Document and Entity Information
Document and Entity Information - shares | 3 Months Ended | |
Mar. 31, 2019 | May 20, 2019 | |
Document And Entity Information | ||
Entity Registrant Name | Grom Social Enterprises, Inc. | |
Entity Central Index Key | 0001662574 | |
Document Type | 10-Q | |
Document Period End Date | Mar. 31, 2019 | |
Amendment Flag | false | |
Current Fiscal Year End Date | --12-31 | |
Is Entity's Reporting Status Current? | Yes | |
Entity Filer Category | Non-accelerated Filer | |
Entity Small Business | true | |
Entity Emerging Growth Company | true | |
Entity Ex Transition Period | false | |
Entity Common Stock, Shares Outstanding | 144,960,760 | |
Document Fiscal Period Focus | Q1 | |
Document Fiscal Year Focus | 2019 |
Consolidated Balance Sheets (Un
Consolidated Balance Sheets (Unaudited) - USD ($) | Mar. 31, 2019 | Dec. 31, 2018 |
Current Assets: | ||
Cash and cash equivalents | $ 762,500 | $ 633,593 |
Accounts receivable, net | 756,862 | 1,123,493 |
Inventory, net | 8,501 | 9,018 |
Prepaid expenses and other current assets | 572,097 | 449,840 |
Total current assets | 2,099,960 | 2,215,944 |
Operating lease right of use assets | 1,068,213 | 0 |
Property and equipment, net | 1,015,855 | 1,036,313 |
Goodwill | 8,853,261 | 8,853,261 |
Intangible assets, net | 6,243,442 | 6,340,171 |
Deferred tax assets, net - noncuurent | 252,491 | 249,833 |
Other assets | 74,364 | 114,601 |
Total assets | 19,607,586 | 18,810,123 |
Current Liabilities | ||
Accounts payable | 639,319 | 682,285 |
Accrued liabilities | 1,438,715 | 1,433,037 |
Advanced payments and deferred revenues | 1,045,031 | 1,120,228 |
Convertible debentures, net - current | 2,212,125 | 676,223 |
Senior secured promissory notes, net - current | 0 | 3,828,818 |
Related party payables | 1,027,430 | 1,181,645 |
Income taxes payable | 0 | 41,097 |
Total current liabilities | 6,362,620 | 8,963,333 |
Convertible debentures, net of loan discounts | 4,968,587 | 2,410,614 |
Lease liabilities | 1,073,761 | 0 |
Contingent purchase consideration | 429,000 | 429,000 |
Other noncurrent liabilities | 227,189 | 224,797 |
Total liabilities | 13,061,157 | 12,027,744 |
Commitments and contingencies | ||
Stockholders' Equity | ||
Preferred stock, $0.001 par value. 25,000,000 shares authorized; 800,000 and zero shares issued and outstanding as of March 31, 2019 and December 31, 2018, respectively | 800 | 0 |
Common stock, $0.001 par value. 200,000,000 shares authorized; 144,830,718 and 138,553,655 shares issued and outstanding as of March 31, 2019 and December 31, 2018, respectively | 144,831 | 138,554 |
Additional paid-in capital | 53,643,794 | 52,254,286 |
Accumulated earnings (deficit) | (47,100,846) | (45,457,207) |
Accumulated other comprehensive income | (142,150) | (153,254) |
Total stockholders' equity | 6,546,429 | 6,782,379 |
Total liabilities and equity | $ 19,607,586 | $ 18,810,123 |
Consolidated Balance Sheets (_2
Consolidated Balance Sheets (Unaudited) (Parenthetical) - $ / shares | Mar. 31, 2019 | Dec. 31, 2018 |
Statement of Financial Position [Abstract] | ||
Common stock, par value | $ .001 | $ .001 |
Common stock, shares authorized | 200,000,000 | 200,000,000 |
Common stock, shares issued | 144,830,718 | 138,553,655 |
Common stock, shares outstanding | 144,830,718 | 138,553,665 |
Preferred stock, par value | $ .001 | $ .001 |
Preferred stock, shares authorized | 25,000,000 | 10,000,000 |
Preferred stock, shares issued | 800,000 | 0 |
Preferred stock, shares outstanding | 800,000 | 0 |
Consolidated Statements of Oper
Consolidated Statements of Operations and Comprehensive Loss (Unaudited) - USD ($) | 3 Months Ended | |
Mar. 31, 2019 | Mar. 31, 2018 | |
Income Statement [Abstract] | ||
Sales | $ 1,966,860 | $ 2,032,672 |
Cost of good sold | 814,502 | 777,739 |
Gross margin | 1,152,358 | 1,254,933 |
Operating expenses: | ||
Depreciation and amortization | 222,428 | 200,101 |
Selling and marketing | 28,099 | 55,912 |
General and administrative | 1,519,720 | 1,368,546 |
Professional fees | 290,769 | 382,555 |
Stock-based compensation | 16,200 | 76,193 |
Total operating expenses | 2,077,216 | 2,083,307 |
Income (loss) from operations | (924,858) | (828,374) |
Other income (expense) | ||
Interest income (expense), net | (376,160) | (263,093) |
Gain (loss) on settlement of debt | (363,468) | 0 |
Other gains (losses) | 20,847 | 345 |
Total Other Income (expense) | (718,781) | (262,748) |
Income (loss) before income taxes | (1,643,639) | (1,091,122) |
Provision for income taxes (benefit) | 0 | 0 |
Net income (loss) | (1,643,639) | (1,091,122) |
Convertible preferred stock beneficial conversion feature and other discounts accreted as a deemed dividend | (644,205) | 0 |
Net loss attributable to common stockholders | $ (2,287,844) | $ (1,091,122) |
Basic and diluted earnings (loss) per common share | $ (0.02) | $ (0.01) |
Weighted average number of shares outstanding - basic and diluted | 140,020,849 | 125,643,201 |
Comprehensive loss: | ||
Net income (loss) | $ (1,643,639) | $ (1,091,122) |
Foreign currency translation adjustment | 11,104 | (41,595) |
Comprehensive income (loss) | $ (1,632,535) | $ (1,132,717) |
Consolidated Statements of Chan
Consolidated Statements of Changes in Stockholders' Equity (Unaudited) - USD ($) | Preferred Stock | Common Stock | Additional Paid-In Capital | Retained Earnings | Accumulated Other Comprehensive Income | Total |
Beginning balance, shares at Dec. 31, 2017 | 0 | 124,273,548 | ||||
Beginning balance, value at Dec. 31, 2017 | $ 0 | $ 124,274 | $ 47,901,532 | $ (40,843,568) | $ (77,344) | $ 7,104,894 |
Net income (loss) | (1,091,122) | (1,091,122) | ||||
Change in foreign currency translation | (41,595) | (41,595) | ||||
Issuance of common stock in connection with the exercise of common stock purchase warrants, shares | 256,455 | |||||
Issuance of common stock in connection with the exercise of common stock purchase warrants, value | $ 256 | 61,244 | 61,500 | |||
Issuance of common stock as compensation to employees, officers and/or directors, shares | 115,321 | |||||
Issuance of common stock as compensation to employees, officers and/or directors, value | $ 115 | 76,078 | 76,193 | |||
Issuance of common stock in exchange for consulting, professional and other services, shares | 197,500 | |||||
Issuance of common stock in exchange for consulting, professional and other services, value | $ 197 | 138,178 | 138,375 | |||
Issuance of common stock in lieu of cash for loans payable and other accrued obligations, shares | 285,627 | |||||
Issuance of common stock in lieu of cash for loans payable and other accrued obligations, value | $ 286 | 171,090 | 171,376 | |||
Issuance of common stock in connection with the issuance of convertible debentures, shares | 186,566 | |||||
Issuance of common stock in connection with the issuance of convertible debentures, value | $ 187 | 109,652 | 109,839 | |||
Issuance of common stock in connection with the admendment of terms of promissory note(s), shares | 800,000 | |||||
Issuance of common stock in connection with the admendment of terms of promissory note(s), value | $ 800 | 479,200 | 480,000 | |||
Beneficial conversion feature | 800 | 800 | ||||
Ending balance, shares at Mar. 31, 2018 | 0 | 126,115,017 | ||||
Ending balance, value at Mar. 31, 2018 | $ 0 | $ 126,115 | 48,937,774 | (41,934,690) | (118,939) | 7,010,260 |
Beginning balance, shares at Dec. 31, 2018 | 138,553,655 | |||||
Beginning balance, value at Dec. 31, 2018 | $ 138,554 | 52,254,286 | (45,457,207) | (153,254) | 6,782,379 | |
Net income (loss) | (1,643,639) | (1,643,639) | ||||
Change in foreign currency translation | 11,104 | 11,104 | ||||
Issuance of preferred stock in connection with sales made under private offerings, shares | 800,000 | |||||
Issuance of preferred stock in connection with sales made under private offerings, value | $ 800 | 354,795 | 355,595 | |||
Issuance of common stock in connection with sales of Series A preferred stock, shares | 4,000,000 | |||||
Issuance of common stock in connection with sales of Series A preferred stock, value | $ 4,000 | 440,405 | 444,405 | |||
Issuance of common stock in exchange for consulting, professional and other services, shares | 1,377,338 | |||||
Issuance of common stock in exchange for consulting, professional and other services, value | $ 1,377 | 348,268 | 349,645 | |||
Issuance of common stock in lieu of cash for loans payable and other accrued obligations, shares | 99,720 | |||||
Issuance of common stock in lieu of cash for loans payable and other accrued obligations, value | $ 100 | 26,840 | 26,940 | |||
Issuance of common stock in connection with the admendment of terms of promissory note(s), shares | 800,000 | |||||
Issuance of common stock in connection with the admendment of terms of promissory note(s), value | $ 800 | 219,200 | 220,000 | |||
Beneficial conversion feature | 199,800 | 199,800 | ||||
Deemed dividend on conversion of convertible preferred stock to common stock | (199,800) | (199,800) | ||||
Accretion of Series A preferred stock | 440,405 | 444,405 | ||||
Deemed dividend on accretion of Series A preferred stock | (440,405) | (440,405) | ||||
Ending balance, shares at Mar. 31, 2019 | 800,000 | 144,830,713 | ||||
Ending balance, value at Mar. 31, 2019 | $ 800 | $ 144,831 | $ 53,643,794 | $ (47,100,846) | $ (142,150) | $ 6,546,429 |
Consolidated Statements of Cash
Consolidated Statements of Cash Flows (Unaudited) - USD ($) | 3 Months Ended | |
Mar. 31, 2019 | Mar. 31, 2018 | |
Cash flows from operating activities of continuing operations: | ||
Net income (loss) | $ (1,643,639) | $ (1,091,122) |
Adjustments to reconcile net loss to cash used in operating activities: | ||
Depreciation and amortization | 222,428 | 200,101 |
Amortization of debt discount | 147,875 | 152,797 |
Common stock issued in exchange for fees and services | 349,645 | 66,375 |
Deferred taxes | (2,658) | 6,709 |
Stock-based compensation | 16,200 | 76,193 |
Loss on extinguishment of debt | 363,468 | 0 |
Changes in operating assets and liabilities: | ||
Accounts receivable | 366,631 | (192,917) |
Inventory | 517 | 15,869 |
Prepaid expenses and other current assets | (138,456) | 174,559 |
Operating lease right of use assets | 5,548 | 0 |
Other assets | 40,237 | 2,711 |
Accounts payable | (16,126) | (153,448) |
Accrued liabilities | 5,678 | 48,999 |
Advanced payments and deferred revenues | (75,197) | (185,429) |
Income taxes payable and other noncurrent liabilities | (38,705) | (9,481) |
Related party payables | (154,216) | 387,321 |
Net cash provided by (used in) operating activities | (550,770) | (500,763) |
Cash flows from investing activities: | ||
Purchase of fixed assets | (105,241) | (170,921) |
Net cash provided by (used in) investing activities | (105,241) | (170,921) |
Cash flows from financing activities: | ||
Proceeds from issuance of preferred stock, net of issuance costs | 356,395 | 0 |
Proceeds from issuance of common stock, net of issuance costs | 443,605 | 0 |
Proceeds from exercise of common stock purchase warrants, net of issuance costs | 0 | 61,500 |
Proceeds from issuance of convertible debentures | 0 | 671,760 |
Repayments of convertible debentures | (26,286) | (50,000) |
Net cash provided by (used in) financing activities | 773,714 | 683,260 |
Effect of exchange rates on cash and cash equivalents | 11,204 | (41,595) |
Net increase (decrease) in cash and cash equivalents | 128,907 | (30,019) |
Cash and cash equivalents at beginning of the period | 633,593 | 436,869 |
Cash and cash equivalents at end of the period | 762,500 | 406,850 |
Supplemental disclosure of cash flow information: | ||
Cash paid for interest | 67,703 | 0 |
Cash paid for income taxes | 0 | 0 |
Supplemental disclosure of non-cash investing and financing activities: | ||
Common stock issued for financing costs incurred in connection with convertible and promissory notes | 0 | 589,839 |
Common stock issued in connection with long term service contracts | 0 | 72,000 |
Common stock issued to reduce convertible and promissory notes payable | 0 | 171,376 |
Common stock issued to reduce accounts payable and other accrued liabilities | 26,940 | 0 |
Discount for beneficial conversion features on convertible debentures | $ 0 | $ 801 |
1. Nature of Operations
1. Nature of Operations | 3 Months Ended |
Mar. 31, 2019 | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
Nature of Operations | 1. NATURE OF OPERATIONS We operate our business through the following five wholly-owned subsidiaries: · Grom Social, Inc. (“Grom Social”) was incorporated in the State of Florida on March 5, 2012 and operates our social media network designed for children. · TD Holdings Limited (“TD Holdings”), which was acquired in July 2016, was incorporated in Hong Kong on September 15, 2005. Its operations are conducted through its subsidiary companies, Top Draw Animation Hong Kong Limited (“TDAHK”) and Top Draw Animation, Inc. (“Top Draw” or “TDA”). The group’s principal activities are the production of animated films based in Manila, the Philippines. · Grom Educational Services, Inc. (“GES”), was incorporated in the State of Florida on January 17, 2017, and operates our NetSpective Webfiltering services to schools and libraries. · Grom Nutritional Services, Inc. (“GNS”) was incorporated in the State of Florida on April 19, 2017. We intend to market and distribute four flavors of a nutritional supplement to children through GNS. GNS did not record any revenue in 2018. · Illumination America Lighting, Inc. (“IAL”), was incorporated in the State of Florida on August 21, 2017. IAL operates our LED lighting business that was our principal business prior to the Share Exchange. IAL did not record any revenue in 2018. |
2. Summary of Significant Accou
2. Summary of Significant Accounting Policies | 3 Months Ended |
Mar. 31, 2019 | |
Accounting Policies [Abstract] | |
