Do the AI products produce revenue? Klon AI and CHEERS Telepathy are where the prepayments and new intangible assets are going. So far the filing shows no non-advertising revenue: advertising was 100.0% of sales. Rising amortization of those intangibles will weigh on margins until they do.
• What the new controlling shareholder does. Lioness Limited now holds about 96% of the votes, and the company has authorization to issue tens of millions more Class A shares. Any further issuance would reduce existing holders' share of future profit again.

Our own read: the two biggest margin gains this half came from step-downs that cannot repeat indefinitely. One was the absence of last year's higher service fees paid to win advertising orders, and the other was fewer promotion campaigns. At the same time, R&D and amortization of the new AI intangibles are rising. Unless advertising orders recover, further margin gains will be hard to find, and cash flow will depend on collecting from a handful of customers.