UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

þ☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, ~~2021~~2022

o☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT

For the transition period from ________ to _________

Commission File Number: 000-55585

Grom Social Enterprises, Inc.

(Exact name of registrant as specified in its charter)

Florida		46-5542401
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

2060 NW Boca Raton Blvd. #6, Boca Raton, Florida		33431
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: (561)287-5776

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
~~Not applicable~~Common Stock, par value $0.001	~~Not applicable~~GROM	~~Not applicable~~The Nasdaq Capital Market
Warrants to purchase shares of Common Stock, par value $0.001 per share	GROMW	The Nasdaq Capital Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yesþ ☒ No o☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yesþ ☒ No o☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	o☐	Accelerated filer	o☐
Non-accelerated filer	þ☒	Smaller reporting company	þ☒
		Emerging growth company	þ☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨☐ Noþ ☒

As of May ~~14, 2021, 192,355,783~~ 13, 2022, 18,760,403 shares of the registrant’s common stock were outstanding.

GROM SOCIAL ENTERPRISES, INC.

Table of Contents

Part I – FINANCIAL INFORMATION		Page

Item 1.	Financial Statements	4
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	3027
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	3331
Item 4.	Controls and Procedures	3332

Part II – OTHER INFORMATION

Item 1.	Legal Proceedings	3433
Item 1A.	Risk Factors	3433
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	3433
Item 3.	Defaults upon Senior Securities	3433
Item 4.	Mine Safety Disclosures	3433
Item 5.	Other Information	3433
Item 6.	Exhibits	3533

CAUTIONARY STATEMENT ON FORWARD-LOOKING INFORMATION

This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are based upon our current assumptions, expectations, and beliefs concerning future developments and their potential effect on our business. In some cases, you can identify forward-looking statements by the following words: “may,” “will,” “could,” “would,” “should,” “expect,” “intend,” “plan,” “anticipate,” “believe,” “approximately,” “estimate,” “predict,” “project,” “potential,” “continue,” “ongoing,” or the negative of these terms or other comparable terminology, although the absence of these words does not necessarily mean that a statement is not forward-looking. This information may involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from the future results, performance or achievements expressed or implied by any forward-looking statements.

Factors that may cause or contribute actual results to differ from these forward-looking statements include, but are not limited to:

adverse economic conditions;

the Company’s ability to raise capital to fund its operations

the Company’s ability to monetize its gromsocial.com database of users

industry competition

the Company’s ability to integrate its acquisitions

the Company’s ability to attract and retain qualified senior management and technical personnel;

the continued effect of the Covid-19 pandemic on the Company’s operations; and

other risks and uncertainties related to the social media, animation services, nutritional products, and web filtering services marketplace and our business strategy.

These forward-looking statements represent our intentions, plans, expectations, assumptions, and beliefs about future events and are subject to risks, uncertainties and other factors. Considering these risks, uncertainties, and assumptions, the events described in the forward-looking statements may not occur or may occur to a different extent or at a different time than we have described.

All forward-looking statements speak only as of the date of this Report. Except to the extent required by law, we undertake no obligation to update or revise any forward-looking statements, or other information contained herein, whether as a result of new information, future events, a change in events, conditions, circumstances or assumptions underlying such statements, or otherwise. We caution you therefore that you should not rely on any of these forward-looking statements as statements of historical fact or as guarantees or assurances of future performance.

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

GROM SOCIAL ENTERPRISES INC.

Condensed Consolidated Balance Sheets (Unaudited)


	March 31,			December 31,			March 31,			December 31,
	2021			2020			2022			2021
		(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	581,950		$	120,300		$	6,271,328		$	6,530,161
Accounts receivable, net		725,649			587,932			766,747			968,579
Inventory, net		27,339			48,198			95,533			91,361
Prepaid expenses and other current assets		343,254			386,165			503,823			457,578
Total current assets		1,678,192			1,142,595			7,637,431			8,047,679
Operating lease right of use assets		528,348			602,775			583,414			593,405
Property and equipment, net		846,714			965,109			518,729			577,988
Goodwill		8,380,504			8,380,504			22,376,025			22,376,025
Intangible assets, net		5,469,610			5,566,339			5,034,917			5,073,074
Deferred tax assets, net -- noncurrent		531,557			531,557			465,632			465,632
Other assets		76,175			76,175			839,754			721,160
Total assets	$	17,511,100		$	17,265,054		$	37,455,902		$	37,854,963

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	778,111		$	1,126,114		$	399,597		$	467,711
Accrued liabilities		1,964,509			1,794,232			439,578			400,329
Dividend payable								176,844			459,068
Advanced payments and deferred revenues		694,737			967,053			396,155			404,428
Convertible notes, net -- current		1,612,259			2,349,677			873,896			2,604,346
Loans payable -- current		192,739			189,963			5,324			36,834
Related party payables		142,516			143,741			50,000			50,000
Income taxes payable		102,559			102,870
Lease liabilities -- current		303,940			304,326			344,492			333,020
Total current liabilities		5,791,370			6,977,976			2,685,886			4,755,736
Convertible notes, net of loan discounts		292,083			897,349			987,718			716,252
Lease liabilities		253,076			328,772			251,908			284,848
Loans payable		67,235			95,931
Contingent purchase consideration								5,586,493			5,586,493
Other noncurrent liabilities		369,597			367,544			387,742			390,833
Total liabilities		6,773,361			8,667,572			9,899,747			11,734,162

Commitments and contingencies		–			–
Commitments and contingencies (Note 15)								–			–

Stockholders' Equity:
Series A preferred stock, $0.001 par value. 10,000,000 shares authorized; zero shares issued and outstanding as of March 31, 2021 and December 31, 2020, respectively		–			–
Series B preferred stock, $0.001 par value. 10,000,000 shares authorized; 9,215,884 and 5,625,884 shares issued and outstanding as of March 31, 2021 and December 31, 2020, respectively		9,215			5,626
Common stock, $0.001 par value. 500,000,000 shares authorized; 189,316,295 and 188,354,282 shares issued and outstanding as of March 31, 2021 and December 31, 2020, respectively		189,317			188,355
Series A preferred stock, $0.001 par value. 2,000,000 shares authorized; 0 zero shares issued and outstanding as of March 31, 2022 and December 31, 2021, respectively								0			0
Series B preferred stock, $0.001 par value. 10,000,000 shares authorized; 0 zero shares issued and outstanding as of March 31, 2022 and December 31, 2021, respectively								0			0
Series C preferred stock, $0.001 par value. 10,000,000 shares authorized; 9,360,759 and 9,400,259 shares issued and outstanding as of March 31, 2022 and December 31, 2021, respectively								9,361			9,400
Common stock, $0.001 par value. 500,000,000 shares authorized; 18,725,967 and 12,698,192 shares issued and outstanding as of March 31, 2022 and December 31, 2021, respectively								18,726			12,698
Additional paid-in capital		68,667,661			64,234,749			94,917,681			89,851,309
Accumulated earnings (deficit)		(58,107,489	)		(55,791,914	)
Accumulated other comprehensive income		(20,965	)		(39,334	)
Accumulated deficit								(69,957,641	)		(66,404,190	)
Accumulated other comprehensive loss								(34,473	)		(30,755	)
Total Grom Social Enterprises, Inc. stockholders' equity								24,953,654			23,438,462
Noncontrolling interests								2,602,501			2,682,339
Total stockholders' equity		10,737,739			8,597,482			27,556,155			26,120,801
Total liabilities and equity	$	17,511,100		$	17,265,054		$	37,455,902		$	37,854,963

The accompanying notes are an integral part of the condensed consolidated financial statements.

GROM SOCIAL ENTERPRISES INC.

Condensed Consolidated Statements of Operations and Comprehensive Loss (Unaudited)


	Three Months Ended March 31,			Three Months Ended March 31,			Three Months Ended March 31,			Three Months Ended March 31,
	2021			2020			2022			2021

Sales	$	1,875,284		$	1,292,239		$	1,231,125		$	1,875,284
Cost of goods sold		800,434			612,093			916,949			1,018,121
Gross profit		1,074,850			680,146			314,176			857,163
Operating expenses:
Depreciation and amortization		217,515			195,965			64,450			148,638
Selling and marketing		30,276			34,317
General and administrative		1,350,799			1,449,348
Selling, general and administrative								1,694,819			1,262,265
Professional fees		187,109			52,718			404,066			187,109
Stock based compensation		–			16,200
Total operating expenses		1,785,699			1,748,548			2,163,335			1,568,012
Loss from operations		(710,849	)		(1,068,402	)		(1,849,159	)		(710,849	)
Other income (expense)
Interest expense, net		(648,846	)		(277,763	)		(1,631,022	)		(648,846	)
Loss on settlement of debt		(947,179	)		–			0			(947,179	)
Unrealized loss on change in fair value of derivative liabilities		–			(767	)
Other gains (losses)		(8,701	)		98			23,736			(8,701	)
Total other income (expense)		(1,604,726	)		(278,432	)
Total other expense								(1,607,286	)		(1,604,726	)
Loss before income taxes		(2,315,575	)		(1,346,834	)		(3,456,445	)		(2,315,575	)
Provision for income taxes (benefit)		–			–			0			0
Net loss		(2,315,575	)		(1,346,834	)		(3,456,445	)		(2,315,575	)

Convertible preferred stock beneficial conversion feature and other discounts accreted as a deemed dividend		–			–

Net loss attributable to common stockholders	$	(2,315,575	)	$	(1,346,834	)
Loss attributable to noncontrolling interest								(79,838	)		0
Net loss attributable to Grom Social Enterprises, Inc. stockholders								(3,376,607	)		(2,315,575	)
Preferred stock dividend payable on Series C convertible preferred stock								(176,844	)		0
Net loss attributable to Grom Social Enterprises, Inc. common stockholders							$	(3,553,451	)	$	(2,315,575	)

Basic and diluted loss per common share	$	(0.01	)	$	(0.01	)	$	(0.25	)	$	(0.39	)

Weighted-average number of common shares outstanding:
Basic and diluted		189,827,352			168,649,145			14,053,731			5,936,750

Comprehensive loss:
Net loss	$	(2,315,575	)	$	(1,346,834	)	$	(3,456,445	)	$	(2,315,575	)
Foreign currency translation adjustment		18,369			33,454			(3,718	)		18,369
Comprehensive loss	$	(2,297,206	)	$	(1,313,380	)		(3,460,163	)		(2,297,206	)
Comprehensive loss attributable to noncontrolling interests								(79,838	)		0
Comprehensive loss attributable to Grom Social Enterprises, Inc. common stockholders							$	(3,380,325	)	$	(2,297,206	)

The accompanying notes are an integral part of the condensed consolidated financial statements.

GROM SOCIAL ENTERPRISES INC.

Condensed Consolidated Statements of Changes in Stockholders' Equity (Unaudited)

Accumulated

Series A
Preferred Stock

Series B
Preferred Stock
Common Stock Additional Paid-in Retained Other Comprehensive Total Stockholders'
Shares Value Shares Value Shares Value Capital Earnings Income Equity

Balance, December 31, 2019 925,000 $ 925 – $ – 167,382,807 $ 167,383 $ 58,154,730 $ (50,048,481 ) $ (97,560 ) $ 8,176,997

Net loss – – – – – – – (1,346,834 ) – (1,346,834 )
Change in foreign currency translation – – – – – – – – 33,454 33,454
Issuance of common stock in exchange for consulting, professional and other services – – – – 2,404,153 2,404 238,101 – – 240,505
Issuance of common stock in lieu of cash for accounts payable, loans payable and other accrued obligations – – – – 500,000 500 49,500 – – 50,000
Issuance of common stock in connection with the issuance of convertible note(s) – – – – 8,120,000 8,120 560,280 – – 568,400
Conversion of convertible notes and accrued interest into common stock – – – – 259,300 259 14,741 – – 15,000
Recognition of beneficial conversion features related to convertible notes – – – – – – 44,129 – – 44,129

Balance, March 31, 2020 925,000 $ 925 – $ – 178,666,260 $ 178,666 $ 59,061,481 $ (51,395,315 ) $ (64,106 ) $ 7,781,651

Series A Preferred Stock

Series B Preferred Stock

Series C Preferred Stock

Value

Balance, December 31, 2020

–

5,625,884

5,626

–

Net loss

–

Change in foreign currency translation

–

Issuance of Series B preferred stock with common stock in connection with sales made under private offerings

–

950,000

950

–

Issuance of Series B preferred stock in exchange for consulting, professional and other services

–

75,000

–

Exchange of convertible notes and accrued interest for Series B preferred stock

–

2,564,175

2,564

–

Issuance of common stock in exchange for consulting, professional and other services

–

Issuance of common stock in connection with the issuance of convertible note(s)

–

Issuance of common stock warrants in connection with the issuance of convertible note(s)

–

Recognition of beneficial conversion features related to convertible note(s)

–

Stock based compensation expense related to stock options

–

Balance, March 31, 2021

–

9,215,059

9,215

–

Series A Preferred Stock

Series B Preferred Stock

Series C Preferred Stock

Value

Balance, December 31, 2021

–

9,400,259

9,400

Net loss

–

Change in foreign currency translation

–

Preferred stock dividend payable on Series C preferred stock

–

Issuance of common stock in connection with Series C preferred stock dividend

–

Conversion of Series C preferred stock into common stock

–

(39,500

)

(39

)

Issuance of common stock in exchange for consulting, professional and other services

–

Issuance of common stock in connection with the issuance of convertible note(s)

–

Conversion of convertible note(s) and accrued interest into common stock

–

Recognition of beneficial conversion features related to convertible note(s)

–

Stock based compensation expense related to stock options

–

Balance, March 31, 2022

–

9,360,759

9,361

(continued)

GROM SOCIAL ENTERPRISES INC.

Condensed Consolidated Statements of Changes in Stockholders' Equity (Unaudited)

(Continued)

Accumulated

Additional

Other

Total

Common Stock

Paid-in

Accumulated

Comprehensive

Noncontrolling

Stockholders'

Value

Capital

Deficit

Loss

Interest

Equity

Balance, December 31, 2020

5,886,073

5,886

64,417,218

(55,791,914

)

(39,334

)

–

8,597,482

Net loss

–

(2,315,575

)

–

(2,315,575

)

Change in foreign currency translation

–

18,369

–

18,369

Issuance of Series B preferred stock with common stock in connection with sales made under private offerings

–

949,050

–

950,000

Issuance of Series B preferred stock in exchange for consulting, professional and other services

–

74,925

–

75,000

Exchange of convertible notes and accrued interest for Series B preferred stock

–

2,561,611

–

2,564,175

Issuance of common stock in exchange for consulting, professional and other services

16,782

80,113

–

80,130

Issuance of common stock in connection with the issuance of convertible note(s)

13,282

29,737

–

��

–

29,750

Issuance of common stock warrants in connection with the issuance of convertible note(s)

–

489,313

–

489,313

Recognition of beneficial conversion features related to convertible note(s)

–

249,095

–

249,095

Stock based compensation expense related to stock options

–

Balance, March 31, 2021

5,916,137

5,916

68,851,062

(58,107,489

)

(20,965

)

–

10,737,739

Accumulated
Preferred Stock Preferred Stock Common Stock Additional Paid-in Retained Other Comprehensive Total Stockholders'
Shares Value Shares Value Shares Value Capital Earnings Income Equity

Balance, December 31, 2020 – $ – 5,625,884 $ 5,626 188,354,282 $ 188,355 $ 64,234,749 $ (55,791,914 ) $ (39,334 ) $ 8,597,482

Net income (loss) – – – – – – – (2,315,575 ) – (2,315,575 )
Change in foreign currency translation – – – – – – – – 18,369 18,369
Issuance of Series B preferred stock with common stock in connection with sales made under private offerings – – 950,000 950 – – 949,050 – – 950,000
Issuance of Series B preferred stock in exchange for consulting, professional and other services – – 75,000 75 – – 74,925 – – 75,000
Exchange of convertible notes and accrued interest for Series B preferred stock – – 2,564,175 2,564 – – 2,561,611 – – 2,564,175
Issuance of common stock in exchange for consulting, professional and other services – – – – 537,013 537 79,593 – – 80,130
Issuance of common stock in connection with the issuance of convertible note(s) – – – – 425,000 425 29,325 – – 29,750
Issuance of common stock warrants in connection with the issuance of convertible note(s) – – – – – – 489,313 – – 489,313
Recognition of beneficial conversion features related to convertible notes – – – – – – 249,095 – – 249,095

Balance, March 31, 2021 – $ – 9,215,059 $ 9,215 189,316,295 $ 189,317 $ 68,667,661 $ (58,107,489 ) $ (20,965 ) $ 10,737,739

										Accumulated
					Additional					Other						Total
	Common Stock				Paid-in		Accumulated			Comprehensive			Noncontrolling			Stockholders'
	Shares		Value		Capital		Deficit			Loss			Interest			Equity

Balance, December 31, 2021		12,698,192	$	12,698	$	89,851,309	$	(66,404,190	)	$	(30,755	)	$	2,682,339		$	26,120,801

Net loss		–		–		–		(3,376,607	)		–			(79,838	)		(3,456,445	)
Change in foreign currency translation		–		–		–		–			(3,718	)					(3,718	)
Preferred stock dividend payable on Series C preferred stock		–		–		–		(176,844	)		–			–			(176,067	)
Issuance of common stock in connection with Series C preferred stock dividend		175,253		175		458,893		–			–			–			459,068
Conversion of Series C preferred stock into common stock		20,573		21		18		0			0			0			0
Issuance of common stock in exchange for consulting, professional and other services		74,584		75		76,747		–			–			–			76,822
Issuance of common stock in connection with the issuance of convertible note(s)		–		–		–		–			–			–			–
Conversion of convertible note(s) and accrued interest into common stock		5,757,365		5,757		4,119,243		–			–			–			4,125,000
Recognition of beneficial conversion features related to convertible note(s)		–		–		363,329		–			–			–			363,329
Stock based compensation expense related to stock options		–		–		48,142		–			–			–			48,142

Balance, March 31, 2022		18,725,967	$	18,726	$	94,917,681	$	(69,957,641	)	$	(34,473	)	$	2,602,501		$	27,556,155

The accompanying notes are an integral part of the condensed consolidated financial statements.

GROM SOCIAL ENTERPRISES INC.

Condensed Consolidated Statements of Cash Flows (Unaudited)


	Three Months Ended March 31,			Three Months Ended March 31,			Three Months Ended March 31,			Three Months Ended March 31,
	2021			2020			2022			2021
Cash flows from operating activities of continuing operations:
Net loss	$	(2,315,575	)	$	(1,346,834	)	$	(3,456,445	)	$	(2,315,575	)
Adjustments to reconcile net loss to cash used in operating activities:
Depreciation and amortization		217,515			195,965			130,830			217,515
Amortization of debt discount		441,986			91,746			1,621,313			441,986
Common stock issued in exchange for fees and services		155,130			240,505			76,822			155,130
Deferred taxes		–			1,042
Stock based compensation		–			16,200			48,142			0
Loss on extinguishment of debt		947,179			–			0			947,179
Unrealized loss on change in fair value of derivative liabilities		–			767
Changes in operating assets and liabilities:
Accounts receivable		(137,717	)		(2,464	)		201,832			(137,717	)
Inventory		20,859			(966	)		(4,172	)		20,859
Prepaid expenses and other current assets		42,911			(63,029	)		(46,245	)		42,911
Operating lease right of use assets		(1,671	)		24,205			(11,523	)		(1,671	)
Other assets		–			6,605			(118,594	)		–
Accounts payable		(348,794	)		(21,676	)		(70,542	)		(348,794	)
Accrued liabilities		261,402			249,506			39,250			261,402
Advanced payments and deferred revenues		(272,315	)		442,844			(8,273	)		(272,315	)
Income taxes payable and other noncurrent liabilities		1,742			(1,153	)		(3,091	)		1,742
Related party payables		(1,225	)		(77,375	)		–			(1,225	)
Net cash used in operating activities		(988,573	)		(244,112	)		(1,600,696	)		(988,573	)

Cash flows from investing activities:
Purchase of fixed assets		(2,391	)		(15,267	)		(25,825	)		(2,391	)
Net cash used in financing activities		(2,391	)		(15,267	)
Net cash used in investing activities								(25,825	)		(2,391	)

Cash flows from financing activities:
Proceeds from issuance of preferred stock, net of issuance costs		950,000			–			0			950,000
Proceeds from issuance of convertible notes		666,500			3,655,000
Net proceeds from issuance of convertible notes								1,444,000			666,500
Repayments of convertible notes		(157,141	)		(3,078,857	)		(35,968	)		(157,141	)
Repayments of loans payable		(25,921	)		–			(31,510	)		(25,921	)
Net cash provided by financing activities		1,433,438			576,143			1,376,522			1,433,438

Effect of exchange rates on cash and cash equivalents		19,176			11,352			(8,834	)		19,176
Net increase in cash and cash equivalents		461,650			328,116
Net increase (decrease) in cash and cash equivalents								(258,833	)		461,650
Cash and cash equivalents at beginning of period		120,300			506,219			6,530,161			120,300
Cash and cash equivalents at end of period	$	581,950		$	834,335		$	6,271,328		$	581,950

Supplemental disclosure of cash flow information:
Cash paid for interest	$	74,299		$	–		$	11,796		$	74,299
Cash paid for income taxes	$	–		$	–

Supplemental disclosure of non-cash investing and financing activities:
Common stock issued for financing costs incurred in connection with convertible and promissory notes	$	29,750		$	568,400		$	0		$	29,750
Common stock issued to reduce accounts payable and other accrued liabilities	$	–		$	50,000
Common stock warrants issued in connection with convertible promissory notes	$	489,313		$	–		$	363,329		$	489,313
Conversion of convertible notes and accrued interest into common stock	$	–		$	15,000
Conversion of convertible notes and accrued interest into preferred stock	$	1,616,996		$	–
Conversion of convertible debentures and accrued interest into common stock							$	4,125,000		$	0
Conversion of convertible debentures and accrued interest into preferred stock							$	0		$	1,616,996
Discount for beneficial conversion features on convertible notes	$	249,095		$	44,129		$	0		$	249,095
Preferred stock dividend payable on convertible preferred stock							$	176,844		$	0

The accompanying notes are an integral part of the condensed consolidated financial statements.

