10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

For the quarterly period ended March 31, 2023

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

For the transition period from ________ to _________

Commission File Number:  001-40409

Grom Social Enterprises, Inc.

(Exact name of registrant as specified in its charter)

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

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

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

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

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.001	GROM	The Nasdaq Capital Market
Warrants to purchase shares of Common Stock, par value $0.001 per share	GROMW	The Nasdaq Capital Market

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

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

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

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

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐      No ☒

As of May 12, 2023, 8,497,302 shares of the registrant’s common stock were outstanding.

GROM SOCIAL ENTERPRISES, INC.

Table of Contents

Part I – FINANCIAL INFORMATION		Page
Item 1.	Financial Statements	4
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	33
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	39
Item 4.	Controls and Procedures	39
Part II – OTHER INFORMATION
Item 1.	Legal Proceedings	40
Item 1A.	Risk Factors	40
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	40
Item 3.	Defaults upon Senior Securities	40
Item 4.	Mine Safety Disclosures	40
Item 5.	Other Information	40
Item 6.	Exhibits	41

2

CAUTIONARY STATEMENT ON FORWARD-LOOKING INFORMATION

When used in this Quarterly Report, including the documents that we have incorporated by reference, in future filings with the SEC or in press releases or other written or oral communications, statements which are not historical in nature, including those containing words such as “believe,” “expect,” “anticipate,” “estimate,” “plan,” “continue,” “intend,” “should,” “may” or the negative of these words and phrases or similar words or phrases which are predictions of or indicate future events or trends and which do not relate solely to historical matters, are intended to identify “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 (set forth in Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)). Discussions containing forward-looking statements may be found in the material set forth under “Management's Discussion and Analysis of Financial Condition and Results of Operations” and in other sections of this Quarterly Report.

Forward-looking statements are necessarily subjective, are based upon our current plans, intentions, objectives, goals, strategies, beliefs, projections and expectations, and involve known and unknown risks, uncertainties and other important factors.

Forward-looking statements should not be read as a guarantee of future performance or results and will not necessarily be accurate indications of whether, or the times by which, our performance or results may be achieved. Forward-looking statements are based on information available at the time those statements are made and management’s belief as of that time with respect to future events and are subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in or suggested by the forward-looking statements. Any or all of our forward-looking statements in this report may turn out to be inaccurate. Important factors that may cause actual results, our performance or achievements, or industry results to differ materially from those contemplated by such forward-looking statements include, without limitation, those discussed under the caption “Risk Factors” in this Quarterly Report. All forward-looking statements in this report are made as of the date hereof, based on information available to us as of the date hereof, and we assume no obligation to update any forward-looking statement.

3

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

GROM SOCIAL ENTERPRISES INC.

Condensed Consolidated Balance Sheets

	March 31,			December 31,
	2023			2022
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	4,136,755		$	3,871,176
Accounts receivable, net		826,394			1,162,230
Inventory, net		99,070			92,303
Prepaid expenses and other current assets		620,937			605,497
Total current assets		5,683,156			5,731,206
Operating lease right of use assets		1,019,237			1,069,222
Property and equipment, net		183,546			285,676
Goodwill		10,567,484			10,567,484
Intangible assets, net		5,321,725			5,364,231
Other assets		1,640,603			1,627,078
Total assets	$	24,415,751		$	24,644,897
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	419,028		$	839,679
Accrued liabilities		302,863			378,954
Dividends payable		557,435			371,799
Advanced payments and deferred revenues		445,477			576,338
Convertible notes payable, net – current		536,780			503,465
Related party payables		50,000			50,000
Lease liabilities – current		254,577			269,681
Total current liabilities		2,566,160			2,989,916
Convertible notes payable, net of loan discounts		–			68,199
Lease liabilities		773,970			803,958
Other noncurrent liabilities		226,602			434,976
Total liabilities		3,566,732			4,297,049
Commitments and contingencies (Note 17)
Stockholders' Equity:
Series A preferred stock, $0.001 par value. 10,000,000 shares authorized; zero shares issued and outstanding as of March 31, 2023 and December 31, 2022, respectively		–			–
Series B preferred stock, $0.001 par value. 10,000,000 shares authorized; zero shares issued and outstanding as of March 31, 2023 and December 31, 2022, respectively		–			–
Series C preferred stock, $0.001 par value. 10,000,000 shares authorized; 9,281,809 shares issued and outstanding as of March 31, 2023 and December 31, 2022, respectively		9,282			9,282
Common stock, $0.001 par value. 500,000,000 shares authorized; 7,339,677 and 2,514,858 shares issued and outstanding as of March 31, 2023 and December 31, 2022, respectively		7,340			2,515
Additional paid-in capital		104,609,026			101,726,355
Accumulated deficit		(85,802,343	)		(83,472,412	)
Accumulated other comprehensive loss		(136,493	)		(166,129	)
Total Grom Social Enterprises, Inc. stockholders' equity		18,686,812			18,099,611
Noncontrolling interests		2,162,207			2,248,237
Total stockholders' equity		20,849,019			20,347,848
Total liabilities and equity	$	24,415,751		$	24,644,897

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

4

GROM SOCIAL ENTERPRISES INC.

Condensed Consolidated Statements of Operations and Comprehensive Loss (Unaudited)

	Three Months Ended March 31,			Three Months Ended March 31,
	2023			2022
Sales	$	1,199,643		$	1,231,125
Cost of goods sold		659,506			916,949
Gross profit		540,137			314,176
Operating expenses:
Depreciation and amortization		153,190			64,450
Selling, general and administrative		1,875,360			1,694,819
Professional fees		276,920			404,066
Total operating expenses		2,305,470			2,163,335
Loss from operations		(1,765,333	)		(1,849,159	)
Other income (expense)
Interest income (expense), net		(480,778	)		(1,631,022	)
Other gains (losses)		15,786			23,736
Total other income (expense)		(464,992	)		(1,607,286	)
Loss before income taxes		(2,230,325	)		(3,456,445	)
Provision for income taxes (benefit)		–			–
Net loss		(2,230,325	)		(3,456,445	)
Loss attributable to noncontrolling interests		(86,030	)		(79,838	)
Net loss attributable to Grom Social Enterprises, Inc. stockholders		(2,144,295	)		(3,376,607	)
Dividends to Series C preferred stockholders		185,636			176,844
Net loss attributable to Grom Social Enterprises, Inc. common stockholders		(2,329,931	)		(3,553,451	)
Basic and diluted loss per common share	$	(0.43	)	$	(7.59	)
Weighted-average number of common shares outstanding:
Basic and diluted		5,448,105			468,458
Comprehensive loss:
Net loss	$	(2,230,325	)	$	(3,456,445	)
Foreign currency translation adjustment		29,636			(3,718	)
Comprehensive loss		(2,200,689	)		(3,460,163	)
Comprehensive loss attributable to noncontrolling interests		(86,030	)		(79,838	)
Comprehensive loss attributable to Grom Social Enterprises, Inc. common stockholders	$	(2,114,659	)	$	(3,380,325	)

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

5

GROM SOCIAL ENTERPRISES INC.

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

Series A Preferred Stock

Series B Preferred Stock

Series C Preferred Stock

Common Stock

Additional Paid-in

Accumulated

Accumulated Other Comprehensive

Noncontrolling

Total Stockholders'

Shares

Value

Shares

Value

Shares

Value

Shares

Value

Capital

Deficit

Loss

Interests

Equity

Balance, January 1, 2022

–

$

–

–

$

–

9,400,309

$

9,400

433,631

$

434

$

89,863,573

$

(66,404,190

)

$

(30,755

)

$

2,682,339

$

26,120,801

Net loss

–

–

–

–

–

–

–

–

–

(3,376,607

)

–

(79,838

)

(3,456,445

)

Change in foreign currency translation

–

–

–

–

–

–

–

–

–

–

(3,718

)

–

(3,718

)

Conversion of Series C preferred stock into common stock

–

–

–

–

(39,500

)

(39

)

686

1

38

–

–

–

–

Dividends declared for Series C preferred stock

–

–

–

–

–

–

–

–

–

(176,844

)

–

–

(176,844

)

Issuance of common stock as payment for Series C preferred stock dividends payable

–

–

–

–

–

–

5,842

6

459,062

–

–

–

459,068

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

–

–

–

–

–

–

2,486

2

76,820

–

–

–

76,822

Conversion of note principal and accrued interest into common stock

–

–

–

–

–

–

191,912

192

4,124,808

–

–

–

4,125,000

Recognition of beneficial conversion features related to notes payable

–

–

–

–

–

–

–

–

363,329

–

–

–

363,329

Stock based compensation expense related to stock options

–

–

–

–

–

–

–

–

48,142

–

–

–

48,142

Balance, March 31, 2022

–

$

–

–

$

–

9,360,809

$

9,361

634,557

$

635

$

94,935,772

$

(69,957,641

)

$

(34,473

)

$

2,602,501

$

27,556,155

6

Series A Preferred Stock

Series B Preferred Stock

Series C Preferred Stock

Common Stock

Additional Paid-in

Accumulated

Accumulated Other Comprehensive

Noncontrolling

Total Stockholders'

Shares

Value

Shares

Value

Shares

Value

Shares

Value

Capital

Deficit

Loss

Interests

Equity

Balance, January 1, 2023

–

$

–

–

$

–

9,281,809

$

9,282

2,514,858

$

2,515

$

101,726,355

$

(83,472,412

)

$

(166,129

)

$

2,248,237

$

20,347,848

Net loss

–

–

–

–

–

–

–

–

–

(2,144,295

)

–

(86,030

)

(2,230,325

)

Change in foreign currency translation

–

–

–

–

–

–

–

–

–

–

29,636

–

29,636

Conversion of Series C preferred stock into common stock

–

–

–

–

–

–

–

–

–

–

–

–

–

Dividends declared for Series C preferred stock

–

–

–

–

–

–

–

–

–

(185,636

)

–

–

(185,636

)

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

–

–

–

–

–

–

100,000

100

2,448,259

–

–

–

2,448,359

Issuance of common stock in connection with the exercise of common stock purchase warrants

–

–

–

–

–

–

4,701,485

4,702

7,607

–

–

–

12,309

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

–

–

–

–

–

–

23,334

23

31,945

–

–

–

31,968

Issuance of common stock purchase warrants as consideration for waiver of a financing covenant

–

–

–

–

–

–

–

–

350,038

–

–

–

350,038

Stock based compensation expense related to stock options

–

–

–

–

–

–

–

–

44,822

–

–

–

44,822

Balance, March 31, 2023

–

$

–

–

$

–

9,281,809

$

9,282

7,339,677

$

7,340

$

104,609,026

$

(85,802,343

)

$

(136,493

)

$

2,162,207

$

20,849,019

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

7

GROM SOCIAL ENTERPRISES INC.

Condensed Consolidated Statements of Cash Flows (Unaudited)

	Three Months Ended March 31,			Three Months Ended March 31,
	2023			2022
Cash flows from operating activities:
Net loss	$	(2,230,325	)	$	(3,456,445	)
Adjustments to reconcile net loss to cash used in operating activities:
Depreciation and amortization		206,834			130,830
Amortization of debt discount		5,206			1,621,313
Amortization of right-of-use assets		72,869			82,644
Provision for doubtful accounts		7,149			–
Common stock purchase warrants issued for financing costs		350,039			–
Common stock issued in exchange for fees and services		31,968			76,822
Retirement benefit cost		46,363			–
Stock based compensation		44,822			48,142
Loss on disposal of property and equipment		559			–
Changes in operating assets and liabilities:
Accounts receivable		328,687			201,832
Inventory		(6,768	)		(4,172	)
Prepaid expenses and other current assets		(15,441	)		(46,245	)
Other assets		(107,977	)		(118,594	)
Accounts payable		(469,751	)		(70,542	)
Accrued liabilities		(29,489	)		39,250
Advanced payments and deferred revenues		(130,862	)		(8,273	)
Income taxes payable and other noncurrent liabilities		(208,373	)		(3,091	)
Operating lease liabilities		(68,066	)		(94,167	)
Net cash used in operating activities		(2,172,556	)		(1,600,696	)
Cash flows from investing activities:
Purchase of property and equipment		(15,193	)		(25,825	)
Proceeds from the sale of property and equipment		4,688			–
Net cash used in investing activities		(10,505	)		(25,825	)
Cash flows from financing activities:
Proceeds from issuance of common stock, net of issuance costs		2,448,359			–
Proceeds from exercise of common stock purchase warrants, net of issuance costs		12,309			–
Proceeds from issuance of convertible notes		–			1,444,000
Repayments of convertible notes		(40,089	)		(35,968	)
Repayments of loans payable		–			(31,510	)
Net cash provided by financing activities		2,420,579			1,376,522
Effect of exchange rates on cash and cash equivalents		28,061			(8,834	)
Net increase (decrease) in cash and cash equivalents		265,579			(258,833	)
Cash and cash equivalents at beginning of period		3,871,176			6,530,161
Cash and cash equivalents at end of period	$	4,136,755		$	6,271,328
Supplemental disclosure of cash flow information:
Cash paid for interest	$	6,917		$	11,796
Cash paid for income taxes	$	–		$	–
Supplemental disclosure of non-cash investing and financing activities:
Common stock issued to reduce dividends payable to Series C preferred stockholders	$	–		$	459,068
Common stock warrants issued in connection with convertible promissory notes	$	–		$	363,329
Conversion of note principal and accrued interest into common stock	$	–		$	4,125,000
Dividends payable to Series C preferred stockholders	$	185,636		$	176,844

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

8

GROM SOCIAL ENTERPRISES, INC.

Notes to Unaudited Condensed Consolidated Financial Statements (Unaudited)

1. NATURE OF OPERATIONS

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

The Company operates its business through the following five operating subsidiaries:

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

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

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

· Grom Nutritional Services, Inc. (“GNS”), incorporated in the State of Florida on April 19, 2017, intends to market and distribute nutritional supplements to children. It has been nonoperational since its inception.

· Curiosity Ink Media, LLC (“Curiosity”), organized in the State of Delaware on January 9, 2017, develops, acquires, builds, grows and maximizes the short, mid and long-term commercial potential of kids and family entertainment properties and associated business opportunities.

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

2. GOING CONCERN

The condensed consolidated financial statements of the Company have been prepared on a going concern basis, which contemplates the realization of assets and the discharge of liabilities in the normal course of business. Based on current operating levels, the Company will need to raise additional funds by selling additional equity or incurring debt.

9

On a consolidated basis, the Company has incurred significant operating losses since its inception. As of March 31, 2023, The Company has an accumulated deficit of $85.8 million. During the three months ended March 31, 2023, it used approximately $2.2 million in cash for operating activities.

The Company has funded its operations primarily through sales of its common stock in public markets, proceeds from the exercise of warrants to purchase common stock, and the sale of convertible notes. Future capital requirements will depend on many factors, including the (i) rate of revenue growth, (ii) expansion of sales and marketing activities, (iii) timing and extent of spending on content development efforts, and (iv) market acceptance of the Company’s content, products and services.