Summary of Significant Accounting Policies | 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Going Concern The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern, which contemplates the 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. The Company does not expect that existing operational cash flow will be sufficient to fund presently anticipated operations and has incurred significant operating losses since inception and has a working capital deficit which 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 debentures 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 short-term loans. The Company will be required to continue to so until its consolidated operations become profitable. However, there can be no assurance that the Company will be successful in raising sufficient capital when needed. Management’s Representation of Interim Financial Statements The accompanying unaudited consolidated financial statements have been prepared by the Company without audit pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) have been condensed or omitted as allowed by such rules and regulations, and management believes that the disclosures are adequate to make the information presented not misleading. These 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 are of a normal and recurring nature. Interim results are not necessarily indicative of results for a full year. These consolidated financial statements should be read in conjunction with the audited consolidated financial statements at December 31, 2018 and 2017, as presented in the Company’s Form 10-K filed on April 16, 2019 with the SEC. Basis of Presentation The Company has deemed the transfer of net assets to be a reverse acquisition in accordance with FASB ASC 805-40, "Reverse Acquisitions" The consolidated financial statements of the Company have been prepared in accordance with GAAP and are expressed in United States dollars. For the three-month period ended March 31, 2019, the consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries: Grom Social, TD Holdings, GES, GNS, and IAL. TD Holdings was acquired on July 1, 2016; and GES was formed in January 2017 to house the NetSpective assets and business which was acquired on January 1, 2017. GNS, which was formed in April 2017, had not recorded any material activity through the date of this Report. All intercompany accounts and transactions are eliminated in consolidation. Use of Estimates The preparation of consolidated financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. 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. Revenue Recognition In May 2014, the FASB issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (Topic 606) Other Assets and Deferred Costs - Contracts with Customers Entities have the option of using either a full retrospective or a modified approach to adopt the guidance. The Company adopted this ASU in accordance with the modified retrospective method, effective January 1, 2018, for all contracts not completed as of January 1, 2018. Results for reporting periods beginning after January 1, 2018, are presented under ASC 606 while prior period amounts continue to be reported in accordance with legacy GAAP. Under the applicable revenue recognition guidance for fiscal years 2017 and prior, these transactions were recognized when the amounts were billed to the customer. As a result of the Company’s transition to ASC 606, the Company recorded a net change in beginning retained earnings of $263,741 on January 1, 2018, due to the cumulative effect of adopting ASC 606. For three months ended March 31, 2019, the Company recorded a total of $1,793,763 of animation revenue from contracts with customers which include $296,734 in additional revenue as a result of the adoption of ASC 606. Under ASC 606 the Company’s animation revenues are generated primarily from contracts with customers for preproduction and production services related to the development of animated movies and television series. TDA preproduction activities include producing storyboards, location design, model and props design, background color and color styling. For production, TDA focuses on library creation, digital asset management, background layout scene assembly, posing, animation and after-effects. We provide our services under fixed-price contracts. Under fixed-price contracts, we agree to perform the specified work for a pre-determined price. To the extent our actual costs vary from the estimates upon which the price was negotiated, we will generate more or less profit or could incur a loss. We account for a contract after it has been approved by all parties to the arrangement, the rights of the parties are identified, payment terms are identified, the contract has commercial substance and collectability of consideration is probable. We evaluate 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 our 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 an entire episode to us and we, therefore, have a history of developing stand-alone selling prices for all of these distinct components. Accordingly, our contracts are typically accounted for as containing multiple performance obligations. We determine the transaction price for each contract based on the consideration we expect to receive for the distinct services being provided under the contract. We recognize revenue as performance obligations are satisfied and the customer obtains control of the services. In determining when performance obligations are satisfied, we consider factors such as contract terms, payment terms and whether there is an alternative future use of the product or service. Substantially all of our revenue is recognized over time as we perform 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 towards completion of the performance obligation, generally using the percentage-of-completion cost-to-cost measure of progress for our contracts because it best depicts the transfer of control to the customer as we incur costs on our 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. Webfiltering revenue Revenue from subscription sales for webfiltering at NetSpective is recognized on a pro-rata basis over the subscription period. Typically, a subscriber purchases computer hardware and a service license for a period of use between one year to five years for software and support. The subscriber is billed in full at the time of the sale. The Company immediately recognizes any revenue attributable to the computer hardware as it is non-refundable, and control of the hardware has passed to the customer. The advanced billing for software and service is initially recorded as deferred revenue and subsequently recognized as revenue over time evenly throughout the subscription period. Adoption of ASC 606 had no impact on NetSpective’s revenues. Substantially all of the revenue at TDA and Netspective comes from the North American in the form of animation and webfiltering services, respectively. Historically and going forward, TDA’s business is concentrated on five to eight key clients, that vary from year to year based upon discrete projects which become available based on the popularity of a particular TV series, or the expected acceptance of new animated series. TDA receives advance payments for a significant portion of the work it performs. Netspective, as consistent with industry practice receives full payment in advance of providing webfiltering services over a period of one to five years. Revenue recognition under ASC 606 and historically was unrelated to the timing of milestone or advance payments. Netspective’s business is focused on forty to fifty US-based school districts located in the US. Both TDA and Netspective earn revenue via services transferred over time to the client. Approximately 10% of Netspective’s business is recognized at a point in time due to the non-refundable sale of computer hardware associated with web filtering services. Contract Assets and Liabilities Revenues from NetSpective contracts are all billed in advance and therefore represent contract liabilities until fully recognized on a ratable basis over the contract life. 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. The following table depicts the composition of our contract assets and liabilities as of March 31, 2019, and December 31, 2018: March 31, 2019 December 31, 2018 Animation contract assets $ 716,004 $ 1,040,309 NetSpective contract assets 32,157 74,743 Other contract assets 8,701 8,441 Total contract assets $ 756,862 $ 1,123,493 Animation contract liabilities $ 377,024 $ 380,749 NetSpective contract liabilities 656,507 727,979 Other contract liabilities 11,500 11,500 Total contract liabilities $ 1,045,031 $ 1,120,228 Fair Value Measurements The Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 820 “Fair Value Measurements and Disclosures” (“ASC 820”) defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value: Level 1 Level 2 Level 3 Fair value estimates discussed herein are based upon certain market assumptions and pertinent information available to management as of March 31, 2019, and December 31, 2018. The Company uses the market approach to measure fair value for its Level 1 financial assets and liabilities. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities. The respective carrying value of certain balance sheet financial instruments approximates its fair value. These financial instruments include cash, trade receivables, related party payables, accounts payable, accrued liabilities and short-term borrowings. Fair values were estimated to approximate carrying values for these financial instruments since they are short term in nature, and they are receivable or payable on demand. The estimated fair value of assets and liabilities acquired in business combinations and reporting units and long-lived assets used in the related asset impairment tests utilize inputs classified as Level 3 in the fair value hierarchy. The Company determines the fair value of contingent consideration based on a probability-weighted discounted cash flow analysis. The fair value remeasurement is based on significant inputs not observable in the market and thus represents a Level 3 measurement as defined in the fair value hierarchy. In each period, the Company reassesses its current estimates of performance relative to the stated targets and adjusts the liability to fair value. Any such adjustments are included as a component of Other Income (Expense) in the Consolidated Statements of Operations and Comprehensive Loss. The following table summarizes the change in the Company’s financial assets and liabilities measured at fair value as of March 31, 2019, and December 31, 2018. Level 1 Level 2 Level 3 Earnout liability $ – $ – $ 429,000 Fair value, December 31, 2017 $ 429,000 Change in fair value – Fair value, December 31, 2018 $ 429,000 Change in fair value – March 31, 2019 $ 429,000 Derivative Financial Instruments The Company does not use derivative instruments to hedge exposures to cash flow, market or foreign currency risk. Terms of convertible and other promissory notes are reviewed to determine whether they contain embedded derivative instruments that are required to be accounted for separately from the host contract and recorded on the balance sheet at fair value. The fair value of derivative liabilities is required to be revalued at each reporting date, with corresponding changes in fair value recorded in current period operating results. Beneficial Conversion Features In accordance with FASB ASC 470-20, “Debt with Conversion and Other Options” the Company records a beneficial conversion feature (“BCF”) related to the issuance of convertible debt or preferred stock instruments that have conversion features at fixed rates that are in-the-money when issued. The BCF for the convertible instruments is recognized and measured by allocating a portion of the proceeds equal to the intrinsic value of that feature to additional paid-in capital. The intrinsic value is generally calculated at the commitment date as the difference between the conversion price and the fair value of the common stock or other securities into which the security is convertible, multiplied by the number of shares into which the security is convertible. If certain other securities are issued with the convertible security, the proceeds are allocated among the different components. The portion of the proceeds allocated to the convertible security is divided by the contractual number of the conversion shares to determine the effective conversion price, which is used to measure the BCF. The effective conversion price is used to compute the intrinsic value. The value of the BCF is limited to the basis that is initially allocated to the convertible security. Stock Purchase Warrants The Company accounts for warrants issued to purchase shares of its common stock as equity in accordance with FASB ASC 480, Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock, Distinguishing Liabilities from Equity. Cash and cash equivalents The Company considers all highly liquid investments with a maturity of three months or less at the date of purchase to be cash equivalents. Cash and cash equivalents consist of cash on deposit with banks and money market funds, the fair value of which approximates cost. The Company maintains its cash balances with a high-credit-quality financial institution. At times, such cash may be more than the Federal Deposit Insurance Corporation-insured limit of $250,000. The Company has not experienced any losses in such accounts, and management believes the Company is not exposed to any significant credit risk on its cash and cash equivalents. Accounts receivable Accounts receivable are customer obligations due under normal trade terms which are recorded at net realizable value. The Company establishes an allowance for doubtful accounts based on management’s assessment of the collectability of trade receivables. A considerable amount of judgment is required in assessing the amount of the allowance. The Company makes judgments about the creditworthiness of each customer based on ongoing credit evaluations and monitors current economic trends that might impact the level of credit losses in the future. If the financial condition of the customers were to deteriorate, resulting in their inability to make payments, a specific allowance will be required. Recovery of bad debt amounts previously written off is recorded as a reduction of bad debt expense in the period the payment is collected. If the Company’s actual collection experience changes, revisions to its allowance may be required. After all attempts to collect a receivable have failed, the receivable is written off against the allowance. Inventory Inventory consists of animation supplies used for the sole purpose of completing animation projects at Top Draw. Property and equipment Property and equipment are stated at cost or fair value if acquired as part of a business combination. Depreciation is computed by the straight-line method and is charged to operations over the estimated useful lives of the assets. Maintenance and repairs are charged to expense as incurred. The carrying amount and accumulated depreciation of assets sold or retired are removed from the accounts in the year of disposal and any resulting gain or loss is included in results of operations. The estimated useful lives of property and equipment are as follows: Computers, software, and office equipment 1 – 5 years Machinery and equipment 3 – 5 years Vehicles 5 years Furniture and fixtures 5 – 10 years Leasehold improvements Lesser of the lease term or estimated useful life Construction in process is not depreciated until the construction is completed and the asset is placed into service. 