GROM SOCIAL ENTERPRISES, INC.

Notes to Unaudited Condensed Consolidated Financial Statements (Unaudited)

1.	NATURE OF OPERATIONS

Grom Social Enterprises, Inc. (the “Company”, “Grom” “we”, “us” or “our”), a Florida corporation f/k/a Illumination America, Inc. (“Illumination”), is a media, technology and entertainment ~~company that focuses~~company. The Company is focused on (i) delivering content to children under the age of 13 years in a safe secure platform that is compliant with the Children’s Online Privacy Protection Act (“COPPA”) and can be monitored by parents or ~~guardians.~~guardians, (ii) creating, acquiring, and developing the commercial potential of Kids & Family entertainment properties and associated business opportunities, (iii) providing world class animation services, and (iv) offering protective web filtering solutions to block unwanted or inappropriate content.

The Company operates its business through the following ~~four wholly-owned~~five operating subsidiaries:

Grom Social, Inc. (“Grom Social”) was incorporated in the State of Florida on March 5, 2012 and operates the Company’s social media network designed for children under the age of 13 years.

TD Holdings Limited (“TD Holdings”) was incorporated in Hong Kong on September 15, 2005. TD Holdings operates through its two subsidiary companies: (i) Top Draw Animation Hong Kong Limited (“TDAHK”), a Hong Kong corporation and (ii) Top Draw Animation, Inc. (“Top Draw” or “TDA”), a Philippines corporation. The group’s principal service-based activities are the production of animated films and televisions series.

Grom Educational Services, Inc. (“GES”) was incorporated in the State of Florida on January 17, 2017. GES operates the Company’s web filtering services provided to schools and government agencies.

Grom Nutritional Services, Inc. (“GNS”) was incorporated in the State of Florida on April 19, 2017. GNS intends to market and distribute nutritional supplements to children. GNS has ~~not generated any revenue~~been nonoperational since its inception.

Curiosity Ink Media, LLC (“Curiosity”) was incorporated in the State of Delaware on January 9, 2017, creates, acquires and develops the commercial potential of Kids & Family entertainment properties and associated business opportunities.

The Company owns 100% of each of Grom Social, TD Holdings, GES and GNS, and 80% of Curiosity. The Company is headquartered in Boca Raton, Florida with offices in Los Angeles, California; Salt Lake City, Utah; Norcross, Georgia; and Manila, Philippines.

2.	BASIS OF PRESENTATION and SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

~~Going Concern~~

The accompanying unaudited condensed consolidated financial statements have been prepared assuming the Company will continue as a going concern, which contemplates realization of assets and the satisfaction of liabilities in the normal course of business for the twelve-month period following the date of these financial statements. On a consolidated basis, the Company has incurred significant operating losses since inception.

Because the Company does not expect that existing operational cash flow will be sufficient to fund presently anticipated operations, this raises substantial doubt about the Company’s ability to continue as a going concern. Therefore, the Company will need to raise additional funds and is currently exploring alternative sources of financing. Historically, the Company has raised capital through private placements, convertible notes and officer loans as an interim measure to finance working capital needs and may continue to raise additional capital through the sale of common stock or other securities and obtaining some short-term loans in order to fund its operations.

Impact of COVID-19

On January 30, 2020, the World Health Organization announced a global health emergency because of the spread of a new strain of the novel coronavirus (“COVID-19”). On March 11, 2020, the World Health Organization declared the outbreak of COVID-19, a global pandemic. COVID-19 has and continues to significantly affect the United States and global economies.

The Company has experienced significant disruptions to its business and operations due to circumstances related to COVID-19, and delays caused government-imposed quarantines, office closings and travel restrictions, which affect both the Company’s and its service providers. The Company has significant operations in Manila, Philippines, which was locked down by the government on March 12, 2020 due to concerns related to the spread of COVID-19. As a result of the Philippines government’s call to contain COVID-19, the Company’s animation studio, located in Manila, Philippines, which accounts for approximately ~~90%~~85.2% of the Company’s total revenues on a consolidated basis, ~~has been mostly closed.~~was forced to close its offices for significant periods of time from March 2020 through December 2021.

In response to the outbreak and business disruption, the Company has instituted employee safety protocols to contain the spread, including domestic and international travel restrictions, work-from-home practices, extensive cleaning protocols, social distancing and various temporary closures of its administrative offices and production studio. The Company has implemented a range of actions aimed at temporarily reducing costs and preserving liquidity. In January 2022, the Company started to recall artist and employees to return to the studio which is currently operating at 50% seat capacity.

The outbreak has and may continue to spread, which could materially impact the Company’s business. The full extent of potential impacts on the Company’s business, financing activities and the global economy will depend on future developments, which cannot be predicted due to the uncertain nature of the continued COVID-19 pandemic, government mandated shut downs, and its adverse effects, including new information which may emerge concerning the severity of COVID-19 and the actions to contain COVID-19 or treat its impact, among others. These effects could have a material adverse impact on the Company’s business, operations, financial condition and results of operations.

~~Management’s Representation~~Basis of ~~Interim Financial Statements~~Presentation

The accompanying ~~unaudited~~ condensed consolidated financial statements are unaudited and have been prepared byin conformity with accounting principles generally accepted in the ~~Company without audit pursuant~~United States of America (“GAAP”) for interim financial information and in conjunction with the instructions to ~~the rules and regulations~~Form 10-Q of the Securities and Exchange Commission (“SEC”). ~~The Company uses the same accounting policies in preparing quarterly and annual financial statements. Certain~~Accordingly, certain information and footnote disclosures ~~normally included in~~required by GAAP for complete financial statements ~~prepared in accordance with accounting principles generally accepted in the United States (“GAAP”)~~ have been condensed or ~~omitted~~omitted. For the three months ended March 31, 2022, the condensed consolidated financial statements include the accounts of the Company and its operating subsidiaries Grom Social, TD Holdings, GES, GNS, and Curiosity. The Company recognizes noncontrolling interest related to its less-than-wholly-owned subsidiary, Curiosity, as ~~allowed by such rules~~equity in the consolidated financial statements separate from the parent entity’s equity. The net income (loss) attributable to noncontrolling interest is included in net income (loss) in the condensed consolidated statements of operations and ~~regulations, and management believes that the disclosures are adequate to make the information presented not misleading.~~ comprehensive loss.

These condensed consolidated financial statements include all of the adjustments, which in the opinion of management are necessary to a fair presentation of financial position and results of operations. All such adjustments, which includes intercompany balances and transactions are of a normal and recurring nature. Interim results are not necessarily indicative of results for a full year. These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto at December 31, ~~2020,~~2021, as presented in the Company’s Annual Report on Form 10-K filed on April ~~13, 2021~~15, 2022 with the SEC.

~~Basis~~Certain prior period statement of ~~Presentation~~

~~The condensed consolidated financial statements of the Company~~operations captions and balances have been ~~prepared~~reclassified to conform with the current year presentation, including the allocation of $98,877 from depreciation and amortization and $118,810 in ~~accordance with GAAP~~certain fixed overhead costs from selling, general, and ~~are expressed in United States dollars. For~~administrative expenses previously presented under operating expenses to cost of goods sold during the three months ended March 31, ~~2021,~~2021. The changes do not have a financial impact on the ~~condensed~~Company’s reported revenue, reported net loss, or cash flows from operations.

Use of Estimates

We have made estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities at the date of the consolidated financial statements ~~include~~and the ~~accounts~~reported amounts of revenue and expenses during the reporting period. Actual results could differ materially from those estimates. The results of operations for the three months ended March 31, 2022, are not necessarily indicative of the ~~Company and~~operating results for the full year.

Update to Significant Accounting Policies

There have been no new or material changes to the significant accounting policies discussed in the Company’s audited financial statements in its ~~wholly-owned subsidiaries Grom Social, TD Holdings, GES, GNS, and IAL. All intercompany accounts and transactions~~Annual Report on Form 10-K for the fiscal year ended December 31, 2021 as filed with the SEC on April 15, 2022, that are ~~eliminated~~of significance, or potential significance, to the Company.

Recent Accounting Pronouncements – Issued, not yet Adopted

There were no new accounting pronouncements issued in ~~consolidation.~~

the first quarter of fiscal year 2022 which could impact the Company.

~~Use of Estimates~~Recent Accounting Pronouncements – Adopted

In May 2021, the FASB issued ASU 2021-04, Earnings Per Share (Topic 260), Debt—Modifications and Extinguishments (Subtopic 470-50), Compensation—Stock Compensation (Topic 718), and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Issuer’s Accounting for Certain Modification or Exchanges of Freestanding Equity-Classified Written Call Options (“ASU 2021-04”), which clarifies and reduces diversity in an issuer’s accounting for modifications or exchanges of freestanding equity-classified written call options due to a lack of explicit guidance in the FASB Codification. ASU 2021-04 provides guidance on modifications or exchanges of freestanding equity-classified written call options that are not within the scope of another Topic. Entities should treat a modification of the terms or conditions, or an exchange of a freestanding equity-classified written call option that remains equity-classified after modification or exchange, as an exchange of the original instrument for a new instrument. ASU 2021-04 provides further guidance on measuring the effect of such modifications or exchanges, and also provides guidance on the recognition of such modifications or exchanges on the basis of the substance of the transaction, in the same manner as if cash had been paid as consideration. ASU 2021-04 is effective for all entities for fiscal years beginning after December 15, 2021, and early adoption is permitted. The ~~preparation of~~Company adopted this ASU on January 1, 2022, which did not result in a material impact to the condensed consolidated financial statements ~~in conformity with GAAP requires management to make estimates~~ and ~~assumptions that affect the reported amounts~~disclosures.

3.	REVENUES

The Company’s main types of ~~liabilities and disclosure of contingent assets and liabilities at the date~~revenue contracts consists of the ~~financial~~following, which are disaggregated from the condensed consolidated statements ~~and the reported amounts~~ of revenues and expenses during the reporting period. The most significant estimates relate to revenue recognition, valuation of accounts receivable and inventories, purchase price allocation of acquired businesses, impairment of long-lived assets and goodwill, valuation of financial instruments, income taxes, and contingencies. The Company bases its estimates on historical experience, known or expected trends and various other assumptions that are believed to be reasonable given the quality of information available as of the date of these financial statements. The results of these assumptions provide the basis for making estimates about the carrying amounts of assets and liabilities that are not readily apparent from other sources. Actual results could differ from these estimates.operations.

~~Revenue Recognition~~

~~The Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”) No. 2014-09,~~ ~~Revenue from Contracts with Customers (Topic 606)~~ ("ASU 2014-09"). ASU 2014-09 outlines a single comprehensive model for revenue arising from contracts with customers. The guidance provided in Accounting Standards Codification (“ASC”) Topic 606 ("ASC 606") requires entities to use a five-step model to recognize revenue by allocating the consideration from contracts to performance obligations on a relative standalone selling price basis. Revenue is recognized when a customer obtains control of promised goods or services in an amount that reflects the consideration that the entity expects to receive in exchange for those goods or services. The standard also requires new disclosures regarding the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. ASC 606 also includes Subtopic 340-40, ~~Other Assets and Deferred Costs – Contracts with Customers~~~~, which requires the deferral of incremental costs of obtaining a contract with a customer.~~

Animation Revenue

~~For the three months ended March 31, 2021 and 2020, the Company recorded a total of $1,713,658 and $1,153,236, respectively, of animation revenue from contracts with customers.~~

Animation revenue is primarily generated from contracts with customers for preproduction and production services related to the development of animated movies and television series. Preproduction activities include producing storyboards, location design, model and props design, background color and color styling. Production focuses on library creation, digital asset management, background layout scene assembly, posing, animation and aftereffects. The Company provides services under fixed-price contracts. Under fixed-price contracts, the Company agrees to perform the specified work for a pre-determined price. To the extent actual costs vary from estimated costs, the Company’s profit may increase, decrease, or result in a loss.

The Company identifies a contract under ASC 606 once (i) it is approved by all parties, (ii) the rights of the parties are identified, (iii) the payment terms are identified, (iv) the contract has commercial substance, and (v) collectability of consideration is probable.

The Company evaluates the services promised in each contract at inception to determine whether the contract should be accounted for as having one or more performance obligations. The services in the Company’s contracts are distinct from one another as the referring parties typically can direct all, limited, or single portions of the various preproduction and production activities required to create and design and entire episode to us and we therefore have a history of developing standalone selling prices for all of these distinct components. Accordingly, our contracts are typically accounted for as containing multiple performance obligations.

~~The Company determines the transaction price for each contract based on the consideration it expects to receive for the distinct services being provided under the contract.~~

The Company recognizes revenue as performance obligations are satisfied and the customer obtains control of the services. In determining when performance obligations are satisfied, the Company considers factors such as contract terms, payment terms and whether there is an alternative future use of the product or service. Substantially all of the Company’s revenue is recognized over time as it performs under the contract due to the contractual terms present in each contract which irrevocably transfer control of the work product to the customer as the services are performed.

For performance obligations recognized over time, revenue is recognized based on the extent of progress made towards completion of the performance obligation. The Company uses the percentage-of-completion cost-to-cost measure of progress because it best depicts the transfer of control to the customer as the Company incurs costs against its contracts. Under the percentage-of-completion cost-to-cost measure of progress, the extent of progress towards completion is measured based on the ratio of costs incurred to date to the total estimated costs to complete the performance obligation. The percentage-of-completion cost-to-cost method requires management to make estimates and assumptions that affect the reported amounts of contract assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The most significant estimates relate to the total estimated amount of costs that will be incurred for a project or job.

Web Filtering Revenue

~~For the three months ended March 31, 2021 and 2020, the Company recorded a total of $161,241 and $138,143, respectively, of web filtering revenue from contracts with customers.~~

Web filtering revenue from subscription sales is recognized on a pro-rata basis over the subscription period. Typically, a subscriber purchases computer hardware and a software and support service license for a period of use between one year to five years. The subscriber is billed in full at the time of the sale. The Company immediately recognizes revenue attributable to the computer hardware as it is non-refundable and control passes to the customer. The advanced billing component for software and service is initially recorded as deferred revenue and subsequently recognized as revenue on a straight-line basis over the subscription period.

Produced and Licensed Content Revenue

~~Contract Assets~~Produced and ~~Liabilities~~licensed content revenues are generated from the licensing of internally-produced films and television programs.

Licensed internally-produced films and television programming, each individual film or episode delivered represents a separate performance obligation and revenues are recognized when the episode is made available to the licensee for exhibition. For license agreements containing multiple deliverables, revenues are allocated based on the relative standalone selling price of each film or episode of a television series, which is based on licenses for comparable films or series within the marketplace. Agreements to license programming are often long term, with collection terms ranging from one to five years.

The advanced billing component for licensed content is initially recorded as deferred revenue and subsequently recognized as revenue upon completion of the performance obligation in accordance with the terms of licensing agreement.

Publishing Revenue

Publishing revenues are recognized when merchandise is shipped or electronically delivered to the consumer. Consumer print books are generally sold with a right of return. The Company records a returns reserve and corresponding decrease in revenue at the time of sale based upon historical trends. For publishing revenues, payments are due shortly after shipment or electronic delivery.

Other Revenue

Other revenue corresponds to subscription and advertising revenue from the Grom Social website and mobile application.

All revenue recognized in the condensed consolidated statements of operations is considered to be revenue from contracts with customers. The following table depicts the disaggregated revenue listed above within the Sales caption in the condensed consolidated statements of operations:

Schedule of disaggregated revenue

Three Months Ended
March 31, 2022

Three Months Ended
March 31, 2021

Animation $ 1,048,613 $ 1,713,658
Web Filtering 182,244 161,241
Produced and Licensed Content – –
Publishing 268 385
Total Sales $ 1,231,125 $ 1,875,284
The following table sets forth the components of the Company’s accounts receivable and advanced payments and deferred revenues at March 31, 2022, and December 31, 2021:
Schedule of accounts receivable

March 31,
2022

December 31,
2021

Billed accounts receivable $ 660,232 $ 822,536
Unbilled accounts receivable 147,477 187,751
Allowance for doubtful accounts (40,962 ) (41,708 )
Total accounts receivable, net $ 766,747 $ 968,579
Total advanced payments and deferred revenues $ 396,155 $ 404,428
During the three months ended March 31, 2022, the Company had three customers that accounted for 65.9% of revenues and three customers that accounted for 61.7% of accounts receivable. During the year ended December 31, 2021, the Company had four customers that accounted for 69.1% of revenues and two customers that accounted for 61.3% of accounts receivable.

Animation revenue contracts vary with movie contracts typically allowing for progress billings over the contract term while other episodic development activities are typically billable upon delivery of the performance obligation for an episode. These episodic activities typically create unbilled contract assets between episode delivery dates while movies can create contract assets or liabilities based on the progress of activities versus the arranged billing schedule. Revenues from web filtering contracts are all billed in advance and therefore represent contract liabilities until fully recognized on a ratable basis over the contract life.