The Company’s management intends to raise additional funds through the issuance of equity securities or debt to enable the Company to meet its obligations for the twelve-month period. However, there can be no assurance that, in the event the Company requires additional financing, such financing will be available at terms acceptable to the Company, if at all. Failure to generate sufficient cash flows from operations and/or raise additional capital could have a material adverse effect on the Company’s ability to achieve its intended business objectives. These factors raise substantial doubt about the Company’s ability to continue as a going concern for the twelve months from the date of this report.

The accompanying condensed consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Impact of COVID-19

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

The Company experienced significant disruptions to its business and operations due to circumstances related to COVID-19, and delays caused government-imposed quarantines, office closings and travel restrictions, which affected both the Company’s and its service providers. The Company has significant operations in Manila, Philippines, which was locked down by the government on March 12, 2020 due to concerns related to the spread of COVID-19. As a result of the Philippines government’s call to contain COVID-19, the Company’s animation studio, located in Manila, Philippines, which accounts for approximately 88% of the Company’s total revenues on a consolidated basis, was forced to close its offices for significant periods of time from March 2020 through December 2021.

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

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

10

Basis of Presentation

The accompanying condensed consolidated financial statements are unaudited and have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and in conjunction with the instructions to Form 10-Q of the Securities and Exchange Commission (“SEC”). Accordingly, certain information and footnote disclosures required by GAAP for complete financial statements have been condensed or omitted. For the three months ended March 31, 2023, the condensed consolidated financial statements include the accounts of the Company and its operating subsidiaries Grom Social, TD Holdings, GES, GNS, and Curiosity. The Company recognizes noncontrolling interest related to its less-than-wholly-owned subsidiary, Curiosity, as equity in the consolidated financial statements separate from the parent entity’s equity. The net loss attributable to noncontrolling interest is included in net loss in the condensed consolidated statements of operations and comprehensive loss.

These condensed consolidated financial statements include all of the adjustments, which in the opinion of management are necessary for a fair presentation of financial position and results of operations. All such adjustments, which include intercompany balances and transactions are of a normal and recurring nature. Interim results are not necessarily indicative of results for a full year. These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto at December 31, 2022, as presented in the Company’s Annual Report on Form 10-K filed on April 17, 2023 with the SEC.

Certain amounts for the prior year period have been reclassified to conform to current year’s presentation.

Use of Estimates

The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. The most significant estimates relate to revenue recognition, valuation of accounts receivable, goodwill and other long-lived assets, 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.

Update to Significant Accounting Policies

There have been no new or material changes to the significant accounting policies discussed in the Company’s audited financial statements in its Annual Report on Form 10-K for the fiscal year ended December 31, 2022 as filed with the SEC on April 17, 2023, that are of significance, or potential significance, to the Company.

4. REVENUES

The Company recognizes revenue from contracts with customers in accordance with FASB ASC 606. The Company’s main types of revenue contracts consists of the following:

Animation Revenue

Animation revenue is primarily generated from contracts with customers for preproduction and production services related to the development of animated movies and television series. Preproduction activities include producing storyboards, location design, model and props design, background color and color styling. Production focuses on library creation, digital asset management, background layout scene assembly, posing, animation and aftereffects.

The Company provides services under fixed-price contracts. Under fixed-price contracts, the Company agrees to perform the specified work for a pre-determined price. To the extent actual costs vary from estimated costs, the Company’s profit may increase, decrease, or result in a loss.

11

Web Filtering Revenue

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

Produced and Licensed Content Revenue

Produced and licensed content revenues are generated from the licensing of internally-produced films and episodic television programs.

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

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

Publishing Revenue

The Company has engaged the services of a third-party entity to manage the printing, publishing and distribution of the Company’s publishing content. In accordance with the terms agreed with the third party, the Company’s revenue is recognized as 50% of revenue from sales per title after the third-party vendor earns back the costs to develop, author, publish, market, promote and distribute each title, inclusive of any royalties owed to rights holders, following a six month period in market to allow for returns.

Publishing revenues are eligible for recognition upon the completion of a six-month sales period to provide for any potential returns and notification from the third-party entity that it has earned back all of its related publishing costs.

Other Revenue

Other revenue corresponds to ecommerce sales, commercial services, and subscription and advertising revenue from the Grom Social mobile application.

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The following table depicts the disaggregated revenue listed above within the Sales caption in the condensed consolidated statements of operations:

	Three Months Ended March 31, 2023		Three Months Ended March 31, 2022
Animation	$	1,057,669	$	1,048,613
Web Filtering		90,810		182,244
Publishing		10,101		–
Other		41,063		268
Total Sales	$	1,199,643	$	1,231,125

The following table sets forth the components of the Company’s accounts receivable and advanced payments and deferred revenues at March 31, 2023, and December 31, 2022:

	March 31, 2023			December 31, 2022
Billed accounts receivable	$	317,619		$	607,524
Unbilled accounts receivable		553,900			592,932
Allowance for doubtful accounts		(45,125	)		(38,226	)
Total accounts receivable, net	$	826,394		$	1,162,230
Total advanced payments and deferred revenues	$	445,477		$	576,338

During the three months ended March 31, 2023, the Company had three customers that accounted for 76.3% of revenues. During the three months ended March 31, 2022, the Company had three customers that accounted for 65.9% of revenues.

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At March 31, 2023, the Company had three customers that accounted for 78.9% of accounts receivable. At December 31, 2022, the Company had two customers that accounted for 73.6% of accounts receivable.

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

5. INVENTORY

Inventory consists of costs incurred to produce animated content for third party customers. Costs incurred to produce the animated content for customers, which include direct production costs, production overhead and supplies are recognized as work-in-progress inventory. As animated content is completed in accordance with the terms stated by the customer, inventory is classified as finished products and subsequently recognized as cost of services as animated content is accepted by and available to the customer. Carrying amounts of animated content are recorded at the lower of cost or net realizable value. Cost is determined using a weighted average cost method for direct production costs, productions overhead and supplies used for completing animation projects.

As of March 31, 2023 and December 31, 2022, the Company’s inventory totaled $99,070 and $92,303, respectively, and was comprised of work-in-progress of $85,830 and $85,324, and finished goods of $13,240 and $6,979, respectively.

6. PROPERTY AND EQUIPMENT

The following table sets forth the components of the Company’s property and equipment at March 31, 2023 and December 31, 2022:

	March 31, 2023							December 31, 2022
	Cost		Accumulated Depreciation			Net Book Value		Cost		Accumulated Depreciation			Net Book Value
Capital assets subject to depreciation:
Computers, software and office equipment	$	2,554,434	$	(2,470,748	)	$	83,686	$	2,774,308	$	(2,651,872	)	$	122,436
Machinery and equipment		177,916		(173,642	)		4,274		189,641		(182,180	)		7,461
Vehicles		11,995		(11,995	)		–		41,112		(35,504	)		5,608
Furniture and fixtures		383,379		(369,159	)		14,220		409,996		(391,783	)		18,213
Leasehold improvements		1,100,013		(1,018,647	)		81,366		1,172,501		(1,065,148	)		107,353
Total fixed assets		4,227,737		(4,044,191	)		183,546		4,587,558		(4,326,487	)		261,071
Capital assets not subject to depreciation:
Construction in progress		–		–			–		24,605		–			24,605
Total fixed assets	$	4,227,737	$	(4,044,191	)	$	183,546	$	4,612,163	$	(4,326,487	)	$	285,676

For the three months ended March 31, 2023 and 2022, the Company recorded depreciation expense of $69,876 and $92,674, respectively.

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7. OTHER ASSETS

The following table sets forth the components of the Company’s other assets at March 31, 2023 and December 31, 2022:

	March 31, 2023		December 31, 2022
Capitalized website development costs	$	963,664	$	1,057,312
Prepublication costs		166,112		164,042
Produced and licensed content costs		436,549		325,966
Deposits		74,278		72,027
Other noncurrent assets		–		7,731
Total other assets	$	1,640,603	$	1,627,078

Capitalized Website Development Costs

The Company capitalizes certain costs associated with the development of its Santa.com website after the preliminary project stage is complete and until the website is ready for its intended use. Planning and operating costs are expensed as incurred. Capitalization begins when the preliminary project stage is complete, project plan is defined, functionalities are determined and internal and external resources are identified. Qualified costs incurred during the operating stage of our software applications relating to upgrades and enhancements are capitalized to the extent it is probable that they will result in added functionality, while costs that cannot be separated between maintenance of, and minor upgrades and enhancements to the websites are expensed as incurred.

Capitalized website costs are amortized on a straight-line basis over their estimated useful life of three years beginning with the time when it is ready for intended use. Amounts amortized are presented through cost of sales. Management evaluates the useful lives of these assets on an annual basis and tests for impairment whenever events or changes in circumstances occur that could impact the recoverability of these assets.

Prepublication Costs

Prepublication costs include costs incurred to create and develop the art, prepress, editorial, digital conversion and other content required for the creation of the master copy of a book or other media. Prepublication costs are amortized on a straight-line basis over a two- to five-year period based on expected future revenue. The Company regularly reviews the recoverability of the capitalized costs based on expected future revenues.

Produced and Licensed Content Costs

Produced and licensed content costs include capitalizable direct costs, production overhead, interest and development costs and are stated at the lower of cost, less accumulated amortization, or fair value. Marketing, distribution and general and administrative costs are expensed as incurred.

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Film, television and direct to consumers through streaming services production and residual costs are expensed over the product life cycle based upon the ratio of the current period’s revenues to estimated remaining total revenues (Ultimate Revenues) for each production. For film productions and direct to consumer services, Ultimate Revenues include revenues from all sources that will be earned within ten years from the date of the initial release. For television series, Ultimate Revenues include revenues that will be earned within ten years from delivery of the first episode, or if still in production, five years from delivery of the most recent episode, if later. Costs of film, television and direct to consumer productions are subject to regular recoverability assessments, which compare the estimated fair values with the unamortized costs. The Company bases these fair value measurements on the Company’s assumptions about how market participants would price the assets at the balance sheet date, which may be different than the amounts ultimately realized in future periods. The amount by which the unamortized costs of film and television productions exceed their estimated fair values is written off. Costs for projects that have been abandoned are written off. Projects that have not been set for production within three years are also written off unless management has committed to a plan to proceed with the project and is actively working on and funding the project.

The following tables set forth the components of the Company’s capitalized costs at March 31, 2023 and December 31, 2022:

	March 31, 2023							December 31, 2022
	Gross Carrying Value		Accumulated Amortization			Net Book Value		Gross Carrying Value		Accumulated Depreciation			Net Book Value
Prepublication costs	$	168,398	$	(2,286	)	$	166,112	$	165,524	$	(1,482	)	$	164,042
Produced and licensed content costs		436,549		–			436,549		325,966		–			325,966
Capitalized website development costs		1,123,772		(160,108	)		963,664		1,123,772		(66,460	)		1,057,312
Total capitalized costs	$	1,728,720	$	(162,394	)	$	1,566,325	$	1,615,262	$	(67,942	)	$	1,547,320

For the three months ended March 31, 2023 and 2022, the Company recorded amortization expense of $94,452 and $0, respectively.

8. LEASES

The Company has entered into operating leases primarily for office space. These leases have original terms which range from two years to six years, and often include one or more options to renew or in the case of equipment rental, to purchase the equipment. During the three months ended March 31, 2023, the Company did not record any additional right of use (“ROU”) assets or lease liabilities related to new operating leases.

The future minimum payment obligations at March 31, 2023 for operating leases are as follows:

Remainder of 2023	$	287,404
2024		280,112
2025		281,663
2026		228,798
2027		240,239
Thereafter		–
Total future minimum payment obligations		1,318,216
Less: Imputed interest		(289,669	)
Present value of lease liabilities	$	1,028,547

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These operating leases are listed as separate line items on the Company's Consolidated Balance Sheets 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 Consolidated Balance Sheets.

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 are as follows:

	Three Months Ended March 31, 2023
Cash paid for operating lease liabilities	$	95,300
Weighted-average remaining lease term in years		3.1
Weighted-average discount rate		10%

For the three months ended March 31, 2023 and 2022, the Company recorded rent expenses related to lease obligations of $100,102 and $105,340, respectively. Rent expenses related to lease obligations are allocated between cost of goods sold and selling, general and administrative expenses in the Company’s condensed consolidated statement of operations.

9. BUSINESS COMBINATIONS

Acquisition of Curiosity Ink Media, LLC

On July 29, 2021, the Company entered into a membership interest purchase agreement (the “Purchase Agreement”) with Curiosity Ink Media LLC, a Delaware limited liability company (“Curiosity”) and the holders of all of Curiosity’s outstanding membership interests (the “Sellers”), for the purchase of 80% of Curiosity’s outstanding membership interests (the “Purchased Interests”) from the Sellers (the “Acquisition).

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On August 19, 2021, pursuant to the terms of the Purchase Agreement, the Company consummated the Acquisition and acquired the Purchased Interests in consideration for the issuance to the Sellers of an aggregate of 1,771,883 shares of the Company’s common stock to the Sellers, pro rata to their membership interests immediately prior to the closing of the Acquisition. The shares were valued at $2.82 per share which represents the 20-day volume-weighted average price of the Company’s common stock on August 19, 2021.

Pursuant to the Purchase Agreement, the Company also paid $400,000 and issued an 8% eighteen-month convertible promissory note in the principal amount $278,000 (the “Curiosity Note”) to pay-down and refinance certain outstanding loans and advances previously made to Curiosity by Russell Hicks and Brett Watts.

The Curiosity Note is convertible into shares of common stock of the Company at a conversion price of $3.28 per share but may not be converted if, after giving effect to such conversion, the noteholder and its affiliates would beneficially own in excess of 9.99% of the Company’s outstanding common stock. The Curiosity Note may be prepaid at any time, in whole or in part. The Curiosity Note is subordinate to the Company’s senior indebtedness.

The Sellers also have the ability to earn up to $17,500,000 (payable 50% in cash and 50% in stock) upon the achievement of certain performance milestones as of December 31, 2025.

In addition to the tangible assets, goodwill totaling $14,271,969 was recorded in connection with the acquisition. Goodwill was calculated as the excess of the consideration transferred over the net assets recognized and represents potential future economic benefits arising from other assets acquired that could not be individually identified and separately recognized. Goodwill is not expected to be deductible for tax purposes.

Consideration Paid:
Cash consideration	$	400,000
Common stock issued		5,421,962
Convertible notes		278,000
Contingent purchase consideration		5,586,493
Total consideration	$	11,686,455

The amounts in the table below represent the allocation of the purchase price. The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the acquisition date:

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

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During the year ended December 31, 2022, the Company finalized the purchase price allocation, during the permissible measurement period, and obtained new fair value information for certain identifiable intangible assets related to its acquisition of Curiosity. The revised purchase price allocation decreased goodwill by $468,426 and increased intangible assets by $468,426. These adjustments did not have a significant impact on the Company’s consolidated financial statements.