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. Intangible assets have either an identifiable or indefinite useful life. Intangible assets with identifiable useful lives are amortized on a straight-line basis over their economic or legal life, whichever is shorter. The Company’s amortizable intangible assets consist of customer relationships and non-compete agreements. Their useful lives range from 1.5 to 10 years. The Company’s indefinite-lived intangible assets consist of trade names. Goodwill and indefinite-lived assets are not amortized but are subject to annual impairment testing unless circumstances dictate more frequent assessments. The Company performs an annual impairment assessment for goodwill during the fourth quarter of each year and more frequently whenever events or changes in circumstances indicate that the fair value of the asset may be less than the carrying amount. Goodwill impairment testing is a two-step process performed at the reporting unit level. Step one compares the fair value of the reporting unit to its carrying amount. The fair value of the reporting unit is determined by considering both the income approach and market approaches. The fair values calculated under the income approach and market approaches are weighted based on circumstances surrounding the reporting unit. Under the income approach, the Company determines fair value based on estimated future cash flows of the reporting unit, which are discounted to the present value using discount factors that consider the timing and risk of cash flows. For the discount rate, the Company relies on the capital asset pricing model approach, which includes an assessment of the risk-free interest rate, the rate of return from publicly traded stocks, the Company’s risk relative to the overall market, the Company’s size and industry and other Company-specific risks. Other significant assumptions used in the income approach include the terminal value, growth rates, future capital expenditures and changes in future working capital requirements. The market approaches use key multiples from guideline businesses that are comparable and are traded on a public market. If the fair value of the reporting unit is greater than its carrying amount, there is no impairment. If the reporting unit’s carrying amount exceeds its fair value, then the second step must be completed to measure the amount of impairment, if any. Step two calculates the implied fair value of goodwill by deducting the fair value of all tangible and intangible net assets of the reporting unit from the fair value of the reporting unit as calculated in step one. In this step, the fair value of the reporting unit is allocated to all of the reporting unit’s assets and liabilities in a hypothetical purchase price allocation as if the reporting unit had been acquired on that date. If the carrying amount of goodwill exceeds the implied fair value of goodwill, an impairment loss is recognized in an amount equal to the excess. Determining the fair value of a reporting unit is judgmental in nature and requires the use of significant estimates and assumptions, including revenue growth rates, strategic plans, and future market conditions, among others. There can be no assurance that the Company’s estimates and assumptions made for purposes of the goodwill impairment testing will prove to be accurate predictions of the future. Changes in assumptions and estimates could cause the Company to perform an impairment test prior to scheduled annual impairment tests. The Company performed its annual fair value assessment at December 31, 2018, on its subsidiaries with material goodwill and intangible asset amounts on their respective balance sheets and determined that no impairment exists. Long-Lived Assets The Company evaluates the recoverability of its long-lived assets whenever events or changes in circumstances have indicated that an asset may not be recoverable. The long-lived asset is grouped with other assets at the lowest level for which identifiable cash flows are largely independent of the cash flows of other groups of assets and liabilities. If the sum of the projected undiscounted cash flows is less than the carrying value of the assets, the assets are written down to the estimated fair value. The Company evaluated the recoverability of its long-lived assets on December 31, 2018, and at December 31, 2017, respectively on its subsidiaries with material amounts on their respective balance sheets and determined that no impairment exists. Income taxes The Company accounts for income taxes under FASB ASC 740, “Accounting for Income Taxes” “Accounting for Uncertainty in Income Taxes” The amount recognized is measured as the largest amount of benefit that is greater than 50 percent likely of being realized upon ultimate settlement. The Company assesses the validity of its conclusions regarding uncertain tax positions on a quarterly basis to determine if facts or circumstances have arisen that might cause it to change its judgment regarding the likelihood of a tax position’s sustainability under audit. Right of use assets and lease liabilities In February 2016, the FASB issued ASU No. 2016-02, "Leases" (ASC 842). The standard requires lessees to recognize almost all leases on the balance sheet as an ROU asset and a lease liability and requires leases to be classified as either an operating or a finance type lease. The standard excludes leases of intangible assets or inventory. The standard became effective for the Company beginning January 1, 2019. The Company adopted ASC 842 using the modified retrospective approach, by applying the new standard to all leases existing at the date of initial application. Results and disclosure requirements for reporting periods beginning after January 1, 2019 are presented under ASC 842, while prior period amounts have not been adjusted and continue to be reported in accordance with our historical accounting under ASC 840. The Company elected the package of practical expedients permitted under the standard, which also allowed the Company to carry forward historical lease classifications. The Company also elected the practical expedient related to treating lease and non-lease components as a single lease component for all equipment leases as well as electing a policy exclusion permitting leases with an original lease term of less than one year to be excluded from the ROU assets and lease liabilities. Under ASC 842, the Company determines if an arrangement is a lease at inception. Right-of-Use ("ROU") assets and liabilities are recognized at commencement date based on the present value of remaining lease payments over the lease term. For this purpose, the Company considers only payments that are fixed and determinable at the time of commencement. As most of the Company's leases do not provide an implicit rate, the Company estimated the incremental borrowing rate in determining the present value of lease payments. The ROU asset also includes any lease payments made prior to commencement and is recorded net of any lease incentives received. The Company lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise such options. Operating leases are included in operating lease right-of-use assets, operating lease liabilities, current and operating lease liabilities, non-current on the Company's condensed consolidated balance sheets. As a result of the adoption of ASC 842 on January 1, 2019, the Company recorded both operating lease ROU assets of $1,068,213 and operating lease liabilities of $1,073,761 for the three months ended March 31, 2019. The adoption did not impact the Company's beginning retained earnings, or prior year consolidated statements of income and statements of cash flows. Foreign Currency Translation The functional and reporting currency of TD Holdings and TDAHK is the Hong Kong Dollar. The functional and reporting currency of Top Draw is the Philippine Peso. Management has adopted ASC 830 “Foreign Currency Matters” for transactions that occur in foreign currencies. Monetary assets denominated in foreign currencies are translated using the exchange rate prevailing at the balance sheet date. Average monthly rates are used to translate revenues and expenses. Transactions denominated in currencies other than the functional currency are translated into the functional currency at the exchange rates prevailing at the dates of the transaction. Exchange gains or losses arising from foreign currency transactions are included in the determination of net income for the respective periods. Assets and liabilities of the Company’s operations are translated into the reporting currency, United States dollars, at the exchange rate in effect at the balance sheet dates. Revenue and expenses are translated at average rates in effect during the reporting periods. Equity transactions are recorded at the historical rate when the transaction occurred. The resulting translation adjustment is reflected as accumulated other comprehensive income, a separate component of stockholders' equity in the statement of stockholders' equity. Differences may arise in the amount of bad debt expense, depreciation expense and amortization expense reported in the Company's operating results as compared to the corresponding change in the allowance for doubtful accounts, accumulated depreciation, and accumulated amortization, respectively, due to foreign currency translation. These translation adjustments are reflected in accumulated other comprehensive income, a separate component of the Company's stockholders' equity. Comprehensive Gain or Loss ASC 220 “Comprehensive Income,” establishes standards for the reporting and display of comprehensive income and its components in the financial statements. As of March 31, 2019, and December 31, 2018, the Company determined that it had items that represented components of comprehensive income (loss) and, therefore, has included a statement of comprehensive income (loss) in the financial statements. Advertising expenses Advertising costs are expensed as incurred and included in selling and marketing expenses. Shipping and handling costs Shipping and handling costs related to the acquisition of goods from vendors are included in the cost of sales. Basic and Diluted Net Income (Loss) Per Share The Company computes net income (loss) per share in accordance with ASC 260, “Earnings per Share” 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. |
3. Accounts Receivable, Net
3. Accounts Receivable, Net | 3 Months Ended |
Mar. 31, 2019 | |
Receivables [Abstract] | |
Accounts Receivable | 3. ACCOUNTS RECEIVABLE, NET The following table sets forth the components of the Company’s accounts receivable at March 31, 2019, and December 31, 2018: March 31, 2019 December 31, 2018 Billed accounts receivable $ 484,752 $ 419,802 Unbilled accounts receivable 272,110 703,691 Total accounts receivable $ 756,862 $ 1,123,493 As of March 31, 2019, and December 31, 2018, the Company evaluated its outstanding trade receivables and determined that its allowance for bad debts was sufficiently reserved. No bad debt expense was recorded during the three-month period ended March 31, 2019 and the year ended December 31, 2018. During the three-month period ended March 31, 2019, the Company had three customers that accounted for 71% revenues and one of those same customers that accounted for 23.5% of accounts receivable. During the year ended December 31, 2018, the Company had three customers that accounted for 50.1% of revenues and one customer that accounted for 9.2% of accounts receivable. |
4. Prepaid Expenses and Other C
4. Prepaid Expenses and Other Current Assets | 3 Months Ended |
Mar. 31, 2019 | |
Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract] | |
Prepaid Expenses and Other Current Assets | 4. PREPAID EXPENSES AND OTHER CURRENT ASSETS The following table sets forth the components of the Company’s prepaid expenses and other current assets at March 31, 2019, and December 31, 2018: March 31, 2019 December 31, 2018 Collaborative development agreement $ 71,824 $ 95,766 Prepaid rent 32,111 31,773 Vendor advances 6,159 7,867 Prepaid service agreements 183,884 174,920 Employee advance and other payroll related items 20,903 16,208 Other prepaid expenses and current assets 257,216 123,306 Total $ 572,097 $ 449,840 Prepaid expenses and other assets represent prepayments made in the normal course and in which the economic benefit is expected to be realized within twelve months. |
5. Property and Equipment
5. Property and Equipment | 3 Months Ended |
Mar. 31, 2019 | |
Property, Plant and Equipment [Abstract] | |
Property and Equipment | 5. PROPERTY AND EQUIPMENT The following table sets forth the components of the Company’s property and equipment at March 31, 2019 and December 31, 2018: March 31, 2019 December 31, 2018 Gross Carrying Amount Accumulated Depreciation Net Book Value Gross Carrying Amount Accumulated Depreciation Net Book Value Capital assets subject to depreciation: Computers, software and office equipment $ 2,024,205 $ (1,597,372 ) $ 426,833 $ 1,937,987 $ (1,508,104 ) $ 429,883 Machinery and equipment 169,515 (106,220 ) 63,295 167,731 (99,900 ) 67,831 Vehicles 148,580 (100,394 ) 48,186 153,927 (120,728 ) 33,199 Furniture and fixtures 385,605 (293,744 ) 91,861 381,248 (284,410 ) 96,838 Leasehold improvements 1,042,662 (656,982 ) 385,680 1,031,687 (623,125 ) 408,562 Total fixed assets $ 3,770,567 $ ( 2,754,712 ) $ 1,015,855 $ 3,672,580 $ (2,636,267 ) $ 1,036,313 For the three-month period ended March 31, 2019, and the year ended December 31, 2018, the Company recorded depreciation expense of $125,699 and $395,556, respectively. |
6. Leases
6. Leases | 3 Months Ended |
Mar. 31, 2019 | |
Leases [Abstract] | |
Leases | 6. LEASES The Company has entered into operating leases primarily for real estate. These leases have terms which range from three years to five years, and often include one or more options to renew or in the case of equipment rental, to purchase the equipment. These operating leases are listed as separate line items on the Company's March 31, 2019 Consolidated Balance Sheet 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 March 31, 2019 Consolidated Balance Sheet. 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 right-of-use assets and lease liabilities for operating leases of approximately $1,068,213 in assets and $1,045,031 in liabilities as of March 31, 2019. In the three months ended March 31, 2019, the Company recognized approximately $93,242 in total lease costs 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 right-of-use assets and related lease liabilities were as follows: Three Months Ended March 31, 2019 Cash paid for operating lease liabilities $ 87,459 Weighted-average remaining lease term Weighted-average discount rate 10% Minimum future lease payments ended March 31, 2019 $ 1,347,149 2020 352,888 2021 367,636 2022 335,659 2023 28,589 |
7. Goodwill and Intangible Asse
7. Goodwill and Intangible Assets | 3 Months Ended |
Mar. 31, 2019 | |
Goodwill and Intangible Assets Disclosure [Abstract] | |
Goodwill and Intangible Assets | 7. GOODWILL AND INTANGIBLE ASSETS The following table sets forth the changes in the carrying amount of the Company’s goodwill at March 31, 2019, and December 31, 2018: Balance, December 31, 2017 $ 8,800,761 Acquisition of Bonnie Boat assets 52,500 Balance, December 31, 2018 $ 8,853,261 Activity for the period ended March 31, 2019 – Balance March 31, 2019 $ 8,853,261 The Company recorded amortization expense for intangible assets subject to amortization of $96,729 for the three months ended March 31, 2019, and $1,092,592 for the year ended December 31, 2018. The following table sets forth the components of the Company’s intangible assets at March 31, 2019, and December 31, 2018: March 31, 2019 December 31, 2018 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 (436,378 ) 1,163,908 $ 1,600,286 $ (396,371 ) $ 1,203,915 Mobile software applications 2.00 282,500 (282,500 ) – 282,500 (282,500 ) – NetSpective webfiltering software 2.00 1,134,435 (510,496 ) 623,939 1,134,435 (453,774 ) 680,661 Noncompete agreements 1.50 846,638 (846,638 ) – 846,638 (846,638 ) – Subtotal 3,863,859 (2,076,012 ) 1,787,847 3,863,859 (1,979,273 ) 1,884,576 Intangible assets not subject to amortization: Trade names 4,455,595 – 4,455,595 4,455,595 – 4,455,595 Total intangible assets $ 8,319,454 $ (2,076,012 ) $ 6,243,442 $ 8,319,454 $ (1,979,283 ) $ 6,340,171 The following table provides information regarding estimated amortization expense for intangible assets subject to amortization for each of the following years ending December 31: 2019 $ 290,185 2020 386,916 2021 386,916 2022 160,029 2023 160,029 Thereafter 403,772 $ 1,787,847 |