~~The following table depicts the composition of our contract assets and liabilities as of March 31, 2021 and December 31, 2020:~~
March 31, 2021
December 31, 2020

Animation contract assets $ 666,837 $ 525,709
Web filtering contract assets 51,475 54,886
Other contract assets 7,337 7,337
Total contract assets $ 725,649 $ 587,932

Animation contract liabilities $ 143,648 $ 410,709
Web filtering contract liabilities 539,589 544,844
Other contract liabilities 11,500 11,500
Total contract liabilities $ 694,737 $ 967,053

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~~Recent Accounting Pronouncements~~
The Company has implemented all new accounting pronouncements that are in effect and that may impact its financial statements and does not believe that there are any other new pronouncements that have been issued that might have a material impact on its financial position or results of operations except as noted below:
~~In January 2017, the FASB issued Accounting Standards Update No. 2017-04,~~ ~~Simplifying the Test for Goodwill Impairment~~ (“ASU 2017-04”). ASU 2017-04 simplifies the accounting for goodwill impairment by removing Step 2 of the goodwill impairment test, which requires a hypothetical purchase price allocation. Under this pronouncement, an entity would perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount and would recognize an impairment change for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized is not to exceed the total amount of goodwill allocated to that reporting unit. In addition, income tax effects will be considered, if applicable. ASU 2017-04 is effective for annual or interim goodwill impairment tests in fiscal years beginning after December 15, 2019 and should be applied on a prospective basis.
On November 15, 2019, the FASB issued ASU 2019-10, which (1) provides a framework to stagger effective dates for future major accounting standards and (2) amends the effective dates for certain major new accounting standards to give implementation relief to certain types of entities. Specifically, ASU 2019-10 amends the effective date for ASU 2017-04 to fiscal years beginning after December 15, 2022, and interim periods therein.
Early adoption continues to be permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company does not anticipate the adoption of ASU 2017-04 will have a material impact on its financial statements for both annual and interim reporting periods.
~~In December 2019, the FASB issued ASU 2019-12,~~ ~~Income Taxes (Topic 740)~~ which enhances and simplifies various aspects of the income tax accounting guidance, including requirements such as tax basis step-up in goodwill obtained in a transaction that is not a business combination, ownership changes in investments, and interim-period accounting for enacted changes in tax law. The amendment will be effective for public companies with fiscal years beginning after December 15, 2020; early adoption is permitted. The Company is evaluating the impact of this amendment on its consolidated financial statements.
~~In February 2020, the FASB issued ASU 2020-02,~~ Financial Instruments-Credit Losses (Topic 326) and Leases (Topic 842) - Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 119 and Update to SEC Section on Effective Date Related to Accounting Standards Update No. 2016-02, Leases (Topic 842) which amends the effective date of the original pronouncement for smaller reporting companies. ASU 2016-13 and its amendments will be effective for the Company for interim and annual periods in fiscal years beginning after December 15, 2022. The Company believes the adoption will modify the way the Company analyzes financial instruments, but it does not anticipate a material impact on results of operations. The Company is in the process of determining the effects adoption will have on its consolidated financial statements.
~~In August 2020, the FASB issued ASU 2020-06,~~ ~~Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815 – 40)~~, (“ASU 2020-06”). ASU 2020-06 simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity’s own equity. The ASU2020-06 amendments are effective for fiscal years beginning after December 15, 2023, and interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. The Company is evaluating the impact of this guidance on its unaudited condensed consolidated financial statements.
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3.4. ~~ACCOUNTS RECEIVABLE, NET~~INVENTORY

~~The following table sets forth~~Inventory consists of costs incurred to produce animated content for third parties customers. Costs incurred to produce the ~~components~~animated content to customers, which include direct production costs, production overhead and supplies are recognized as work-in-progress inventory. As animated content is completed in accordance with the terms stated by the customer, inventory is classified as finished products and subsequently recognized as cost of services as animated content is accepted by and available to the ~~Company’s accounts receivable~~customer. Carrying amounts of animated content are recorded at the lower of cost or net realizable value. Cost is determined using a weighted average cost method for direct production costs, productions overhead and supplies used for completing animation projects.
As of March 31, ~~2021,~~2022 and December 31, ~~2020:~~

March 31,
2021

December 31,
2020

Billed accounts receivable $ 587,882 $ 443,806
Unbilled accounts receivable 188,336 188,029
Allowance for doubtful accounts (50,569 ) (43,903 )
Total accounts receivable, net $ 725,649 $ 587,932
~~During the three months ended March 31,~~ 2021, the ~~Company had five customers that accounted for 91.3%~~Company’s inventory totaled $95,533 and $91,361, respectively, and was comprised of ~~revenues~~work-in-progress of $81,673 and ~~three customers that accounted for 56.2%~~$77,501, respectively, and finished goods of ~~accounts receivable. During the year ended December 31, 2020, the Company had three customers that accounted for 68.5% of revenues and one customer that accounted for 29.9% of accounts receivable.~~$13,860.

4.5. PROPERTY AND EQUIPMENT

The following table sets forth the components of the Company’s property and equipment at March 31, ~~2021~~2022 and December 31, ~~2020:~~2021:
Schedule of property and equipment
March 31, 2021 December 31, 2020 March 31, 2022 December 31, 2021
Cost Accumulated Depreciation Net Book Value Cost Accumulated Depreciation Net Book Value Cost Accumulated Depreciation Net Book Value Cost Accumulated Depreciation Net Book Value
Capital assets subject to depreciation:
Computers, software and office equipment $ 2,803,063 $ (2,333,580 ) $ 469,483 $ 2,800,872 $ (2,257,797 ) $ 543,075 $ 2,655,372 $ (2,409,116 ) $ 246,256 $ 2,698,172 $ (2,399,978 ) $ 298,194
Machinery and equipment 192,988 (157,146 ) 35,842 192,988 (152,149 ) 40,839 183,400 (164,201 ) 19,199 183,618 (162,647 ) 20,971
Vehicles 163,525 (113,915 ) 49,610 163,525 (106,826 ) 56,699 99,856 (80,950 ) 18,906 101,674 (76,497 ) 25,177
Furniture and fixtures 422,219 (371,089 ) 51,130 422,234 (364,655 ) 57,579 398,532 (364,230 ) 34,302 401,862 (365,075 ) 36,787
Leasehold improvements 1,143,703 (929,648 ) 214,055 1,143,704 (903,381 ) 240,323 1,138,039 (962,786 ) 175,253 1,086,518 (955,547 ) 130,971
Total fixed assets 4,725,498 (3,905,378 ) 820,120 4,723,323 (3,784,808 ) 938,515 4,475,199 (3,981,283 ) 493,916 4,471,844 (3,959,744 ) 512,100
Capital assets not subject to depreciation:
Construction in progress 26,594 – 26,594 26,594 – 26,594 24,813 0 24,813 65,888 0 65,888
Total fixed assets $ 4,752,092 $ (3,905,378 ) $ 846,714 $ 4,749,917 $ (3,784,808 ) $ 965,109 $ 4,500,012 $ (3,981,283 ) $ 518,729 $ 4,537,732 $ (3,959,744 ) $ 577,988

For the three months ended March 31, ~~2021~~2022 and ~~2020,~~2021, the Company recorded depreciation expense of ~~$120,786~~$92,674 and ~~$99,236,~~$120,786, respectively.

5.6. OTHER ASSETS
The following table sets forth the components of the Company’s other assets at March 31, 2022 and December 31, 2021:
Schedule Of Other Assets
March 31, 2022 December 31, 2021

Capitalized website development costs 424,224 411,800
Prepublication costs 154,786 152,286
Produced and licensed content costs 186,052 76,701
Deposits 74,692 76,052
Other noncurrent assets 0 4,321
Total other assets 839,754 721,160
No amortization expense has yet to be recognized for website development costs, prepublication costs and produced and licensed content costs as these properties were still in development as of March 31, 2022.
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7. LEASES

The Company has entered into operating leases primarily for ~~real estate.~~office space. These leases have terms which range from ~~three~~two years to ~~five~~six years, and often include one or more options to renew or in the case of equipment rental, to purchase the equipment. During the three months ended March 31, 2022, the Company recorded an additional $80,478 of right of use (“ROU”) assets and lease liabilities related to new operating leases.

In ~~the United States,~~January 2022, the Company ~~leases approximately 2,100 square feet~~signed a new lease agreement to extend the term until March 2024 of the Company’s office space in Boca Raton, ~~Florida at the rate of $4,000 per month pursuant to a three-year~~Florida. The total legally binding minimum lease ~~which expires in October 2021. The Florida office space~~payments for this agreement is ~~the location of the Company’s corporate headquarters and administrative staff.~~approximately $94,898.

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The Company’s animation operations leases portions of three floors aggregating approximately 28,800 square feet in the West Tower of the Philippine Stock Exchange Centre in Pasig City, Manila. The space is used for administration and production purposes. The Company pays approximately $24,000 per month in the aggregate for such space (which increases by approximately 5% annually). These leases expire in December 2022.
The Company’s web filtering operations lease approximately 1,400 square feet of office space in Norcross, Georgia. The Company pays approximately $2,100 per month pursuant to a five-year lease which expires in December 2023. The lease payment increases by approximately 3% annually.
These operating leases are listed as separate line items on the Company's condensed consolidated financial statements and represent the Company’s right to use the underlying asset for the lease term. The Company’s obligation to make lease payments are also listed as separate line items on the Company's condensed consolidated financial statements.
~~Operating lease right-of-use assets and liabilities commencing after January 1, 2019 are recognized at commencement date based on the present value of lease payments over the lease term.~~ Based on the present value of the lease payments for the remaining lease term of the Company's existing leases, the Company recognized $583,414 in noncurrent ROU assets, ~~and~~$344,492 in current lease liabilities ~~for~~and $251,908 in noncurrent lease liabilities from operating leases ~~of approximately $528,348 in assets, $303,940 in current liabilities and $253,076 in noncurrent liabilities~~ as of March 31, ~~2021. For the three months ended March 31, 2021, the Company recognized approximately $90,993 in total lease costs.~~2022.
~~The following table presents the remaining amortization of the Company’s lease liabilities under ASC 842 for each of the following years ending December 31:~~
2021 $ 228,245
2022 302,781
2023 25,990
$ 557,016

Because the rate implicit in each lease is not readily determinable, the Company uses its incremental borrowing rate to determine the present value of the lease payments.

Information related to the Company's operating ROU assets and related lease liabilities are as follows:
Schedule of operating right-of-use assets
Three Months Ended
March 31, 2022
Cash paid for operating lease liabilities $ 110,274
Weighted-average remaining lease term 1.5
Weighted-average discount rate 10%

Three Months Ended
March 31, 2021
Cash paid for operating lease liabilities $ 92,665
Weighted-average remaining lease term 2.2
Weighted-average discount rate 10%
Minimum future lease payments $ 639,219
For the three months ended March 31, 2022 and 2021, the Company recorded rent expenses related to lease obligations of $105,340 and $90,993, respectively. Rent expenses related to lease obligations are allocated between cost of goods sold and selling, general and administrative expenses in the Company’s condensed consolidated statement of operations.

The ~~remaining future minimum payment obligations at~~maturities of the lease liabilities are as follows as of March 31, ~~2021 for operating leases are as follows:~~2022:
Schedule of amortization of lease liabilities
Remainder of 2022 $ 320,246
2023 116,606
2024 52,430
2025 42,596
2026 44,726
Thereafter 42,962
Total future lease payments 623,566
Less: Imputed interest (27,166 )
Present value of lease liabilities $ 596,400

2021 $ 274,972
2022 $ 335,659
2023 $ 28,588
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8. BUSINESS COMBINATIONS
Acquisition of Curiosity Ink Media, LLC
On July 29, 2021, the Company entered into a membership interest purchase agreement (the “Purchase Agreement”) with Curiosity Ink Media LLC, a Delaware limited liability company (“Curiosity”) and the holders of all of Curiosity’s outstanding membership interests (the “Sellers”), for the purchase of 80% of Curiosity’s outstanding membership interests (the “Purchased Interests”) from the Sellers (the “Acquisition).
On August 19, 2021, pursuant to the terms of the Purchase Agreement, the Company consummated the Acquisition and acquired the Purchased Interests in consideration for the issuance to the Sellers of an aggregate of 1,771,883 shares of the Company’s common stock to the Sellers, pro rata to their membership interests immediately prior to the closing of the Acquisition. The shares were valued at $2.82 per share which represents to the 20-day volume-weighted average price of the Company’s common stock on August 19, 2021.
Pursuant to the Purchase Agreement, the Company also paid $400,000 and issued an 8% eighteen-month convertible promissory note in the principal amount $278,000 (the “Note”) to pay-down and refinance certain outstanding loans and advances previously made to Curiosity by Russell Hicks and Brett Watts.
The Note is convertible into shares of common stock of the Company at a conversion price of $3.28 per share but may not be converted if, after giving effect to such conversion, the noteholder and its affiliates would beneficially own in excess of 9.99% of the Company’s outstanding common stock. The Note may be prepaid at any time, in whole or in part. The Note is subordinate to the Company’s senior indebtedness.
The Sellers also have the ability to earn up to $17,500,000 (payable 50% in cash and 50% in stock) upon the achievement of certain performance milestones as of December 31, 2025.
In addition to the tangible assets, goodwill totaling $14,271,969 was recorded in connection with the acquisition. Goodwill was calculated as the excess of the consideration transferred over the net assets recognized and represents potential future economic benefits arising from other assets acquired that could not be individually identified and separately recognized. Goodwill is not expected to be deductible for tax purposes.
Schedule Of Components Of Income Tax Expense Benefit
Consideration Paid:
Cash consideration $ 400,000
Common stock issued 5,421,962
Convertible notes 278,000
Contingent purchase consideration 5,586,493
Total consideration $ 11,686,455
The amounts in the table below represent the allocation of the purchase price. The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the acquisition date:
Schedule of Recognized Identified Assets Acquired and Liabilities Assumed
Cash and cash equivalents $ 26,408
Inventory 65,734
Produced and licensed content cost 187,920
Goodwill and intangible assets 14,271,969
Accounts payable (113,462 )
Noncontrolling interest (2,752,114 )
Total identifiable assets acquired, and liabilities assumed $ 11,686,455

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As of March 31, 2022, the initial accounting for the acquisition remains incomplete as the Company expects to finalize the purchase price allocation and valuations by June 30, 2022 to conclude its fair value assessment of the assets acquired and liabilities assumed, including any separately identifiable intangible assets.
The Company’s results of operations for the three months ended March 31, 2022 include results of operations for Curiosity. No pro forma information is presented for the Company’s results of operations as if the acquisition of Curiosity had occurred on January 1, 2021 as results of its operations are not considered material to the condensed consolidated financial statements as of and for the three months ended March 31, 2021.
6.9. GOODWILL AND INTANGIBLE ASSETS

Goodwill represents the future economic benefit arising from other assets acquired that could not be individually identified and separately recognized. The goodwill arising from the Company’s acquisitions is attributable to the value of the potential expanded market opportunity with new customers. At March 31, ~~2021~~2022 and December 31, ~~2020,~~2021, the carrying amount of the Company’s goodwill was ~~$8,380,504.~~ $22,376,025.

The following table sets forth the components of the Company’s intangible assets at March 31, ~~2021~~2022 and December 31, ~~2020:~~2021:
Schedule of intangible assets
Current Year Period Prior Year End
Amortization Period (Years) Gross Carrying Amount Accumulated Amortization Accumulated Impairment Net Book Value Gross Carrying Amount Accumulated Amortization Accumulated Impairment Net Book Value
Intangible assets subject to amortization:
Customer relationships 10.00 1,526,282 (877,612 ) 0 648,670 1,600,286 (876,457 ) (37,002 ) 686,827
Mobile software applications 2.00 0 0 0 0 282,500 (282,500 ) 0 0
NetSpective webfiltering software 2.00 0 0 0 0 1,134,435 (1,134,435 ) 0 0
Noncompete agreements 1.50 0 0 0 0 846,638 (846,638 ) 0 0
Subtotal – 1,526,282 (877,612 ) 0 648,670 3,863,859 (3,140,030 ) (37,002 ) 686,827
Intangible assets not subject to amortization:
Trade names – 4,386,247 – – 4,386,247 4,455,595 – (69,348 ) 4,386,247
Total intangible assets – 5,912,529 (877,612 ) – 5,034,917 8,319,454 (3,140,030 ) (106,350 ) 5,073,074

March 31, 2021 December 31, 2020
Amortization Period (Years) Gross Carrying Amount Accumulated Amortization Net Book Value Gross Carrying Amount Accumulated Amortization Net Book Value
Intangible assets subject to amortization:
Customer relationships 10.00 $ 1,600,286 $ (756,436 ) $ 843,850 $ 1,600,286 $ (716,429 ) $ 883,857
Web filtering software 5.00 1,134,435 (964,270 ) 170,165 1,134,435 (907,548 ) 226,887
Subtotal – 2,734,721 (1,720,705 ) 1,014,016 2,734,721 (1,623,977 ) 1,110,744
Intangible assets not subject to amortization:
Trade names – 4,455,595 – 4,455,595 4,455,595 – 4,455,595
Total intangible assets – $ 7,190,316 $ (1,720,705 ) $ 5,469,611 $ 7,190,316 $ (1,623,977 ) $ 5,566,339
For the three months ended March 31, 2022 and 2021, the Company recorded amortization expense of $38,157 and $96,728, respectively.

The following table provides information regarding estimated remaining amortization expense for intangible assets subject to amortization for each of the following years ending December 31:
Schedule of amortization
Remainder of 2022 $ 114,471
2023 152,628
2024 152,628
2025 152,628
2026 76,314
Total remaining intangible assets subject to amortization $ 648,670

2021 $ 290,187
2022 160,029
2023 160,029
2024 160,029
2025 160,029
Thereafter 83,712
$ 1,014,016
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7. 10. ACCRUED LIABILITIES

The following table sets forth the components of the Company’s accrued liabilities at March 31, ~~2021~~2022 and December 31, ~~2020:~~2021:

March 31,
2021

December 31,
2020

Executive and employee compensation $ 1,856,532 $ 1,642,959
Interest on convertible notes and promissory notes 83,598 135,980
Other accrued expenses and liabilities 24,380 15,293
Total accrued liabilities $ 1,964,509 $ 1,794,232
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Accrued Liabilities

March 31,
2022

December 31,
2021

Executive and employee compensation $ 231,390 $ 238,669
Interest on convertible notes and promissory notes 30,079 31,997
Other accrued expenses and liabilities 178,109 129,663
Total accrued liabilities $ 439,578 $ 400,329

8. 11. RELATED PARTY PAYABLES

~~Acquisition of TD Holdings~~
Wayne Dearing, the Managing Director of TD Holdings, was issued a promissory note in the principal amount of $2,000,000 on July 1, 2016 in connection with the Company’s acquisition of TD Holdings. The note, as amended, was due to mature on April 1, 2020. On March 16, 2020, the Company paid Mr. Dearing $1,500,000 against the principal amount of the note and restructured the remaining $500,000 in unpaid principal. Under the new terms, the note bears interest at a rate of 12% per annum and matures on June 30, 2021. Principal and interest are payable monthly in arrears, amortized over a four-year period. At March 31, 2021, the principal balance remaining on this note totaled $414,556 and is classified under Convertible Notes – Current in the Company’s consolidated financial statements.
~~Mr. Dearing’s wife, Stella Dearing, is the Director of Operations of Top Draw and receives an annual salary of $83,000.~~
Darren Marks’s Family

The Company has engaged the family of Darren Marks, its Chief Executive Officer, to assist in the development of the Grom Social website and mobile application. These individuals ~~have created over 1,400 hours of~~create and produce original short form ~~content.~~content focusing on social responsibility, anti-bullying, digital citizenship, unique blogs, and special events. Sarah Marks, the wife of Mr. Marks, and Zach Marks, Luke Marks, Jack Marks, Dawson Marks, Caroline Marks and Victoria Marks, each Mr. Marks’s children, are, or have been, employed by or independently contracted with the Company.

For the three months ended March 31, 2022 and 2021, the Marks family was paid a total of $7,500, respectively.
Effective January 1, 2021, the Company entered into a marketing agreement with Caroline Marks, daughter of Mr. Marks, for a period of 60 months in exchange for 52,084 shares of the Company’s common stock. On March 2, 2022, the Board of Directors of the Company approved the issuance the shares of common stock at a fair market value of $53,647.
Compensation for services provided by the Marks family is expected to continue for the foreseeable future. Each member of the Marks family is actively involved in the creation of content for the website and mobile app, including numerous videos focusing on social responsibility, anti-bullying, digital citizenship, unique blogs, and special events.

Liabilities Due to Executive Officers and ~~Other Officers~~Directors
Pursuant to verbal agreements, Messrs. Marks and Leiner have made loans to the Company to help fund operations. These loans are non-interest bearing and callable on demand. No such loans were made to the Company during the three months ended March 31, 2021.

On July 11, 2018, our director Dr. Thomas Rutherford loaned the Company ~~$50,000.~~$50,000. The loan bears interest at a rate of ~~10%~~10% per annum and was due on August 11, 2018. No ~~formal~~ notice of default or demand for payment has been received by the Company.