The following table summarizes the individually identifiable intangible assets subsequently recognized: 

Licensing agreements	$	341,728
Books and stories content		126,698
Total identifiable intangible assets	$	468,426

10. GOODWILL AND INTANGIBLE ASSETS

Goodwill represents the future economic benefit arising from other assets acquired that could not be individually identified and separately recognized. The goodwill arising from the Company’s acquisitions is attributable to the value of the potential expanded market opportunity with new customers.

At March 31, 2023 and December 31, 2022, the carrying amount of the Company’s goodwill was $10,567,484.

The following table sets forth the components of the Company’s intangible assets at March 31, 2023 and December 31, 2022:

			March 31, 2023							December 31, 2022
	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	$	1,526,282	$	(1,030,241	)	$	496,041	$	1,526,282	$	(992,083	)	$	534,199
Licensing agreement		19.60		341,728		(28,989	)		312,739		341,728		(24,641	)		317,087
Subtotal				1,868,010		(1,059,230	)		808,780		1,868,010		(1,016,724	)		851,286
Intangible assets not subject to amortization:
Books and stories content				126,698		–			126,698		126,698		–			126,698
Trade names				4,386,247		–			4,386,247		4,386,247		–			4,386,247
Total intangible assets			$	6,380,955	$	(1,059,230	)	$	5,321,725	$	6,380,955	$	(1,016,724	)	$	5,364,231

For the three months ended March 31, 2023 and 2022, the Company recorded amortization expense of $42,505 and $38,157, respectively.

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The following table provides information regarding estimated remaining amortization expense for intangible assets subject to amortization for each of the following years ending December 31:

Remainder of 2023	$	127,516
2024		170,022
2025		170,022
2026		93,708
2027		17,394
Thereafter		230,118
Total remaining intangible assets subject to amortization	$	808,780

11.  ACCRUED LIABILITIES

The following table sets forth the components of the Company’s accrued liabilities at March 31, 2023 and December 31, 2022:

	March 31, 2023		December 31, 2022
Executive and employee compensation	$	92,981	$	102,151
Interest on convertible notes and promissory notes		92,457		84,292
Other accrued expenses and liabilities		117,425		192,511
Total accrued liabilities	$	302,863	$	378,954

12.  RELATED PARTY TRANSACTIONS AND PAYABLES

Darren Marks’s Family

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

As of March 31, 2023, Zach and Luke Marks were employed by Grom Social as its Founder and Content Creator, and Content Coordinator, respectively, and receive annual salaries of $103,000 and $30,000, respectively.

For the three months ended March 31, 2023 and 2022, the Marks family was paid a total of $33,250 and $30,000, respectively.

Compensation for services provided by members of the Marks family is expected to continue for the foreseeable future.

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Liabilities Due to Executive Officers and Directors

On July 11, 2018, our director Dr. Thomas Rutherford loaned the Company $50,000. The loan bears interest at a rate of 10% per annum and was due on August 11, 2018. No notice of default or demand for payment has been received by the Company. During the three months ended March 31, 2023 and 2022, the Company recorded interest expense of $1,233, respectively.

As of March 31, 2023 and December 31, 2022, the aggregate related party payables balance was $73,616 and $72,383, respectively, of which $23,616 and $22,383 of accrued interest were reported under accrued liabilities on the Company’s consolidated balance sheets.

13.  EMPLOYEE BENEFIT PLAN

The Company’s subsidiary, Top Draw Animation, has an unfunded, non-contributory defined benefit plan covering its permanent employees.

Under the existing regulatory framework, the Company is required to pay eligible employees at least the minimum regulatory benefit upon retirement, which provides a retirement benefit equal to 22.5 days’ pay for every year of credited service, subject to age and service requirements. The regulatory benefit is paid in a lump sum upon retirement. The existing regulatory framework does not require minimum funding of the plan.

Retirement benefit expenses and liabilities are determined in accordance with an actuarial study made for the plan utilizing the net interest approach which disaggregates the defined benefit cost into the following components: service costs (cost of services received); net interest (financing effect of paying for benefits in advance or in arrears); and remeasurements (period-to-period fluctuations in the amounts of defined benefit obligations and plan assets).

Under the net interest approach, service cost and net interest on the defined benefit liability (asset) are both recognized in the statement of operations, while remeasurements of the defined benefit liability (asset) are recognized in other comprehensive income. Remeasurements recognized in other comprehensive income shall not be reclassified to profit or loss in a subsequent period.

The amount of the defined benefit liability reported under other noncurrent liabilities in the consolidated balance sheet is determined as follows:

	March 31, 2023		December 31, 2022
Benefit obligation	$	226,602	$	434,974
Plan assets		–		–
Total	$	226,602	$	434,974

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The components of the accumulated benefit cost to be recognized under selling, general and administrative expense in consolidated statement of operations are the service cost (current service cost, past service cost or credit and settlement gains or losses) and net interest expense on the net defined benefit liability:

	March 31, 2023		March 31, 2022
Current service cost	$	56,630	$	2,471
Net interest expense		5,374		–
Total	$	59,004	$	2,471

The change in the accumulated benefit cost in the consolidated balance sheet for the three months ended March 31, 2023 is as follows:

	2023
Balance, January 1	$	434,974
Foreign currency translation		8,185
Expense recognized in other comprehensive income		59,004
Remeasurement on actuarial gain (loss) recognized		(48,683	)
Contributions paid		(226,878	)
Balance, March 31	$	226,602

The cumulative amount of actuarial gains recognized in other comprehensive income for the three months ended March 31, 2023 and 2022 is as follows:

	2023			2022
Balance, January 1	$	(37,303	)	$	60,518
Foreign currency translation		–			–
Actuarial gain (loss)		(46,307	)		–
Balance, March 31		83,610			60,518
Tax effect		20,903			(12,439	)
Cumulative actuarial gain (loss), net of tax	$	(62,707	)	$	48,079

The assumptions used to determine retirement benefits for the three months ended March 31, 2023 are as follows:

	March 31, 2023
Discount rate		6.44%
Salary increase rate		2.00%

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14. CONVERTIBLE NOTES

The following tables set forth the components of the Company’s convertible notes as of March 31, 2023 and December 31, 2022:

	March 31, 2023			December 31, 2022
8% Unsecured Convertible Note (Curiosity)	$	278,000		$	278,000
12% Senior Convertible Notes with Original Issuance Discounts (OID Notes)		75,000			75,000
12% Senior Secured Convertible Notes (TDH Secured Notes)		171,219			204,907
12% Senior Secured Convertible Notes (Additional Secured Notes)		32,518			38,932
Loan discounts		(19,957	)		(25,164	)
Total convertible notes, net		536,780			571,664
Less: current portion of convertible notes, net		(536,780	)		(503,465	)
Convertible notes, net	$	–		$	68,199

8% Unsecured Convertible Notes – Curiosity

On July 29, 2021, the Company entered into a membership interest purchase agreement with Curiosity and the holders of all of Curiosity’s outstanding membership interests, for the purchase of 80% of Curiosity’s outstanding membership interests from the sellers. Pursuant to the purchase agreement, the Company issued 8% eighteen-month convertible promissory notes in the aggregate principal amount $278,000 to pay-down and refinance certain outstanding loans and advances previously made by certain of its principals. The notes are convertible into shares of common stock of the Company at a conversion price of $98.40 per share but may not be converted if, after giving effect to such conversion, the noteholder and its affiliates would beneficially own in excess of 9.99% of the Company’s outstanding common stock. The notes may be prepaid at any time, in whole or in part. The notes are subordinate to the Company’s senior indebtedness. 

As of March 31, 2023, the principal balance of the Curiosity note was $278,000.

10% Senior Secured Convertible Note with Original Issuance Discount (L1)

On September 14, 2021, the Company entered into a securities purchase agreement (the “Purchase Agreement”) with L1 Capital Global Master Fund (“L1”) pursuant to which it issued (i) a 10% original issue discount senior secured convertible note in the principal amount of $4,400,000 to L1 (the “L1 Note”) and (ii) a 5 five-year warrant to purchase 27,109 shares of the Company’s common stock at an exercise price of $126.00 per share (“Warrant Shares”) in exchange for $3,960,000 (the “First Tranche Financing”). The Purchase Agreement also provided, subject to shareholder approval, for the issuance, subject to certain conditions, of an additional $1,500,000 of notes and warrants to purchase 9,259 shares of common stock (the “Second Tranche Financing”) on the same terms.

On October 20, 2021, the Company and L1 entered into an amended and restated purchase agreement which increased the amount of the Second Tranche Financing from $1,500,000 to $6,000,000 and provides (i) for an amended and restated 10% original issue discount senior secured convertible note to be issued in exchange for the L1 Note pursuant to the Purchase Agreement and (ii) for the issuance of a five-year warrant to purchase 34,706 shares of the Company’s common stock at an exercise price of $126.00 per share.

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During the three months ended March 31, 2022, the Company issued an aggregate 191,192 shares of common stock to L1 upon the conversion of $4,125,000 of outstanding principal.

As of March 31, 2023, the principal balance of L1 Note was $0 and all associated loan discounts were fully amortized.

10% Senior Secured Convertible Note with Original Issuance Discount (L1– Second Tranche)

On January 20, 2022 (the “Second Tranche Closing”), the Company and LI Capital closed on the Second Tranche of the offering, resulting in the issuance of (i) a $1,750,000 10% Original Issue Discount Senior Secured Convertible Note, due July 20, 2023, (the “Second Tranche Note”); and (ii) a five year warrant to purchase 10,123 shares of Common Stock of the Company at an exercise price of $126.00 per share (the “Second Tranche Warrants”), in exchange for consideration of $1,575,000 (i.e. the face amount less the 10% Original Issue Discount of $175,000).

In connection with the Second Tranche Closing, the Company paid to EF Hutton a fee of $126,000.

The Second Tranche Note is convertible into common stock of the Company at a rate of $126.00 per share (the “Conversion Price”) into 13,889 shares of common stock (the “Second Tranche Conversion Shares”) and, is repayable in equal monthly installments of $111,563 commencing on the date that the SEC declares a registration statement with respect to the resale of such shares effective, with all remaining amounts due on July 20, 2023. The Second Tranche Note is repayable by payment of cash, or, at the discretion of the Company and if the below listed “Equity Conditions” are met, by issuance of shares of the common stock at a price of 95% of the lowest daily VWAP during the ten-trading day period prior to the respective monthly redemption dates (with a floor of $57.60) multiplied by 102% of the amount due on such date. In the event that the ten-trading day VWAP drops below $57.60 the Company will have the right to pay in stock at such ten-trading day VWAP with any shortfall paid in cash. The Conversion Price may be adjusted in the event of dilutive issuances but in no event to less than $16.20 (the “Monthly Conversion Price”).

The Company’s right to make monthly payments in stock in lieu of cash for the Second Tranche Note is conditioned on certain conditions (the “Equity Conditions”). The Equity Conditions required to be met each month in order to redeem the Second Tranche Note with stock in lieu of a monthly cash payment, among other conditions set forth therein, include without limitation, that a registration statement be in effect with respect to the resale of the shares issuable upon conversion or redemption of the Second Tranche Note (or, that an exemption under Rule 144 is available), that no default be in effect, that the average daily trading volume of the Company’s common stock would have to be at least $550,000 during the five trading days prior to the respective monthly redemption and that the outstanding principal amounts of the First Tranche Note and Second Tranche Note combined, shall not exceed 30% of the market capitalization of the Company’s Common Stock as reported on Bloomberg L.P., which percentage is subject to increase by LI Capital at its sole discretion.

Other provisions of the Second Tranche Note, which is similar in terms to the First Tranche Note, include that the Second Tranche Note Conversion Price is subject to full anti-dilution price protections in the event of financings that are below the Conversion Price with a floor of $16.20.

In the event of an Event of Default as defined in the notes, if the stock price is below the Conversion Price at the time of default and only for so long as a default is continuing, the Second Tranche Notes would be convertible at a rate of 80% of the lowest VWAP in the ten prior trading days, provided, that if the default is cured the default conversion rate elevates back to the normal Conversion Price

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As part of the Second Tranche Closing, the Company issued Second Tranche Warrants exercisable for five years from the date of issuance, at $126.00 per share which carry the same anti-dilution protection as the Second Tranche Notes, subject to the same adjustment floor. The Second Tranche Warrants are exercisable via cashless exercise only for so long as no registration statement covering resale of the shares is in effect.

The Second Tranche Note continues to be subject to (i) the repayment and performance guarantees by the subsidiaries of the Company pursuant to a subsidiary guaranty and, (ii) the Security Agreement pursuant to which the LI Capital was granted a security interest in all of the assets of the Company and certain of its subsidiaries, each as entered into in connection with the First Tranche closing on September 14, 2021.

During the year ended December 31, 2022, the Company issued an aggregate 108,025 shares of common stock and repaid $1,146,901 in cash to L1 upon the conversion of $1,750,000 of outstanding principal.

As of March 31, 2023, the principal balance of the Second Tranche Notes was $0 and all associated loan discounts were fully amortized.

10% Secured Convertible Notes with Original Issuance Discounts (“OID Notes”)

During the year ended December 31, 2017, the Company issued a series of secured, convertible notes with original issuance discounts to accredited investors. The notes were issued with original issuance discounts of 10.0%, bear interest at a rate of 10% per annum (payable semiannually in cash), and carry a two-year term with a fixed conversion price of $748.80. As of March 31, 2023, the remaining principal balance of these notes was $25,000.

During the year ended December 31, 2018, the Company issued a series of secured, convertible notes with original issuance discounts to accredited investors. The notes were issued with original issuance discounts of 20.0%, bear interest at a rate of 10% per annum (payable semiannually in cash), and carry a two-year term with a fixed conversion price of $480.00. As of March 31, 2023, the remaining principal balance of these notes was $50,000.

As of March 31, 2023, the aggregate principal balance of these notes was $75,000 and all associated loan discounts were fully amortized. No notices of default or demands for payment have been received by the Company.

12% Senior Secured Convertible Notes (“TDH Secured Notes”)

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

The TDH Secured Notes are convertible at the option of the holders at 75% of the average sales price of the Company’s common stock over the 60 trading days immediately preceding conversion provided that the conversion price shall not be less than $96.00 per share.

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The Company’s obligations under the TDH Secured Notes, are secured by Grom Holdings’ shares of stock of TDH, and of its wholly owned subsidiary, TDAHK. The TDH Secured Notes rank equally and ratably on a pari passu basis with (i) the other TDH Secured Notes and (ii) the Original TDH Notes issued by the Company pursuant to TDH Share Sale Agreement.

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

In connection with the issuance of the TDH Secured Notes, the Company issued to each TDH Secured Note holder shares of common stock equal to 20% of the principal amount of such holder’s TDH Secured Note, divided by $96.00. Accordingly, an aggregate of 6,250 shares of common stock were issued to the TDH Secured Note holders on March 16, 2020. These shares were valued at $420,000, or $67.20 per share, which represents fair market value. The Company recorded the value of these shares as a loan discount to be amortized as interest expense over the term of the notes.

As of March 31, 2023, the principal balance of the TDH Secured Notes was $171,219 and the remaining balance on the associated loan discounts was $16,771.