8. Other Assets
8. Other Assets | 3 Months Ended |
Mar. 31, 2019 | |
Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract] | |
Other Assets | 8. OTHER ASSETS Other assets are comprised solely of guarantee deposits at TDA which are refundable upon termination of contract or delivery of subject matter of the contract. These are initially recorded at cost which is the fair value at the time of transaction and are subsequently measured at amortized cost. |
9. Accounts Payable and Accrued
9. Accounts Payable and Accrued Liabilities | 3 Months Ended |
Mar. 31, 2019 | |
Payables and Accruals [Abstract] | |
Accounts Payable and Accrued Liabilities | 9. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES Trade payables are recognized initially at the transaction price and subsequently measured at the undiscounted amount of cash or other consideration expected to be paid. Accrued expenses are recognized based on the expected amount required to settle the obligation or liability. The following table sets forth the components of the Company’s accrued liabilities on March 31, 2019, and December 31, 2018. March 31, 2019 December 31, 2018 Earnout consideration payable in connection with Netspective acquisition $ 362,500 $ 362,500 Executive and employee compensation 772,571 792,402 Interest on convertible debentures and promissory notes 268,176 210,221 Other accrued expenses and liabilities 35,468 67,914 Total accrued liabilities $ 1,438,715 $ 1,433,037 Accrued expenses for both include approximately $138,000 for an estimated compromise settlement relating to tax deductions against supplier invoices in the Philippines at TDA. The Company in accordance with ASC 740-10 has determined that the recording of this amount is required because it is more likely than not that the tax will be assessed. |
10. Related Party Payables
10. Related Party Payables | 3 Months Ended |
Mar. 31, 2019 | |
Related Party Transactions [Abstract] | |
Related Party Payables | 10. RELATED PARTY PAYABLES The Company has engaged the Chief Executive Officer, Darren Mark’s family to assist in the development of the Grom Social website and to create original content for the site. Since these individuals have been responsible for creating in excess of 500 episodes of original content. Mr. Marks wife Sarah; his sons Zach the founder of Grom, Luke, Jack, Dawson, and his daughters Caroline and Victoria all work for the Company either as employees or contractors. · The amount they were paid for the year ended December 31, 2018 are as follows: Sarah $33,600, Zach $90,000, Luke $33,800, Jack $5,400, Victoria $6,750 and Caroline $11,250. The total annual compensation payable to these six individuals for the period ended December 31, 2018, was $180,800. · For the three-month period ended March 31, 2019, these individuals were paid a total of $39,638. The Company believes the amounts paid to these individuals is below market rate for the value of the services performed. This expenditure for services provided by the Marks family is expected to continue for the foreseeable future. Members of the Marks family are actively involved on a daily basis in creating all of the current content for the website which includes numerous videos on social responsibility, anti-bullying, digital citizenship, unique blogs, and special events. Liabilities Due to Executive and Other Officers Messrs. Darren Marks and Melvin Leiner, both officers of the Company, have made numerous loans to Grom to help fund operations. These loans are non-interest bearing and callable on demand. No such loans have been made to the Company since the year December 31, 2017. The loan balances are classified as short-term obligations under Related Party Payables on the Company’s balance sheet. During 2017 and 2018 Mr. Marks and Mr. Leiner on several occasions agreed to convert a portion of their loans into equity. These transactions are summarized as follows: Name Date Amount of Loan Principal Converted to Equity Share Price Used for conversion Closing price of Grom common stock on the date of conversion Shares issued Darren Marks 12/29/2017 333,333 $ 0.50 0.30 666,666 10/15/2018 333,333 $ 0.31 0.19 1,075,268 Melvin Leiner 12/29/2017 166,667 $ 0.50 0.30 333,334 10/15/2018 166,667 $ 0.31 0.19 537,635 The outstanding amount due to Mr. Marks and Mr. Leiner’s LLC’s were $418,488 and $469,506; and $404,246 and $451,944 as of March 31, 2019, and December 31, 2018, respectively. Additionally, we owed $50,000 to Dr. Rutherford our director who extended a short-term loan to the Company, and $154,623 to Wayne and his wife Stella Dearing who have extended loans to Top Draw animation to assist with its liquidity. The amounts due to Mr. Rutherford and the Dearings were outstanding as of March 31, 2019 and December 31, 2018. As of March 31, 2019, and December 31, 2018, the balances in related party payables were $1,027,430 and $1,181,645 respectively. |
11. Other Noncurrent Liabilitie
11. Other Noncurrent Liabilities | 3 Months Ended |
Mar. 31, 2019 | |
Other Liabilities Disclosure [Abstract] | |
Other Noncurrent Liabilities | 11. OTHER NONCURRENT LIABILITIES Other noncurrent liabilities are comprised solely of retirement benefit costs. The Philippine Republic Act (RA) No. 7641, mandates all private employers to provide retirement benefits to employees who upon reaching the age of sixty years or more, but not beyond sixty-five years, have served at least five years in the said establishment. The amount of retirement benefit was defined as “at least one-half month salary for every year of service, a fraction of at least six months being considered as one whole year”. The balance of the accrued retirement benefit cost as of March 31, 2019 and December 31, 2018 amounted to $227,189 and $224,797 respectively. |
12. Debt
12. Debt | 3 Months Ended |
Mar. 31, 2019 | |
Debt Disclosure [Abstract] | |
Debt | 12. DEBT Convertible Debentures The following tables set forth the components of the Company’s, convertible debentures as of March 31, 2019, and December 31, 2018: March 31, 2019 December 31, 2018 Redeemable unsecured convertible note -TeleMate $ 1,000,000 1,000,000 Principal value of secured convertible notes 6,822,708 2,822,708 Loan discounts (641,996) (735,871) Less: Current portion (2,212,125) (676,223 ) Total convertible notes, net $ 4,968,587 $ 2,410,614 The Company did not issue any convertible notes or debt instruments during the three-month period ended March 31, 2019. First Amendment of TDH Acquisition Agreement On January 3, 2018, we entered into an amendment (the “First Amendment”) to the TDH Acquisition Agreement with the individuals that sold TDH to Grom (“TDA Sellers”). Under the terms of the First Amendment: · the maturity date of the $4.0 Million Sellers Note extended by the TDH Sellers to Grom as part of the acquisition of TDH by Grom, was extended from July 1, 2018 until July 1, 2019 (the “First Note Extension Period”); · the interest rate on the Note was increased from 5% to 10% during the Note Extension Period; · during the Note Extension Period, the interest will be paid quarterly in arrears, instead of annually in arrears. The first such quarterly interest payment of $100,000 was due on September 30, 2018; and · the Earnout Period was extended to December 31, 2019. Also, as consideration for the First Amendment, we issued an additional 800,000 shares of our common stock to the TDA Sellers. Second Amendment of the TDH Acquisition Agreement On January 15, 2019, we entered into a second amendment to the TDH Acquisition Agreement (the “Second Amendment”). Under the terms of the Second Amendment: · the maturity date of the Note was extended from July 1, 2019, to April 2, 2020. · in the event the Note is not repaid prior to July 2, 2019: (i) no management fee shall be paid by TDA to the Company as provided in the Share Sale Agreement in which Grom acquired TDH. Management fees paid by TDA to the Company to date are approximately $100,000 per month. Non-payment of the management fees to the Company by TDA due to the non-payment of the Note would have a material adverse impact on the Company · the TDA Sellers shall have the right to convert the Note 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 Amendment As a result of the inclusion of a $0.27 conversion feature, under the guidelines of ASC 470-20-40-7 through 40-9, this element of the Second Amendment was considered an “extinguishment of debt” and re-issuance of the Note as a convertible note. As a result, the Company recorded a loss of $363,468 related to the Second amendment for the three months ended March 31, 2019. Redeemable unsecured convertible note -TeleMate On January 1, 2017, the Company issued a three-year 0.68% redeemable convertible note for $1,000,000 to TeleMate. net in connection with the acquisition of the NetSpective Webfiltering assets. All note principal and accrued interest is payable January 1, 2020. The note is convertible at the election of the noteholders into the Company’s’ common stock at a conversion rate of $0.78 per share. Furthermore, if not previously converted by the noteholders, the note may be converted by the Company into shares of the Company’s common stock at a rate of $0.48 per share commencing on November 1, 2019. Under the terms of the asset purchase agreement in which TeleMate had the obligation to collect certain monies on behalf of the Company, TeleMate failed to remit $146,882 it had collected on the Company’s behalf from NetSpective customers. As a result of TeleMate’s non-payment, and to avoid litigation, on January 12, 2018, we entered into a First Modification to the Purchase and Sale Agreement (the “Modification”). Under the terms of the Modification, TeleMate agreed to the following terms: Telemate paid of the remainder of the Note in full by April 2019, therefore the Telemate Note has been classified as a current obligation retroactive to March 31, 2019. If TeleMate converts the note, the number of shares converted thereunder will be subject to a one-year leakout agreement If TeleMate does not convert the TeleMate Note to equity by October 1, 2019, the Company has the right to force conversion at a conversion price of $0.48 per share. Newbridge Offering On November 30, 2018, the Company closed a private offering in which it sold 12% secured convertible promissory 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 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 TD Holdings in connection with the Share Sale Agreement, dated June 30, 2016, as amended. Messrs. Marks and Leiner also pledged an aggregate of 10,000,000 shares pursuant to a pledge and security agreement to secure the timely payment of the Notes. The Notes are convertible, in whole or in part, by the note holder 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 an 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 Note is payable monthly in 21 equal installments commencing four months after the issuance of the Notes. Upon the occurrence of an “event of default” as described in the Notes, the interest rate will increase to 15% and the Notes shall become immediately due and payable. The Company may prepay the 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. Secured Convertible Notes 2018 During the year ended December 31, 2018, the Company issued to accredited investors in private offerings two-year secured, convertible, original issue discount (“OID”) notes for aggregate gross proceeds of $1,238,485. The notes were issued with OID discounts of 20%, or $247,697, have an interest rate of 10% per annum, are payable semiannually in cash, and are convertible into shares of common stock at a fixed conversion price of $0.50 per share if converted within one year of issuance and $0.78 per share thereafter. During the year ended December 31, 2017, the Company privately placed a series of secured, convertible, original issue discount (OID) notes with accredited investors for gross proceeds of $601,223. The Notes were issued with OID discounts of 10.0%, or $60,122. The debentures carried an interest rate of 10% per annum, payable semiannually in cash, for a two-year term with a fixed conversion price of $0.78. In connection with the issuance of the above convertible notes, the Company also issued 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 $0.38 and $0.54 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. Maturities of the Company’s borrowings for each of the next two years are as follows: 2019 $ 1,676,223 2020 $ 6,145,485 |
13. Stockholders' Equity
13. Stockholders' Equity | 3 Months Ended |
Mar. 31, 2019 | |
Equity [Abstract] | |