As of March 31, ~~2021~~2022 and December 31, ~~2020,~~2021, the aggregate related party payables ~~were $142,516 and $143,741,~~balance was $50,000, respectively.
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9.12. CONVERTIBLE NOTES

The following tables set forth the components of the Company’s convertible notes as of March 31, ~~2021~~2022 and December 31, ~~2020:~~2021:
Schedule of convertible debt

March 31,
2021
December 31,
2020
March 31,
2022
December 31,
2021
8% - 12% Convertible Promissory Notes (Bridge Notes) $ 1,178,787 $ 373,587
10% Unsecured Convertible Redeemable Notes – Variable Conversion Price 100,000 265,000
10% Secured Convertible Notes with Original Issuance Discounts (OID Notes) 153,250 153,250
12% Senior Secured Convertible Notes (Newbridge) – 52,572
12% Senior Secured Convertible Notes (Original TDH Notes) 829,122 882,175
8% Unsecured Convertible Note (Curiosity) $ 278,000 $ 278,000
10% Senior Secured Convertible Note with Original Issuance Discount (L1 Capital Global Master Fund or “L1”) 0 4,125,000
10% Senior Secured Convertible Note with Original Issuance Discount (L1 – Second Tranche) 1,750,000 0
12% Senior Convertible Notes with Original Issuance Discounts (OID Notes) 75,000 75,000
12% Senior Secured Convertible Notes (TDH Secured Notes) 414,556 1,645,393 300,143 330,039
12% Senior Secured Convertible Notes (Additional Secured Notes) 78,766 260,315 56,636 63,099
Loan discounts (850,139 ) (385,266 ) (598,165 ) (1,550,540 )
Total convertible notes, net 1,904,342 3,247,026 1,861,614 3,320,598
Less: current portion of convertible notes, net (1,612,259 ) (2,349,677 ) (873,896 ) (2,604,346 )
Convertible notes, net $ 292,083 $ 897,349 $ 987,718 $ 716,252

8% Unsecured Convertible Notes – Curiosity

On July 29, 2021, the Company entered into a membership interest purchase agreement with Curiosity and the holders of all of Curiosity’s outstanding membership interests, for the purchase of 80% of Curiosity’s outstanding membership interests from the sellers. Pursuant to the purchase agreement, the Company issued 8% eighteen-month convertible promissory notes in the aggregate principal amount $278,000 to pay-down and refinance certain outstanding loans and advances previously made by certain of its principals. The notes are convertible into shares of common stock of the Company at a conversion price of $3.28 per share but may not be converted if, after giving effect to such conversion, the noteholder and its affiliates would beneficially own in excess of 9.99% of the Company’s outstanding common stock. The notes may be prepaid at any time, in whole or in part. The notes are subordinate to the Company’s senior indebtedness.
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As of March 31, 2022, the principal balance of the Curiosity note was $278,000.
10% Senior Secured Convertible Note with Original Issuance Discount (L1)

~~8% - 12% Convertible Promissory Notes (Bridge Notes)~~
On ~~November 30, 2020,~~September 14, 2021, the Company entered into a securities purchase agreement (the “Purchase Agreement”) with ~~EMA Financial, LLC~~L1 Capital Global Master Fund (“~~EMA”~~L1”) pursuant to which ~~the Company~~it issued ~~to EMA~~(i) a ~~nine-month 8%~~10% original issue discount senior secured convertible ~~promissory~~ note in the principal amount of ~~$260,000~~$4,400,000 to L1 (the ~~“EMA~~“L1 Note”) ~~for~~and (ii) a $234,000 investment. The term of the EMA Note may be extended by EMA up to an additional year. The EMA Note is convertible into common stock of the Company at any time after 180 days from issuance. The conversion price of the EMA Note is equal to the lower of: (i) $0.06 per share, or (ii) 70% of the lowest trading price of the common stock during the ten consecutive trading days including and immediately preceding the conversion date.
~~On February 17, 2021, the terms of the EMA financing were amended to (a) increase the principal amount of the EMA Note to $265,200, (b) reduce the conversion rate to $0.04, and (c) add a three-year~~5 five-year warrant to purchase ~~up to 2,652,000~~ 813,278 shares of the Company’s common stock at an exercise price of ~~$0.05~~ $4.20 per ~~share.~~share (“Warrant Shares”) in exchange for $3,960,000 (the “First Tranche Financing”). The Purchase Agreement also provided, subject to shareholder approval, for the issuance, subject to certain conditions, of an additional $1,500,000 of notes and warrants to purchase 277,777 shares of common stock (the “Second Tranche Financing”) on the same terms.

~~ASC 470-20 requires proceeds from~~The L1 Note is convertible by L1 into common stock of the ~~sale~~Company at a price of $4.20 per share, or approximately 1,047,619 shares. It is repayable in equal monthly installments of $275,000 with certain deferments or an acceleration of up to three months' payments. The Company may repay the L1 Note in cash or shares of common stock at a ~~debt instrument with stock purchase warrants be allocated~~price equal to the ~~two elements based on the relative fair values~~lesser of the ~~debt instrument without the warrants and~~then conversion price or 95% of the ~~warrants themselves at~~lowest daily VWAP during the ~~time of issuance.~~ten consecutive trading days immediately preceding the monthly payment date, but in no event less than $1.92. In ~~connection with~~ the ~~EMA warrant issuance,~~event that VWAP drops below $1.92, the Company ~~allocated a fair value of $71,909~~will have the right to pay at such VWAP with any shortfall paid in cash. The L1 Note is senior to all other Company indebtedness and the ~~stock warrants and recorded a debt discount which will be amortized to interest expense over~~Company’s obligations under the ~~term~~note are secured by all of the ~~loan using~~assets of the ~~effective interest method so the debt, at its term, is recorded at its face value.~~ Company’s subsidiaries.
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The Company estimated the fair value of ~~this~~the warrant at date of grant using the Black-Scholes option pricing model using the following inputs: (i) stock price on the date of grant of ~~$0.06,~~$2.70, (ii) the contractual term of the warrant of 3 5 years, (iii) a risk-free interest rate of ~~0.19%~~0.79% and (iv) an expected volatility of the price of the underlying common stock of ~~224.9%.~~
On December 17, 2020, the Company entered into a note purchase agreement with Quick Capital, LLC (“Quick Capital”) pursuant to which the Company issued Quick Capital a nine-month convertible promissory note in the principal amount of $113,587 (the “Quick Note”) for a $100,000 investment, which included an original issuance discount of 8% and a $4,500 credit for Quick Capital’s transaction expenses. The Quick Note may be converted into shares of common stock at (i) a 30% discount to the lowest price per share of any debt or securities offering by the Company if the Company’s common stock is listed on NASDAQ or NYSE within 90 days of the Quick Note issuance; (ii) the lesser of (A) $0.04 or (B) a 30% discount to the average of the two lowest closing prices during the ten trading days prior to the conversion date; (iii) $0.04 per share, upon an event of default as described in the Note.
The Company analyzed the conversion feature of the note for a beneficial conversion feature, for which the Company concluded that a beneficial conversion feature existed. The beneficial conversion feature was measured using the commitment-date stock price and its allocable fair value was determined to be $12,621. This amount is recorded as a debt discount and is amortized as interest expense over the term of the related convertible note.
In connection with the Quick Note issuance, the Company also issued a three-year warrant to purchase up to an aggregate of 1,183,197 shares of the Company’s common stock at an exercise price of $0.05 per share. The Company estimated the fair value of this warrant at date of grant using the Black-Scholes option pricing model using the following inputs: (i) stock price on the date of grant of $0.05, (ii) the contractual term of the warrant of 3 years, (iii) a risk-free interest rate of 0.19% and (iv) an expected volatility of the price of the underlying common stock of 224.3%299.8%. As a result, the Company allocated a fair value of ~~$33,056~~$1,200,434 to the stock warrants and recorded debt discount to be amortized as interest expense over the term of the related convertible note.

On ~~February 9,~~October 20, 2021, the Company and L1 entered into ~~a securities~~an amended and restated purchase agreement ~~with Auctus Fund, LLC (“Auctus”)~~which increased the amount of the Second Tranche Financing from $1,500,000 to $6,000,000 and provides (i) for an amended and restated 10% original issue discount senior secured convertible note to be issued in exchange for the L1 Note pursuant to ~~which~~ the ~~Company issued to Auctus a twelve-month 12% convertible promissory note in~~Purchase Agreement and (ii) for the ~~principal amount~~issuance of $500,000. The note is convertible into shares common stock at a conversion price of $0.06 per share. The net proceeds received by the Company were $428,000 after deducting fees and expenses related to the transaction.
The Company analyzed the conversion feature of the note for a beneficial conversion feature, for which the Company concluded that a beneficial conversion feature existed. The beneficial conversion feature was measured using the commitment-date stock price and its allocable fair value was determined to be $155,875. This amount is recorded as a debt discount and is amortized as interest expense over the term of the related convertible note.
18
~~In connection with the note issuance, Auctus was also issued~~ a five-year warrant to purchase ~~up to an aggregate of 6,250,000~~1,041,194 shares of the Company’s common stock at an exercise price of ~~$0.06~~$4.20 per share. The Company estimated the fair value of this warrant at date of grant using the Black-Scholes option pricing model using the following inputs: (i) stock price on the date of grant of $0.14, (ii) the contractual term of the warrant of 5 years, (iii) a risk-free interest rate of 0.48% and (iv) an expected volatility of the price of the underlying common stock of 259.2%. As a result, the Company allocated a fair value of $272,125 to the stock warrants and recorded debt discount to be amortized as interest expense over the term of the related convertible note.

~~On March 11, 2021,~~In the Company entered into a securities purchase agreement with FirstFire Global Opportunities Fund, LLC (“FirstFire”) pursuant to which the Company issued to FirstFire a twelve-month 12% convertible promissory note inevent the principal amount of ~~$300,000. At any time after 180 days from~~ the ~~date~~L1 Note issued in the First Tranche Financing, when aggregated with the L1 Note to be issued in the Second Tranche Financing, exceeds 25% of ~~issuance, FirstFire may convert any amount due under~~ the ~~note into shares~~market capitalization of the Company’s common stock as reported by Bloomberg L.P, then the principal amount to be issued in the Second Tranche Financing will be limited to 25%, in the aggregate of both L1 Notes, unless waived in the sole discretion of the Purchaser.
During the three months ended March 31, 2022, the Company issued an aggregate 5,757,365 shares of common stock to L1 upon the conversion of $4,125,000 of outstanding principal. As of March 31, 2022, the principal balance was $0 and all associated loan discounts were fully amortized.
10% Senior Secured Convertible Note with Original Issuance Discount (L1– Second Tranche)
On January 20, 2022 (the “Second Tranche Closing”), the Company and LI Capital closed on the Second Tranche of the offering, resulting in the issuance of (i) a $1,750,00010% Original Issue Discount Senior Secured Convertible Note, due July 20, 2023, (the “Second Tranche Note”); and (ii) a 5 five year warrant to purchase 303,682 shares of Common Stock of the Company at ~~a conversion~~an exercise price of ~~$0.06~~$4.20 per ~~share. The net proceeds received by~~share (the “Second Tranche Warrants”), in exchange for consideration of $1,575,000 (i.e. the ~~Company were $238,500 after deducting fees and expenses related to~~face amount less the ~~transaction.~~
~~The Company analyzed the conversion feature~~10% Original Issue Discount of the note for a beneficial conversion feature, for which the Company concluded that a beneficial conversion feature existed. The beneficial conversion feature was measured using the commitment-date stock price and its allocable fair value was determined to be $93,220. This amount is recorded as a debt discount and is amortized as interest expense over the term of the related convertible note.$175,000).

In connection with the issuance of the note, FirstFire was also issued a five-year warrant to purchase up to an aggregate of 3,750,000 shares of the Company’s common stock, at an exercise price of $0.06 per share. The Company estimated the fair value of this warrant at date of grant using the Black-Scholes option pricing model using the following inputs: (i) stock price on the date of grant of $0.13, (ii) the contractual term of the warrant of 5 years, (iii) a risk-free interest rate of 0.78% and (iv) an expected volatility of the price of the underlying common stock of 258.6%. As a result,Second Tranche Closing, the Company ~~allocated~~paid to EF Hutton a ~~fair value~~fee of ~~$145,280 to the stock warrants and recorded debt discount to be amortized as interest expense over the term of the related convertible note.~~$126,000.

~~At March 31, 2021, the principal balance of these notes was $1,178,787 and the remaining balance on the associated loan discounts was $788,531.~~
~~10% Unsecured Convertible Redeemable~~The Second Tranche Note ~~– Variable Conversion Price~~
On July 9, 2019, the Company issued a convertible redeemable note to an unrelated party in the principal amount of $100,000 less $5,000 in third party fees resulting in net cash proceeds to the Company of $95,000. The note accrues interest at a rate of 10% per annum, was due on July 9, 2020 and is convertible into common stock of the Company at a rate of $4.20 per share (the “Conversion Price”) into 416,667 shares of common stock (the “Second Tranche Conversion Shares”) and, is repayable in equal monthly installments of $111,563 commencing on the ~~option~~date that the SEC declares a registration statement with respect to the resale of such shares effective, with all remaining amounts due on July 20, 2023. The Second Tranche Note is repayable by payment of cash, or, at the discretion of the ~~noteholder six months after~~Company and if the below listed “Equity Conditions” are met, by issuance of shares of the common stock at a ~~rate equal to a 30% discount from~~price of 95% of the lowest ~~volume weighted~~daily VWAP during the ten-trading day period prior to the respective monthly redemption dates (with a floor of $1.92) multiplied by 102% of the amount due on such date. In the event that the ten-trading day VWAP drops below $1.92 the Company will have the right to pay in stock at such ten-trading day VWAP with any shortfall paid in cash. The Conversion Price may be adjusted in the event of dilutive issuances but in no event to less than $0.54 (the “Monthly Conversion Price”).
The Company’s right to make monthly payments in stock in lieu of cash for the Second Tranche Note is conditioned on certain conditions (the “Equity Conditions”). The Equity Conditions required to be met each month in order to redeem the Second Tranche Note with stock in lieu of a monthly cash payment, among other conditions set forth therein, include without limitation, that a registration statement be in effect with respect to the resale of the shares issuable upon conversion or redemption of the Second Tranche Note (or, that an exemption under Rule 144 is available), that no default be in effect, that the average ~~price~~daily trading volume of the Company’s common stock inwould have to be at least $550,000 during the ~~preceding 20~~five trading ~~days.~~
~~The Company analyzed~~days prior to the ~~conversion feature~~respective monthly redemption and that the outstanding principal amounts of the note for a beneficial conversion feature, for which the Company concluded that a beneficial conversion feature existed. The beneficial conversion feature was measured using the commitment-date stock priceFirst Tranche Note and ~~its allocable fair value was determined to be $51,730. This amount is recorded as a debt discount and is amortized as interest expense over the term~~Second Tranche Note combined, shall not exceed 30% of the ~~note.~~
~~The Company also analyzed the conversion feature~~market capitalization of the ~~note for derivative accounting consideration and determined that the embedded conversion features should be classified~~Company’s Common Stock as ~~a derivative because the exercise price of the convertible note~~reported on Bloomberg L.P., which percentage is subject to ~~a variable conversion rate. The aggregate fair value of the derivative~~increase by LI Capital at the issuance date of the note was $85,410 which was recorded as a derivative liability on the balance sheet. The Company recorded a debt discount of $43,270 which was up to the face value of the convertible note with the excess fair value at initial measurement of $42,140 being recognized as derivative expense.
~~On October 2, 2020, the lender converted all amounts outstanding on the note into 1,535,507 shares of common stock.~~
On March 1, 2020, the Company issued a convertible redeemable note to an unrelated party in the principal amount of $100,000. The note accrues interest at a rate of 10% per annum, was due on August 31, 2020 and is convertible into common stock of the Company at the option of the noteholder at a rate equal to a 30% discount from the lowest volume weighted average price of the Company’s common stock in the preceding 20 trading days.its sole discretion.

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~~The Company analyzed the conversion feature~~Other provisions of the ~~note for~~Second Tranche Note, which is similar in terms to the First Tranche Note, include that the Second Tranche Note Conversion Price is subject to full anti-dilution price protections in the event of financings that are below the Conversion Price with a beneficial conversion feature, for which the Company concluded that a beneficial conversion feature existed. The beneficial conversion feature was measured using the commitment-date stock price and its allocable fair value was determined to be $44,129. This amount is recorded as a debt discount and is amortized as interest expense over the termfloor of ~~the note.~~$0.54.

In ~~connection with~~ the ~~note issuance,~~event of an Event of Default as defined in the ~~Company also issued a five-year warrant to purchase up to an aggregate of 500,000 shares of~~notes, if the ~~Company’s common~~ stock ~~at an exercise~~ price ~~of $0.10 per share. ASC 470-20 requires proceeds from~~is below the ~~sale of a debt instrument with stock purchase warrants be allocated to the two elements based on the relative fair values of the debt instrument without the warrants and of the warrants themselves~~Conversion Price at the time of ~~issuance. This resulted in~~default and only for so long as a default is continuing, the ~~debt being recorded at a discount which will~~Second Tranche Notes would be amortized to interest expense over the term of the loan using the effective interest method so the debt, at its term, is recorded at its face value. The Company estimated the fair value of this warrant at date of grant using the Black-Scholes option pricing model using the following inputs: (i) stock price on the date of grant of $0.10, (ii) the contractual term of the warrant of 5 years, (iii) a risk-free interest rate of 0.89% and (iv) an expected volatility of the price of the underlying common stock of 144.4%. As a result, the Company allocated a fair value of $30,935 to the stock warrants.
At March 31, 2021, the remaining principal balance of $100,000 and accrued interest of $10,822 was in default of payment. No formal notices of default or demands for payment have been received by the Company.
~~On November 20, 2020, the Company issued a~~ convertible ~~redeemable note to an unrelated party in the principal amount of $165,000 less a $15,000 original issuance discount resulting in net cash proceeds to the Company of $150,000. The note accrues interest~~ at a rate of ~~10%~~80% of the lowest VWAP in the ten prior trading days, provided, that if the default is cured the default conversion rate elevates back to the normal Conversion Price
As part of the Second Tranche Closing, the Company issued Second Tranche Warrants exercisable for five years from the date of issuance, at $4.20 per ~~annum, was due on February 15, 2021~~share which carry the same anti-dilution protection as the Second Tranche Notes, subject to the same adjustment floor. The Second Tranche Warrants are exercisable via cashless exercise only for so long as no registration statement covering resale of the shares is in effect.
The Second Tranche Note continues to be subject to (i) the repayment and ~~is convertible into common stock~~performance guarantees by the subsidiaries of the Company atpursuant to a subsidiary guaranty and, (ii) the ~~option~~Security Agreement pursuant to which the LI Capital was granted a security interest in all of the ~~noteholder at a rate equal to a 30% discount from the lowest volume weighted average price~~assets of the ~~Company’s common stock~~Company and certain of its subsidiaries, each as entered into in connection with the ~~preceding 20 trading days.~~First Tranche closing on September 14, 2021.

~~The Company analyzed the conversion feature~~As of the note for a beneficial conversion feature, for which the Company concluded that a beneficial conversion feature existed. The beneficial conversion feature was measured using the commitment-date stock price and its allocable fair value was determined to be $50,871. This amount is recorded as a debt discount and is amortized as interest expense over the term of the note.
On February 17, 2021, the Company entered into a debt exchange agreement with the holder of the convertible promissory note, in the aggregate amount of $169,000 of outstanding principal and accrued and unpaid interest. Pursuant to the terms of the debt exchange agreement, the holder exchanged the outstanding note, and all amounts owed by the Company thereunder, for 169,000 shares of the Company’s 8% Series B convertible preferred stock. At the time of the exchange, all amounts due under the note was deemed to be paid in full and the note was cancelled.
At March 31, ~~2021,~~2022, the principal balance of ~~this note~~these notes was $0$1,750,000 and ~~all~~remaining balance on the associated loan discounts ~~were fully amortized.~~was $557,774.
10% Secured Convertible Notes with Original Issuance Discounts (“OID Notes”)
During the year ended December 31, 2017, the Company issued secured, convertible notes with original issuance discounts to accredited investors for gross proceeds of $601,223. The notes were issued with original issuance discounts of 10.0%, or $60,122, bear interest at a rate of 10% per annum, are payable semiannually in cash, and carry a two-year term with a fixed conversion price of $0.78. In connection with the issuance of these notes, the Company issued to such investors an aggregate of 150,305 shares of common stock as an inducement to lend. These shares were valued at $78,321 with share prices ranging between $0.48 and $0.70 per share. The Company recorded the value of these shares as a loan discount to be amortized as interest expense over the term of the related convertible notes.

On August 6, 2020, the Company entered into debt exchange agreements with certain holders of these 10% convertible notes pursuant to which an aggregate of ~~331,954~~647,954 shares of the Company’s Series B preferred stock (“Series B ~~Stock)~~Stock”) were issued to noteholders for an aggregate of ~~$211,223~~$411,223 of outstanding principal and accrued and unpaid interest.
On November 30, 2020, the Company entered into a debt exchange agreement with the remaining holder of these 10% convertible notes pursuant to which an aggregate of 158,000 shares of Series B Stock were issued to the noteholder for an aggregate of ~~$111,250~~$111,250 of outstanding principal and accrued and unpaid interest. The Company recognized an extinguishment loss of $46,750 as a result of the exchange.

On July 19, 2021, the Company repaid $6,329 of outstanding principal and accrued and unpaid interest to a 10% secured convertible noteholder.