12% Senior Secured Convertible Notes (Additional Secured Notes)

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

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

The Additional Secured Notes are convertible at the option of the holders at 75% of the average sales price of the Company’s common stock over the 60 trading days immediately preceding conversion provided that the conversion price shall not be less than $96.00 per share.

In connection with the issuance of the Additional Secured Notes, the Company issued to each Additional Secured Note Lender shares of common stock equal to 20% of the principal amount of such holder’s Additional Secured Note, divided by $96.00. Accordingly, an aggregate of 2,208 shares of common stock were issued. These shares were valued at $148,000, or $67.20 per share, which represents fair market value. The Company recorded the value of these shares as a loan discount to be amortized as interest expense over the term of the related convertible notes.

As of March 31, 2023, the principal balance of the Additional Secured Notes was $32,518 and the remaining balance on the associated loan discounts was $3,186.

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Future Minimum Principal Payments

The remaining principal repayments based upon the maturity dates of the Company’s borrowings for each of the next five years are as follows:

Remainder of 2023	$	480,651
2024		76,086
Total future minimum principal payments	$	556,737

15. INCOME TAXES

In calculating the provision for income taxes on an interim basis, the Company uses an estimate of the annual effective tax rate based upon currently known facts and circumstances and applies that rate to its year-to-date earnings or losses. The Company’s effective tax rate is based on expected income and statutory tax rates and takes into consideration permanent differences between financial statement and tax return income applicable to the Company in the various jurisdictions in which the Company operates. The effect of discrete items, such as changes in estimates, changes in rates or tax status, and unusual or infrequently occurring events, is recognized in the interim period in which the discrete item occurs. The accounting estimates used to compute the provision for income taxes may change as new events occur, additional information is obtained or as the result of new judicial interpretations or regulatory or tax law changes.

The Company’s interim effective tax rate, inclusive of discrete items, for the three-month periods ended March 31, 2023 and 2022 was 0%, respectively, due to recurrent net losses for the periods presented.

16. STOCKHOLDERS’ EQUITY

Preferred Stock

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

Series A Preferred Stock

As of March 31, 2023 and December 31, 2022, the Company had no shares of Series A Stock issued and outstanding.

Series B Preferred Stock

As of March 31, 2023 and December 31, 2022, the Company had no shares of Series B Stock issued and outstanding, respectively.

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Series C Preferred Stock

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

The holder may, at any time after the 6-month anniversary of the issuance of the shares of Series C Preferred Stock, convert such shares into common stock at a conversion rate of $57.60 per share. In addition, the Company may, at any time after the issuance of the shares, convert any or all of the outstanding shares of Series C Preferred Stock at a conversion rate of $57.60 per share.

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

Cumulative dividends accrue on each share of Series C Stock at the rate of 8% per annum of the stated value of $1.00 per share and are payable in arrears quarterly commencing 90 days from issuance. The dividend shall be payable in shares of common stock (a “PIK Dividend”) and are be due and payable on the date on which such PIK Dividend was declared.

Upon a liquidation, dissolution or winding up of the Company, the holders of the Series C Stock are entitled to $1.00 per share plus all accrued and unpaid dividends. No distribution may be made to holders of shares of capital stock ranking junior to the Series C Stock upon a liquidation until Series C stockholders receive their liquidation preference. The holders of 66 2/3% of the then outstanding shares of Series C Stock, may elect to deem a merger, reorganization or consolidation of the Company into or with another corporation, not affiliated with said majority, or other similar transaction or series of related transactions in which more than 50% of the voting power of the Company is disposed of in exchange for property, rights or securities distributed to holders thereof by the acquiring person, firm or other entity, or the sale of all or substantially all of the assets of the Company.

On January 24, 2022, the Company issued 686 shares of common stock to a stockholder upon the conversion of 39,500 shares of Series C preferred stock.

As of March 31, 2023 and December 31, 2022, the Company had 9,281,809 shares of Series C Stock issued and outstanding, respectively.

For the three months ended March 31, 2023, the Company declared cumulative dividends totaling $185,636 for amounts accrued on its Series C Stock.

Common Stock

The Company is authorized to issue 500,000,000 shares of common stock, par value of $0.001 per share and had 7,339,677 and 2,514,858 shares of common stock issued and outstanding as of March 31, 2023 and December 31, 2022, respectively.

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Reverse Stock Split

On October 4, 2022, the Board and shareholders approved the granting of authority to the Board to amend the Company’s articles of incorporation to effect a reverse stock split of the issued and outstanding shares of its common stock, by a ratio of no less than 1-for-2 and no more than 1-for-30, with the exact ratio to be determined by the Board in its sole discretion, and with such reverse stock split to be effective at such time and date, if at all, as determined by the Board in its sole discretion. On December 9, 2022, the Board effected a 1-for-30 reverse stock split in connection with the Company’s continued listing of its common stock on Nasdaq.

PIPE Offering and Related Waiver

On January 25, 2023, the Company consummated a private investment in public equity financing (the “PIPE Offering”) pursuant to the terms of the Securities Purchase Agreement, dated January 25, 2023, as amended (the “2023 SPA”), by and between it and the purchaser named therein (the “2023 SPA Selling Stockholder”) and issued (i) 100,000 shares of common stock; (ii) 1,327,434 warrants (the “Purchase Warrants”) to purchase an aggregate of 2,323,010 shares of common stock; and (iii) 1,227,434 prefunded warrants (the “Pre-Funded Warrants,” and together with the Purchase Warrants, the “Warrants”) to purchase an aggregate of 1,227,434 shares of common stock. The purchase price of each share of common stock and associated Purchase Warrant was $2.26. The purchase of each Pre-Funded Warrant and associated Purchase Warrant was $2.25. The aggregate gross proceeds of the PIPE Offering was approximately $3.0 million, before deducting fees to the placement agent and other expenses payable by the Company. EF Hutton, division of Benchmark Investments, LLC, acted as the exclusive placement agent in connection with the PIPE Offering.

In connection with the PIPE Offering, the Company entered into a waiver agreement (the “Waiver”) with L1 Capital Global Opportunities Master Fund (“L1”) waiving certain provisions of the Securities Purchase Agreement, dated as of September 14, 2021 (the “2021 SPA”), by and between it and L1. Pursuant to the terms of the Waiver, L1 waived certain provisions of the 2021 SPA and in consideration thereof, the Company (i) issued 150,000 purchase warrants substantially similar to the Purchase Warrants issued in connection with the 2023 SPA; and (ii) paid a cash fee of $50,000 to L1.

The Purchase Warrants are immediately exercisable for $2.26 per share of common stock, subject to certain adjustments, including with respect to stock dividends, splits, subsequent rights offerings, pro rata distributions and a Fundamental Transaction (as defined in the purchase warrant agreement (the “Purchase Warrant Agreement”)), until the fifth anniversary of the original issuance date (the “Expiration Date”). The Prefunded Warrants are immediately exercisable for $0.01 per share of common stock, subject to certain adjustments, including with respect to stock dividends, splits, subsequent rights offerings, pro rata distributions and a Fundamental Transaction (as defined in the Prefunded Warrant), until all of the Prefunded Warrants are exercised in full. The exercise of the Warrants is subject to beneficial ownership limitations.

Pursuant to the 2023 SPA, the Company is obligated to hold a special stockholders’ meeting no later than 60 days following the date of the 2023 SPA to solicit the approval of the issuance of the shares of common stock, Warrants and the shares of common stock underlying the Warrants in compliance with the rules of the Nasdaq Stock Market (without regard to any limitations on exercise set forth in the Purchase Warrant Agreement or the prefunded warrant agreement (the “Prefunded Warrant Agreement”). On March 27, 2023, the Company held a virtual special meeting of stockholders, and at the meeting, the issuance of the securities in compliance with the rules of the Nasdaq Stock Market has been approved.

In connection with the PIPE Offering, the Company entered into a Registration Rights Agreement with the Purchasers, dated January 25, 2023 (the “Registration Rights Agreement”). The Registration Rights Agreement provides that we shall file a registration statement covering the resale of all of the Registrable Securities (as defined in the Registration Rights Agreement) with the SEC no later than the 7th calendar day following the date of the Registration Rights Agreement, and have the registration statement declared effective by the SEC as promptly as possible after the filing thereof, but in any event no later than the 30th calendar day following the date of the Registration Rights Agreement, or in the event of a “full review” by the SEC, the 45th day following the date of the Registration Rights Agreement. On February 2, 2023, the Company filed the registration statement, and on February 9, 2023, the registration statement was declared effective by the SEC.

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Common Stock Issued in Exchange for Consulting, Professional and Other Services

During the three months ended March 31, 2023, the Company issued 23,334 shares of common stock with a fair market value of $31,968 to contractors for services rendered.

During the three months ended March 31, 2022, the Company issued 2,486 shares of common stock with a fair market value of $76,822 to contractors for services rendered.

Common Stock Issued in Connection with the Conversion of Note Principal and Accrued Interest

During the three months ended March 31 2022, the Company issued 191,192 shares of common stock upon the conversion of $4,125,000 in note principal and accrued interest.

Common Stock Issued in Connection with Series C Stock Dividends

During the three months ended March 31, 2022, the Company issued 5,842 shares of common stock valued at $459,068 for cumulative dividends declared as of December 31, 2021 on its Series C Stock.

Stock Purchase Warrants

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

The following table reflects all outstanding and exercisable warrants at March 31, 2023 and December 31, 2022. All warrants are exercisable for a period of three to five years from the date of issuance:

	Number of Warrants Outstanding			Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (Yrs.)
Balance January 1, 2022		141,572		$	132.00		1.75
Warrants issued		4,280,355			3.20
Warrants exercised		(279,069	)		–
Warrants forfeited		(5,678	)		–
December 31, 2022		4,137,180			7.29		4.89
Warrants issued		3,812,944			2.26
Warrants exercised		(5,770,379	)		–
Warrants forfeited		–			–
Balance March 31, 2023		2,179,745		$	10.66		4.73

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On January 31, 2023, in connection with the PIPE Offering described above, the Company issued 1,327,434 Purchase Warrants to purchase an aggregate of 2,323,010 shares of common stock. The Purchase Warrants are immediately exercisable for $2.26 per share of common stock. The Purchase Warrant holders may also effect an alternative cashless exercise on or after the later of (i) the 30 day anniversary of the initial exercise date and (ii) the stockholder approval date (as defined in the 2023 SPA). In such event, the aggregate number of shares of common stock issuable in such alternative cashless exercise shall equal the product of the aggregate number of shares of common stock that would be issuable upon exercise of the Purchase Warrants and 0.85.

The Purchase Warrants were valued using the Black-Scholes option pricing model with the following average assumptions: the Company’s stock price on the date of the issuance ($2.15), an expected dividend yield of 0%, a historical volatility of 176.6%, a risk-free interest rate of 3.6%, and an expected term of one year. The Purchase Warrants were allocated a relative fair value of $1,387,429.

On January 31, 2023, the Company also issued 150,000 purchase warrants, substantially similar to the Purchase Warrants issued in connection with the PIPE Offering, to purchase an aggregate of 262,500 shares of common stock. The Purchase Warrants were valued using the Black-Scholes option pricing model with the following average assumptions: the Company’s stock price on the date of the issuance ($2.15), an expected dividend yield of 0%, a historical volatility of 176.6%, a risk-free interest rate of 3.6%, and an expected term of 1 year. The fair value of the purchase warrants was $350,039.

During the three months ended March 31, 2023, the Company issued 1,262,787 shares of common stock upon the exercise of 1,262,787 prefunded warrants for gross proceeds of $12,309.

During the three months ended March 31, 2023, the Company also issued 3,438,698 shares of common stock upon the cashless exercise of 4,507,592 purchase warrants.

As of March 31, 2023, the outstanding stock purchase warrants had an aggregate intrinsic value of $0.

Stock Options

The following table represents all outstanding and exercisable stock options as of March 31, 2023.

Year Issued	Options Issued		Options Forfeited			Options Outstanding		Vested Options		Weighted Average Exercise Price		Weighted Average Remaining Life (Yrs.)
2013		8,058		(869	)		7,189		7,189	$	230.40		0.47
2018		62		–			62		62		748.80		0.08
2021		6,950		–			6,950		2,317		89.40		3.33
Total		15,070		(869	)		14,201		9,568	$	163.68		1.86

During the three months ended March 31, 2023 and 2022, the Company recorded $44,822 and $48,142, respectively, in stock-based compensation costs related to stock options.

As of March 31, 2023, the total unrecognized cost of stock-based compensation related to stock options was $124,130. This cost is expected to be recognized over a weighted average period of 1.3 years.

As of March 31, 2023, the outstanding stock options had an aggregate intrinsic value of $0.

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17. COMMITMENTS AND CONTINGENCIES

In the ordinary course of business, the Company and its subsidiaries are subject to various pending and potential legal actions, arbitration proceedings, claims, investigations, examinations, regulatory proceedings, information gathering requests, subpoenas, inquiries and matters relating to compliance with laws and regulations (collectively, legal proceedings).

Based on the Company’s current knowledge, and taking into consideration its legal expenses, the Company does not believe it is a party to, nor are any of its subsidiaries the subject of, any legal proceeding that would have a material adverse effect on the Company’s consolidated financial condition or liquidity.

See also Note 8 (“Leases”).

See also Note 9 (“Business Combinations”).

See also Note 15 (“Income Taxes”).

18. SUBSEQUENT EVENTS

On April 14, 2023, the Company issued 493,000 shares of common stock upon the cashless exercise of 580,000 purchase warrants.

On April 21, 2023, the Company repaid $50,000 of note principal to Dr. Thomas Rutherford, one of its directors.

On April 26, 2023, the Company issued 223,125 shares of common stock upon the cashless exercise of 262,500 purchase warrants.

On April 28, 2023, the Company issued 493,000 shares of common stock upon the cashless exercise of 580,000 purchase warrants.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis should be read in conjunction with our financial statements and the related notes thereto. The management's discussion and analysis contain forward-looking statements, such as statements of our plans, objectives, expectations, and intentions. Any statements that are not statements of historical fact are forward-looking statements. When used, the words "believe," "plan," "intend," "anticipate," "target," "estimate," "expect" and the like, and/or future tense or conditional constructions ("will," "may," "could," "should," etc.), or similar expressions, identify certain of these forward-looking statements. These forward-looking statements are subject to risks and uncertainties, including those under "Risk Factors," which appear in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022, which we filed with the Securities and Exchange Commission on April 17, 2023, that could cause actual results or events to differ materially from those expressed or implied by the forward-looking statements. Our actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of several factors. We do not undertake any obligation to update forward-looking statements to reflect events or circumstances occurring after the date of this Quarterly Report.

The share and per share information in the following discussion reflects a reverse stock split of our outstanding common stock at a 1-for-30 ratio, effective as of December 9, 2022.

Overview

We were incorporated in the State of Florida on April 14, 2014 under the name Illumination America, Inc.