Stockholders' Equity | 13. STOCKHOLDERS’ EQUITY Preferred Stock The Company is authorized to issue 25,000,000 shares of preferred stock at a par value of $0.001. 800,000 shares of preferred stock were issued and outstanding as of March 31, 2019. No shares of preferred stock were issued and outstanding as of December 31, 2018. On February 22, 2019, the Company designated 2,000,000 shares of its preferred stock as 10% Series A Convertible preferred stock, par value $0.001 per share (“Series A Stock”). On each of February 27, 2019 and March 11, 2019, the Company received $400,000 from the sale of 400,000 shares of Series A Stock to an accredited investor in private offerings pursuant to Section 4(a)(2) and/or Rule 506(b) of Regulation D, as promulgated under the Securities Act, As an inducement to purchase the Series A Stock, each investor also received 2,000,000 restricted shares of the Company’s common stock. As a result of the issuance of the Series A Stock we recorded a beneficial conversion feature and other discounts as a deemed dividend on our income statement of $644,205. Common stock The Company is authorized to issue 200,000,000 shares of common stock at a par value of $0.001 and had 144,830,713 and 138,553,655 shares of common stock issued and outstanding as of March 31, 2019, and December 31, 2018, respectively. Common Stock Issued in Private Placements During the three-month period ended March 31, 2019 and 2018, the Company issued -0- and 256,455 shares of common stock in private placements for proceeds of $-0- and $61,500, respectively. Common Stock Issued in Connection with the Exercise of Warrants During the three months ended March 31, 2019 no warrants were exercised. During the three months ended March 31, 2018, the Company issued 256,455 shares of common stock for proceeds of $61,244 under a series of stock warrant exercises with a share price of $0.24 per share. Common Stock Issued in Exchange for Consulting, Professional and Other Services During the three months ended March 31, 2019, the Company did not issue any of its shares of common stock to employees, officers, and directors. The Company issued 1,377,338 shares of common stock with a fair value of $349,645 to consultants and other professionals in lieu of cash payments. During the three months ended March 31, 2018, the Company issued 115,321 shares of common stock with a fair market value of $76,193 to employees, officers and directors in lieu of cash payment. Additionally, the Company issued 197,500 shares of common stock with a fair value of $138,375 to consultants and other professionals in lieu of cash payments for services provided to the Company. Each share issuance made in exchange for services was valued based upon the trading price of the Company’s common stock, on the date the services were performed, on the OTC markets. Common Stock Issued In lieu of Cash for Loans Payable and Other Accrued Obligations During the three months ended March 31, 2019, the Company issued 99,720 shares of common stock with a fair market value of $26,940 to satisfy loans payable and other accrued obligations. During the three months ended March 31, 2018, the Company issued 285,627 shares of common stock with a fair market value of $171,376 to satisfy loans payable and other accrued obligations. Common Stock Issued in Connection with the Issuance of Convertible Debentures During the three months ended March 31, 2019, the Company did not issue any shares to investors as an inducement to lend in connection with the issuance of its unsecured, convertible notes. During the three months ended March 31, 2018, the Company issued 186,566 shares of common stock with a fair market value of $78,321 to investors as an inducement to lend in connection with the issuance of its unsecured, convertible notes. The fair value of the shares was recorded as interest expense in the Company’s consolidated financial statements. Common Stock issued in Connection with the Amendment of the Terms of a Promissory note During each of the three months ended March 31, 2019 and March 31, 2018, we issued 800,000 shares valued at $480,000 and $220,000 respectively, in connection with the amendment to the $4.0 million TDA Sellers Note -see Note 12. Stock Purchase Warrants The stock purchase warrants have been accounted for as equity in accordance with FASB 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, 2019, and December 31, 2018. All stock warrants are exercisable for a period between three and five years from the date of issuance. Number of Warrants Outstanding Weighted Avg. Exercise Price Weighted Avg. Contractual Life (Yrs.) Balance January 1, 2017 7,608,154 $ 0.26 0.75 Warrants issued 567,166 $ 1.50 2.00 Less: Warrants exercised (7,107,765 ) $ 0.24 Warrants forfeited (29,190 ) $ 0.24 December 31, 2017 1,038,365 $ 1.36 2.38 Warrants issued – – Warrants exercised (256,455 ) – Balance 31, 2018 781,910 $ 1.36 1.38 Warrants issued – Warrants forfeited – Warrants exercised – Balance March 31, 2019 781,910 $ 1.36 1.13 Stock Options The following table represents all outstanding and exercisable stock options as of March 31, 2019. Options issued Options forfeited Options outstanding Vested options Strike Price Weighted Average Remaining Life In Years 7,735,350 – 7,735,350 7,735,350 $ 0.24 4.02 9,695,250 417,000 9,278,250 9,278,250 $ 0.36 0 .20 938,250 938,250 – – $ 0.48 – 13,135,500 3,544,500 9,591,000 9,591,000 $ 0.72 1.00 5,481,000 1,042,500 4,438,500 4,438,500 $ 0.78 1.96 Total 36,985,350 5,942,250 31,043,100 31 ,043,100 $ 0.50 1.65 The Company did not issue any stock options in 2018 or for three months ended March 31, 2019. For the three months ended March 31, 2019, and 2018, the Company recorded $16,200 and $76,193, respectively in stock-based compensation expense related to these stock options. |
14. Commitments and Contingenci
14. Commitments and Contingencies | 3 Months Ended |
Mar. 31, 2019 | |
Commitments and Contingencies Disclosure [Abstract] | |
Commitments and Contingencies | 14. COMMITMENTS AND CONTINGENCIES In the United States, we lease approximately 1550 square feet of office space in Boca Raton, Florida for $4,227 per month pursuant to a three-year lease expiring on September 30, 2021. Our Florida office houses our corporate headquarters and administrative staff. Our animation business leases portions of 3 floors comprising in the aggregate of approximately 28,800 square feet in the West Tower of the Philippine Stock Exchange Centre in Pasig City, Manila for administration and production purposes. We pay approximately $22,533 per month in the aggregate for such space (which increases by approximately 5% per year). These leases expire in December 2022. We opened a 1,400 square foot office in Norcross, Georgia on January 1, 2018, to house our NetSpective division. The monthly rent for 2018 was $2,055 which increases by approximately 3% annually, pursuant to a five-year lease which expires in December 2023. We believe our leased space for the present time is adequate and additional space at comparable prices is available at all locations. |
15. Subsequent Events
15. Subsequent Events | 3 Months Ended |
Mar. 31, 2019 | |
Subsequent Events [Abstract] | |
Subsequent Events | 15. SUBSEQUENT EVENTS On May 1, 2019, the Company filed a Form 14A to amend its Articles of Incorporation, as amended to date (“Articles of Incorporation”), to increase its authorized capital stock from 200,000,000 shares of common stock, par value $0.001 per share (“Common Stock”), and 25,000,000 shares of preferred stock, par value $0.001 per share (“Preferred Stock”), of which 2,000,000 have been designated as Series A convertible preferred stock, par value $0.001 per share (“Series A Preferred Stock”), to 500,000,000 shares of Common Stock, and 25,000,000 shares of Preferred Stock, of which 2,000,000 have been designated as Series A Preferred Stock (the “Authorized Common Stock Increase”). The Company intends to file Articles of Amendment to our Articles of Incorporation (the “Charter Amendment”) with the Florida Secretary of State to effectuate the Authorized Common Stock Increase immediately upon receipt of properly executed required Consents from the Majority Stockholders. Pursuant to the Company’s Articles of Incorporation, the holders of the Company’s Series A Preferred Stock have the right to vote together with the holders of the Company’s Common Stock and, except in limited circumstances, not as a separate class. The holders of the Company’s Series A Preferred Stock have the right to vote on an as-converted basis, with five votes for each share of Series A Preferred Stock. The Company’s Board of Directors (“Board”) has fixed April 5, 2019, as the Record Date for holders of its Common Stock and Series A Preferred Stock who will be entitled to participate in this Consent Solicitation and provide Consents. This Notice of Consent Solicitation is being issued by the Company and is intended to be mailed on or about May 1, 2019, to all holders of its Common Stock and Series A Preferred Stock as of the Record Date. On April 2, 2019, we received an addition $125,000 in proceeds from the sale of 125,000 shares of Series A to one of the same accredited investors made the February 22 nd The Series A Stock is convertible, at any time, into five shares of common stock of the Company. |
2. Summary of Significant Acc_2
2. Summary of Significant Accounting Policies (Policies) | 3 Months Ended |
Mar. 31, 2019 | |
Accounting Policies [Abstract] | |
Going Concern | Going Concern The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern, which contemplates the 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. The Company does not expect that existing operational cash flow will be sufficient to fund presently anticipated operations and has incurred significant operating losses since inception and has a working capital deficit which 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 debentures 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 short-term loans. The Company will be required to continue to so until its consolidated operations become profitable. However, there can be no assurance that the Company will be successful in raising sufficient capital when needed. |
Management's Representation of Interim Financial Statements | Management’s Representation of Interim Financial Statements The accompanying unaudited consolidated financial statements have been prepared by the Company without audit pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) have been condensed or omitted as allowed by such rules and regulations, and management believes that the disclosures are adequate to make the information presented not misleading. These 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 are of a normal and recurring nature. Interim results are not necessarily indicative of results for a full year. These consolidated financial statements should be read in conjunction with the audited consolidated financial statements at December 31, 2018 and 2017, as presented in the Company’s Form 10-K filed on April 16, 2019 with the SEC. |
Basis of Presentation | Basis of Presentation The Company has deemed the transfer of net assets to be a reverse acquisition in accordance with FASB ASC 805-40, "Reverse Acquisitions" The consolidated financial statements of the Company have been prepared in accordance with GAAP and are expressed in United States dollars. For the three-month period ended March 31, 2019, the consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries: Grom Social, TD Holdings, GES, GNS, and IAL. TD Holdings was acquired on July 1, 2016; and GES was formed in January 2017 to house the NetSpective assets and business which was acquired on January 1, 2017. GNS, which was formed in April 2017, had not recorded any material activity through the date of this Report. All intercompany accounts and transactions are eliminated in consolidation. |
Use of Estimates | Use of Estimates The preparation of consolidated financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. 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. |
Revenue Recognition | Revenue Recognition In May 2014, the FASB issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (Topic 606) Other Assets and Deferred Costs - Contracts with Customers Entities have the option of using either a full retrospective or a modified approach to adopt the guidance. The Company adopted this ASU in accordance with the modified retrospective method, effective January 1, 2018, for all contracts not completed as of January 1, 2018. Results for reporting periods beginning after January 1, 2018, are presented under ASC 606 while prior period amounts continue to be reported in accordance with legacy GAAP. Under the applicable revenue recognition guidance for fiscal years 2017 and prior, these transactions were recognized when the amounts were billed to the customer. As a result of the Company’s transition to ASC 606, the Company recorded a net change in beginning retained earnings of $263,741 on January 1, 2018, due to the cumulative effect of adopting ASC 606. For three months ended March 31, 2019, the Company recorded a total of $1,793,763 of animation revenue from contracts with customers which include $296,734 in additional revenue as a result of the adoption of ASC 606. Under ASC 606 the Company’s animation revenues are generated primarily from contracts with customers for preproduction and production services related to the development of animated movies and television series. TDA preproduction activities include producing storyboards, location design, model and props design, background color and color styling. For production, TDA focuses on library creation, digital asset management, background layout scene assembly, posing, animation and after-effects. We provide our services under fixed-price contracts. Under fixed-price contracts, we agree to perform the specified work for a pre-determined price. To the extent our actual costs vary from the estimates upon which the price was negotiated, we will generate more or less profit or could incur a loss. We account for a contract after it has been approved by all parties to the arrangement, the rights of the parties are identified, payment terms are identified, the contract has commercial substance and collectability of consideration is probable. We evaluate 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 our 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 an entire episode to us and we, therefore, have a history of developing stand-alone selling prices for all of these distinct components. Accordingly, our contracts are typically accounted for as containing multiple performance obligations. We determine the transaction price for each contract based on the consideration we expect to receive for the distinct services being provided under the contract. We recognize revenue as performance obligations are satisfied and the customer obtains control of the services. In determining when performance obligations are satisfied, we consider factors such as contract terms, payment terms and whether there is an alternative future use of the product or service. Substantially all of our revenue is recognized over time as we perform 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 towards completion of the performance obligation, generally using the percentage-of-completion cost-to-cost measure of progress for our contracts because it best depicts the transfer of control to the customer as we incur costs on our 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. |
Webfiltering Revenue | Webfiltering revenue Revenue from subscription sales for webfiltering at NetSpective is recognized on a pro-rata basis over the subscription period. Typically, a subscriber purchases computer hardware and a service license for a period of use between one year to five years for software and support. The subscriber is billed in full at the time of the sale. The Company immediately recognizes any revenue attributable to the computer hardware as it is non-refundable, and control of the hardware has passed to the customer. The advanced billing for software and service is initially recorded as deferred revenue and subsequently recognized as revenue over time evenly throughout the subscription period. Adoption of ASC 606 had no impact on NetSpective’s revenues. Substantially all of the revenue at TDA and Netspective comes from the North American in the form of animation and webfiltering services, respectively. Historically and going forward, TDA’s business is concentrated on five to eight key clients, that vary from year to year based upon discrete projects which become available based on the popularity of a particular TV series, or the expected acceptance of new animated series. TDA receives advance payments for a significant portion of the work it performs. Netspective, as consistent with industry practice receives full payment in advance of providing webfiltering services over a period of one to five years. Revenue recognition under ASC 606 and historically was unrelated to the timing of milestone or advance payments. Netspective’s business is focused on forty to fifty US-based school districts located in the US. Both TDA and Netspective earn revenue via services transferred over time to the client. Approximately 10% of Netspective’s business is recognized at a point in time due to the non-refundable sale of computer hardware associated with web filtering services. |