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AtAs of March 31, ~~2021,~~2022, the principal balance of these notes was ~~$0 and all associated loan discounts were fully amortized.~~
During the year ended December 31, 2018, the Company issued secured, convertible notes with original issuance discounts to accredited investors for gross proceeds of $1,313,485 in a private offering. The notes were issued with original issuance discounts of 10.0%, or $131,348, bear interest at a rate of 10% per annum, are payable semiannually in cash, and carry a two-year term with a fixed conversion price of $0.78. In connection with the issuance of these notes, the Company issued to such investors an aggregate of 328,371 shares of common stock as an inducement to lend. These shares were valued at $198,259 with share prices ranging between $0.30 and $0.81 per share. The Company recorded the value of these shares as a loan discount to be amortized as interest expense over the term of the related convertible notes.
On August 6, 2020, the Company entered into debt exchange agreements with certain holders of these 10% convertible notes pursuant to which an aggregate of 316,000 shares of the Company’s Series B Stock were issued to noteholders for an aggregate of $200,000 of outstanding principal and accrued and unpaid interest.
~~As of March 31, 2021, the~~ ~~principal balance of these notes was $97,250~~$75,000 and all associated loan discounts were fully amortized. No ~~formal~~ notices of default or demands for payment have been received by the Company.
During the year ended December 31, 2018, the Company also issued secured, convertible notes with original issuance discounts to accredited investors for gross proceeds of $356,000 in a private offering. The notes were issued with original issuance discounts of 20.0%, or $71,200, bear interest at a rate of 10% per annum, are payable semiannually in cash, and carry a two-year term with a fixed conversion price of $0.50. In connection with the issuance of these notes, the Company issued to such investors an aggregate of 203,000 shares of common stock as an inducement to lend. These shares were valued at $62,269 with share prices ranging between $0.29 and $0.35 per share. The Company recorded the value of these shares as a loan discount to be amortized as interest expense over the term of the related convertible notes.
~~As of March 31, 2021, the~~ ~~principal balance of these notes was $56,000 and all associated loan discounts were fully amortized. No formal notices of default or demands for payment have been received by the Company.~~

~~12% Senior Secured Convertible Notes (Newbridge Offering)~~
On November 30, 2018, the Company closed a private offering in which it sold 12% secured convertible promissory notes (“12% Notes”) in an aggregate principal amount of $552,000 and issued an aggregate of 730,974 shares of its common stock to nine accredited investors pursuant to a private placement memorandum and subscription agreement. The 12% Notes which are due and payable two years from issuance are secured by certain assets of the Company and rank senior to all other indebtedness of the Company except for the $4,000,000 promissory notes (the “TD Notes”) issued to the shareholders of TD Holdings in connection with a share sale agreement dated June 30, 2016, as amended. Messrs. Marks and Leiner pledged an aggregate of 10,000,000 shares of common stock of the Company pursuant to a pledge and security agreement to secure the timely payment of the 12% Notes. The 12% Notes are convertible, in whole or in part, by the noteholders at a conversion rate of $0.40 if the Company’s common stock trades or is quoted at more than $0.40 per share for 10 consecutive days. The conversion price is subject to adjustment resulting from certain corporate actions including the subdivision or combination of stock, payment of dividends, reorganization, reclassification, consolidations, merger or sale of the Company.
Interest on the 12% Notes is payable monthly in 21 equal installments commencing four months after the issuance of the 12% Notes. Upon the occurrence of an event of default, the interest rate will increase to 15% and the 12% Notes will become immediately due and payable. The Company may prepay the 12% Notes in full at any time by paying accrued interest and 110% of the outstanding principal balance. Newbridge Securities Corporation acted as exclusive placement agent for the offering and received (i) $55,200, (ii) 113,586 shares of common stock, and (iii) $11,040, representing a non-accountable expense allowance for its services.
~~As of March 31, 2021, the principal balance of these notes was $0 and all associated loan discounts were fully amortized.~~
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~~12% Senior Secured Convertible Notes (Original TDH Notes)~~
On June 20, 2016, the Company issued $4,000,000 of senior secured promissory notes to the shareholders of TD Holdings (the “TDH Sellers”) in connection with a share sale agreement pursuant to which the Company acquired 100% of the common stock of TD Holdings (“the TDH Share Sale Agreement”). The notes bear interest at 5.0% per annum and are due on the earlier of (i) June 20, 2018 or (ii) the date on which the Company successfully completes a qualified initial public offering as defined in the agreement. The notes are collateralized by all of the assets of TD Holdings.
~~First Amendment to the TDH Share Sale Agreement~~
~~On January 3, 2018, the Company entered into an amendment to the TDH Share Sale Agreement (the “First Amendment”). Under the terms of the First Amendment:~~
· ~~The maturity date of the notes was extended from July 1, 2018 until July 1, 2019.~~
· ~~The interest rate on the notes during for one-year extension period from July 2, 2018 to July 1, 2019 was increased to 10%.~~
· ~~Interest is payable quarterly in arrears during the one-year extension period, instead of annually in arrears. The first such quarterly interest payment of $100,000 is due on September 30, 2018.~~
· Under the terms of the terms of TDH Share Sale Agreement, the TDH Sellers could earn up to an additional $5.0 million in contingent earnout payments. The original earnout period ended on December 31, 2018. The First Amendment extended the earnout period by one year to December 31, 2019.
~~As consideration to enter into the First Amendment, the Company issued 800,000 shares of its common stock valued at $480,000 to the TDH Sellers.~~
~~Second Amendment to the TDH Share Sale Agreement~~
~~On January 15, 2019, the Company entered into a second amendment to the TDH Share Sale Agreement (the “Second Amendment”). Under the terms of the Second Amendment:~~
· ~~The maturity date of the notes was extended from July 1, 2019 to April 2, 2020.~~
· The TDH Sellers shall have the right to convert the notes at a conversion price of $0.27 per share, either in whole or in part at any time prior to the maturity, subject to the terms and conditions set forth in the Second Amendment.
· ~~In the event that the notes are not repaid prior to July 2, 2019, no funds will be transferred by TDH to the Company.~~
· ~~The payment terms of the contingent earnout was modified from 50% payable in cash and 50% payable in stock to 75% payable in cash and 25% payable in stock.~~
~~As consideration to enter into the Second Amendment, the Company issued an additional 800,000 shares of its common stock valued at $220,000 to the TDH Sellers.~~
Due to the inclusion of a conversion feature, the Second Amendment was considered an extinguishment and subsequent reissuance of the notes under the guidelines of ASC 470-20-40-7 through 40-9. As a result, the Company recorded a loss on the extinguishment of debt of $363,468 related to the Second Amendment during the year ended December 31, 2019.
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~~The principal value of the notes was reclassified to convertible notes, net – current on the Company’s condensed consolidated financial statements.~~
~~Third Amendment to the TDH Share Sale Agreement~~
On March 16, 2020, the Company entered into a third amendment (the “Third Amendment”) to the TDH Share Sale Agreement, pursuant to which the Company’s subsidiary, Grom Holdings, had acquired 100% of the common stock of TDH (representing ownership of the animation studio) from certain individuals (the “TDH Sellers”). The Company used the proceeds received from the TDH Secured Notes Offering to pay the TDH Sellers $3,000,000 of the principal due under the Original TDH Notes, leaving a balance due to the TDH Sellers of $1,000,000 in principal (plus accrued interest and costs). In addition, the accrued interest of $361,767 due to the TDH Sellers pursuant to the Original TDH Notes will be paid by three monthly payments of $93,922, commencing April 16, 2020, and twelve monthly installments of $6,667 commencing April 16, 2020.
~~Pursuant to the Third Amendment, the TDH Sellers and the Company agreed, among other things:~~
· ~~To extend the maturity date of the remaining Original TDH Notes by one year to June 30, 2021;~~
· ~~To increase the interest rate on the remaining Original TDH Notes to 12%;~~
· ~~To grant a first priority security interest on the shares of TDH and TDAHK to the TDH Sellers, pari passu with the holders of the TDH Secured Notes; and~~
· ~~To pay the balance of the Original TDH Notes monthly in arrears, amortized over a four-year period.~~
~~As of March 31, 2021, the~~ ~~principal balance of the Original TDH Notes was $829,122.~~
12% Senior Secured Convertible Notes (“TDH Secured Notes”)

On March 16, 2020, the Company sold (the “TDH Secured Notes Offering”) an aggregate ~~$3,000,000~~$3,000,000 of its 12% senior secured convertible notes (the “TDH Secured Notes”), to eleven accredited investors (the “TDH Secured Note Lenders”), pursuant to a subscription agreement with the TDH Secured Note Lenders. Interest on the TDH Secured Notes accrues on the outstanding principal amount at the rate of 12% per annum. Principal and interest on the TDH Secured Notes are payable monthly, on an amortized basis over 48 months, with the last payment due on March 16, ~~2024.~~2024. Pursuant to the TDH Secured Notes, TD Holdings will pay amounts due under the TDH Secured Notes. Prepayment of amounts due under TDH Secured Notes is subject to a prepayment penalty in an amount equal to 4% of the amount prepaid.

The TDH Secured Notes are convertible at the option of the holders at 75% of the average sales price of the Company’s common stock over the 60 trading days immediately preceding conversion provided that the conversion price shall not be less than ~~$0.10~~$3.20 per share.
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The Company’s obligations under the TDH Secured Notes, are secured by Grom Holdings’ shares of stock of TDH, and of its wholly owned subsidiary, TDAHK. The TDH Secured Notes rank equally and ratably on a pari passu basis with (i) the other TDH Secured Notes and (ii) the Original TDH Notes issued by the Company pursuant to TDH Share Sale Agreement.

If the Company sells the animation studio located in Manila, Philippines, which is currently owned by TDH through TDAHK (the “Animation Studio”), for more than $12,000,000, and so long as any amount of principal is outstanding under the TDH Secured Notes, the Company will pay the TDH Secured Notes holders from the proceeds of the sale (i) all amounts of principal outstanding under the TDH Secured Notes, (ii) such amount of interest which would be due and payable assuming the TDH Secured Notes were held to maturity (minus any amounts of interest previously paid hereunder), and (iii) an additional 10% of the amount of principal outstanding under the TDH Secured Notes within five days of the closing of such sale.

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In connection with the issuance of the TDH Secured Notes, the Company issued to each TDH Secured Note holder shares of common stock equal to 20% of the principal amount of such holder’s TDH Secured Note, divided by ~~$0.10.~~$3.20. Accordingly, an aggregate of ~~6,000,000~~187,500 shares of common stock were issued to the TDH Secured Note holders on March 16, 2020. These shares were valued at ~~$420,000,~~$420,000, or ~~$0.07~~$2.24 per share, which represents fair market value. The Company recorded the value of these shares as a loan discount to be amortized as interest expense over the term of the notes.

On August 6, 2020, the Company entered into debt exchange agreements with certain holders of these 12% TDH Secured Notes pursuant to which an aggregate of 1,739,580 shares of the Company’s Series B Stock were issued to noteholders for an aggregate of $1,101,000 of outstanding principal and accrued and unpaid interest. The Company recognized an extinguishment loss of $598,042 as a result of the exchange.

On November 30, 2020, the Company entered into a debt exchange agreement with another holder of these 12% TDH Secured Notes pursuant to which an aggregate of 158,000 shares of Series B Stock were issued to the noteholder for an aggregate of $99,633 of outstanding principal and accrued and unpaid interest. The Company recognized an extinguishment loss of $58,367 as a result of the exchange.

On February 17, 2021, the Company entered into debt exchange agreements with certain holders of these 12% TDH Secured Notes pursuant to which an aggregate of 2,106,825 shares of the Company’s Series B Stock were issued to noteholders for an aggregate of ~~$1,256,722~~$1,256,722 of outstanding principal and accrued and unpaid interest. The Company recognized an extinguishment loss of $850,103 as a result of the exchange.

As of March 31, ~~2021,~~2022, the principal balance of these notes was ~~$414,556~~$300,143 and the remaining balance on the associated loan discounts was ~~$51,771.~~$34,271.

12% Senior Secured Convertible Notes (Additional Secured Notes)

On March 16, 2020, the Company issued to seven accredited investors (the “Additional Secured Note Lenders”) an aggregate of ~~$1,060,000~~$1,060,000 of its ~~12%~~12% senior secured convertible notes (the “Additional Secured Notes”) in a private offering pursuant to a subscription agreement with substantially the same terms as the TDH Secured Notes except that the Additional Secured Notes are secured by all of the assets of the Company other than the shares and other assets of TDH and TDAHK, pursuant to a security agreement by and among the Company and the Additional Secured Note Lenders.

Interest on the Additional Secured Notes accrues on the outstanding principal amount at the rate of 12% per annum. Principal and interest on the Additional Secured Notes are payable monthly, on an amortized basis over 48 months, with the last payment due on March 16, ~~2024.~~2024. Prepayment of the amounts due under the Additional Secured Notes is subject to a prepayment penalty of 4% of the amount prepaid.

The Additional Secured Notes are convertible at the option of the holders at 75% of the average sales price of the Company’s common stock over the 60 trading days immediately preceding conversion provided that the conversion price shall not be less than ~~$0.10~~$3.20 per share.
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In connection with the issuance of the Additional Secured Notes, the Company issued to each Additional Secured Note Lender shares of common stock equal to 20% of the principal amount of such holder’s Additional Secured Note, divided by ~~$0.10.~~$3.20. Accordingly, an aggregate of ~~2,120,000~~66,250 shares of common stock were issued. These shares were valued at ~~$148,000,~~$148,000, or ~~$0.07~~$2.24 per share, which represents fair market value. The Company recorded the value of these shares as a loan discount to be amortized as interest expense over the term of the related convertible notes.

On August 6, 2020, the Company entered into debt exchange agreements with certain holders of these 12% Additional Secured Notes pursuant to which an aggregate of 1,236,350 shares of the Company’s Series B Stock were issued to noteholders for an aggregate of ~~$782,500~~$782,500 of outstanding principal and accrued and unpaid interest. The Company recognized an extinguishment loss of $424,375 as a result of the exchange.

On February 17, 2021, the Company entered into a debt exchange ~~agreement~~agreements with ~~another holder~~certain holders of these 12% Additional Secured Notes pursuant to which an aggregate of 288,350 shares of the Company’s Series B Stock were issued to ~~the noteholder~~noteholders for an aggregate of ~~$191,273~~$182,500 of outstanding principal and accrued and unpaid interest. The Company recognized an extinguishment loss of $97,077 as a result of the exchange.
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As of March 31, ~~2021,~~2022, the principal balance of these notes was ~~$78,766~~$56,636 and the remaining balance on the associated loan discounts was ~~$9,836~~$6,511.

Future Minimum Principal Payments

The remaining principal repayments based upon the maturity dates of the Company’s borrowings for each of the next five years are as follows:
2021 $ 2,416,907
2022 $ 151,900
Schedule of future debt maturity payments
Remainder of 2022 $ 1,340,940
2023 $ 171,165 1,042,793
2024 $ 14,509 76,046
2025 and thereafter $ – 0
Total Convertible notes principal amount payable. $ 2,459,779

~~10.~~13. INCOME TAXES
In calculating the provision for income taxes on an interim basis, the Company uses an estimate of the annual effective tax rate based upon currently known facts and circumstances and applies that rate to its year-to-date earnings or losses. The Company’s effective tax rate is based on expected income and statutory tax rates and takes into consideration permanent differences between financial statement and tax return income applicable to the Company in the various jurisdictions in which the Company operates. The effect of discrete items, such as changes in estimates, changes in rates or tax status, and unusual or infrequently occurring events, is recognized in the interim period in which the discrete item occurs. The accounting estimates used to compute the provision for income taxes may change as new events occur, additional information is obtained or as the result of new judicial interpretations or regulatory or tax law changes.
The Company’s interim effective tax rate, inclusive of discrete items, for the three-month periods ended March 31, 2022 and 2021 was 0%, respectively. The decrease in the interim effective tax rate for the three months ended March 31, 2022 is primarily due to recurrent net losses for the periods presented.
14.
STOCKHOLDERS’ EQUITY

Preferred Stock

The Company is authorized to issue 25,000,000 shares of preferred stock, par value of ~~$0.001~~$0.001 per share.

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Series A Preferred Stock
As of March 31, 2022 and December 31, 2021, the Company had 0 shares of Series A Stock issued and outstanding.
Series B Preferred Stock

On February ~~22, 2019,~~17, 2021, the Company ~~designated 2,000,000 shares~~entered into debt exchange agreements with holders of its preferred stock as 10% Series A convertible preferred stock, par value $0.001 per share (“Series A Stock”). Each share of Series A Stock is convertible, at any time, into five shares of common stockthree of the ~~Company.~~
~~On each~~Company’s convertible promissory notes in the aggregate amount of ~~February 27, 2019~~$1,700,905 of outstanding principal and ~~March 11, 2019,~~accrued and unpaid interest. Pursuant to the terms of the debt exchange agreements, the holders exchanged the outstanding notes, and all amounts owed by the Company ~~received $400,000 from the sale~~thereunder, for an aggregate of 400,000 shares of Series A Stock to accredited investors in private offerings pursuant to Section 4(a)(2) and/or Rule 506(b) of Regulation D, as promulgated under the Securities Act of 1933, as amended (the “Securities Act”). As an inducement to purchase the Series A Stock, each investor also received 2,000,000 restricted2,564,175 shares of the Company’s ~~common stock.~~Series B Stock. At the time of the exchange, all amounts due under the notes were deemed to be paid in full and the notes were cancelled.

On ~~April 2, 2019,~~February 17, 2021, the Company ~~received $125,000 from~~entered into subscription agreements with two accredited investors, pursuant to which the ~~sale~~Company sold the investors an aggregate of ~~125,000~~300,000 shares of Series AB Stock ~~to an accredited investor in a private offering pursuant to Section 4(a)(2) and/or Rule 506(b)~~for aggregate gross proceeds of ~~Regulation D, as promulgated under the Securities Act. As an inducement to purchase the Series A Stock, the investor also received 625,000 restricted shares of the Company’s common stock.~~
As a result of the issuance of the Series A Stock, the Company recorded a beneficial conversion feature and other discounts as a deemed dividend in its condensed consolidated financial statements of $740,899.$300,000.

On ~~August 6, 2020,~~March 31, 2021, the Company entered into subscription agreements with two accredited investors, pursuant to which the Company sold the investors an aggregate of 650,000 shares of Series B Stock for aggregate gross proceeds of $650,000.
On May 20, 2021, the Company entered into exchange agreements with all of the holders of ~~925,000~~Series B Stock (the “Series B Holders”), pursuant to which the Series B Holders agreed to exchange all of the issued and outstanding shares of ~~the Company’s~~ Series AB Stock ~~pursuant to which such shares of Series A Stock were exchanged~~ for ~~an aggregate of 1,202,500~~ shares of the Company’s newly designated Series C Stock, on a one for one basis. As a result of the exchange, all 9,215,059 issued and outstanding shares of Series B ~~Stock. See~~Stock was exchanged for 9,215,059 shares of Series C Stock, and all of the exchanged shares of Series B ~~Preferred~~ Stock ~~below for more details.~~were cancelled.

As of March 31, ~~2021~~2022 and December 31, ~~2020,~~2021, the Company had ~~zero and 925,000~~0 shares of Series AB Stock issued and outstanding, respectively.

Series BC Preferred Stock

On ~~August 4, 2020,~~May 20, 2021, the Company filed with the Secretary of State of the State of Florida a Certificate of Designation of Preferences, Rights and Limitations of Series BC Stock designating 10,000,000 shares as Series BC Preferred Stock (the “Series BC Stock”). The Series BC Stock ranks senior and prior to all other classes or series of the Company’s preferred stock and common stock.

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The holder may, at any time after the ~~12-month~~6-month anniversary of the issuance of the shares of Series BC Preferred Stock, convert such shares into common stock at a conversion ~~price equal to the 30-day volume weighted average price (“VWAP”)~~rate of ~~a share of common stock for each share of Series B Stock to be converted.~~$1.92 per share. In addition, the Company may, at any time ~~may require conversion of all or any~~after the issuance of the shares, convert any or all of the outstanding shares of Series BC Preferred Stock ~~then outstanding~~ at a ~~50% discount to the 30-day VWAP.~~conversion rate of $1.92 per share.

Each share of Series BC Stock entitles the holder to ~~fifty~~1.5625 votes for each share of Series BC Stock. The consent of the holders of at least two-thirds of the shares of Series BC Stock is required for the amendment to any of the terms of the Series BC Stock, to create any additional class of stock unless the stock ranks junior to the Series BC Stock, to make any distribution or dividend on any securities ranking junior to the Series BC Stock, to merge or sell all or substantially all of the assets of the Company or acquire another business or effectuate any liquidation of the Company.