On August 17, 2017, we acquired Grom Holdings, Inc., a Delaware corporation (“Grom Holdings”), pursuant to a share exchange agreement (the “Share Exchange Agreement”) entered into on May 15, 2017 (the “Share Exchange”). In connection with the Share Exchange, the Company acquired 100% of the outstanding shares of capital stock of Grom Holdings from Grom Holdings’ stockholders in exchange for an aggregate of 115,473 shares of common stock, par value $0.001 per share, of the Company. As a result of the Share Exchange, the stockholders of Grom Holdings acquired approximately 92% of the Company’s then-issued and outstanding shares of common stock and Grom Holdings became a wholly-owned subsidiary of the Company. In connection with the Share Exchange, on August 17, 2017, we changed our name to Grom Social Enterprises, Inc.

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

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

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

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

· Grom Nutritional Services, Inc. (“GNS”), incorporated in the State of Florida on April 19, 2017, intends to market and distribute nutritional supplements to children. It has been nonoperational since its inception.

· Curiosity Ink Media, LLC (“Curiosity”), organized in the State of Delaware on January 9, 2017, develops, acquires, builds, grows and maximizes the short, mid and long-term commercial potential of kids and family entertainment properties and associated business opportunities.

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

Impact of COVID-19

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

We experienced significant disruptions to our business and operations due to circumstances related to COVID-19, and delays caused government-imposed quarantines, office closings and travel restrictions, which affect both us and our service providers. We have significant operations in Manila, Philippines, which was locked down by the government on March 12, 2020 due to concerns related to the spread of COVID-19. As a result of the Philippines government’s call to contain COVID-19, our animation studio, located in Manila, Philippines, which accounts for approximately 88% of our total revenues on a consolidated basis, was forced to close its offices for significant periods of time from March 2020 through December 2021.

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

While restrictions have eased, the risk continues as new variants are being discovered. The full extent of potential impacts on our business, financing activities and the global economy will depend on future developments, which cannot be predicted due to the uncertain nature of the continued COVID-19 pandemic, government mandated shut downs, and its adverse effects, including new information which may emerge concerning the severity of COVID-19 and the actions to contain COVID-19 or treat its impact, among others. These effects could have a material adverse impact on our business, operations, financial condition and results of operations.

Recent Developments

PIPE Offering and Related Waiver

On January 25, 2023, we consummated a private investment in public equity financing (the “PIPE Offering”) pursuant to the terms of the Securities Purchase Agreement, dated January 25, 2023, as amended (the “2023 SPA”), by and between us and the purchaser named therein (the “2023 SPA Selling Stockholder”) and issued (i) 100,000 shares of common stock; (ii) 1,327,434 warrants (the “Purchase Warrants”) to purchase an aggregate of 2,323,010 shares of common stock; and (iii) 1,227,434 prefunded warrants (the “Pre-Funded Warrants,” and together with the Purchase Warrants, the “Warrants”) to purchase an aggregate of 1,227,434 shares of common stock. The purchase price of each share of common stock and associated Purchase Warrant was $2.26. The purchase of each Pre-Funded Warrant and associated Purchase Warrant was $2.25. The aggregate gross proceeds of the PIPE Offering was approximately $3.0 million, before deducting fees to the placement agent and other expenses payable by us. EF Hutton, division of Benchmark Investments, LLC, acted as the exclusive placement agent in connection with the PIPE Offering.

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In connection with the PIPE Offering, we entered into a waiver agreement (the “Waiver”) with L1 Capital Global Opportunities Master Fund (“L1”) waiving certain provisions of the Securities Purchase Agreement, dated as of September 14, 2021 (the “2021 SPA”), by and between us and L1. Pursuant to the terms of the Waiver, L1 waived certain provisions of the 2021 SPA and in consideration thereof, we (i) issued 150,000 purchase warrants substantially similar to the Purchase Warrants issued in connection with the 2023 SPA; and (ii) paid a cash fee of $50,000 to L1.

The Purchase Warrants are immediately exercisable for $2.26 per share of common stock, subject to certain adjustments, including with respect to stock dividends, splits, subsequent rights offerings, pro rata distributions and a Fundamental Transaction (as defined in the purchase warrant agreement (the “Purchase Warrant Agreement”)), until the fifth anniversary of the original issuance date (the “Expiration Date”). The Prefunded Warrants are immediately exercisable for $0.01 per share of common stock, subject to certain adjustments, including with respect to stock dividends, splits, subsequent rights offerings, pro rata distributions and a Fundamental Transaction (as defined in the Prefunded Warrant), until all of the Prefunded Warrants are exercised in full. The exercise of the Warrants is subject to beneficial ownership limitations.

Pursuant to the 2023 SPA, the Company is obligated to hold a special stockholders’ meeting no later than 60 days following the date of the 2023 SPA to solicit the approval of the issuance of the shares of common stock, Warrants and the shares of common stock underlying the Warrants in compliance with the rules of the Nasdaq Stock Market (without regard to any limitations on exercise set forth in the Purchase Warrant Agreement or the prefunded warrant agreement (the “Prefunded Warrant Agreement”). On March 27, 2023, we held a virtual special meeting of stockholders, and at the meeting, the issuance of the securities in compliance with the rules of the Nasdaq Stock Market has been approved.

In connection with the PIPE Offering, we entered into a Registration Rights Agreement with the Purchasers, dated January 25, 2023 (the “Registration Rights Agreement”). The Registration Rights Agreement provides that we shall file a registration statement covering the resale of all of the Registrable Securities (as defined in the Registration Rights Agreement) with the SEC no later than the 7th calendar day following the date of the Registration Rights Agreement, and have the registration statement declared effective by the SEC as promptly as possible after the filing thereof, but in any event no later than the 30th calendar day following the date of the Registration Rights Agreement, or in the event of a “full review” by the SEC, the 45th day following the date of the Registration Rights Agreement. On February 2, 2023, we filed the registration statement, and on February 9, 2023, the registration statement was declared effective by the SEC.

Notice of Delisting of Failure to Satisfy a Continued Listing Rule or Standard

On April 10, 2023, we received a deficiency letter (the “Notice”) from the Listing Qualifications Department of The Nasdaq Stock Market LLC notifying us that, based upon the closing bid price of our common stock for the last 30 consecutive business days, we were not in compliance with the requirement to maintain a minimum bid price of $1.00 per share for continued listing on Nasdaq, as set forth in Nasdaq Listing Rule 5550(a)(2) (the “Minimum Bid Requirement”). The Notice had no immediate effect on the continued listing status of our common stock on Nasdaq, and, therefore, our listing remains fully effective. We have been provided an initial compliance period of 180 calendar days from the date of the Notice, or until October 9, 2023, to regain compliance with Nasdaq Listing Rule 5550(a)(2).

Reverse Stock Split

On October 4, 2022, the Board and shareholders approved the granting of authority to the Board to amend our articles of incorporation to effect a reverse stock split of the issued and outstanding shares of our common stock, by a ratio of no less than 1-for-2 and no more than 1-for-30, with the exact ratio to be determined by the Board in its sole discretion, and with such reverse stock split to be effective at such time and date, if at all, as determined by the Board in its sole discretion. On December 9, 2022, the Board effected a 1-for-30 reverse stock split to address a Nasdaq deficiency letter that we received on May 24, 2022.

The reverse stock split did not have any impact on the number of authorized shares of common stock, which remains at 500,000,000 shares. All share and per share information in this Quarterly Report reflects the reverse stock split of our outstanding common stock at a ratio of 1-for-30.

35

Results of Operations

Comparison of Results of Operations for the Three Months Ended March 31, 2023 and 2022

Revenue

Revenue for the three months ended March 31, 2023 was $1,199,643, compared to revenue of $1,231,125 during the three months ended March 31, 2022, representing a decrease of $31,482 or 2.6%.

Animation revenue for the three months ended March 31, 2023 was $1,057,669, compared to animation revenue of $1,048,613 during the three months ended March 31, 2022, representing an increase of $9,056 or 0.9%. The increase in animation revenue is nominal.

Web filtering revenue for the three months ended March 31, 2023 was $90,810, compared to web filtering revenue of $182,244 during the three months ended March 31, 2022, representing a decrease of $91,434 or 50.2%. The decrease is primarily due to a decrease in organic sales growth, and the timing of multi-year contract renewals.

Publication revenue for the three months ended March 31, 2023 was $10,101 compared to publication revenue of $0 during the three months ended March 31, 2022, representing an increase of $10,101 or 100.0%. Publishing revenues were generated from the sales of our graphic novels.

Other revenue for the three months ended March 31, 2023 was $41,063 compared to other revenue of $268 during the three months ended March 31, 2022, representing an increase of $40,795. Other revenue corresponds to ecommerce sales, commercial services, and subscription and/or advertising revenue from the Grom Social mobile app. The increase in other revenue is attributable to sales of our graphic novel, Thunderous, and revenue recognized for commercial services rendered.

No revenue was generated from our produced and licensed content during either of the three months ended March 31, 2023 and 2022.

Gross Profit

Our gross profits vary significantly by subsidiary. In recent years, our animation business has realized gross profits between 35% and 40%, while our web filtering business has realized gross profits between 91% and 94%. Our gross profits may vary from period to period due to the nature of the business of each subsidiary, and the timing and volume of customer contracts and projects. Current gross profit percentages may not be indicative of future gross profit performance.

Gross profit for the three months ended March 31, 2023 and 2022 were $540,137, or 45.0%, and $314,1750, or 25.5%, respectively. The increase in gross profit is primarily attributable to higher contract margins in our animation business and the reduction of certain fixed overhead expenses.

Operating Expenses

Operating expenses for the three months ended March 31, 2023 were $2,305,470, compared to operating expenses of $2,163,335 during the three months ended March 31, 2022, representing an increase of $142,135 or 6.6%. The increase is primarily attributable to an increase in selling, general and administrative costs and depreciation and amortization rendered during the three months ended March 31, 2023 as described below.

36

Selling, general and administrative (“SG&A”) are comprised of selling, marketing and promotional expenses, compensation and benefits, insurance, investor relations, rent and related facility costs, research and development, and other general expenses. SG&A expenses were $1,875,360 for the three months ended March 31, 2023, compared to $1,694,819 for the three months ended March 31, 2022, representing an increase of $180,541 or 10.7%. The increase is largely attributable to higher employment and benefit costs realized during the three months ended March 31, 2023.

Stock-based compensation, a non-cash component of our SG&A, was $44,822 for the three months ended March 31, 2023, compared to $48,142 for the three months ended March 31, 2022. Stock-based compensation is attributable to the amortization of the fair value for options to purchase shares of our common stock in connection with grants made under certain employment agreements entered into at the time of our acquisition of Curiosity.

Professional fees are comprised of accounting and compliance services, legal services, and certain other advisory and consultancy fees. Professional fees were $279,920 for the three months ended March 31, 2023, compared to $404,066 for the three months ended March 31, 2022, representing a decrease of $127,146 or 31.5%. The decrease is largely attributable to lower accounting fees realized by during the three months ended March 31, 2023. During the three months ended March 31, 2022, we completed the post-acquisition audit of the financial statements for Curiosity.

Depreciation and amortization included in operating expenses was $153,190 for the three months ended March 31, 2023, compared to $64,450 for the three months ended March 31, 2022, representing an increase of $88,740 or 137.7%. The increase is primarily attributable to the amortization of capitalized costs from the development of our Santa.com ecommerce website and prepublication costs from our graphic novels and other published content.

Other Income (Expense)

Net other expense for the three months ended March 31, 2023 was $464,992, compared to a net other expense of $1,607,286 for the three months ended March 31, 2022, representing a decrease of $1,142,294 or 71.1%. The decrease in other expense is primarily attributable to reduced interest expense from the amortization and write off of debt discounts on convertible notes due to conversions.

Interest expense is generally comprised of interest accrued and/or paid on our convertible notes, and from the amortization of note discounts. Interest expense was $480,778 for the three months ended March 31, 2023, compared to $1,631,022 during the three months ended March 31, 2022, representing a decrease of $1,150,244 or 70.5%. In January 2023, we recognized $350,039 in interest expense for the warrants issued to L1 Capital in exchange for the Waiver (see PIPE Offering and Related Waiver above).

Net Loss Attributable to Common Stockholders

We realized a net loss attributable to common stockholders of $2,329,931, or $0.43 per share, for the three months ended March 31, 2023, compared to a net loss attributable to common stockholders of $3,553,451, or $7.59 per share, during the three months ended March 31, 2022, representing a decrease in net loss attributable to common stockholders of $1,223,520 or 34.4%.

Liquidity and Capital Resources

At March 31, 2023, we had cash and cash equivalents of $4,136,755.

Net cash used in operating activities for the three months ended March 31, 2023 was $2,172,556, compared to net cash used in operating activities of $1,600,696 during the three months ended March 31, 2022, representing an increase in cash used of $571,860, primarily due to the change in our operating assets and liabilities, offset in part by the reduction in our net loss.

37

Net cash used in investing activities for the three months ended March 31, 2023 was $10,505, compared to net cash used in investing activities of $25,825 during the three months ended March 31, 2022 representing a decrease in cash used of $15,320. This change is attributable to a decrease in the amount of fixed assets purchased and/or leasehold improvements made by our animation studio in Manilla, Philippines during the three months ended March 31, 2023.

Net cash provided by financing activities for the three months ended March 31, 2023 was $2,420,579, compared to net cash provided by financing activities of $1,376,522 for the three months ended March 31, 2022, representing an increase in cash provided of $1,044,057. Our primary sources of cash from financing activities during the three months ended March 31, 2023 were attributable to $2,460,668 in net proceeds from the PIPE Offering and stock purchase warrant exercises, as compared to $1,444,000 in proceeds from the second tranche of convertible notes issued to L1 Capital. These increases were offset, in part, by the repayment of convertible notes and loans payable of $40,089 during the three months ended March 31, 2023, as compared to repayments of convertible notes and loans for $67,478 during the three months ended March 31, 2022.

Going Concern

On a consolidated basis, we have incurred significant operating losses since our inception. Our financial statements do not include any adjustments that might result from the outcome of this uncertainty. As of March 31, 2023, we have an accumulated deficit of $85.8 million. During the three months ended March 31, 2023, we used approximately $2.2 million in cash for operating activities.

We have funded our operations primarily through sales of our common stock in public markets, proceeds from the exercise of warrants to purchase common stock, and sales of convertible notes. Future capital requirements will depend on many factors, including the (i) rate of revenue growth, (ii) expansion of sales and marketing activities, (iii) timing and extent of spending on content development efforts, and (iv) market acceptance of our content, products and services.

Our management intends to raise additional funds through the issuance of equity securities or debt to enable us to meet our obligations for the twelve-month period. However, there can be no assurance that, in the event we require additional financing, such financing will be available at terms acceptable to us, if at all. Failure to generate sufficient cash flows from operations and/or raise additional capital could have a material adverse effect on our ability to achieve our intended business objectives. These factors raise substantial doubt about our ability to continue as a going concern for the next twelve months.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements.