Contract Assets and Liabilities | Contract Assets and Liabilities Revenues from NetSpective contracts are all billed in advance and therefore represent contract liabilities until fully recognized on a ratable basis over the contract life. 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. The following table depicts the composition of our contract assets and liabilities as of March 31, 2019, and December 31, 2018: March 31, 2019 December 31, 2018 Animation contract assets $ 716,004 $ 1,040,309 NetSpective contract assets 32,157 74,743 Other contract assets 8,701 8,441 Total contract assets $ 756,862 $ 1,123,493 Animation contract liabilities $ 377,024 $ 380,749 NetSpective contract liabilities 656,507 727,979 Other contract liabilities 11,500 11,500 Total contract liabilities $ 1,045,031 $ 1,120,228 |
Fair Value Measurements | Fair Value Measurements The Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 820 “Fair Value Measurements and Disclosures” (“ASC 820”) defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value: Level 1 Level 2 Level 3 Fair value estimates discussed herein are based upon certain market assumptions and pertinent information available to management as of March 31, 2019, and December 31, 2018. The Company uses the market approach to measure fair value for its Level 1 financial assets and liabilities. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities. The respective carrying value of certain balance sheet financial instruments approximates its fair value. These financial instruments include cash, trade receivables, related party payables, accounts payable, accrued liabilities and short-term borrowings. Fair values were estimated to approximate carrying values for these financial instruments since they are short term in nature, and they are receivable or payable on demand. The estimated fair value of assets and liabilities acquired in business combinations and reporting units and long-lived assets used in the related asset impairment tests utilize inputs classified as Level 3 in the fair value hierarchy. The Company determines the fair value of contingent consideration based on a probability-weighted discounted cash flow analysis. The fair value remeasurement is based on significant inputs not observable in the market and thus represents a Level 3 measurement as defined in the fair value hierarchy. In each period, the Company reassesses its current estimates of performance relative to the stated targets and adjusts the liability to fair value. Any such adjustments are included as a component of Other Income (Expense) in the Consolidated Statements of Operations and Comprehensive Loss. The following table summarizes the change in the Company’s financial assets and liabilities measured at fair value as of March 31, 2019, and December 31, 2018. Level 1 Level 2 Level 3 Earnout liability $ – $ – $ 429,000 The following table summarizes the change in the Company’s financial assets and liabilities measured at fair value as of March 31, 2018, and December 31, 2018. Fair value, December 31, 2017 $ 429,000 Change in fair value – Fair value, December 31, 2018 $ 429,000 Change in fair value – March 31, 2019 $ 429,000 |
Derivative Financial Instruments | Derivative Financial Instruments The Company does not use derivative instruments to hedge exposures to cash flow, market or foreign currency risk. Terms of convertible and other promissory notes are reviewed to determine whether they contain embedded derivative instruments that are required to be accounted for separately from the host contract and recorded on the balance sheet at fair value. The fair value of derivative liabilities is required to be revalued at each reporting date, with corresponding changes in fair value recorded in current period operating results. |
Beneficial Conversion Features | Beneficial Conversion Features In accordance with FASB ASC 470-20, “Debt with Conversion and Other Options” the Company records a beneficial conversion feature (“BCF”) related to the issuance of convertible debt or preferred stock instruments that have conversion features at fixed rates that are in-the-money when issued. The BCF for the convertible instruments is recognized and measured by allocating a portion of the proceeds equal to the intrinsic value of that feature to additional paid-in capital. The intrinsic value is generally calculated at the commitment date as the difference between the conversion price and the fair value of the common stock or other securities into which the security is convertible, multiplied by the number of shares into which the security is convertible. If certain other securities are issued with the convertible security, the proceeds are allocated among the different components. The portion of the proceeds allocated to the convertible security is divided by the contractual number of the conversion shares to determine the effective conversion price, which is used to measure the BCF. The effective conversion price is used to compute the intrinsic value. The value of the BCF is limited to the basis that is initially allocated to the convertible security. |
Stock Purchase Warrants | Stock Purchase Warrants The Company accounts for warrants issued to purchase shares of its common stock as equity in accordance with FASB ASC 480, Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock, Distinguishing Liabilities from Equity. |
Cash and cash equivalents | Cash and cash equivalents The Company considers all highly liquid investments with a maturity of three months or less at the date of purchase to be cash equivalents. Cash and cash equivalents consist of cash on deposit with banks and money market funds, the fair value of which approximates cost. The Company maintains its cash balances with a high-credit-quality financial institution. At times, such cash may be more than the Federal Deposit Insurance Corporation-insured limit of $250,000. The Company has not experienced any losses in such accounts, and management believes the Company is not exposed to any significant credit risk on its cash and cash equivalents. |
Accounts receivable | Accounts receivable Accounts receivable are customer obligations due under normal trade terms which are recorded at net realizable value. The Company establishes an allowance for doubtful accounts based on management’s assessment of the collectability of trade receivables. A considerable amount of judgment is required in assessing the amount of the allowance. The Company makes judgments about the creditworthiness of each customer based on ongoing credit evaluations and monitors current economic trends that might impact the level of credit losses in the future. If the financial condition of the customers were to deteriorate, resulting in their inability to make payments, a specific allowance will be required. Recovery of bad debt amounts previously written off is recorded as a reduction of bad debt expense in the period the payment is collected. If the Company’s actual collection experience changes, revisions to its allowance may be required. After all attempts to collect a receivable have failed, the receivable is written off against the allowance. |
Inventory | Inventory Inventory consists of animation supplies used for the sole purpose of completing animation projects at Top Draw. |
Property and equipment | Property and equipment Property and equipment are stated at cost or fair value if acquired as part of a business combination. Depreciation is computed by the straight-line method and is charged to operations over the estimated useful lives of the assets. Maintenance and repairs are charged to expense as incurred. The carrying amount and accumulated depreciation of assets sold or retired are removed from the accounts in the year of disposal and any resulting gain or loss is included in results of operations. The estimated useful lives of property and equipment are as follows: Computers, software, and office equipment 1 – 5 years Machinery and equipment 3 – 5 years Vehicles 5 years Furniture and fixtures 5 – 10 years Leasehold improvements Lesser of the lease term or estimated useful life Construction in process is not depreciated until the construction is completed and the asset is placed into service. |
Goodwill and Intangible Assets | 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. Intangible assets have either an identifiable or indefinite useful life. Intangible assets with identifiable useful lives are amortized on a straight-line basis over their economic or legal life, whichever is shorter. The Company’s amortizable intangible assets consist of customer relationships and non-compete agreements. Their useful lives range from 1.5 to 10 years. The Company’s indefinite-lived intangible assets consist of trade names. Goodwill and indefinite-lived assets are not amortized but are subject to annual impairment testing unless circumstances dictate more frequent assessments. The Company performs an annual impairment assessment for goodwill during the fourth quarter of each year and more frequently whenever events or changes in circumstances indicate that the fair value of the asset may be less than the carrying amount. Goodwill impairment testing is a two-step process performed at the reporting unit level. Step one compares the fair value of the reporting unit to its carrying amount. The fair value of the reporting unit is determined by considering both the income approach and market approaches. The fair values calculated under the income approach and market approaches are weighted based on circumstances surrounding the reporting unit. Under the income approach, the Company determines fair value based on estimated future cash flows of the reporting unit, which are discounted to the present value using discount factors that consider the timing and risk of cash flows. For the discount rate, the Company relies on the capital asset pricing model approach, which includes an assessment of the risk-free interest rate, the rate of return from publicly traded stocks, the Company’s risk relative to the overall market, the Company’s size and industry and other Company-specific risks. Other significant assumptions used in the income approach include the terminal value, growth rates, future capital expenditures and changes in future working capital requirements. The market approaches use key multiples from guideline businesses that are comparable and are traded on a public market. If the fair value of the reporting unit is greater than its carrying amount, there is no impairment. If the reporting unit’s carrying amount exceeds its fair value, then the second step must be completed to measure the amount of impairment, if any. Step two calculates the implied fair value of goodwill by deducting the fair value of all tangible and intangible net assets of the reporting unit from the fair value of the reporting unit as calculated in step one. In this step, the fair value of the reporting unit is allocated to all of the reporting unit’s assets and liabilities in a hypothetical purchase price allocation as if the reporting unit had been acquired on that date. If the carrying amount of goodwill exceeds the implied fair value of goodwill, an impairment loss is recognized in an amount equal to the excess. Determining the fair value of a reporting unit is judgmental in nature and requires the use of significant estimates and assumptions, including revenue growth rates, strategic plans, and future market conditions, among others. There can be no assurance that the Company’s estimates and assumptions made for purposes of the goodwill impairment testing will prove to be accurate predictions of the future. Changes in assumptions and estimates could cause the Company to perform an impairment test prior to scheduled annual impairment tests. The Company performed its annual fair value assessment at December 31, 2018, on its subsidiaries with material goodwill and intangible asset amounts on their respective balance sheets and determined that no impairment exists. |
Long-Lived Assets | Long-Lived Assets The Company evaluates the recoverability of its long-lived assets whenever events or changes in circumstances have indicated that an asset may not be recoverable. The long-lived asset is grouped with other assets at the lowest level for which identifiable cash flows are largely independent of the cash flows of other groups of assets and liabilities. If the sum of the projected undiscounted cash flows is less than the carrying value of the assets, the assets are written down to the estimated fair value. The Company evaluated the recoverability of its long-lived assets on December 31, 2018, and at December 31, 2017, respectively on its subsidiaries with material amounts on their respective balance sheets and determined that no impairment exists. |
Income taxes | Income taxes The Company accounts for income taxes under FASB ASC 740, “Accounting for Income Taxes” “Accounting for Uncertainty in Income Taxes” The amount recognized is measured as the largest amount of benefit that is greater than 50 percent likely of being realized upon ultimate settlement. The Company assesses the validity of its conclusions regarding uncertain tax positions on a quarterly basis to determine if facts or circumstances have arisen that might cause it to change its judgment regarding the likelihood of a tax position’s sustainability under audit. |
RIght of use assets and lease liabilities | Right of use assets and lease liabilities In February 2016, the FASB issued ASU No. 2016-02, "Leases" (ASC 842). The standard requires lessees to recognize almost all leases on the balance sheet as an ROU asset and a lease liability and requires leases to be classified as either an operating or a finance type lease. The standard excludes leases of intangible assets or inventory. The standard became effective for the Company beginning January 1, 2019. The Company adopted ASC 842 using the modified retrospective approach, by applying the new standard to all leases existing at the date of initial application. Results and disclosure requirements for reporting periods beginning after January 1, 2019 are presented under ASC 842, while prior period amounts have not been adjusted and continue to be reported in accordance with our historical accounting under ASC 840. The Company elected the package of practical expedients permitted under the standard, which also allowed the Company to carry forward historical lease classifications. The Company also elected the practical expedient related to treating lease and non-lease components as a single lease component for all equipment leases as well as electing a policy exclusion permitting leases with an original lease term of less than one year to be excluded from the ROU assets and lease liabilities. Under ASC 842, the Company determines if an arrangement is a lease at inception. Right-of-Use ("ROU") assets and liabilities are recognized at commencement date based on the present value of remaining lease payments over the lease term. For this purpose, the Company considers only payments that are fixed and determinable at the time of commencement. As most of the Company's leases do not provide an implicit rate, the Company estimated the incremental borrowing rate in determining the present value of lease payments. The ROU asset also includes any lease payments made prior to commencement and is recorded net of any lease incentives received. The Company lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise such options. Operating leases are included in operating lease right-of-use assets, operating lease liabilities, current and operating lease liabilities, non-current on the Company's condensed consolidated balance sheets. As a result of the adoption of ASC 842 on January 1, 2019, the Company recorded both operating lease ROU assets of $1,068,213 and operating lease liabilities of $1,073,761 for the three months ended March 31, 2019. The adoption did not impact the Company's beginning retained earnings, or prior year consolidated statements of income and statements of cash flows. |