Cumulative dividends accrue on each share of Series BC Stock at the rate of 8% per annum of the stated value of $1.00 per share and are payable in ~~common stock in~~ arrears quarterly commencing 90 days from issuance. The dividend shall be payable in shares of common stock (a “PIK Dividend”) and are be due and payable on the date on which such PIK Dividend was declared.
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Upon a liquidation, dissolution or winding up of the Company, the holders of the Series BC Stock are entitled to $1.00 per share plus all accrued and unpaid dividends. No distribution may be made to holders of shares of capital stock ranking junior to the Series BC Stock upon a liquidation until Series BC stockholders receive their liquidation preference. The holders of 66 2/3% of the then outstanding shares of Series BC Stock, may elect to deem a merger, reorganization or consolidation of the Company into or with another corporation, not affiliated with said majority, or other similar transaction or series of related transactions in which more than 50% of the voting power of the Company is disposed of in exchange for property, rights or securities distributed to holders thereof by the acquiring person, firm or other entity, or the sale of all or substantially all of the assets of the Company.

On June 19, 2020, the Company received gross cash proceeds of $250,000 from one accredited investor, pursuant to the terms of a subscription agreement, and subsequently issued an aggregate of 250,000 shares of Series B Stock on August 6, 2020.
On August 6, 2020, the Company, entered into debt exchange agreements with holders of the Company’s (i) OID Notes in the aggregate amount of $411,223 of outstanding principal and accrued and unpaid interest; (ii) TDH Secured Notes, in the aggregate amount of $1,101,000 of outstanding principal and accrued and unpaid interest; and (iii) Additional Secured Notes, which were secured by all of the other assets of the Company in the aggregate amount of $782,500 of outstanding principal and accrued and unpaid interest. Pursuant to the terms of the debt exchange agreements, the holders of the notes exchanged outstanding and all amounts owed by the Company thereunder, for an aggregate of 3,623,884 shares of the Company’s Series B Stock. At the time of the exchange, all amounts due under the notes were deemed to be paid-in-full and the notes were cancelled.
~~In addition, on August 6, 2020,~~May 20, 2021, the Company entered into exchange agreements ~~(the “Series A Exchange Agreements”)~~ with all of the holders of ~~925,000~~Series B Stock (the “Series B Holders”), pursuant to which the Series B Holders agreed to exchange all of the issued and outstanding shares of ~~the Company’s~~ Series ~~A Stock. Pursuant to the terms~~B Stock for shares of Series C Stock, on a one for one basis. As a result of the ~~Series A Exchange Agreements, the holders~~exchange, all 9,215,059 issued and outstanding shares of Series AB Stock was exchanged ~~their shares~~ for ~~an aggregate of 1,202,500~~9,215,059 shares of the Company’s Series ~~B Stock. At the time of the exchange,~~C Stock, and all of the exchanged shares of Series AB Stock were cancelled.

On September 22, 2020, the Company received gross cash proceeds of $233,500 from two accredited investors, pursuant to the terms of a subscription agreement, and subsequently issued an aggregate of 233,500 shares of Series B Stock on November 30, 2020.
On November 30, 2020, the Company entered into debt exchange agreements with holders of the Company’s (i) OID Notes in the aggregate amount of $111,250 of outstanding principal and accrued and unpaid interest; and (ii) TDH Secured Notes, in the aggregate amount of $99,633 of outstanding principal and accrued and unpaid interest. Pursuant to the terms of the debt exchange agreements, the holders of the outstanding notes exchanged all amounts owed by the Company thereunder, for an aggregate of 316,000 shares of the Company’s Series B Stock. At the time of the exchange, all amounts due under the notes were deemed to be paid-in-full and the notes were cancelled.
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On February 17, 2021, the Company entered into debt exchange agreements with holders of three of the Company’s convertible promissory notes in the aggregate amount of $1,700,905 of outstanding principal and accrued and unpaid interest. Pursuant to the terms of the debt exchange agreements, the holders exchanged the outstanding notes, and all amounts owed by the Company thereunder, for an aggregate of 2,564,175 shares of the Company’s Series B Stock. At the time of the exchange, all amounts due under the notes were deemed to be paid in full and the notes were cancelled.
~~On February 17,~~June 11, 2021, the Company entered into subscription agreements with ~~two~~an accredited ~~investors,~~investor, pursuant to which the Company sold the ~~investors~~investor an aggregate of ~~300,000~~100,000 shares of Series BC Stock for aggregate gross proceeds of ~~$300,000.~~$100,000.

On ~~March 31,~~September 10, 2021, the Company entered into ~~subscription agreements~~a debt exchange agreement with ~~two accredited investors,~~a holder of a 10% convertible note pursuant to which 85,250 shares of the Company’s Series C Stock was issued for $85,250 of outstanding principal and accrued and unpaid interest.
On January 24, 2022, the Company ~~sold~~issued 20,573 shares of common stock to a stockholder upon the ~~investors an aggregate~~conversion of ~~650,000~~39,500 shares of Series ~~B Stock for aggregate gross proceeds of $650,000.~~
~~During the three months ended March 31, 2021, the Company issued 75,000 shares of Series B Stock with a fair market value of $75,000 to its attorneys for legal services rendered.~~C preferred stock.

As of March 31, ~~2021~~2022 and December 31, ~~2020,~~2021, the Company had ~~9,215,059~~9,360,759 and ~~5,625,884~~9,400,259 shares of Series BC Stock issued and outstanding, respectively.

For the three months ended March 31, 2022, the Company declared cumulative dividends totaling $176,844 for amounts accrued on its Series C Stock.
Common Stock

The Company is authorized to issue 500,000,000 shares of common stock, par value of ~~$0.001~~$0.001 per share and had ~~189,316,295~~18,725,967 and ~~188,354,282~~12,698,192 shares of common stock issued and outstanding as of March 31, ~~2021~~2022 and December 31, ~~2020,~~2021, respectively.

Reverse Stock Split
On April 7, 2021, the board of directors of the Company approved, and on April 8, 2021, the Company’s shareholders approved, an increase to the range of the ratio for a reverse stock split to a ratio of no less than 1-for-2 and no more than 1-for-50. On May 6, 2021, the board fixed the ratio for a reverse stock split at 1-for-32 and, on May 7, 2021, the Company filed a certificate of amendment to its articles of incorporation with the Secretary of State of the State of Florida to effect the reverse stock split which became effective as of May 13, 2021. The Company’s common stock began being quoted on the OTCQB on a post-reverse split basis beginning on May 19, 2021.
Common Stock Issued in Exchange for Consulting, Professional and Other Services

During the three months ended March 31, ~~2021,~~2022, the Company issued ~~537,013~~74,584 shares of common stock with a fair market value of ~~$80,130~~$76,822 to contractors for services rendered.

During the three months ended March 31, ~~2020,~~2021, the Company issued ~~2,414,053~~16,782 shares of common stock with a fair market value of $ ~~240,505~~80,130 to contractors for services rendered.

~~Common Stock Issued in lieu of Cash for Loans Payable and Other Accrued Obligations~~

~~During the three months ended March 31, 2020, the Company issued 500,000 shares of common stock with a fair market value of $50,000 to satisfy loans payable and other accrued obligations.~~
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Common Stock Issued in Connection with the Conversion of Convertible Note Principal and Accrued Interest

During the three months ended March 31 ~~2020,~~2022, the Company issued ~~259,300~~5,757,365 shares of common stock upon the conversion of ~~$15,000~~$4,125,000 in convertible note principal and accrued interest.

Common Stock Issued in Connection with the Issuance of Convertible ~~Promissory~~ Notes

During the three months ended March 31, 2021, the Company issued ~~425,000~~13,282 shares of common stock valued at ~~$29,750~~$29,750 in connection with the issuance of convertible notes.

Common Stock Issued in Connection with Series C Stock Dividends
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During the three months ended March 31, ~~2020,~~2022, the Company issued ~~8,120,000~~ 175,253 shares of common stock valued at ~~$568,400 in connection with the issuance~~$459,068 for cumulative dividends declared as of ~~convertible notes.~~
December 31, 2021 on its Series C Stock.
Stock Purchase Warrants

Stock purchase warrants are accounted for as equity in accordance with ASC 480, Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock, Distinguishing Liabilities from Equity.

The following table reflects all outstanding and exercisable warrants at March 31, ~~2021~~2022 and December 31, ~~2020.~~2021. All warrants are exercisable for a period of three to five years from the date of issuance:
Schedule of warrants
Number of Warrants Outstanding Weighted Average Exercise Price Weighted Average Contractual Life (Yrs.) Number of Warrants Outstanding Weighted Average Exercise Price Weighted Average Remaining Contractual Life (Yrs.)

Balance January 1, 2020 5,664,744 $ 0.28 1.79
Balance January 1, 2021 229,628 $ 7.34 1.66
Warrants issued 1,683,197 $ 0.06 4,273,733 4.18
Warrants exercised – $ – (249,480 ) 0
Warrants forfeited – $ – (6,711 ) 0
December 31, 2020 7,347,941 $ 0.23 1.66
December 31, 2021 4,247,170 $ 4.40 1.75
Warrants issued 12,652,000 $ 0.06 303,682 $ 4.20
Warrants exercised – $ – 0 0
Warrants forfeited – $ – 0 0
Balance March 31, 2021 19,999,941 $ 0.12 1.69
Balance March 31, 2022 4,550,852 $ 4.39 1.61

As of March 31, 2022, the outstanding stock purchase warrants had an aggregate intrinsic value of $7,395.
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Stock Options

The following table represents all outstanding and exercisable stock options as of March 31, ~~2021.~~2022.
Schedule of options
Year Issued Options
Issued Options
Forfeited Options
Outstanding Vested
Options Strike Price Weighted Average Remaining Life (Yrs.) Options
Issued Options
Forfeited Options
Outstanding Vested
Options Weighted Average Exercise Price Weighted Average Remaining Life (Yrs.)

2013 7,735,350 (834,000 ) 6,901,350 6,901,350 $ 0.24 2.47 241,730 (26,063 ) 215,667 215,667 $ 7.68 1.47
2016 5,421,000 (5,004,000 ) 417,000 417,000 $ 0.78 0.17
2018 60,000 – 60,000 60,000 $ 0.78 2.08 1,875 0 1,875 1,875 24.96 1.08
2021 208,500 0 208,500 208,500 $ 2.98 4.33
Total 13,216,350 (5,838,000 ) 7,378,350 7,378,350 $ 0.48 2.28 452,105 (26,063 ) 426,042 426,042 $ 5.46 1.98

During the three months ended March 31, ~~2021 and 2020,~~2022, the Company ~~did not record any~~recorded $48,142 in stock-based compensation ~~expense~~costs related to stock options.NaN stock-based compensation costs related to stock options was recorded during the three months ended March 31, 2021.
As of March 31, 2022, there were $454,675 in total unrecognized stock-based compensation costs related to stock options. These costs are expected to be recognized over a weighted average period of 2.3 years.
As of March 31, 2022, the outstanding stock options had an aggregate intrinsic value of $0.

~~11.~~15. COMMITMENTS AND CONTINGENCIES

~~None.~~In the ordinary course of business, the Company and its subsidiaries are subject to various pending and potential legal actions, arbitration proceedings, claims, investigations, examinations, regulatory proceedings, information gathering requests, subpoenas, inquiries and matters relating to compliance with laws and regulations (collectively, legal proceedings).

Based on the Company’s current knowledge, and taking into consideration its legal expenses, the Company does not believe it is a party to, nor are any of its subsidiaries the subject of, any legal proceeding that would have a material adverse effect on the Company’s consolidated financial condition or liquidity.
See also Note 7 (“Leases”).
See also Note 13 (“Income Taxes”).
16. SUBSEQUENT EVENTS
Executive Separation Agreement and Departure of Director
On April 22, 2022, Grom Social Enterprises, Inc. (the “Company”), Grom Social, Inc. and Melvin Leiner entered into an Executive Separation Agreement (the “Separation Agreement”), pursuant to which Mr. Leiner retired from his positions as the Company’s Executive Vice President and Chief Operating Officer. Pursuant to the Separation Agreement, Mr. Leiner’s employment with the Company ended on April 22, 2022 and Mr. Leiner is to receive separation payments over a nine (9) month period equal to his base salary, as well as certain limited health benefits.
In accordance with the Separation Agreement, the Company will pay to Mr. Leiner the sum of $236,250 in biweekly installments over the nine (9) month period beginning on the first regular Company pay period after April 22, 2022 and ending on January 13, 2023. The Separation Agreement also contains non-disparagement covenants and a mutual release of claims by the parties thereto.
On the same day, Mr. Leiner resigned from the Company’s Board of Directors, effectively immediately. Mr. Leiner did not resign as a result of any disagreement with the Company on any matter relating to the Company’s operations, policies or practices.

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~~12.~~ ~~SUBSEQUENT EVENTS~~
~~In accordance with FASB ASC 855-10,~~ ~~Subsequent Events~~, the Company has analyzed its operations subsequent to September 30, 2020 to the date these condensed consolidated financial statements were issued, and has determined that it does not have any material subsequent events to disclose in these condensed consolidated financial statements, except as follows:
On April 1, 2021, the Company entered into a binding letter of intent with Curiosity Ink Media, LLC, a California limited liability company (“Curiosity”), Russell Hicks (“Hicks”), Brent Watts (“Watts”), and the other members of Curiosity (collectively, the “Sellers”), pursuant to which the Company agreed to acquire an aggregate of 80% of Curiosity’s membership interests (the “80% Membership Interests”) from the Sellers, on a pro rata basis, for a purchase price of $3,678,000, of which: (i) $400,000 is payable in cash, to be used to pay down a portion of loans made to Curiosity by Hicks and Watts; (ii) $3,000,000 is payable in shares of the Company’s common stock, valued at a price per share equal to the 20-day volume-weighted average price of the Company’s common stock; and (iii) $278,000 is payable by the issuance to Hicks and Watts of 8% convertible promissory notes payable in equal monthly installments, on an amortized basis over 18 months. The Sellers will have the opportunity to receive up to an additional $2,000,000 in acquisition consideration, paid in shares of the Company’s common stock, based upon the successful execution of certain specified contracts and/or material agreements. The Sellers will also have the opportunity to receive an additional $17,500,000 in purchase consideration, paid 50% in cash and 50% in shares of the Company’s common stock, based upon achieving certain performance milestones through December 31, 2023. The Company has the exclusive right to acquire the 80% Membership Interests through June 30, 2021. The consummation of the acquisition is contingent upon the parties entering into a definitive agreement and other closing conditions.
~~On April 12, 2021, the Company issued 2,000,000 shares of common stock upon the conversion of $100,000 in convertible note principal and $11,151 in accrued interest.~~
On April 16, 2021 (the “Effective Date”), the Company, entered into a securities purchase agreement (the “Labrys Purchase Agreement”) with Labrys Fund, LP, a Delaware limited partnership (“Labrys”), pursuant to which the Company issued to Labrys a one-year convertible promissory note in the principal amount of $300,000 (the “Labrys Note”). In connection with the issuance of the Labrys Note, Labrys was also issued a five-year warrant to purchase up to an aggregate of 3,750,000 shares of the Company’s common stock (the “Warrant Shares”), at an exercise price of $0.06 per share. The Company received net proceeds of $266,000, after deducting an original issue discount in the amount of $30,000 and $4,000 for Labrys’s legal fees. The Labrys Note bears interest at a rate of 12% per annum. The first twelve months of interest ($36,000) is guaranteed and deemed to be earned in full as of the date of issuance. In the event the Company fails to pay any amount when due under the Labrys Note, the interest rate will increase to the lesser of 16%, or the maximum amount permitted by law. Labrys may convert any amount due under the Labrys Note into shares of the Company’s common stock at a conversion price of $0.06 per share. The conversion price and number of shares of the Company’s common stock issuable upon conversion of the Labrys Note is subject to adjustment from time to time in the event of any merger, consolidation, distribution of shares, or other dilutive issuances.
Labrys may not exercise the warrant or convert the Labrys Note if such exercise or conversion would cause it, together with its affiliates, to beneficially own in excess of 4.99% of the Company’s common stock. The warrant may be exercised for cash, or, if the market price of the Company’s common stock is greater than the warrant exercise price, on a cashless basis. The number of Warrant Shares is subject to adjustment for certain dilutive events or corporate actions.
Labrys has right of first refusal to participate in any offer or sale of the Company’s equity or debt securities, piggyback registration rights with respect to conversion and Warrant Shares. While any of the Labrys Note, the conversion shares, the Warrants, or the Labrys Warrant Shares are outstanding, the Company will not sell securities on more favorable terms. While any amount remains unpaid under the Labrys Note, the Company will not enter into any subsequent variable rate transactions.
On May 7, 2021, the Company filed a certificate of amendment to the Company’s articles of incorporation, as previously amended, with the Secretary of State of the State of Florida, to effect a reverse stock split of the Company’s common stock, $0.001 par value per share, at a rate of 1-for-32, effective as of May 13, 2021. On May 17, 2021, the Financial Industry Regulatory Authority notified the Company that the Reverse Stock Split would take effect in the over-the-counter market at the start of business on May 19, 2021. At the open of trading on May 19, 2021, the Company’s trading symbol will change from “GRMM” to “GRMMD.” The “D” will be removed 20 business days after the split becomes effective in the market. The reverse stock split will not impact the number of authorized shares of common stock which will remain at 500,000,000 shares. The share and per share information in these condensed consolidated financial statements do not give effect to the reverse stock split of the outstanding common stock at 1-for-32 ratio.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis should be read in conjunction with our financial statements and the related notes thereto. The management's discussion and analysis contain forward-looking statements, such as statements of our plans, objectives, expectations, and intentions. Any statements that are not statements of historical fact are forward-looking statements. When used, the words "believe," "plan," "intend," "anticipate," "target," "estimate," "expect" and the like, and/or future tense or conditional constructions ("will," "may," "could," "should," etc.), or similar expressions, identify certain of these forward-looking statements. These forward-looking statements are subject to risks and uncertainties, including those under "Risk Factors," which appear in our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2020,~~2021, which we filed with the Securities and Exchange Commission on April ~~13, 2021,~~15, 2022, that could cause actual results or events to differ materially from those expressed or implied by the forward-looking statements. Our actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of several factors. We do not undertake any obligation to update forward-looking statements to reflect events or circumstances occurring after the date of this Quarterly Report.

The share and per share information in the following discussion reflects a reverse stock split of our outstanding common stock at a 1-for-32 ratio, effective as of May 13, 2021.
Overview

~~The Company is~~We are a media, technology and entertainment company that focuses on (i) delivering content to children under the age of 13 years in a safe secure platform that is compliant with Children’s Online Privacy Protection Act (“COPPA”) and can be monitored by parents or ~~guardians.~~guardians, (ii) creating, acquiring, and developing the commercial potential of Kids & Family entertainment properties and associated business opportunities, (iii) providing world class animation services, and (iv) offering protective web filtering solutions to block unwanted or inappropriate content. We operate our business through the following ~~four wholly-owned~~ subsidiaries:

· Grom Social, Inc. was incorporated in the State of Florida on March 5, 2012 and operates our social media network designed for children under the age of 13 years.

· TD Holdings Limited (“TD Holdings”) was incorporated in Hong Kong on September 15, 2005. TD Holdings operates through its two subsidiary companies: (i) Top Draw Animation Hong Kong Limited, a Hong Kong corporation and (ii) Top Draw Animation, Inc., a Philippines corporation. The group’s principal activities are the production of animated films and televisions series.

· Grom Educational Services, Inc. (“GES”) was incorporated in the State of Florida on January 17, 2017. GES operates our web filtering services provided to schools and government agencies.

· Grom Nutritional Services, Inc. (“GNS”) was incorporated in the State of Florida on April 19, 2017. GNS intends to market and distribute nutritional supplements to children. GNS has ~~not generated any revenue~~been nonoperational since its inception.
· Curiosity Ink Media, LLC (“Curiosity”) was incorporated in the State of Delaware on January 9, 2017, creates, acquires, and develops the commercial potential of Kids & Family entertainment properties and associated business opportunities.
We own 100% of each of Grom Social, TD Holdings, GES and GNS, and 80% of Curiosity. We are headquartered in Boca Raton, Florida with offices in Los Angeles, California; Salt Lake City, Utah; Norcross, Georgia; and Manila, Philippines.

Impact of COVID-19

~~The Company has~~We have experienced significant disruptions to ~~its business~~our and operations due to circumstances related to COVID-19, and delays as a result of government-imposed quarantines, office closings and travel restrictions, which affect both ~~the Company~~us and ~~its~~our service providers. ~~The Company has~~We have significant operations in Manila, Philippines, which was locked down by the government on March 12, 2020 due to concerns related to the spread of COVID-19. As a result of the Philippines government’s call to contain COVID-19, ~~the Company’s~~our animation studio, located in Manila, Philippines, which accounts for approximately ~~90%~~89% of ~~the Company’s~~our total revenues on a consolidated basis, ~~has been mostly closed.~~was forced to close its offices for significant periods of time from March 2020 through December 2021. In January 2022, we started to recall artist and employees to return to the studio which is currently operating at 50% seat capacity.
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In response to the outbreak and business disruption, ~~the Company has~~hawse have instituted employee safety protocols to contain the spread, including domestic and international travel restrictions, work-from-home practices, extensive cleaning protocols, social distancing and various temporary closures of ~~its~~our administrative offices and production studio. ~~The Company~~ has Additionally, we have implemented a range of actions aimed at temporarily reducing costs and preserving liquidity.