Critical Accounting Estimates

Our consolidated financial statements and accompanying notes have been prepared in accordance with GAAP. The preparation of these consolidated financial statements requires management to make estimates, judgments, and assumptions that affect reported amounts of assets, liabilities, revenues and expenses. We continually evaluate the accounting policies and estimates used to prepare the consolidated financial statements. The estimates are based on historical experience and assumptions believed to be reasonable under current facts and circumstances. Actual amounts and results could differ from these estimates made by management. Certain accounting policies that require significant management estimates and are deemed critical to our results of operations or financial position.

In the three months ended March 31, 2023, there were no significant changes to our critical accounting estimates from those disclosed in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 2022 Annual Report on Form 10-K.

38

Item 3. Quantitative and Qualitative Disclosures about Market Risk.

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

Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our principal executive officer and principal financial officer has evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act as of March 31, 2023, the end of the period covered by this Quarterly Report.

These controls are designed to ensure that information required to be disclosed in the reports we file or submit pursuant to the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial, as appropriate officer to allow timely decisions regarding required disclosure. Based on this evaluation, our principal executive officer and the principal financial officer have concluded that our disclosure controls and procedures were not effective as of March 31, 2023.

The Company’s assessment identified certain material weaknesses which are set forth below:

Functional Controls and Segregation of Duties

Because of the Company’s limited resources, there are limited controls over information processing. Additionally, there is inadequate segregation of duties consistent with control objectives. Our Company’s management is composed of a small number of individuals resulting in a situation where limitations on segregation of duties exist. In order to remedy this situation, we will need to hire additional staff to provide greater segregation of duties.

Accordingly, as the result of identifying the above material weakness we have concluded that these control deficiencies resulted in a reasonable possibility that a material misstatement of the annual or interim financial statements may not be prevented or detected on a timely basis by the Company’s internal controls.

Management believes that the material weaknesses set forth above were the result of the scale of our operations and are intrinsic to our small size. Management continues to take actions to remedy these weaknesses, including the process of hiring additional staff to create the necessary segregation of duties to improve controls over information processing. Additionally, management has initiated the process of building a risk management framework with plans to embed the principles of this framework across all aspects of the business.

Remediation Plan

Management has implemented remediation steps to address the material weakness and to improve our internal control over financial reporting. Specifically, we (i) expanded and improved our review process for complex transactions and related accounting standards, including the identification of third-party professionals with whom to consult regarding the application of complex accounting matters, (ii) hired qualified personnel to improve the oversight of our accounting operations, and (iii) established new processes and policies. While we believe that these remediation actions will improve the effectiveness of our internal control over financial reporting, the material weakness identified will not be considered remediated until the controls operate for a sufficient period of time, and we cannot assure you that the measures we have taken to date, or any measures we may take in the future will be sufficient to remediate the material weakness we have identified or avoid potential future material weaknesses.

Changes in Internal Control over Financial Reporting

Other than as described above in our remediation plan, there were no changes in our internal controls over financial reporting during our first fiscal quarter that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.

39

PART II – OTHER INFORMATION

Item 1. Legal Proceedings.

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

Item 1A. Risk Factors.

There have been no material changes to the risk factors disclosed in “Risk Factors” in our Annual Report on Form 10-K, filed with the SEC on April 17, 2023.

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

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

On February 15, 2023, the Company issued 23,334 shares of common stock to an investor and public relations firm for services provided to the Company.

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

Item 3. Defaults upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

None.

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Item 6. Exhibits.

Exhibit No.	Description
3.1	Articles of Incorporation (Incorporated by reference to Exhibit 3.1 of the Company’s Registration Statement on Form S-1, filed with the Securities and Exchange Commission on January 13, 2016)
3.2	Bylaws (Incorporated by reference to Exhibit 3.2 of the Company’s Registration Statement on Form S-1, filed with the Securities and Exchange Commission on January 13, 2016)
3.3	Amendment to Articles of Incorporation (Incorporated by reference to Exhibit 3.3 of the Company’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on August 22, 2017)
3.4	Articles of Amendment to Articles of Incorporation (incorporated by reference to Exhibit 3.1 of the Company’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on June 18, 2019)
3.5	Certificate of Amendment to the Articles of Incorporation of the Company, filed May 7, 2021, effective as of May 13, 2021 (incorporated by reference to Exhibit 3.1 of the Company’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on May 17, 2021)
3.6	Certificate of Designation of Preferences, Rights and Limitations of Series C 8% Convertible Preferred Stock (incorporated by reference to Exhibit 3.1 of the Company’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on May 24, 2021)
3.7	Certificate of Amendment to the Articles of Incorporation of the Company, filed on December 6, 2022 (incorporated by reference to Exhibit 3.1 of the Company’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on December 8, 2022)
4.1	Form of Warrant Agreement (Incorporated by reference to Exhibit 4.2 of the Company’s Form 8-K, filed with the Securities and Exchange Commission on January 31, 2023)
4.2	Form of Prefunded Warrant Agreement (Incorporated by reference to Exhibit 4.1 of the Company’s Form 8-K, filed with the Securities and Exchange Commission on January 31, 2023)
10.1	Securities Purchase Agreement, dated January 25, 2023, between the Company and Hudson Bay Master Fund Ltd. (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on January 31, 2023)
10.2	Amendment No. 1 to Securities Purchase Agreement, dated January 30, 2023, between the Company and Hudson Bay Master Fund Ltd. (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the SEC on January 31, 2023)
10.3	Amendment No. 2 to Securities Purchase Agreement, dated January 30, 2023, between the Company and Hudson Bay Master Fund Ltd. (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed with the SEC on January 31, 2023)
10.4	Waiver Agreement, dated January 30, 2023, between the Company and L1 Capital Global Opportunities Master Fund (incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K filed with the SEC on January 31, 2023)
10.5	Registration Rights Agreement by and between Grom Social Enterprises, Inc. and the Hudson Bay Master Fund Ltd. dated January 25, 2023 (incorporated by reference to Exhibit 10.5 to the Company’s Current Report on Form 8-K filed with the SEC on January 31, 2023)
31.1	Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer
31.2	Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer
32	Chief Executive Officer and Chief Financial Officer Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema Document
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB	XBRL Taxonomy Extension Labels Linkbase Document
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document

41

SIGNATURES

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

Date: May 17, 2023	By:	/s/ Darren Marks
		Darren Marks
		Chief Executive Officer and President (Principal Executive Officer)
Date: May 17, 2023	By:	/s/ Jason Williams
		Jason Williams
		Chief Financial Officer, Treasurer and Secretary (Principal Financial and Accounting Officer)

42

EX-31.1

Exhibit 31.1

CERTIFICATION PURSUANT TO

18 USC, SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 302 OF THE SARBANES OXLEY ACT OF 2002

I, Darren Marks, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Grom Social Enterprises, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal controls over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedure to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based upon such evaluation; and

d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Dated: May 17, 2023	/s/ Darren Marks
	Darren Marks, Chief Executive Officer and President (Principal Executive Officer)

EX-31.2

Exhibit 31.2

CERTIFICATION PURSUANT TO

18 USC, SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 302 OF THE SARBANES OXLEY ACT OF 2002

I, Jason Williams, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Grom Social Enterprises, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal controls over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedure to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based upon such evaluation; and

d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Dated: May 17, 2023 /s/ Jason Williams Jason Williams, Chief Financial Officer (Principal Financial and Accounting Officer)

EX-32

Exhibit 32

CERTIFICATION PURSUANT TO

18 USC, SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with this quarterly report of Grom Social Enterprises, Inc. (the “Company”) on Form 10-Q for the quarter ended March 31, 2023, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), we, the undersigned, in the capacities and on the date indicated below, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of our knowledge:

1. The Report fully complies with the requirements of Rule 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated:  May 17, 2023	/s/ Darren Marks Darren Marks, Chief Executive Officer and President (Principal Executive Officer)
Dated:  May 17, 2023	/s/ Jason Williams Jason Williams, Chief Financial Officer (Principal Financial and Accounting Officer)

XML

Cover - shares	3 Months Ended
	Mar. 31, 2023	May 12, 2023
Document Type	10-Q
Amendment Flag	false
Document Quarterly Report	true
Document Transition Report	false
Document Period End Date	Mar. 31, 2023
Document Fiscal Period Focus	Q1
Document Fiscal Year Focus	2023
Current Fiscal Year End Date	--12-31
Entity File Number	001-40409
Entity Registrant Name	Grom Social Enterprises, Inc.
Entity Central Index Key	0001662574
Entity Tax Identification Number	46-5542401
Entity Incorporation, State or Country Code	FL
Entity Address, Address Line One	2060 NW Boca Raton Blvd.
Entity Address, Address Line Two	Suite #6
Entity Address, City or Town	Boca Raton
Entity Address, State or Province	FL
Entity Address, Postal Zip Code	33431
City Area Code	(561)
Local Phone Number	287-5776
Entity Current Reporting Status	Yes
Entity Interactive Data Current	Yes
Entity Filer Category	Non-accelerated Filer
Entity Small Business	true
Entity Emerging Growth Company	false
Entity Shell Company	false
Entity Common Stock, Shares Outstanding		8,497,302
Common Stock, par value $0.001
Title of 12(b) Security	Common Stock, par value $0.001
Trading Symbol	GROM
Security Exchange Name	NASDAQ
Warrants to purchase shares of Common Stock, par value $0.001 per share
Title of 12(b) Security	Warrants to purchase shares of Common Stock, par value $0.001 per share
Trading Symbol	GROMW
Security Exchange Name	NASDAQ

XML

Condensed Consolidated Balance Sheets (Unaudited) - USD ($)	Mar. 31, 2023	Dec. 31, 2022
Current assets:
Cash and cash equivalents	$ 4,136,755	$ 3,871,176
Accounts receivable, net	826,394	1,162,230
Inventory, net	99,070	92,303
Prepaid expenses and other current assets	620,937	605,497
Total current assets	5,683,156	5,731,206
Operating lease right of use assets	1,019,237	1,069,222
Property and equipment, net	183,546	285,676
Goodwill	10,567,484	10,567,484
Intangible assets, net	5,321,725	5,364,231
Other assets	1,640,603	1,627,078
Total assets	24,415,751	24,644,897
Current liabilities:
Accounts payable	419,028	839,679
Accrued liabilities	302,863	378,954
Dividends payable	557,435	371,799
Advanced payments and deferred revenues	445,477	576,338
Convertible notes payable, net – current	536,780	503,465
Related party payables	50,000	50,000
Lease liabilities – current	254,577	269,681
Total current liabilities	2,566,160	2,989,916
Convertible notes payable, net of loan discounts	0	68,199
Lease liabilities	773,970	803,958
Other noncurrent liabilities	226,602	434,976
Total liabilities	3,566,732	4,297,049
Commitments and contingencies (Note 17)
Stockholders' Equity:
Common stock, $0.001 par value. 500,000,000 shares authorized; 7,339,677 and 2,514,858 shares issued and outstanding as of March 31, 2023 and December 31, 2022, respectively	7,340	2,515
Additional paid-in capital	104,609,026	101,726,355
Accumulated deficit	(85,802,343)	(83,472,412)
Accumulated other comprehensive loss	(136,493)	(166,129)
Total Grom Social Enterprises, Inc. stockholders' equity	18,686,812	18,099,611
Noncontrolling interests	2,162,207	2,248,237
Total stockholders' equity	20,849,019	20,347,848
Total liabilities and equity	24,415,751	24,644,897
Series A Preferred Stock [Member]
Stockholders' Equity:
Preferred Stock, Value, Issued	0	0
Series B Preferred Stock [Member]
Stockholders' Equity:
Preferred Stock, Value, Issued	0	0
Series C Preferred Stock [Member]
Stockholders' Equity:
Preferred Stock, Value, Issued	$ 9,282	$ 9,282

XML

Condensed Consolidated Balance Sheets (Unaudited) (Parenthetical) - $ / shares	Mar. 31, 2023	Dec. 31, 2022
Preferred stock, par value	$ 0.001
Preferred stock, shares authorized	25,000,000
Common stock, par value	$ 0.001	$ 0.001
Common stock, shares authorized	500,000,000	500,000,000
Common stock, shares issued	7,339,677	2,514,858
Common stock, shares outstanding	7,339,677	2,514,858
Series A Preferred Stock [Member]
Preferred stock, par value	$ 0.001	$ 0.001
Preferred stock, shares authorized	10,000,000	10,000,000
Preferred stock, shares issued	0	0
Preferred stock, shares outstanding	0	0
Series B Preferred Stock [Member]
Preferred stock, par value	$ 0.001	$ 0.001
Preferred stock, shares authorized	10,000,000	10,000,000
Preferred stock, shares issued	0	0
Preferred stock, shares outstanding	0	0
Series C Preferred Stock [Member]
Preferred stock, par value	$ 0.001	$ 0.001
Preferred stock, shares authorized	10,000,000	10,000,000
Preferred stock, shares issued	9,281,809	9,281,809
Preferred stock, shares outstanding	9,281,809	9,281,809

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Condensed Consolidated Statements of Operations and Comprehensive Loss (Unaudited) - USD ($)	3 Months Ended
	Mar. 31, 2023	Mar. 31, 2022
Income Statement [Abstract]
Sales	$ 1,199,643	$ 1,231,125
Cost of goods sold	659,506	916,949
Gross profit	540,137	314,176
Operating expenses:
Depreciation and amortization	153,190	64,450
Selling, general and administrative	1,875,360	1,694,819
Professional fees	276,920	404,066
Total operating expenses	2,305,470	2,163,335
Loss from operations	(1,765,333)	(1,849,159)
Other income (expense)
Interest income (expense), net	(480,778)	(1,631,022)
Other gains (losses)	15,786	23,736
Total other income (expense)	(464,992)	(1,607,286)
Loss before income taxes	(2,230,325)	(3,456,445)
Provision for income taxes (benefit)	0	0
Net loss	(2,230,325)	(3,456,445)
Loss attributable to noncontrolling interests	(86,030)	(79,838)
Net loss attributable to Grom Social Enterprises, Inc. stockholders	(2,144,295)	(3,376,607)
Dividends to Series C preferred stockholders	185,636	176,844
Net loss attributable to Grom Social Enterprises, Inc. common stockholders	(2,329,931)	(3,553,451)
Comprehensive loss:
Net loss	(2,230,325)	(3,456,445)
Foreign currency translation adjustment	29,636	(3,718)
Comprehensive loss	(2,200,689)	(3,460,163)
Comprehensive loss attributable to noncontrolling interests	(86,030)	(79,838)
Comprehensive loss attributable to Grom Social Enterprises, Inc. common stockholders	$ (2,114,659)	$ (3,380,325)

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Condensed Consolidated Statements of Operations and Comprehensive Loss (Unaudited) (Parenthetical) - $ / shares	3 Months Ended
	Mar. 31, 2023	Mar. 31, 2022
Income Statement [Abstract]
Earnings Per Share, Basic	$ (0.43)	$ (7.59)
Earnings Per Share, Diluted	$ (0.43)	$ (7.59)
Weighted Average Number of Shares Outstanding, Basic	5,448,105	468,458
Weighted Average Number of Shares Outstanding, Diluted	5,448,105	468,458