Foreign Currency Translation | Foreign Currency Translation The functional and reporting currency of TD Holdings and TDAHK is the Hong Kong Dollar. The functional and reporting currency of Top Draw is the Philippine Peso. Management has adopted ASC 830 “Foreign Currency Matters” for transactions that occur in foreign currencies. Monetary assets denominated in foreign currencies are translated using the exchange rate prevailing at the balance sheet date. Average monthly rates are used to translate revenues and expenses. Transactions denominated in currencies other than the functional currency are translated into the functional currency at the exchange rates prevailing at the dates of the transaction. Exchange gains or losses arising from foreign currency transactions are included in the determination of net income for the respective periods. Assets and liabilities of the Company’s operations are translated into the reporting currency, United States dollars, at the exchange rate in effect at the balance sheet dates. Revenue and expenses are translated at average rates in effect during the reporting periods. Equity transactions are recorded at the historical rate when the transaction occurred. The resulting translation adjustment is reflected as accumulated other comprehensive income, a separate component of stockholders' equity in the statement of stockholders' equity. Differences may arise in the amount of bad debt expense, depreciation expense and amortization expense reported in the Company's operating results as compared to the corresponding change in the allowance for doubtful accounts, accumulated depreciation, and accumulated amortization, respectively, due to foreign currency translation. These translation adjustments are reflected in accumulated other comprehensive income, a separate component of the Company's stockholders' equity. |
Comprehensive Gain or Loss | Comprehensive Gain or Loss ASC 220 “Comprehensive Income,” establishes standards for the reporting and display of comprehensive income and its components in the financial statements. As of March 31, 2019, and December 31, 2018, the Company determined that it had items that represented components of comprehensive income (loss) and, therefore, has included a statement of comprehensive income (loss) in the financial statements. |
Advertising expenses | Advertising expenses Advertising costs are expensed as incurred and included in selling and marketing expenses. |
Shipping and handling costs | Shipping and handling costs Shipping and handling costs related to the acquisition of goods from vendors are included in the cost of sales. |
Basic and Diluted Net Income (Loss) Per Share | Basic and Diluted Net Income (Loss) Per Share The Company computes net income (loss) per share in accordance with ASC 260, “Earnings per Share” |
Recent accounting pronouncements | 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. |
2. Summary of Significant Acc_3
2. Summary of Significant Accounting Policies (Tables) | 3 Months Ended |
Mar. 31, 2019 | |
Accounting Policies [Abstract] | |
Schedule of contract assets and liabilities | March 31, 2019 December 31, 2018 Animation contract assets $ 716,004 $ 1,040,309 NetSpective contract assets 32,157 74,743 Other contract assets 8,701 8,441 Total contract assets $ 756,862 $ 1,123,493 Animation contract liabilities $ 377,024 $ 380,749 NetSpective contract liabilities 656,507 727,979 Other contract liabilities 11,500 11,500 Total contract liabilities $ 1,045,031 $ 1,120,228 |
Schedule of financial assets and liabilities on a recurring basis | Level 1 Level 2 Level 3 Earnout liability $ – $ – $ 429,000 Fair value, December 31, 2017 $ 429,000 Change in fair value – Fair value, December 31, 2018 $ 429,000 Change in fair value – Fair value, March 31, 2019 $ 429,000 |
Property and equipment useful lives | Computers, software, and office equipment 1 – 5 years Machinery and equipment 3 – 5 years Vehicles 5 years Furniture and fixtures 5 – 10 years Leasehold improvements Lesser of the lease term or estimated useful life |
3. Accounts Receivable, Net (Ta
3. Accounts Receivable, Net (Tables) | 3 Months Ended |
Mar. 31, 2019 | |
Receivables [Abstract] | |
Schedule of accounts receivable | March 31, 2019 December 31, 2018 Billed accounts receivable $ 484,752 $ 419,802 Unbilled accounts receivable 272,110 703,691 Total accounts receivable $ 756,862 $ 1,123,493 |
4. Prepaid Expenses and Other_2
4. Prepaid Expenses and Other Current Assets (Tables) | 3 Months Ended |
Mar. 31, 2019 | |
Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract] | |
Schedule of prepaid expenses and other current assets | March 31, 2019 December 31, 2018 Collaborative development agreement $ 71,824 $ 95,766 Prepaid rent 32,111 31,773 Vendor advances 6,159 7,867 Prepaid service agreements 183,884 174,920 Employee advance and other payroll related items 20,903 16,208 Other prepaid expenses and current assets 257,216 123,306 Total $ 572,097 $ 449,840 |
5. Property and Equipment (Tabl
5. Property and Equipment (Tables) | 3 Months Ended |
Mar. 31, 2019 | |
Property, Plant and Equipment [Abstract] | |
Property and equipment | March 31, 2019 December 31, 2018 Gross Carrying Amount Accumulated Depreciation Net Book Value Gross Carrying Amount Accumulated Depreciation Net Book Value Capital assets subject to depreciation: Computers, software and office equipment $ 2,024,205 $ (1,597,372 ) $ 426,833 $ 1,937,987 $ (1,508,104 ) $ 429,883 Machinery and equipment 169,515 (106,220 ) 63,295 167,731 (99,900 ) 67,831 Vehicles 148,580 (100,394 ) 48,186 153,927 (120,728 ) 33,199 Furniture and fixtures 385,605 (293,744 ) 91,861 381,248 (284,410 ) 96,838 Leasehold improvements 1,042,662 (656,982 ) 385,680 1,031,687 (623,125 ) 408,562 Total fixed assets $ 3,770,567 $ ( 2,754,712 ) $ 1,015,855 $ 3,672,580 $ (2,636,267 ) $ 1,036,313 |
6. Leases (Tables)
6. Leases (Tables) | 3 Months Ended |
Mar. 31, 2019 | |
Leases [Abstract] | |
Schedule of operating lease liabilities | Three Months Ended March 31, 2019 Cash paid for operating lease liabilities $ 87,459 Weighted-average remaining lease term Weighted-average discount rate 10% Minimum future lease payments ended March 31, 2019 $ 1,347,149 2020 352,888 2021 367,636 2022 335,659 2023 28,589 |
7. Goodwill and Intangible As_2
7. Goodwill and Intangible Assets (Tables) | 3 Months Ended |
Mar. 31, 2019 | |
Goodwill and Intangible Assets Disclosure [Abstract] | |
Schedule of goodwill | Balance, December 31, 2017 $ 8,800,761 Acquisition of Bonnie Boat assets 52,500 Balance, December 31, 2018 $ 8,853,261 Activity for the period ended March 31, 2019 – Balance March 31, 2019 $ 8,853,261 |
Schedule of intangible assets | March 31, 2019 December 31, 2018 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 (436,378 ) 1,163,908 $ 1,600,286 $ (396,371 ) $ 1,203,915 Mobile software applications 2.00 282,500 (282,500 ) – 282,500 (282,500 ) – NetSpective webfiltering software 2.00 1,134,435 (510,496 ) 623,939 1,134,435 (453,774 ) 680,661 Noncompete agreements 1.50 846,638 (846,638 ) – 846,638 (846,638 ) – Subtotal 3,863,859 (2,076,012 ) 1,787,847 3,863,859 (1,979,273 ) 1,884,576 Intangible assets not subject to amortization: Trade names 4,455,595 – 4,455,595 4,455,595 – 4,455,595 Total intangible assets $ 8,319,454 $ (2,076,012 ) $ 6,243,442 $ 8,319,454 $ (1,979,283 ) $ 6,340,171 |
Schedule of amortization | 2019 $ 290,185 2020 386,916 2021 386,916 2022 160,029 2023 160,029 Thereafter 403,772 $ 1,787,847 |
9. Accounts Payable and Accru_2
9. Accounts Payable and Accrued Liabilities (Tables) | 3 Months Ended |
Mar. 31, 2019 | |
Payables and Accruals [Abstract] | |
Schedule of accounts payable and accrued liabilities | March 31, 2019 December 31, 2018 Earnout consideration payable in connection with Netspective acquisition $ 362,500 $ 362,500 Executive and employee compensation 772,571 792,402 Interest on convertible debentures and promissory notes 268,176 210,221 Other accrued expenses and liabilities 35,468 67,914 Total accrued liabilities $ 1,438,715 $ 1,433,037 |
10. Related Party Payables (Tab
10. Related Party Payables (Tables) | 3 Months Ended |
Mar. 31, 2019 | |
Related Party Transactions [Abstract] | |
Schedule of Related Party Payables | Name Date Amount of Loan Principal Converted to Equity Share Price Used for conversion Closing price of Grom common stock on the date of conversion Shares issued Darren Marks 12/29/2017 333,333 $ 0.50 0.30 666,666 10/15/2018 333,333 $ 0.31 0.19 1,075,268 Melvin Leiner 12/29/2017 166,667 $ 0.50 0.30 333,334 10/15/2018 166,667 $ 0.31 0.19 537,635 |
12. Debt (Tables)
12. Debt (Tables) | 3 Months Ended |
Mar. 31, 2019 | |
Debt Disclosure [Abstract] | |
Schedule of convertible debt | March 31, 2019 December 31, 2018 Redeemable unsecured convertible note -TeleMate $ 1,000,000 1,000,000 Principal value of secured convertible notes 6,822,708 2,822,708 Loan discounts (641,996) (735,871) Less: Current portion (2,212,125) (676,223 ) Total convertible notes, net $ 4,968,587 $ 2,410,614 |
Schedule of future debt maturity payments | 2019 $ 1,676,223 2020 $ 6,145,485 |
13. Stockholders' Equity (Table
13. Stockholders' Equity (Tables) | 3 Months Ended |
Mar. 31, 2019 | |
Equity [Abstract] | |
Schedule of warrants | Number of Warrants Outstanding Weighted Avg. Exercise Price Weighted Avg. Contractual Life (Yrs.) Balance January 1, 2017 7,608,154 $ 0.26 0.75 Warrants issued 567,166 $ 1.50 2.00 Less: Warrants exercised (7,107,765 ) $ 0.24 Warrants forfeited (29,190 ) $ 0.24 December 31, 2017 1,038,365 $ 1.36 2.38 Warrants issued – – Warrants exercised (256,455 ) – Balance 31, 2018 781,910 $ 1.36 1.38 Warrants issued – Warrants forfeited – Warrants exercised – Balance March 31, 2019 781,910 $ 1.36 1.13 |
Schedule of options | Options issued Options forfeited Options outstanding Vested options Strike Price Weighted Average Remaining Life In Years 7,735,350 – 7,735,350 7,735,350 $ 0.24 4.02 9,695,250 417,000 9,278,250 9,278,250 $ 0.36 0 .20 938,250 938,250 – – $ 0.48 – 13,135,500 3,544,500 9,591,000 9,591,000 $ 0.72 1.00 5,481,000 1,042,500 4,438,500 4,438,500 $ 0.78 1.96 Total 36,985,350 5,942,250 31,043,100 31 ,043,100 $ 0.50 1.65 |
2. Summary of Significant Acc_4
2. Summary of Significant Accounting Policies (Details - Contract Assets and Liabilities) - USD ($) | Mar. 31, 2019 | Dec. 31, 2018 |
Contract assets | $ 756,862 | $ 1,123,493 |
Contract liabilities | 1,045,031 | 1,120,228 |
Animation Contracts [Member] | ||
Contract assets | 716,004 | |
Contract liabilities | 377,024 | |
Animation Contract Assets [Member] | ||
Contract assets | 1,040,309 | |
Contract liabilities | 380,749 | |
NetSpective Contracts [Member] | ||
Contract assets | 32,157 | |
Contract liabilities | 656,507 | |
NetSpective Contract Assets [Member] | ||
Contract assets | 74,743 | |
Contract liabilities | 727,979 | |
Other Contracts [Member] | ||
Contract assets | 8,701 | |
Contract liabilities | $ 11,500 | |
Other Contract Assets [Member] | ||
Contract assets | 8,441 | |
Contract liabilities | $ 11,500 |
2. Summary of Significant Acc_5
2. Summary of Significant Accounting Policies (Details - Fair value) - USD ($) | Mar. 31, 2019 | Dec. 31, 2018 | Dec. 31, 2017 |
Earnout liability | $ 429,000 | $ 429,000 | $ 429,000 |
Fair Value, Inputs, Level 1 [Member] | |||
Earnout liability | 0 | ||
Fair Value, Inputs, Level 2 [Member] | |||
Earnout liability | 0 | ||
Fair Value, Inputs, Level 3 [Member] | |||
Earnout liability | $ 429,000 |
2. Summary of Significant Acc_6
2. Summary of Significant Accounting Policies (Details - Change in fair value) - USD ($) | 3 Months Ended | 12 Months Ended |
Mar. 31, 2019 | Dec. 31, 2018 | |
Accounting Policies [Abstract] | ||
Derivative fair value, beginning balance | $ 429,000 | $ 429,000 |
Change in fair value | 0 | 0 |
Derivative fair value, ending balance | $ 429,000 | $ 429,000 |
2. Summary of Significant Acc_7
2. Summary of Significant Accounting Policies (Details - Property useful lives) | 3 Months Ended |
Mar. 31, 2019 | |
Computers, Software and Office Equipment [Member] | |
Property and equipment useful lives | 1-5 years |
Machinery and Equipment [Member] | |
Property and equipment useful lives | 3-5 years |
Vehicles [Member] | |
Property and equipment useful lives | 5 years |
Furniture and Fixtures [Member] | |
Property and equipment useful lives | 5-10 years |
Leasehold Improvements [Member] | |
Property and equipment useful lives | Lesser of the lease term or estimated useful life |
2. Summary of Significant Acc_8
2. Summary of Significant Accounting Policies (Details Narrative) - USD ($) | 3 Months Ended | |
Mar. 31, 2019 | Dec. 31, 2018 | |
Inventory write-down | $ 0 | |
Intangible asset useful life range | 1.5 to 10 years | |
Impairment of intangible assets | $ 0 | |
Right of use asset | 1,068,213 | $ 0 |
Operating lease liability | $ 1,073,761 | |
Convertible Notes [Member] | ||
Antidilutive shares | 6,630,103 | |
Rights of TDH Sellers Notes [Member] | ||
Antidilutive shares | 14,811,815 | |
Vested Stock Options [Member] | ||
Antidilutive shares | 31,043,000 | |
Stock Purchase Warrants [Member] | ||
Antidilutive shares | 781,910 | |
Animation Contracts [Member] | ||
Revenue from contracts with customers | $ 1,793,763 | |
Animation Contracts [Member] | Due to ASC 606 [Member] | ||
Revenue from contracts with customers | $ 296,734 |
3. Accounts Receivable (Details
3. Accounts Receivable (Details) - USD ($) | Mar. 31, 2019 | Dec. 31, 2018 |
Receivables [Abstract] | ||
Unbilled accounts receivable | $ 484,752 | $ 419,802 |
Billed accounts receivable | 272,110 | 703,691 |
Accounts receivable | $ 756,862 | $ 1,123,493 |
3. Accounts Receivable (Detai_2
3. Accounts Receivable (Details Narrative) - USD ($) | 3 Months Ended | 12 Months Ended | |
Mar. 31, 2019 | Mar. 31, 2018 | Dec. 31, 2018 | |
Bad debt expense | $ 0 | $ 0 | |
Sales Revenue, Net [Member] | Three Customers [Member] | |||
Concentration percentage | 71.00% | 50.10% | |
Accounts Receivable [Member] | One Customer [Member] | |||
Concentration percentage | 23.50% | 9.20% |
4. Prepaid Expenses and Other_3