Recent Events

~~On May 7,~~L1 Capital Financing
Closing of Second Tranche
The Purchase Agreement, as amended on October 20, 2021, with L1 Capital contemplated a closing of a second tranche of the ~~Company filed a certificate~~offering (the “Second Tranche”) of ~~amendment~~up to an additional $6,000,000 principal amount of Notes identical to the ~~Company’s articles~~First Tranche Note, and warrants exercisable for five years to purchase up to 1,041,194 shares at an exercise price of ~~incorporation, as previously amended,~~$4.20 per share.
On January 20, 2022 (the “Second Tranche Closing”), we closed on the Second Tranche of the offering with L1 Capital, resulting in the issuance of (i) a $1,750,000 10% original issue discount senior secured convertible note, due July 20, 2023, (the “Second Tranche Note”); and (ii) a five year warrant to purchase 303,682 shares of our common stock at an exercise price of $4.20 per share (the “Second Tranche Warrants”), in exchange for consideration of $1,575,000 (i.e. the face amount less the 10% original issue discount of $175,000).
In connection with the ~~Secretary~~Second Tranche Closing, we paid to EF Hutton a fee of ~~State of the State of Florida, to effect a reverse stock split of the Company’s~~$126,000.
The Second Tranche Note is convertible into our common stock ~~$0.001 par value per share,~~ at a rate of 1-for-32, effective as of May 13, 2021. On May 17, 2021, the Financial Industry Regulatory Authority notified the Company that the Reverse Stock Split would take effect in the over-the-counter market at the start of business on May 19, 2021. At the open of trading on May 19, 2021, the Company’s trading symbol will change from “GRMM” to “GRMMD.” The “D” will be removed 20 business days after the split becomes effective in the market. The reverse stock split will not impact the number of authorized$4.20 per share (the “Conversion Price”) into 416,667 shares of common stock ~~which will remain at 500,000,000 shares. The share~~(the “Second Tranche Conversion Shares”) and, ~~per share information~~is repayable in ~~this Quarterly Report do not give effect~~equal monthly installments of $111,563 commencing on the date that the SEC declares a registration statement with respect to the ~~reverse stock split~~resale of such shares effective, with all remaining amounts due on July 20, 2023. The Second Tranche Note is repayable by payment of cash, or, at our discretion and if the ~~outstanding~~below listed “Equity Conditions” are met, by issuance of shares of our common stock at ~~1-for-32 ratio.~~a price of 95% of the lowest daily VWAP during the ten-trading day period prior to the respective monthly redemption dates (with a floor of $1.92) multiplied by 102% of the amount due on such date. In the event that the ten-trading day VWAP drops below $1.92 we will have the right to pay in stock at such ten-trading day VWAP with any shortfall paid in cash. The Conversion Price may be adjusted in the event of dilutive issuances but in no event to less than $0.54 (the “Monthly Conversion Price”).
Our right to make monthly payments in stock in lieu of cash for the Second Tranche Note is conditioned on certain conditions (the “Equity Conditions”). The Equity Conditions required to be met each month in order to redeem the Second Tranche Note with stock in lieu of a monthly cash payment, among other conditions set forth therein, include without limitation, that a registration statement be in effect with respect to the resale of the shares issuable upon conversion or redemption of the Second Tranche Note (or, that an exemption under Rule 144 is available), that no default be in effect, that the average daily trading volume of our common stock would have to be at least $550,000 during the five trading days prior to the respective monthly redemption and that the outstanding principal amounts of the First Tranche Note and Second Tranche Note combined, shall not exceed 30% of the market capitalization of our common stock as reported on Bloomberg L.P., which percentage is subject to increase by the investor at its sole discretion.
Other provisions of the Second Tranche Note, which is similar in terms to the First Tranche Note, include that the Second Tranche Note Conversion Price is subject to full anti-dilution price protections in the event of financings that are below the Conversion Price with a floor of $0.54.

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In the event of an Event of Default as defined in the notes, if the stock price is below the Conversion Price at the time of default and only for so long as a default is continuing, the Second Tranche Notes would be convertible at a rate of 80% of the lowest VWAP in the ten prior trading days, provided, that if the default is cured the default conversion rate elevates back to the normal Conversion Price.
As part of the Second Tranche Closing, we issued Second Tranche Warrants exercisable for five years from the date of issuance, at $4.20 per share which carry the same anti-dilution protection as the Second Tranche Notes, subject to the same adjustment floor. The Second Tranche Warrants are exercisable via cashless exercise only for so long as no registration statement covering resale of the shares is in effect.
The Second Tranche Note continues to be subject to (i) the repayment and performance guarantees by our subsidiaries pursuant to a subsidiary guaranty and, (ii) the security agreement pursuant to which the LI Capital was granted a security interest in all of our assets and certain of our subsidiaries, each as entered into in connection with the First Tranche closing on September 14, 2021.
Executive Separation Agreement and Departure of Director
On April 22, 2022, we entered into an Executive Separation Agreement with Melvin Leiner (the “Separation Agreement”), pursuant to which Mr. Leiner retired from his positions as our Executive Vice President and Chief Operating Officer. Pursuant to the Separation Agreement, Mr. Leiner’s employment with us ended on April 22, 2022 and Mr. Leiner is to receive separation payments over a nine (9) month period equal to his base salary, as well as certain limited health benefits.
In accordance with the Separation Agreement, we will pay to Mr. Leiner the sum of $236,250 in biweekly installments over the nine (9) month period beginning on our first regular pay period after April 22, 2022 and ending on January 13, 2023. The Separation Agreement also contains non-disparagement covenants and a mutual release of claims by the parties thereto.
On the same day, Mr. Leiner resigned from our Board of Directors, effectively immediately. Mr. Leiner did not resign as a result of any disagreement with us on any matter relating to our operations, policies or practices.
Results of Operations
Comparison of Results of Operations for the Three Months Ended March 31, ~~2021~~2022 and ~~2020~~2021

Revenue

Revenue for the three months ended March 31, ~~2021~~2022 was ~~$1,875,284,~~$1,231,125, compared to revenue of ~~$1,292,239~~$1,875,284 during the three months ended March 31, ~~2020,~~2021, representing ~~an increase~~a decrease of ~~$583,045~~$644,159 or ~~45.1%~~34.4%.

Animation revenue for the three months ended March 31, ~~2021~~2022 was ~~$1,713,958,~~$1,048,613, compared to animation revenue of ~~$1,153,236~~$1,713,958 during the three months ended March 31, ~~2020,~~2021, representing ~~an increase~~a decrease of ~~$560,722~~$665,045 or ~~48.6%~~38.8%. The ~~increase~~decrease in animation revenue is primarily attributable to ~~the increase~~client delays in providing us with necessary productions materials and content and in the ~~overall number~~execution and commencement of ~~contracts completed as client delays caused by concerns related to the spread of COVID-19 began to subside.~~previously negotiated contracts.

Web filtering revenue for the three months ended March 31, ~~2021~~2022 was ~~$161,241,~~$182,244, compared to web filtering revenue of ~~$138,143~~$161,241 during the three months ended March 31, ~~2020,~~2021, representing an increase of ~~$23,098~~$21,003 or ~~16.7%~~13.0%. The increase is primarily due to an increase in organic sales growth, and the timing ~~or loss~~ of multi-year contract renewals.
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Subscription and advertising revenue from our Grom Social ~~website, Grom Social~~ mobile application ~~and MamaBear safety mobile application have~~has been nominal. Subscription and advertising revenue for the three months ended March 31, ~~2021~~2022 was ~~$384~~$268 compared to subscription and advertising revenue of ~~$860~~$384 during the three months ended March 31, ~~2020,~~2021, representing a decrease of ~~$476~~$116 or ~~55.3%~~30.2%, primarily attributable to a decrease in marketing and promotion activities.
No revenue was generated from produced and licensed content and publications during the three months ended March 31, 2022 and 2021.

Gross Profit

Our gross profits vary significantly by subsidiary. Historically, our animation business has realized gross profits between 45% and 55%, while our web filtering business has realized gross profits between 75% and 90%. Additionally, our gross profits may vary from period to period due to the nature of the business of each subsidiary, and the timing and volume of customer contracts and projects. Current gross margins percentages may not be indicative of future gross margin performance.

Gross profit for the three months ended March 31, 2022 and 2021 ~~and 2020~~ were ~~$1,074,850,~~$314,1750, or ~~57.3%~~25.5%, and ~~$680,146,~~$857,163, or ~~52.6%~~45.7%, respectively. The ~~increase~~decrease in gross profit is primarily attributable to ~~an increase in web filtering sales and higher~~lower contract margins in our animation ~~business.~~business due to the absorption of fixed overhead expenses against reduced revenue levels and certain projects exceeding budgeted costs.

Operating ~~expenses~~Expenses

Operating expenses for the three months ended March 31, ~~2021~~2022 were ~~$1,785,699,~~$2,163,335, compared to operating expenses of ~~$1,748,548~~$1,568,012 during the three months ended March 31, ~~2020,~~2021, representing an increase of ~~$37,151~~$595,323 or ~~2.1%~~38.0%. The increase is primarily attributable to an increase in selling, general and administrative costs and fees for professional services rendered during the three months ended March 31, ~~2021. General~~2022 due to the change and transition to new professional service providers, our debt financing transactions and related registered offerings, an increase in employee headcount, compensation and benefits from the acquisition of Curiosity, and stock-based compensation from the grant of stock and stock option awards.
Selling, general and administrative (“SG&A”) are comprised of selling, marketing and promotional expenses, compensation and benefits, insurance, rent and related facility costs, research and development, and other general expenses. SG&A expenses were ~~$1,350,799~~$1,694,819 for the three months ended March 31, 2022, compared to $1,262,265 for the three months ended March 31, 2021, ~~compared to $1,449,348~~representing an increase of $432,554 or 34.3%.
Stock-based compensation, a non-cash component of our SG&A, was $48,142 for the three months ended March 31, ~~2020, representing a decrease~~2022, compared to $0 for the three months ended March 31, 2021. The increase is attributable to options to purchase shares of ~~$98,549 or 6.8%.~~our common stock in connection with certain employment agreements entered into in connection with our acquisition of Curiosity.
Professional fees are comprised of accounting and compliance services, legal services, investor relations and other advisory fees. Professional fees were $404,066 for the three months ended March 31, 2022, compared to $187,109 for the three months ended March 31, 2021, ~~compared to $52,718~~representing an increase of $216,957 or 116.0%.
Depreciation and amortization included in operating expenses was $64,450 for the three months ended March 31, ~~2020,~~2022, compared to $118,638 for the three months ended March 31, 2021, representing ~~an increase~~a decrease of ~~$134,391~~$54,188 or ~~254.9%~~45.7%.

Other Income (Expense)

Net other expense for the three months ended March 31, ~~2021~~2022 was ~~$1,604,726,~~$1,607,286, compared to a net other expense of ~~$278,432~~$1,604,726 for the three months ended March 31, ~~2020,~~2021, representing an increase of ~~$1,326,294~~$2,560 or ~~476.3%~~0.2%. The nominal increase in ~~net~~ other ~~expense~~income (expense) is primarily attributable to increased interest expense related to the amortization and write off of debt discounts on convertible notes due to conversions.
Interest expense is comprised of interest accrued and paid on our convertible notes and recorded from the amortization of note discounts. Interest expense was $1,631,022 for the three months ended March 31, 2022, compared to $648,846 during the three months ended March 31, 2021, representing an increase of $982,176 or 151.4%. For the three months ended March 31, 2021, a one-time extinguishment loss of $947,179 was recognized related to the exchange of $1,447,996 in principal and interest accrued under certain convertible notes for 2,395,175 shares of our Series B ~~preferred stock.~~
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Interest expense is comprised of interest incurred on our convertible notes and from the amortization of note discounts. Interest expense was $648,846 for the three months ended March 31, 2021, compared to $277,763 during the three months ended March 31, 2020, representing a decrease of $371,083 or 133.6%. The increase is primarily attributable to an increase in amortization expense associated with debt discounts recorded during the three months ended March 31, 2021 compared to the three months ended March 31, 2020.Stock.

Net Loss Attributable to Common Stockholders

We realized a net loss attributable to common stockholders of ~~$2,315,575,~~$3,553,451, or ~~$0.01~~$0.25 per share, for the three months ended March 31, ~~2021,~~2022, compared to a net loss attributable to common stockholders of ~~$1,346,834,~~$2,315,575, or ~~$0.01~~$0.39 per share, during the three months ended March 31, ~~2020,~~2021, representing an increase in net loss attributable to common stockholders of ~~$969,741~~$1,237,876 or ~~71.9%~~53.5%.
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Liquidity and Capital Resources

At March 31, ~~2021,~~2022, we had cash and cash equivalents of ~~$581,950.~~$6,271,328.

Net cash used in operating activities for the three months ended March 31, ~~2021~~2022 was ~~$988,573,~~$1,600,696, compared to net cash used in operating activities of ~~$244,122~~$988,573 during the three months ended March 31, ~~2020,~~2021, representing an increase in cash used of ~~$744,461,~~$612,123, primarily due to the increase in our net loss, change in our operating assets and ~~liabilities.~~liabilities, and amortization of debt discounts.

Net cash used in investing activities for the three months ended March 31, ~~20201~~2022 was ~~$2,391,~~$25,825, compared to net cash used in investing activities of ~~$15,267~~$2,391 during the three months ended March 31, ~~2020~~2021 representing ~~a decrease~~an increase in cash used of ~~$12,876.~~$23,434. This change is attributable to ~~a decrease~~an increase in the amount of fixed assets purchased and/or leasehold improvements made by our animation studio in Manilla, Philippines during the three months ended March 31, ~~2021.~~2022.

Net cash provided by financing activities for the three months ended March 31, ~~2021~~2022 was ~~$1,433,438,~~$1,376,522, compared to net cash provided by financing activities of ~~$576,143~~$1,433,438 for the three months ended March 31, ~~2020,~~2021, representing ~~an increase~~a decrease in cash provided of ~~$857,295.~~$56,916. Our primary sources of cash from financing activities ~~were attributable to $666,500 in proceeds from the sale of 8% - 12% convertible notes and $950,000 in proceeds from the sale of our Series B Stock~~ during the three months ended March 31, ~~2021,~~2022 were attributable to $1,444,000 in proceeds from second tranche of convertible notes issued to L1 Capital, as compared to ~~$3,655,000~~$666,500 in proceeds from the sale of 12% senior secured convertible notes during the three months ended March 31, ~~2020. On~~2021. These increases were offset, in part, by the repayment of convertible notes and loans payable of $67,478 during the three months ended March ~~16, 2020,~~31, 2022, as compared to repayments of convertible notes and loans for $183,062 during the ~~Company repaid $3,000,000 in principal due to the former shareholders of TD Holdings Limited on a convertible note originally dated September 20, 2016.~~three months ended March 31, 2021.

We ~~currently~~believe we have ~~a monthly consolidated cash operating loss ranging between $100,000~~adequate working capital to ~~$150,000, or approximately $1,200,000 to $1,800,000 annually. In order to fund~~meet our ~~operations~~operational needs for the next twelve months, we believe that we will need to raise $2,000,000. Historically, we have funded our operations through sales of equity, debt issuances and officer loans. We currently have no commitment from any investment banker or other traditional funding sources and no definitive agreement with any third party to provide us with financing, either debt or equity, and there can be no assurances that we will be able to raise additional funds, or if we are successful, on favorable terms. Future equity sales may result in dilution to current shareholders and debt may have negative covenants. In addition, the COVID-19 pandemic has had and may continue to have an adverse effect on the capital markets and our ability to raise additional funding. The failure to obtain the financing necessary to allow us to continue to implement our business plan will have a significant negative impact on our anticipated results of operations.months.
~~Going Concern~~
The accompanying consolidated financial statements have been prepared assuming we will continue as a going concern, which contemplates realization of assets and the satisfaction of liabilities in the normal course of business for the twelve-month period following the date of these financial statements. On a consolidated basis, we have incurred significant operating losses since inception. Because we do not expect that existing operational cash flow will be sufficient to fund presently anticipated operations, this raises substantial doubt about our ability to continue as a going concern. Therefore, we will need to raise additional funds and are currently exploring sources of financing. Historically, we have raised capital through private offerings of debt and equity and officer loans to finance working capital needs. There can be no assurances that we will be able to continue to raise additional capital through the sale of common stock or other securities or obtain short-term loans.
32

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements.

Critical Accounting Estimates

Our consolidated financial statements and accompanying notes have been prepared in accordance with GAAP. The preparation of these consolidated financial statements requires management to make estimates, judgments, and assumptions that affect reported amounts of assets, liabilities, revenues and expenses. We continually evaluate the accounting policies and estimates used to prepare the consolidated financial statements. The estimates are based on historical experience and assumptions believed to be reasonable under current facts and circumstances. Actual amounts and results could differ from these estimates made by management. Certain accounting policies that require significant management estimates and are deemed critical to our results of operations or financial position. ~~Our~~
In the three months ended March 31, 2022, there were no significant changes to our critical accounting estimates ~~are more fully discussed~~from those disclosed in ~~Note 2 to~~the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our ~~unaudited financial statements contained herein.~~2021 Annual Report on Form 10-K.

Item 3. Quantitative and Qualitative Disclosures about Market Risk.

We are a smaller reporting company and are not required to provide this information.
31

Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

~~Under the supervision and~~Our management, with the participation of our principal executive officer and principal financial officer has evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act as of March 31, 2022, the end of the period covered by this Quarterly Report.
These controls are designed to ensure that information required to be disclosed in the reports we file or submit pursuant to the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial, as appropriate officer as of March 31, 2021, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) and Rule 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended.to allow timely decisions regarding required disclosure. Based on this evaluation, our principal executive officer and the principal financial officer have concluded that our disclosure controls and procedures were not effective as of March 31, 2021 to ensure that information required to be disclosed by us in reports filed or submitted under the Securities Exchange Act were recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Act Commission's rules and forms and that our disclosure controls are effectively designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act is accumulated and communicated to management, including our principal executive officer and principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.2022.

~~Our management, including our Chief Executive Officer~~The Company’s assessment identified certain material weaknesses which are set forth below:
Functional Controls and Chief Financial Officer, do not expect that our disclosure controls and procedures will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectivesSegregation of the control system are met. The design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Duties
Because of the ~~inherent~~Company’s limited resources, there are limited controls over information processing. Additionally, there is inadequate segregation of duties consistent with control objectives. Our Company’s management is composed of a small number of individuals resulting in a situation where limitations on segregation of duties exist. In order to remedy this situation, we will need to hire additional staff to provide greater segregation of duties.
Accordingly, as the result of identifying the above material weakness we have concluded that these control deficiencies resulted in ~~all control systems, no evaluation~~a reasonable possibility that a material misstatement of ~~controls can provide absolute assurance~~the annual or interim financial statements may not be prevented or detected on a timely basis by the Company’s internal controls.
Management believes that ~~all control issues and instances~~the material weaknesses set forth above were the result of ~~fraud, if any, within our company have been detected. These inherent limitations include~~ the ~~realities that judgments in decision-making can be faulty, and that breakdown can occur because of simple error or mistake. In particular, many~~scale of our ~~current~~operations and are intrinsic to our small size. Management continues to take actions to remedy these weaknesses, including the process of hiring additional staff to create the necessary segregation of duties to improve controls over information processing. Additionally, management has initiated the process of building a risk management framework with plans to embed the principles of this framework across all aspects of the business.
Remediation Plan
Management has implemented remediation steps to address the material weakness and to improve our internal control over financial reporting. Specifically, we (i) expanded and improved our review process for complex transactions and related accounting standards, including the identification of third-party professionals with whom to consult regarding the application of complex accounting matters, (ii) hired qualified personnel to improve the oversight of our accounting operations, and (iii) established new processes ~~rely upon manual reviews~~ and ~~processes~~policies. While we believe that these remediation actions will improve the effectiveness of our internal control over financial reporting, the material weakness identified will not be considered remediated until the controls operate for a sufficient period of time, and we cannot assure you that the measures we have taken to ~~ensure that neither human error nor system~~date, or any measures we may take in the future will be sufficient to remediate the material weakness ~~has resulted in erroneous reporting of financial data.~~we have identified or avoid potential future material weaknesses.