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Condensed Consolidated Statements of Changes in Stockholders' Equity (Unaudited) - USD ($)	Preferred Stock Series A [Member]	Preferred Stock Series B [Member]	Preferred Stock Series C [Member]	Common Stock [Member]	Additional Paid-in Capital [Member]	Retained Earnings [Member]	AOCI Attributable to Parent [Member]	Noncontrolling Interest [Member]	Total
Beginning balance, value at Dec. 31, 2021			$ 9,400	$ 434	$ 89,863,573	$ (66,404,190)	$ (30,755)	$ 2,682,339	$ 26,120,801
Beginning balance, shares at Dec. 31, 2021			9,400,309	433,631
Net loss						(3,376,607)		(79,838)	(3,456,445)
Change in foreign currency translation							(3,718)		(3,718)
Conversion of Series C preferred stock into common stock			$ (39)	$ 1	38
Conversion of Series C preferred stock into common stock, shares			(39,500)
Conversion of Series C preferred stock into common stock, shares				686
Dividends declared for Series C preferred stock						(176,844)			(176,844)
Issuance of common stock as payment for Series C preferred stock dividends payable				$ 6	459,062				459,068
Issuance of common stock as payment for Series C preferred stock dividends payable, shares				5,842
Issuance of common stock in exchange for consulting, professional and other services				$ 2	76,820				76,822
Issuance of common stock in exchange for consulting, professional and other services, shares				2,486
Conversion of note principal and accrued interest into common stock				$ 192	4,124,808				4,125,000
Conversion of note principal and accrued interest into common stock, shares				191,912
Recognition of beneficial conversion features related to notes payable					363,329				363,329
Stock based compensation expense related to stock options					48,142				48,142
Ending balance, value at Mar. 31, 2022			$ 9,361	$ 635	94,935,772	(69,957,641)	(34,473)	2,602,501	27,556,155
Ending balance, shares at Mar. 31, 2022			9,360,809	634,557
Beginning balance, value at Dec. 31, 2022			$ 9,282	$ 2,515	101,726,355	(83,472,412)	(166,129)	2,248,237	20,347,848
Beginning balance, shares at Dec. 31, 2022			9,281,809	2,514,858
Net loss						(2,144,295)		(86,030)	(2,230,325)
Change in foreign currency translation							29,636		29,636
Conversion of Series C preferred stock into common stock
Dividends declared for Series C preferred stock						(185,636)			(185,636)
Issuance of common stock in connection with sales made under private offerings				$ 100	2,448,259				2,448,359
Issuance of common stock in connection with sales made under private offerings, shares				100,000
Issuance of common stock in connection with the exercise of common stock purchase warrants				$ 4,702	7,607				12,309
Issuance of common stock in connection with the exercise of common stock purchase warrants, shares				4,701,485
Issuance of common stock in exchange for consulting, professional and other services				$ 23	31,945				31,968
Issuance of common stock in exchange for consulting, professional and other services, shares				23,334
Issuance of common stock purchase warrants as consideration for waiver of a financing covenant					350,038				350,038
Stock based compensation expense related to stock options					44,822				44,822
Ending balance, value at Mar. 31, 2023			$ 9,282	$ 7,340	$ 104,609,026	$ (85,802,343)	$ (136,493)	$ 2,162,207	$ 20,849,019
Ending balance, shares at Mar. 31, 2023			9,281,809	7,339,677

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Condensed Consolidated Statements of Cash Flows (Unaudited) - USD ($)	3 Months Ended
	Mar. 31, 2023	Mar. 31, 2022
Cash flows from operating activities:
Net loss	$ (2,230,325)	$ (3,456,445)
Adjustments to reconcile net loss to cash used in operating activities:
Depreciation and amortization	206,834	130,830
Amortization of debt discount	5,206	1,621,313
Amortization of right-of-use assets	72,869	82,644
Provision for doubtful accounts	7,149	0
Common stock purchase warrants issued for financing costs	350,039	0
Common stock issued in exchange for fees and services	31,968	76,822
Retirement benefit cost	46,363	0
Stock based compensation	44,822	48,142
Loss on disposal of property and equipment	559	0
Changes in operating assets and liabilities:
Accounts receivable	328,687	201,832
Inventory	(6,768)	(4,172)
Prepaid expenses and other current assets	(15,441)	(46,245)
Other assets	(107,977)	(118,594)
Accounts payable	(469,751)	(70,542)
Accrued liabilities	(29,489)	39,250
Advanced payments and deferred revenues	(130,862)	(8,273)
Income taxes payable and other noncurrent liabilities	(208,373)	(3,091)
Operating lease liabilities	(68,066)	(94,167)
Net cash used in operating activities	(2,172,556)	(1,600,696)
Cash flows from investing activities:
Purchase of property and equipment	(15,193)	(25,825)
Proceeds from the sale of property and equipment	4,688	0
Net cash used in investing activities	(10,505)	(25,825)
Cash flows from financing activities:
Proceeds from issuance of common stock, net of issuance costs	2,448,359	0
Proceeds from exercise of common stock purchase warrants, net of issuance costs	12,309	0
Proceeds from issuance of convertible notes	0	1,444,000
Repayments of convertible notes	(40,089)	(35,968)
Repayments of loans payable	0	(31,510)
Net cash provided by financing activities	2,420,579	1,376,522
Effect of exchange rates on cash and cash equivalents	28,061	(8,834)
Net increase (decrease) in cash and cash equivalents	265,579	(258,833)
Cash and cash equivalents at beginning of period	3,871,176	6,530,161
Cash and cash equivalents at end of period	4,136,755	6,271,328
Supplemental disclosure of cash flow information:
Cash paid for interest	6,917	11,796
Cash paid for income taxes	0	0
Supplemental disclosure of non-cash investing and financing activities:
Common stock issued to reduce dividends payable to Series C preferred stockholders	0	459,068
Common stock warrants issued in connection with convertible promissory notes	0	363,329
Conversion of note principal and accrued interest into common stock	0	4,125,000
Dividends payable to Series C preferred stockholders	$ 185,636	$ 176,844

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NATURE OF OPERATIONS

3 Months Ended

Mar. 31, 2023

Organization, Consolidation and Presentation of Financial Statements [Abstract]

NATURE OF OPERATIONS

1. NATURE OF OPERATIONS

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

The Company operates its business through the following five operating subsidiaries:

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

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

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

· Grom Nutritional Services, Inc. (“GNS”), incorporated in the State of Florida on April 19, 2017, intends to market and distribute nutritional supplements to children. It has been nonoperational since its inception.

· Curiosity Ink Media, LLC (“Curiosity”), organized in the State of Delaware on January 9, 2017, develops, acquires, builds, grows and maximizes the short, mid and long-term commercial potential of kids and family entertainment properties and associated business opportunities.

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

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GOING CONCERN

3 Months Ended

Mar. 31, 2023

Organization, Consolidation and Presentation of Financial Statements [Abstract]

GOING CONCERN

2. GOING CONCERN

The condensed consolidated financial statements of the Company have been prepared on a going concern basis, which contemplates the realization of assets and the discharge of liabilities in the normal course of business. Based on current operating levels, the Company will need to raise additional funds by selling additional equity or incurring debt.

On a consolidated basis, the Company has incurred significant operating losses since its inception. As of March 31, 2023, The Company has an accumulated deficit of $85.8 million. During the three months ended March 31, 2023, it used approximately $2.2 million in cash for operating activities.

The Company has funded its operations primarily through sales of its common stock in public markets, proceeds from the exercise of warrants to purchase common stock, and the sale of convertible notes. Future capital requirements will depend on many factors, including the (i) rate of revenue growth, (ii) expansion of sales and marketing activities, (iii) timing and extent of spending on content development efforts, and (iv) market acceptance of the Company’s content, products and services.

The Company’s management intends to raise additional funds through the issuance of equity securities or debt to enable the Company to meet its obligations for the twelve-month period. However, there can be no assurance that, in the event the Company requires additional financing, such financing will be available at terms acceptable to the Company, if at all. Failure to generate sufficient cash flows from operations and/or raise additional capital could have a material adverse effect on the Company’s ability to achieve its intended business objectives. These factors raise substantial doubt about the Company’s ability to continue as a going concern for the twelve months from the date of this report.

The accompanying condensed consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

3 Months Ended

Mar. 31, 2023

Accounting Policies [Abstract]

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Impact of COVID-19

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

The Company experienced significant disruptions to its business and operations due to circumstances related to COVID-19, and delays caused government-imposed quarantines, office closings and travel restrictions, which affected both the Company’s and its service providers. The Company has significant operations in Manila, Philippines, which was locked down by the government on March 12, 2020 due to concerns related to the spread of COVID-19. As a result of the Philippines government’s call to contain COVID-19, the Company’s animation studio, located in Manila, Philippines, which accounts for approximately 88% of the Company’s total revenues on a consolidated basis, was forced to close its offices for significant periods of time from March 2020 through December 2021.

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

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

Basis of Presentation

The accompanying condensed consolidated financial statements are unaudited and have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and in conjunction with the instructions to Form 10-Q of the Securities and Exchange Commission (“SEC”). Accordingly, certain information and footnote disclosures required by GAAP for complete financial statements have been condensed or omitted. For the three months ended March 31, 2023, the condensed consolidated financial statements include the accounts of the Company and its operating subsidiaries Grom Social, TD Holdings, GES, GNS, and Curiosity. The Company recognizes noncontrolling interest related to its less-than-wholly-owned subsidiary, Curiosity, as equity in the consolidated financial statements separate from the parent entity’s equity. The net loss attributable to noncontrolling interest is included in net loss in the condensed consolidated statements of operations and comprehensive loss.

These condensed consolidated financial statements include all of the adjustments, which in the opinion of management are necessary for a fair presentation of financial position and results of operations. All such adjustments, which include intercompany balances and transactions are of a normal and recurring nature. Interim results are not necessarily indicative of results for a full year. These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto at December 31, 2022, as presented in the Company’s Annual Report on Form 10-K filed on April 17, 2023 with the SEC.

Certain amounts for the prior year period have been reclassified to conform to current year’s presentation.

Use of Estimates

The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. The most significant estimates relate to revenue recognition, valuation of accounts receivable, goodwill and other long-lived assets, 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.

Update to Significant Accounting Policies

There have been no new or material changes to the significant accounting policies discussed in the Company’s audited financial statements in its Annual Report on Form 10-K for the fiscal year ended December 31, 2022 as filed with the SEC on April 17, 2023, that are of significance, or potential significance, to the Company.

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REVENUES

3 Months Ended

Mar. 31, 2023

Revenue from Contract with Customer [Abstract]

REVENUES

4. REVENUES

The Company recognizes revenue from contracts with customers in accordance with FASB ASC 606. The Company’s main types of revenue contracts consists of the following:

Animation Revenue

Animation revenue is primarily generated from contracts with customers for preproduction and production services related to the development of animated movies and television series. Preproduction activities include producing storyboards, location design, model and props design, background color and color styling. Production focuses on library creation, digital asset management, background layout scene assembly, posing, animation and aftereffects.

The Company provides services under fixed-price contracts. Under fixed-price contracts, the Company agrees to perform the specified work for a pre-determined price. To the extent actual costs vary from estimated costs, the Company’s profit may increase, decrease, or result in a loss.

Web Filtering Revenue

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

Produced and Licensed Content Revenue

Produced and licensed content revenues are generated from the licensing of internally-produced films and episodic television programs.

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

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

Publishing Revenue

The Company has engaged the services of a third-party entity to manage the printing, publishing and distribution of the Company’s publishing content. In accordance with the terms agreed with the third party, the Company’s revenue is recognized as 50% of revenue from sales per title after the third-party vendor earns back the costs to develop, author, publish, market, promote and distribute each title, inclusive of any royalties owed to rights holders, following a six month period in market to allow for returns.

Publishing revenues are eligible for recognition upon the completion of a six-month sales period to provide for any potential returns and notification from the third-party entity that it has earned back all of its related publishing costs.

Other Revenue

Other revenue corresponds to ecommerce sales, commercial services, and subscription and advertising revenue from the Grom Social mobile application.

The following table depicts the disaggregated revenue listed above within the Sales caption in the condensed consolidated statements of operations:

	Three Months Ended March 31, 2023		Three Months Ended March 31, 2022
Animation	$	1,057,669	$	1,048,613
Web Filtering		90,810		182,244
Publishing		10,101		–
Other		41,063		268
Total Sales	$	1,199,643	$	1,231,125

The following table sets forth the components of the Company’s accounts receivable and advanced payments and deferred revenues at March 31, 2023, and December 31, 2022:

	March 31, 2023			December 31, 2022
Billed accounts receivable	$	317,619		$	607,524
Unbilled accounts receivable		553,900			592,932
Allowance for doubtful accounts		(45,125	)		(38,226	)
Total accounts receivable, net	$	826,394		$	1,162,230
Total advanced payments and deferred revenues	$	445,477		$	576,338

During the three months ended March 31, 2023, the Company had three customers that accounted for 76.3% of revenues. During the three months ended March 31, 2022, the Company had three customers that accounted for 65.9% of revenues.

At March 31, 2023, the Company had three customers that accounted for 78.9% of accounts receivable. At December 31, 2022, the Company had two customers that accounted for 73.6% of accounts receivable.

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

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INVENTORY

3 Months Ended

Mar. 31, 2023

Inventory Disclosure [Abstract]

INVENTORY

5. INVENTORY

Inventory consists of costs incurred to produce animated content for third party customers. Costs incurred to produce the animated content for customers, which include direct production costs, production overhead and supplies are recognized as work-in-progress inventory. As animated content is completed in accordance with the terms stated by the customer, inventory is classified as finished products and subsequently recognized as cost of services as animated content is accepted by and available to the customer. Carrying amounts of animated content are recorded at the lower of cost or net realizable value. Cost is determined using a weighted average cost method for direct production costs, productions overhead and supplies used for completing animation projects.

As of March 31, 2023 and December 31, 2022, the Company’s inventory totaled $99,070 and $92,303, respectively, and was comprised of work-in-progress of $85,830 and $85,324, and finished goods of $13,240 and $6,979, respectively.

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PROPERTY AND EQUIPMENT

3 Months Ended

Mar. 31, 2023

Property, Plant and Equipment [Abstract]

PROPERTY AND EQUIPMENT

6. PROPERTY AND EQUIPMENT

The following table sets forth the components of the Company’s property and equipment at March 31, 2023 and December 31, 2022:

	March 31, 2023							December 31, 2022
	Cost		Accumulated Depreciation			Net Book Value		Cost		Accumulated Depreciation			Net Book Value
Capital assets subject to depreciation:
Computers, software and office equipment	$	2,554,434	$	(2,470,748	)	$	83,686	$	2,774,308	$	(2,651,872	)	$	122,436
Machinery and equipment		177,916		(173,642	)		4,274		189,641		(182,180	)		7,461
Vehicles		11,995		(11,995	)		–		41,112		(35,504	)		5,608
Furniture and fixtures		383,379		(369,159	)		14,220		409,996		(391,783	)		18,213
Leasehold improvements		1,100,013		(1,018,647	)		81,366		1,172,501		(1,065,148	)		107,353
Total fixed assets		4,227,737		(4,044,191	)		183,546		4,587,558		(4,326,487	)		261,071
Capital assets not subject to depreciation:
Construction in progress		–		–			–		24,605		–			24,605
Total fixed assets	$	4,227,737	$	(4,044,191	)	$	183,546	$	4,612,163	$	(4,326,487	)	$	285,676

For the three months ended March 31, 2023 and 2022, the Company recorded depreciation expense of $69,876 and $92,674, respectively.