4. Prepaid Expenses and Other Current Assets (Details) - USD ($) | Mar. 31, 2019 | Dec. 31, 2018 |
Prepaid expenses and other current assets | $ 572,097 | $ 449,840 |
Collaborative Development Agreement [Member] | ||
Prepaid expenses and other current assets | 71,824 | 95,766 |
Prepaid Rent [Member] | ||
Prepaid expenses and other current assets | 32,111 | 31,773 |
Vendor Advances [Member] | ||
Prepaid expenses and other current assets | 6,159 | 7,867 |
Prepaid Service Agreements [Member] | ||
Prepaid expenses and other current assets | 183,884 | 174,920 |
Employee advance and other payroll related items [Member] | ||
Prepaid expenses and other current assets | 20,903 | 16,208 |
Other Prepaid Expenses and Current Assets [Member] | ||
Prepaid expenses and other current assets | $ 257,216 | $ 123,306 |
5. Property and Equipment (Deta
5. Property and Equipment (Details) - USD ($) | Mar. 31, 2019 | Dec. 31, 2018 |
Property and equipment, gross | $ 3,770,567 | $ 3,672,580 |
Accumulated depreciation | (2,754,712) | (2,636,267) |
Property and equipment, net | 1,015,855 | 1,036,313 |
Computers, Software and Office Equipment [Member] | ||
Property and equipment, gross | 2,024,205 | 1,937,987 |
Accumulated depreciation | (1,597,372) | (1,508,104) |
Property and equipment, net | 426,833 | 429,883 |
Machinery and Equipment [Member] | ||
Property and equipment, gross | 169,515 | 167,731 |
Accumulated depreciation | (106,220) | (99,900) |
Property and equipment, net | 63,295 | 67,831 |
Vehicles [Member] | ||
Property and equipment, gross | 148,580 | 153,927 |
Accumulated depreciation | (100,394) | (120,728) |
Property and equipment, net | 48,186 | 33,199 |
Furniture and Fixtures [Member] | ||
Property and equipment, gross | 385,605 | 381,248 |
Accumulated depreciation | (293,744) | (284,410) |
Property and equipment, net | 91,861 | 96,838 |
Leasehold Improvements [Member] | ||
Property and equipment, gross | 1,042,662 | 1,031,687 |
Accumulated depreciation | (656,982) | (623,125) |
Property and equipment, net | $ 385,680 | $ 408,562 |
5. Property and Equipment (De_2
5. Property and Equipment (Details Narrative) - USD ($) | 3 Months Ended | 12 Months Ended |
Mar. 31, 2019 | Dec. 31, 2018 | |
Property, Plant and Equipment [Abstract] | ||
Depreciation expense | $ 125,699 | $ 395,556 |
6. Leases (Details)
6. Leases (Details) | 3 Months Ended |
Mar. 31, 2019USD ($) | |
Leases [Abstract] | |
Cash paid for operting lease liabilities | $ 87,459 |
Weighted average discount rate | 10.00% |
Minimum future lease payments | $ 1,347,149 |
Future lease payment 2020 | 352,888 |
Future lease payment 2021 | 367,636 |
Future lease payment 2022 | 335,659 |
Future lease payment 2023 | $ 28,589 |
7. Goodwill and Intangible As_3
7. Goodwill and Intangible Assets (Details - Goodwill) - USD ($) | 3 Months Ended | 12 Months Ended |
Mar. 31, 2019 | Dec. 31, 2018 | |
Goodwill and Intangible Assets Disclosure [Abstract] | ||
Goodwill, beginning balance | $ 8,853,261 | $ 8,800,761 |
Goodwill additions | 0 | 52,500 |
Goodwill, ending balance | $ 8,853,261 | $ 8,853,261 |
7. Goodwill and Intangible As_4
7. Goodwill and Intangible Assets (Details - Intangibles) - USD ($) | 3 Months Ended | |
Mar. 31, 2019 | Dec. 31, 2018 | |
Finite intangible assets, gross | $ 3,863,859 | $ 3,863,859 |
Accumulated amortization | (2,076,012) | (1,979,283) |
Finite intangible assets, net | 1,787,847 | 1,884,576 |
Indefinate lived intangible asset | 4,455,595 | 4,455,595 |
Total intangible assets, gross | 8,319,454 | 8,319,454 |
Total intangible assets, net | 6,243,442 | 6,340,171 |
Trade Names [Member] | ||
Indefinate lived intangible asset | 4,455,595 | 4,455,595 |
Customer Relationships [Member] | ||
Finite intangible assets, gross | 1,600,286 | 1,600,286 |
Accumulated amortization | (436,378) | (396,371) |
Finite intangible assets, net | $ 1,163,908 | 1,203,915 |
Amortization period | 10 years | |
Mobile Software Applications [Member] | ||
Finite intangible assets, gross | $ 282,500 | 282,500 |
Accumulated amortization | (282,500) | (282,500) |
Finite intangible assets, net | $ 0 | 0 |
Amortization period | 2 years | |
NetSpective webfiltering software [Member] | ||
Finite intangible assets, gross | $ 1,134,435 | 1,134,435 |
Accumulated amortization | (510,496) | (453,774) |
Finite intangible assets, net | $ 623,939 | 680,661 |
Amortization period | 2 years | |
Noncompete Agreements [Member] | ||
Finite intangible assets, gross | $ 846,638 | 846,638 |
Accumulated amortization | (846,638) | (846,638) |
Finite intangible assets, net | $ 0 | $ 0 |
Amortization period | 1 year 6 months |
7. Goodwill and Intangible As_5
7. Goodwill and Intangible Assets (Details - Amortization schedule) - USD ($) | Mar. 31, 2019 | Dec. 31, 2018 |
Goodwill and Intangible Assets Disclosure [Abstract] | ||
Future amortization 2019 | $ 290,185 | |
Future amortization 2020 | 386,916 | |
Future amortization 2021 | 386,916 | |
Future amortization 2022 | 160,029 | |
Future amortization 2023 | 160,029 | |
Future amortization Thereafter | 403,772 | |
Finite intangible assets, net | $ 1,787,847 | $ 1,884,576 |
7. Goodwill and Intangible As_6
7. Goodwill and Intangible Assets (Details Narrative) - USD ($) | 3 Months Ended | 12 Months Ended |
Mar. 31, 2019 | Dec. 31, 2018 | |
Goodwill and Intangible Assets Disclosure [Abstract] | ||
Amortization expense | $ 96,729 | $ 1,092,592 |
9. Accounts Payable and Accru_3
9. Accounts Payable and Accrued Liabilities (Details) - USD ($) | Mar. 31, 2019 | Dec. 31, 2018 |
Payables and Accruals [Abstract] | ||
Earnout consideration payable in connection with Netspective acquisition | $ 362,500 | $ 362,500 |
Executive and employee compensation | 772,571 | 792,402 |
Interest on convertible debentures and promissory notes | 268,176 | 210,221 |
Other accrued expenses and liabilities | 35,468 | 67,914 |
Total accrued liabilities | $ 1,438,715 | $ 1,433,037 |
10. Related Party Payables (Det
10. Related Party Payables (Details - Debt conversion) - USD ($) | 9 Months Ended | 12 Months Ended |
Oct. 15, 2018 | Dec. 29, 2017 | |
Melvin Leiner [Member] | ||
Debt converted, amount converted | $ 166,667 | $ 166,667 |
Debt converted, shares issued | 537,635 | 333,334 |
Share price used for conversion | $ 0.31 | $ 0.50 |
Grom common stock price on date of conversion | $ 0.19 | $ 0.30 |
Darren Marks [Member] | ||
Debt converted, amount converted | $ 333,333 | $ 333,333 |
Debt converted, shares issued | 1,075,268 | 666,666 |
Share price used for conversion | $ 0.31 | $ 0.50 |
Grom common stock price on date of conversion | $ 0.19 | $ 0.30 |
10. Related Party Payables (D_2
10. Related Party Payables (Details Narrative) - USD ($) | 3 Months Ended | 12 Months Ended |
Mar. 31, 2019 | Dec. 31, 2018 | |
Due to related parties | $ 1,027,430 | $ 1,181,645 |
Darren Mark's famity [Member] | ||
Wages and salaries | 39,638 | 180,800 |
Thomas Rutherford [Member] | ||
Due to related parties | 50,000 | |
Mark's LLC [Member] | ||
Due to related parties | 418,488 | 469,506 |
Leiner's LLC [Member] | ||
Due to related parties | 404,246 | 451,944 |
Wayne and Stella Dearing [Member] | ||
Due to related parties | $ 154,623 | $ 154,623 |
11. Other Noncurrent Liabilit_2
11. Other Noncurrent Liabilities (Details Narrative) - USD ($) | Mar. 31, 2019 | Dec. 31, 2018 |
Other Liabilities Disclosure [Abstract] | ||
Accrued retirement benefit | $ 227,189 | $ 224,797 |
12. Debt (Details - Convertible
12. Debt (Details - Convertible debentures) - USD ($) | Mar. 31, 2019 | Dec. 31, 2018 |
Convertible debt, current | $ (2,212,125) | $ (676,223) |
Convertible debt, noncurrent | 4,968,587 | 2,410,614 |
Convertible Debentures [Member] | ||
Unamortized discount | (641,996) | (735,871) |
Convertible debt, current | (2,212,125) | (676,223) |
Convertible debt, noncurrent | 4,968,587 | 2,410,614 |
Redeemable unsecured Telemate [Member] | Convertible Debentures [Member] | ||
Convertible debt, gross | 1,000,000 | 1,000,000 |
Secured Convertible notes [Member] | Convertible Debentures [Member] | ||
Convertible debt, gross | $ 6,822,708 | $ 2,822,708 |
12. Debt (Details - Debt maturi
12. Debt (Details - Debt maturities) | Mar. 31, 2019USD ($) |
Long-term debt maturity schedule | |
2019 | $ 1,676,223 |
2020 | $ 6,145,485 |
12. Debt (Details Narrative)
12. Debt (Details Narrative) - USD ($) | Jan. 15, 2019 | Jan. 03, 2018 | Jan. 02, 2017 | Mar. 31, 2019 | Mar. 31, 2018 | Nov. 30, 2018 | Dec. 31, 2018 | Dec. 31, 2017 |
Proceeds from convertible debt | $ 0 | $ 671,760 | ||||||
Gain (loss) on extinguishment of debt | (363,468) | $ 0 | ||||||
Nine Accredited Investors [Member] | Newbridge Offering [Member] | ||||||||
Stock issued as inducement to lend, shares | 730,974 | |||||||
TDH Acquisition Agreement [Member] | First Amendment [Member] | ||||||||
Debt maturity date | Jul. 1, 2019 | |||||||
Debt interest rate | 10.00% | |||||||
Earnout period maturity date | Dec. 31, 2019 | |||||||
TDH Acquisition Agreement [Member] | First Amendment [Member] | TDA Sellers [Member] | ||||||||
Stock issued new, shares | 800,000 | |||||||
TDH Acquisition Agreement [Member] | Second Amendment [Member] | ||||||||
Debt maturity date | Apr. 2, 2020 | |||||||
Debt conversion price per share | $ 0.27 | |||||||
Gain (loss) on extinguishment of debt | $ (363,468) | |||||||
Redeemable Unsecured Convertible Note [Member] | TeleMate [Member] | ||||||||
Debt initial date | Jan. 1, 2017 | |||||||
Debt face amount | $ 1,000,000 | |||||||
Debt maturity date | Jan. 1, 2020 | |||||||
Debt conversion price per share | $ 0.78 | |||||||
Redeemable Unsecured Convertible Note [Member] | Modification Agreement [Member] | TeleMate [Member] | ||||||||
Debt maturity date | Oct. 1, 2019 | |||||||
Debt conversion price per share | $ 0.48 | |||||||
12% Secured Convertible Promissory Notes [Member] | Newbridge Offering [Member] | ||||||||
Debt initial date | Nov. 3, 2018 | |||||||
Proceeds from convertible debt | $ 552,000 | |||||||
Debt conversion price per share | $ 0.40 | |||||||
2018 Secured Convertible Notes [Member] | ||||||||
Proceeds from convertible debt | $ 1,238,485 | $ 601,223 | ||||||
Debt interest rate | 10.00% | 10.00% | ||||||
Debt conversion price per share | $ 0.50 | $ 0.78 | ||||||
Original issue discount | $ 247,697 | $ 60,122 | ||||||
Stock issued as inducement to lend, shares | 150,305 | |||||||
Stock issued as inducement to lend, value | $ 78,321 |
13. Stockholders' Equity (Detai
13. Stockholders' Equity (Details - Warrant activity) - Stock Purchase Warrants [Member] - $ / shares | 3 Months Ended | 12 Months Ended | |
Mar. 31, 2019 | Dec. 31, 2018 | Dec. 31, 2017 | |
Number of warrants | |||
Warrants outstanding, beginning balance | 781,910 | 1,038,365 | 7,608,154 |
Warrants issued | 567,166 | ||
Warrants exercised | (256,455) | (7,107,765) | |
Warrants forfeited | (29,190) | ||
Warrants outstanding, ending balance | 781,910 | 781,910 | 1,038,365 |
Weighted Average Exercise Price | |||
Weighted Average Exercise Price, Warrants outstanding, beginning balance | $ 1.36 | $ 1.36 | $ 0.23 |
Weighted Average Exercise Price, Warrants issued | 1.50 | ||
Weighted Average Exercise Price, Warrants exercised | 0.24 | ||
Weighted Average Exercise Price, Warrants forfeited | 0.24 | ||
Weighted Average Exercise Price, Warrants outstanding, ending balance | $ 1.36 | $ 1.36 | $ 1.36 |
custom:AverageRemainingContractualTermAbstract | |||
Average Remaining Contractual Term, Warrants outstanding | 1 year 1 month 16 days | 1 year 4 months 17 days | 2 years 4 months 17 days |
Average Remaining Contractual Term, Warrants issued | 2 years |
13. Stockholders' Equity (Det_2
13. Stockholders' Equity (Details - Option Activity) - Options [Member] | 3 Months Ended |
Mar. 31, 2019$ / sharesshares | |
Options issued | 36,985,350 |
Options forfeited | 5,942,250 |
Options outstanding | 31,043,100 |
Vested options | 31,043,100 |
Strike price | $ / shares | $ 0.50 |
Weighted average remaining life | 1 year 7 months 24 days |
Option 1 [Member] | |
Options issued | 7,735,350 |
Options forfeited | 0 |
Options outstanding | 7,735,350 |
Vested options | 7,735,350 |
Strike price | $ / shares | $ 0.24 |
Weighted average remaining life | 4 years 7 days |
Option 2 [Member] | |
Options issued | 9,695,250 |
Options forfeited | 417,000 |
Options outstanding | 9,278,250 |
Vested options | 9,278,250 |
Strike price | $ / shares | $ 0.36 |
Weighted average remaining life | 2 months 12 days |
Option 3 [Member] | |
Options issued | 938,250 |
Options forfeited | 938,250 |
Options outstanding | 0 |
Vested options | 0 |
Strike price | $ / shares | $ 0.48 |
Option 4 [Member] | |
Options issued | 13,135,500 |
Options forfeited | 3,544,500 |
Options outstanding | 9,591,000 |
Vested options | 9,591,000 |
Strike price | $ / shares | $ 0.72 |
Weighted average remaining life | 1 year |
Option 5 [Member] | |
Options issued | 5,481,000 |
Options forfeited | 1,042,500 |
Options outstanding | 4,438,500 |
Vested options | 4,438,500 |
Strike price | $ / shares | $ 0.78 |
Weighted average remaining life | 1 year 11 months 15 days |
13. Stockholders' Equity (Det_3
13. Stockholders' Equity (Details Narrative) - USD ($) | 3 Months Ended | |
Mar. 31, 2019 | Mar. 31, 2018 | |
Proceeds from issuance of common stock | $ 443,605 | $ 0 |
Proceeds from warrant exercises | 0 | 61,500 |
Stock based compensation | 16,200 | 76,193 |
Series A Preferred Stock [Member] | ||
Beneficial conversion feature | 644,205 | |
Options [Member] | ||
Stock based compensation | $ 16,200 | $ 76,193 |
Employees, Officers and Directors [Member] | ||
Stock issued for compensation, shares | 0 | 115,321 |
Stock issued for compensation, value | $ 76,193 | |
Consultants and Other Professionals [Member] | ||
Stock issued for compensation, shares | 1,377,338 | 197,500 |
Stock issued for compensation, value | $ 349,645 | $ 138,375 |
Various Investors [Member] | ||
Stock issued as inducement to lend, shares | 0 | 186,566 |
Stock issued as inducement to lend, value | $ 0 | $ 78,321 |
TDA Sellers [Member] | Secured Promissory Notes [Member] | ||
Stock issued as inducement to lend, shares | 800,000 | |
Stock issued as inducement to lend, value | $ 480,000 | |
Warrant Exercises [Member] | ||
Stock issued for warrant exercises, shares | 0 | 256,455 |
Proceeds from warrant exercises | $ 61,244 | |
Payment for payables [Member] | ||
Issuance of common stock in lieu of cash for loans payable and other accrued obligations, shares | 99,720 | 285,627 |
Issuance of common stock in lieu of cash for loans payable and other accrued obligations, value | $ 26,940 | $ 171,376 |
Private Placement [Member] | ||
Stock issued new, shares | 0 | 256,455 |
Proceeds from issuance of common stock | $ 0 | $ 61,500 |
14. Commitments and Contingen_2
14. Commitments and Contingencies (Details Narrative) | 3 Months Ended |
Mar. 31, 2019USD ($) | |
Boca Raton, Florida [Member] | |
Operating lease payment frequency | monthly |
Operating lease payment | $ 4,227 |
Lease expiration date | Sep. 30, 2021 |
Manila, Philippines [Member] | |
Operating lease payment frequency | monthly |
Operating lease payment | $ 22,533 |
Lease expiration date | Dec. 31, 2022 |
NetSpective Division [Member] | |
Operating lease payment frequency | monthly |
Operating lease payment | $ 2,055 |
Lease expiration date | Dec. 31, 2023 |