Changes in Internal Control over Financial Reporting

~~During~~Other than the ~~period covered by this Report,~~remediation efforts described above, there were no changes in our internal controls over financial reporting during our first fiscal quarter, that have materially affected or are reasonably likely to materially affect, our internal control over financial reporting.

3332

PART II – OTHER INFORMATION

Item 1. Legal Proceedings.

There are no pending legal proceedings to which the Company is a party or in which any director, officer or affiliate of the Company, any owner of record or beneficially of more than 5% of any class of voting securities of the Company, or security holder is a party adverse to the Company or has a material interest adverse to the Company. The Company's property is not the subject of any pending legal proceedings.

Item 1A. Risk Factors.

There have been no material changes to the risk factors disclosed in “Risk Factors” in our ~~Registration Statement~~Annual Report on Form ~~S-1,~~10-K, filed with the SEC on April ~~28, 2021.~~15, 2022.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

Except as set forth below, there were no sales of equity securities sold during the period covered by this Report that were not registered under the Securities Act and were not previously reported in a Current Report on Form 8-K filed by the Company.

On January ~~27, 2021,~~24, 2022, the Company issued ~~425,000 shares of common stock to an accredited investor in connection with the issuance of a promissory note in the principal amount of $165,000.~~
~~On February 19, 2021, the Company issued 500,000~~20,573 shares of common stock to a ~~consultant~~stockholder upon the conversion of 39,500 shares of Series C preferred stock.
On March 3, 2022, the Company issued 52,085 shares of common stock to a related party for ~~investor relations~~marketing and promotional services provided to the Company.

On March ~~31, 2021,~~3, 2022, the Company issued ~~37,013~~22,500 shares of common stock to an investor and public relations firm for services provided to the Company.
On March 18, 2022, the Company issued 2,000,001 shares of common stock to a ~~contractor for technology design services provided~~noteholder upon the conversion of $1,300,000 in convertible note principal.
On March 21, 2022, the Company issued 1,384,616 shares of common stock to a noteholder upon the ~~Company.~~conversion of $900,000 in convertible note principal.
On March 23, 2022, the Company issued 307,693 shares of common stock to a noteholder upon the conversion of $200,000 in convertible note principal.

The above issuances did not involve any underwriters, underwriting discounts or commissions, or any public offering and we believe is exempt from the registration requirements of the Securities Act of 1933 by virtue of Section 4(2) thereof.

Item 3. Defaults upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

None.
34

Item 6. Exhibits.

Exhibit No. Description
~~31.1~~10.1 10% Original Issue Discount Promissory Note dated January 20, 2022, between Grom Social Enterprises, Inc. and L1 Global Capital Master Fund (“L1 Global”) (incorporated by reference to Exhibit 10.1 to the Company’s report on Form 8-K filed with the SEC on January 26, 2022).
10.2 Common Stock Purchase Warrant to purchase 303,682 shares of the Company’s Common Stock issued to L1 Global, dated January 20, 2022 (incorporated by reference to Exhibit 10.2 to the Company’s report on Form 8-K filed with the SEC on January 26, 2022).
10.3 Registration Rights Agreement, dated as of January 20, 2022, between the Company L1 Global (incorporated by reference to Exhibit 10.3 to the Company’s report on Form 8-K filed with the SEC on January 26, 2022).
10.4 Executive Separation Agreement, dated April 22, 2022, by and among Grom Social Enterprises, Inc. and Melvin Leiner (incorporated by reference to Exhibit 10.1 to the Company’s report on Form 8-K filed with the SEC on April 28, 2022).
31.1 Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer
31.2 Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer
32 Chief Executive Officer and Chief Financial Officer Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101.INS XBRL Instance Document
101.SCH XBRL Taxonomy Extension Schema Document
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF XBRL Taxonomy Extension Definition Linkbase Document
101.LAB XBRL Taxonomy Extension Labels Linkbase Document
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document

3533

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Date: May ~~17, 2021~~16, 2022 By: /s/ Darren Marks
Darren Marks

Chief Executive Officer and President
(Principal Executive Officer)

Date: May ~~17, 2021~~16, 2022 By: /s/ ~~Melvin Leiner~~Jason Williams
~~Melvin Leiner~~Jason Williams
~~Executive Vice President,~~ Chief Financial ~~Officer, Chief Operating~~ Officer, Treasurer and Secretary (Principal Financial and Accounting Officer)

3634

																		Accumulated
	Series A Preferred Stock				Series B Preferred Stock				Common Stock				Additional Paid-in		Retained			Other Comprehensive			Total Stockholders'
	Shares		Value		Shares		Value		Shares		Value		Capital		Earnings			Income			Equity

Balance, December 31, 2019		925,000	$	925		–	$	–		167,382,807	$	167,383	$	58,154,730	$	(50,048,481	)	$	(97,560	)	$	8,176,997

Net loss		–		–		–		–		–		–		–		(1,346,834	)		–			(1,346,834	)
Change in foreign currency translation		–		–		–		–		–		–		–		–			33,454			33,454
Issuance of common stock in exchange for consulting, professional and other services		–		–		–		–		2,404,153		2,404		238,101		–			–			240,505
Issuance of common stock in lieu of cash for accounts payable, loans payable and other accrued obligations		–		–		–		–		500,000		500		49,500		–			–			50,000
Issuance of common stock in connection with the issuance of convertible note(s)		–		–		–		–		8,120,000		8,120		560,280		–			–			568,400
Conversion of convertible notes and accrued interest into common stock		–		–		–		–		259,300		259		14,741		–			–			15,000
Recognition of beneficial conversion features related to convertible notes		–		–		–		–		–		–		44,129		–			–			44,129

Balance, March 31, 2020		925,000	$	925		–	$	–		178,666,260	$	178,666	$	59,061,481	$	(51,395,315	)	$	(64,106	)	$	7,781,651

																		Accumulated
	Preferred Stock				Preferred Stock				Common Stock				Additional Paid-in		Retained			Other Comprehensive			Total Stockholders'
	Shares		Value		Shares		Value		Shares		Value		Capital		Earnings			Income			Equity

Balance, December 31, 2020		–	$	–		5,625,884	$	5,626		188,354,282	$	188,355	$	64,234,749	$	(55,791,914	)	$	(39,334	)	$	8,597,482

Net income (loss)		–		–		–		–		–		–		–		(2,315,575	)		–			(2,315,575	)
Change in foreign currency translation		–		–		–		–		–		–		–		–			18,369			18,369
Issuance of Series B preferred stock with common stock in connection with sales made under private offerings		–		–		950,000		950		–		–		949,050		–			–			950,000
Issuance of Series B preferred stock in exchange for consulting, professional and other services		–		–		75,000		75		–		–		74,925		–			–			75,000
Exchange of convertible notes and accrued interest for Series B preferred stock		–		–		2,564,175		2,564		–		–		2,561,611		–			–			2,564,175
Issuance of common stock in exchange for consulting, professional and other services		–		–		–		–		537,013		537		79,593		–			–			80,130
Issuance of common stock in connection with the issuance of convertible note(s)		–		–		–		–		425,000		425		29,325		–			–			29,750
Issuance of common stock warrants in connection with the issuance of convertible note(s)		–		–		–		–		–		–		489,313		–			–			489,313
Recognition of beneficial conversion features related to convertible notes		–		–		–		–		–		–		249,095		–			–			249,095

Balance, March 31, 2021		–	$	–		9,215,059	$	9,215		189,316,295	$	189,317	$	68,667,661	$	(58,107,489	)	$	(20,965	)	$	10,737,739

Schedule of disaggregated revenue
	Three Months Ended March 31, 2022		Three Months Ended March 31, 2021
Animation	$	1,048,613	$	1,713,658
Web Filtering		182,244		161,241
Produced and Licensed Content		–		–
Publishing		268		385
Total Sales	$	1,231,125	$	1,875,284

Schedule of accounts receivable
	March 31, 2022			December 31, 2021

Billed accounts receivable	$	660,232		$	822,536
Unbilled accounts receivable		147,477			187,751
Allowance for doubtful accounts		(40,962	)		(41,708	)
Total accounts receivable, net	$	766,747		$	968,579
Total advanced payments and deferred revenues	$	396,155		$	404,428

	March 31, 2021		December 31, 2020

Animation contract assets	$	666,837	$	525,709
Web filtering contract assets		51,475		54,886
Other contract assets		7,337		7,337
Total contract assets	$	725,649	$	587,932

Animation contract liabilities	$	143,648	$	410,709
Web filtering contract liabilities		539,589		544,844
Other contract liabilities		11,500		11,500
Total contract liabilities	$	694,737	$	967,053

	March 31, 2021			December 31, 2020

Billed accounts receivable	$	587,882		$	443,806
Unbilled accounts receivable		188,336			188,029
Allowance for doubtful accounts		(50,569	)		(43,903	)
Total accounts receivable, net	$	725,649		$	587,932

Schedule of property and equipment
	March 31, 2021							December 31, 2020							March 31, 2022							December 31, 2021
	Cost		Accumulated Depreciation			Net Book Value		Cost		Accumulated Depreciation			Net Book Value		Cost		Accumulated Depreciation			Net Book Value		Cost		Accumulated Depreciation			Net Book Value
Capital assets subject to depreciation:
Computers, software and office equipment	$	2,803,063	$	(2,333,580	)	$	469,483	$	2,800,872	$	(2,257,797	)	$	543,075	$	2,655,372	$	(2,409,116	)	$	246,256	$	2,698,172	$	(2,399,978	)	$	298,194
Machinery and equipment		192,988		(157,146	)		35,842		192,988		(152,149	)		40,839		183,400		(164,201	)		19,199		183,618		(162,647	)		20,971
Vehicles		163,525		(113,915	)		49,610		163,525		(106,826	)		56,699		99,856		(80,950	)		18,906		101,674		(76,497	)		25,177
Furniture and fixtures		422,219		(371,089	)		51,130		422,234		(364,655	)		57,579		398,532		(364,230	)		34,302		401,862		(365,075	)		36,787
Leasehold improvements		1,143,703		(929,648	)		214,055		1,143,704		(903,381	)		240,323		1,138,039		(962,786	)		175,253		1,086,518		(955,547	)		130,971
Total fixed assets		4,725,498		(3,905,378	)		820,120		4,723,323		(3,784,808	)		938,515		4,475,199		(3,981,283	)		493,916		4,471,844		(3,959,744	)		512,100
Capital assets not subject to depreciation:
Construction in progress		26,594		–			26,594		26,594		–			26,594		24,813		0			24,813		65,888		0			65,888
Total fixed assets	$	4,752,092	$	(3,905,378	)	$	846,714	$	4,749,917	$	(3,784,808	)	$	965,109	$	4,500,012	$	(3,981,283	)	$	518,729	$	4,537,732	$	(3,959,744	)	$	577,988

Schedule Of Other Assets
	March 31, 2022		December 31, 2021

Capitalized website development costs		424,224		411,800
Prepublication costs		154,786		152,286
Produced and licensed content costs		186,052		76,701
Deposits		74,692		76,052
Other noncurrent assets		0		4,321
Total other assets		839,754		721,160

Schedule of operating right-of-use assets
	Three Months Ended March 31, 2022
Cash paid for operating lease liabilities	$	110,274
Weighted-average remaining lease term		1.5
Weighted-average discount rate		10%

	Three Months Ended March 31, 2021
Cash paid for operating lease liabilities	$	92,665
Weighted-average remaining lease term		2.2
Weighted-average discount rate		10%
Minimum future lease payments	$	639,219

Schedule of amortization of lease liabilities
Remainder of 2022	$	320,246
2023		116,606
2024		52,430
2025		42,596
2026		44,726
Thereafter		42,962
Total future lease payments		623,566
Less: Imputed interest		(27,166	)
Present value of lease liabilities	$	596,400

Schedule Of Components Of Income Tax Expense Benefit
Consideration Paid:
Cash consideration	$	400,000
Common stock issued		5,421,962
Convertible notes		278,000
Contingent purchase consideration		5,586,493
Total consideration	$	11,686,455

Schedule of Recognized Identified Assets Acquired and Liabilities Assumed
Cash and cash equivalents	$	26,408
Inventory		65,734
Produced and licensed content cost		187,920
Goodwill and intangible assets		14,271,969
Accounts payable		(113,462	)
Noncontrolling interest		(2,752,114	)
Total identifiable assets acquired, and liabilities assumed	$	11,686,455

Schedule of intangible assets
	Current Year Period											Prior Year End
	Amortization Period (Years)		Gross Carrying Amount		Accumulated Amortization			Accumulated Impairment		Net Book Value		Gross Carrying Amount		Accumulated Amortization			Accumulated Impairment			Net Book Value
Intangible assets subject to amortization:
Customer relationships		10.00		1,526,282		(877,612	)		0		648,670		1,600,286		(876,457	)		(37,002	)		686,827
Mobile software applications		2.00		0		0			0		0		282,500		(282,500	)		0			0
NetSpective webfiltering software		2.00		0		0			0		0		1,134,435		(1,134,435	)		0			0
Noncompete agreements		1.50		0		0			0		0		846,638		(846,638	)		0			0
Subtotal		–		1,526,282		(877,612	)		0		648,670		3,863,859		(3,140,030	)		(37,002	)		686,827
Intangible assets not subject to amortization:
Trade names		–		4,386,247		–			–		4,386,247		4,455,595		–			(69,348	)		4,386,247
Total intangible assets		–		5,912,529		(877,612	)		–		5,034,917		8,319,454		(3,140,030	)		(106,350	)		5,073,074

Schedule of amortization
Remainder of 2022	$	114,471
2023		152,628
2024		152,628
2025		152,628
2026		76,314
Total remaining intangible assets subject to amortization	$	648,670

2021	$	290,187
2022		160,029
2023		160,029
2024		160,029
2025		160,029
Thereafter		83,712
	$	1,014,016

	March 31, 2021		December 31, 2020

Executive and employee compensation	$	1,856,532	$	1,642,959
Interest on convertible notes and promissory notes		83,598		135,980
Other accrued expenses and liabilities		24,380		15,293
Total accrued liabilities	$	1,964,509	$	1,794,232

Schedule of convertible debt
	March 31, 2021			December 31, 2020			March 31, 2022			December 31, 2021
8% - 12% Convertible Promissory Notes (Bridge Notes)	$	1,178,787		$	373,587
10% Unsecured Convertible Redeemable Notes – Variable Conversion Price		100,000			265,000
10% Secured Convertible Notes with Original Issuance Discounts (OID Notes)		153,250			153,250
12% Senior Secured Convertible Notes (Newbridge)		–			52,572
12% Senior Secured Convertible Notes (Original TDH Notes)		829,122			882,175
8% Unsecured Convertible Note (Curiosity)							$	278,000		$	278,000
10% Senior Secured Convertible Note with Original Issuance Discount (L1 Capital Global Master Fund or “L1”)								0			4,125,000
10% Senior Secured Convertible Note with Original Issuance Discount (L1 – Second Tranche)								1,750,000			0
12% Senior Convertible Notes with Original Issuance Discounts (OID Notes)								75,000			75,000
12% Senior Secured Convertible Notes (TDH Secured Notes)		414,556			1,645,393			300,143			330,039
12% Senior Secured Convertible Notes (Additional Secured Notes)		78,766			260,315			56,636			63,099
Loan discounts		(850,139	)		(385,266	)		(598,165	)		(1,550,540	)
Total convertible notes, net		1,904,342			3,247,026			1,861,614			3,320,598
Less: current portion of convertible notes, net		(1,612,259	)		(2,349,677	)		(873,896	)		(2,604,346	)
Convertible notes, net	$	292,083		$	897,349		$	987,718		$	716,252

	·	~~The maturity date of the notes was extended from July 1, 2019 to April 2, 2020.~~

	·	The TDH Sellers shall have the right to convert the notes at a conversion price of $0.27 per share, either in whole or in part at any time prior to the maturity, subject to the terms and conditions set forth in the Second Amendment.

	·	~~In the event that the notes are not repaid prior to July 2, 2019, no funds will be transferred by TDH to the Company.~~

	·	~~The payment terms of the contingent earnout was modified from 50% payable in cash and 50% payable in stock to 75% payable in cash and 25% payable in stock.~~

	·	~~To extend the maturity date of the remaining Original TDH Notes by one year to June 30, 2021;~~

	·	~~To increase the interest rate on the remaining Original TDH Notes to 12%;~~

	·	~~To grant a first priority security interest on the shares of TDH and TDAHK to the TDH Sellers, pari passu with the holders of the TDH Secured Notes; and~~

	·	~~To pay the balance of the Original TDH Notes monthly in arrears, amortized over a four-year period.~~

2021	$	2,416,907
2022	$	151,900
Schedule of future debt maturity payments
Remainder of 2022			$	1,340,940
2023	$	171,165		1,042,793
2024	$	14,509		76,046
2025 and thereafter	$	–		0
Total Convertible notes principal amount payable.			$	2,459,779

Schedule of warrants
	Number of Warrants Outstanding		Weighted Average Exercise Price		Weighted Average Contractual Life (Yrs.)		Number of Warrants Outstanding			Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (Yrs.)

Balance January 1, 2020		5,664,744	$	0.28		1.79
Balance January 1, 2021								229,628		$	7.34		1.66
Warrants issued		1,683,197	$	0.06				4,273,733			4.18
Warrants exercised		–	$	–				(249,480	)		0
Warrants forfeited		–	$	–				(6,711	)		0
December 31, 2020		7,347,941	$	0.23		1.66
December 31, 2021								4,247,170		$	4.40		1.75
Warrants issued		12,652,000	$	0.06				303,682		$	4.20
Warrants exercised		–	$	–				0			0
Warrants forfeited		–	$	–				0			0
Balance March 31, 2021		19,999,941	$	0.12		1.69
Balance March 31, 2022								4,550,852		$	4.39		1.61

Schedule of options
Year Issued	Options Issued		Options Forfeited			Options Outstanding		Vested Options		Strike Price		Weighted Average Remaining Life (Yrs.)		Options Issued		Options Forfeited			Options Outstanding		Vested Options		Weighted Average Exercise Price		Weighted Average Remaining Life (Yrs.)

2013		7,735,350		(834,000	)		6,901,350		6,901,350	$	0.24		2.47		241,730		(26,063	)		215,667		215,667	$	7.68		1.47
2016		5,421,000		(5,004,000	)		417,000		417,000	$	0.78		0.17
2018		60,000		–			60,000		60,000	$	0.78		2.08		1,875		0			1,875		1,875		24.96		1.08
2021															208,500		0			208,500		208,500	$	2.98		4.33
Total		13,216,350		(5,838,000	)		7,378,350		7,378,350	$	0.48		2.28		452,105		(26,063	)		426,042		426,042	$	5.46		1.98

Exhibit No.		Description

~~31.1~~10.1		10% Original Issue Discount Promissory Note dated January 20, 2022, between Grom Social Enterprises, Inc. and L1 Global Capital Master Fund (“L1 Global”) (incorporated by reference to Exhibit 10.1 to the Company’s report on Form 8-K filed with the SEC on January 26, 2022).
10.2		Common Stock Purchase Warrant to purchase 303,682 shares of the Company’s Common Stock issued to L1 Global, dated January 20, 2022 (incorporated by reference to Exhibit 10.2 to the Company’s report on Form 8-K filed with the SEC on January 26, 2022).
10.3		Registration Rights Agreement, dated as of January 20, 2022, between the Company L1 Global (incorporated by reference to Exhibit 10.3 to the Company’s report on Form 8-K filed with the SEC on January 26, 2022).
10.4		Executive Separation Agreement, dated April 22, 2022, by and among Grom Social Enterprises, Inc. and Melvin Leiner (incorporated by reference to Exhibit 10.1 to the Company’s report on Form 8-K filed with the SEC on April 28, 2022).
31.1		Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer
31.2		Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer
32		Chief Executive Officer and Chief Financial Officer Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101.INS		XBRL Instance Document
101.SCH		XBRL Taxonomy Extension Schema Document
101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF		XBRL Taxonomy Extension Definition Linkbase Document
101.LAB		XBRL Taxonomy Extension Labels Linkbase Document
101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document

Date: May ~~17, 2021~~16, 2022	By:	/s/ Darren Marks
		Darren Marks
		Chief Executive Officer and President (Principal Executive Officer)


Date: May ~~17, 2021~~16, 2022	By:	/s/ ~~Melvin Leiner~~Jason Williams
		~~Melvin Leiner~~Jason Williams
		~~Executive Vice President,~~ Chief Financial ~~Officer, Chief Operating~~ Officer, Treasurer and Secretary (Principal Financial and Accounting Officer)