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OTHER ASSETS

3 Months Ended

Mar. 31, 2023

Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract]

OTHER ASSETS

7. OTHER ASSETS

The following table sets forth the components of the Company’s other assets at March 31, 2023 and December 31, 2022:

	March 31, 2023		December 31, 2022
Capitalized website development costs	$	963,664	$	1,057,312
Prepublication costs		166,112		164,042
Produced and licensed content costs		436,549		325,966
Deposits		74,278		72,027
Other noncurrent assets		–		7,731
Total other assets	$	1,640,603	$	1,627,078

Capitalized Website Development Costs

The Company capitalizes certain costs associated with the development of its Santa.com website after the preliminary project stage is complete and until the website is ready for its intended use. Planning and operating costs are expensed as incurred. Capitalization begins when the preliminary project stage is complete, project plan is defined, functionalities are determined and internal and external resources are identified. Qualified costs incurred during the operating stage of our software applications relating to upgrades and enhancements are capitalized to the extent it is probable that they will result in added functionality, while costs that cannot be separated between maintenance of, and minor upgrades and enhancements to the websites are expensed as incurred.

Capitalized website costs are amortized on a straight-line basis over their estimated useful life of three years beginning with the time when it is ready for intended use. Amounts amortized are presented through cost of sales. Management evaluates the useful lives of these assets on an annual basis and tests for impairment whenever events or changes in circumstances occur that could impact the recoverability of these assets.

Prepublication Costs

Prepublication costs include costs incurred to create and develop the art, prepress, editorial, digital conversion and other content required for the creation of the master copy of a book or other media. Prepublication costs are amortized on a straight-line basis over a two- to five-year period based on expected future revenue. The Company regularly reviews the recoverability of the capitalized costs based on expected future revenues.

Produced and Licensed Content Costs

Produced and licensed content costs include capitalizable direct costs, production overhead, interest and development costs and are stated at the lower of cost, less accumulated amortization, or fair value. Marketing, distribution and general and administrative costs are expensed as incurred.

Film, television and direct to consumers through streaming services production and residual costs are expensed over the product life cycle based upon the ratio of the current period’s revenues to estimated remaining total revenues (Ultimate Revenues) for each production. For film productions and direct to consumer services, Ultimate Revenues include revenues from all sources that will be earned within ten years from the date of the initial release. For television series, Ultimate Revenues include revenues that will be earned within ten years from delivery of the first episode, or if still in production, five years from delivery of the most recent episode, if later. Costs of film, television and direct to consumer productions are subject to regular recoverability assessments, which compare the estimated fair values with the unamortized costs. The Company bases these fair value measurements on the Company’s assumptions about how market participants would price the assets at the balance sheet date, which may be different than the amounts ultimately realized in future periods. The amount by which the unamortized costs of film and television productions exceed their estimated fair values is written off. Costs for projects that have been abandoned are written off. Projects that have not been set for production within three years are also written off unless management has committed to a plan to proceed with the project and is actively working on and funding the project.

The following tables set forth the components of the Company’s capitalized costs at March 31, 2023 and December 31, 2022:

	March 31, 2023							December 31, 2022
	Gross Carrying Value		Accumulated Amortization			Net Book Value		Gross Carrying Value		Accumulated Depreciation			Net Book Value
Prepublication costs	$	168,398	$	(2,286	)	$	166,112	$	165,524	$	(1,482	)	$	164,042
Produced and licensed content costs		436,549		–			436,549		325,966		–			325,966
Capitalized website development costs		1,123,772		(160,108	)		963,664		1,123,772		(66,460	)		1,057,312
Total capitalized costs	$	1,728,720	$	(162,394	)	$	1,566,325	$	1,615,262	$	(67,942	)	$	1,547,320

For the three months ended March 31, 2023 and 2022, the Company recorded amortization expense of $94,452 and $0, respectively.

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LEASES

3 Months Ended

Mar. 31, 2023

Leases

LEASES

8. LEASES

The Company has entered into operating leases primarily for office space. These leases have original terms which range from two years to six years, and often include one or more options to renew or in the case of equipment rental, to purchase the equipment. During the three months ended March 31, 2023, the Company did not record any additional right of use (“ROU”) assets or lease liabilities related to new operating leases.

The future minimum payment obligations at March 31, 2023 for operating leases are as follows:

Remainder of 2023	$	287,404
2024		280,112
2025		281,663
2026		228,798
2027		240,239
Thereafter		–
Total future minimum payment obligations		1,318,216
Less: Imputed interest		(289,669	)
Present value of lease liabilities	$	1,028,547

These operating leases are listed as separate line items on the Company's Consolidated Balance Sheets 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 Consolidated Balance Sheets.

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 are as follows:

	Three Months Ended March 31, 2023
Cash paid for operating lease liabilities	$	95,300
Weighted-average remaining lease term in years		3.1
Weighted-average discount rate		10%

For the three months ended March 31, 2023 and 2022, the Company recorded rent expenses related to lease obligations of $100,102 and $105,340, respectively. Rent expenses related to lease obligations are allocated between cost of goods sold and selling, general and administrative expenses in the Company’s condensed consolidated statement of operations.

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BUSINESS COMBINATIONS

3 Months Ended

Mar. 31, 2023

Business Combination and Asset Acquisition [Abstract]

BUSINESS COMBINATIONS

9. BUSINESS COMBINATIONS

Acquisition of Curiosity Ink Media, LLC

On July 29, 2021, the Company entered into a membership interest purchase agreement (the “Purchase Agreement”) with Curiosity Ink Media LLC, a Delaware limited liability company (“Curiosity”) and the holders of all of Curiosity’s outstanding membership interests (the “Sellers”), for the purchase of 80% of Curiosity’s outstanding membership interests (the “Purchased Interests”) from the Sellers (the “Acquisition).

On August 19, 2021, pursuant to the terms of the Purchase Agreement, the Company consummated the Acquisition and acquired the Purchased Interests in consideration for the issuance to the Sellers of an aggregate of 1,771,883 shares of the Company’s common stock to the Sellers, pro rata to their membership interests immediately prior to the closing of the Acquisition. The shares were valued at $2.82 per share which represents the 20-day volume-weighted average price of the Company’s common stock on August 19, 2021.

Pursuant to the Purchase Agreement, the Company also paid $400,000 and issued an 8% eighteen-month convertible promissory note in the principal amount $278,000 (the “Curiosity Note”) to pay-down and refinance certain outstanding loans and advances previously made to Curiosity by Russell Hicks and Brett Watts.

The Curiosity Note is convertible into shares of common stock of the Company at a conversion price of $3.28 per share but may not be converted if, after giving effect to such conversion, the noteholder and its affiliates would beneficially own in excess of 9.99% of the Company’s outstanding common stock. The Curiosity Note may be prepaid at any time, in whole or in part. The Curiosity Note is subordinate to the Company’s senior indebtedness.

The Sellers also have the ability to earn up to $17,500,000 (payable 50% in cash and 50% in stock) upon the achievement of certain performance milestones as of December 31, 2025.

In addition to the tangible assets, goodwill totaling $14,271,969 was recorded in connection with the acquisition. Goodwill was calculated as the excess of the consideration transferred over the net assets recognized and represents potential future economic benefits arising from other assets acquired that could not be individually identified and separately recognized. Goodwill is not expected to be deductible for tax purposes.

Consideration Paid:
Cash consideration	$	400,000
Common stock issued		5,421,962
Convertible notes		278,000
Contingent purchase consideration		5,586,493
Total consideration	$	11,686,455

The amounts in the table below represent the allocation of the purchase price. The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the acquisition date:

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

During the year ended December 31, 2022, the Company finalized the purchase price allocation, during the permissible measurement period, and obtained new fair value information for certain identifiable intangible assets related to its acquisition of Curiosity. The revised purchase price allocation decreased goodwill by $468,426 and increased intangible assets by $468,426. These adjustments did not have a significant impact on the Company’s consolidated financial statements.

The following table summarizes the individually identifiable intangible assets subsequently recognized: 

Licensing agreements	$	341,728
Books and stories content		126,698
Total identifiable intangible assets	$	468,426

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GOODWILL AND INTANGIBLE ASSETS

3 Months Ended

Mar. 31, 2023

Goodwill and Intangible Assets Disclosure [Abstract]

GOODWILL AND INTANGIBLE ASSETS

10. GOODWILL AND INTANGIBLE ASSETS

Goodwill represents the future economic benefit arising from other assets acquired that could not be individually identified and separately recognized. The goodwill arising from the Company’s acquisitions is attributable to the value of the potential expanded market opportunity with new customers.

At March 31, 2023 and December 31, 2022, the carrying amount of the Company’s goodwill was $10,567,484.

The following table sets forth the components of the Company’s intangible assets at March 31, 2023 and December 31, 2022:

			March 31, 2023							December 31, 2022
	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	$	1,526,282	$	(1,030,241	)	$	496,041	$	1,526,282	$	(992,083	)	$	534,199
Licensing agreement		19.60		341,728		(28,989	)		312,739		341,728		(24,641	)		317,087
Subtotal				1,868,010		(1,059,230	)		808,780		1,868,010		(1,016,724	)		851,286
Intangible assets not subject to amortization:
Books and stories content				126,698		–			126,698		126,698		–			126,698
Trade names				4,386,247		–			4,386,247		4,386,247		–			4,386,247
Total intangible assets			$	6,380,955	$	(1,059,230	)	$	5,321,725	$	6,380,955	$	(1,016,724	)	$	5,364,231

For the three months ended March 31, 2023 and 2022, the Company recorded amortization expense of $42,505 and $38,157, respectively.

The following table provides information regarding estimated remaining amortization expense for intangible assets subject to amortization for each of the following years ending December 31:

Remainder of 2023	$	127,516
2024		170,022
2025		170,022
2026		93,708
2027		17,394
Thereafter		230,118
Total remaining intangible assets subject to amortization	$	808,780

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ACCRUED LIABILITIES

3 Months Ended

Mar. 31, 2023

Payables and Accruals [Abstract]

ACCRUED LIABILITIES

11.  ACCRUED LIABILITIES

The following table sets forth the components of the Company’s accrued liabilities at March 31, 2023 and December 31, 2022:

	March 31, 2023		December 31, 2022
Executive and employee compensation	$	92,981	$	102,151
Interest on convertible notes and promissory notes		92,457		84,292
Other accrued expenses and liabilities		117,425		192,511
Total accrued liabilities	$	302,863	$	378,954

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RELATED PARTY TRANSACTIONS AND PAYABLES

3 Months Ended

Mar. 31, 2023

Related Party Transactions [Abstract]

RELATED PARTY TRANSACTIONS AND PAYABLES

12.  RELATED PARTY TRANSACTIONS AND PAYABLES

Darren Marks’s Family

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

As of March 31, 2023, Zach and Luke Marks were employed by Grom Social as its Founder and Content Creator, and Content Coordinator, respectively, and receive annual salaries of $103,000 and $30,000, respectively.

For the three months ended March 31, 2023 and 2022, the Marks family was paid a total of $33,250 and $30,000, respectively.

Compensation for services provided by members of the Marks family is expected to continue for the foreseeable future.

Liabilities Due to Executive Officers and Directors

On July 11, 2018, our director Dr. Thomas Rutherford loaned the Company $50,000. The loan bears interest at a rate of 10% per annum and was due on August 11, 2018. No notice of default or demand for payment has been received by the Company. During the three months ended March 31, 2023 and 2022, the Company recorded interest expense of $1,233, respectively.

As of March 31, 2023 and December 31, 2022, the aggregate related party payables balance was $73,616 and $72,383, respectively, of which $23,616 and $22,383 of accrued interest were reported under accrued liabilities on the Company’s consolidated balance sheets.

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EMPLOYEE BENEFIT PLAN

3 Months Ended

Mar. 31, 2023

Retirement Benefits [Abstract]

EMPLOYEE BENEFIT PLAN

13.  EMPLOYEE BENEFIT PLAN

The Company’s subsidiary, Top Draw Animation, has an unfunded, non-contributory defined benefit plan covering its permanent employees.

Under the existing regulatory framework, the Company is required to pay eligible employees at least the minimum regulatory benefit upon retirement, which provides a retirement benefit equal to 22.5 days’ pay for every year of credited service, subject to age and service requirements. The regulatory benefit is paid in a lump sum upon retirement. The existing regulatory framework does not require minimum funding of the plan.

Retirement benefit expenses and liabilities are determined in accordance with an actuarial study made for the plan utilizing the net interest approach which disaggregates the defined benefit cost into the following components: service costs (cost of services received); net interest (financing effect of paying for benefits in advance or in arrears); and remeasurements (period-to-period fluctuations in the amounts of defined benefit obligations and plan assets).

Under the net interest approach, service cost and net interest on the defined benefit liability (asset) are both recognized in the statement of operations, while remeasurements of the defined benefit liability (asset) are recognized in other comprehensive income. Remeasurements recognized in other comprehensive income shall not be reclassified to profit or loss in a subsequent period.

The amount of the defined benefit liability reported under other noncurrent liabilities in the consolidated balance sheet is determined as follows:

	March 31, 2023		December 31, 2022
Benefit obligation	$	226,602	$	434,974
Plan assets		–		–
Total	$	226,602	$	434,974

The components of the accumulated benefit cost to be recognized under selling, general and administrative expense in consolidated statement of operations are the service cost (current service cost, past service cost or credit and settlement gains or losses) and net interest expense on the net defined benefit liability:

	March 31, 2023		March 31, 2022
Current service cost	$	56,630	$	2,471
Net interest expense		5,374		–
Total	$	59,004	$	2,471

The change in the accumulated benefit cost in the consolidated balance sheet for the three months ended March 31, 2023 is as follows:

	2023
Balance, January 1	$	434,974
Foreign currency translation		8,185
Expense recognized in other comprehensive income		59,004
Remeasurement on actuarial gain (loss) recognized		(48,683	)
Contributions paid		(226,878	)
Balance, March 31	$	226,602

The cumulative amount of actuarial gains recognized in other comprehensive income for the three months ended March 31, 2023 and 2022 is as follows:

	2023			2022
Balance, January 1	$	(37,303	)	$	60,518
Foreign currency translation		–			–
Actuarial gain (loss)		(46,307	)		–
Balance, March 31		83,610			60,518
Tax effect		20,903			(12,439	)
Cumulative actuarial gain (loss), net of tax	$	(62,707	)	$	48,079

The assumptions used to determine retirement benefits for the three months ended March 31, 2023 are as follows:

	March 31, 2023
Discount rate		6.44%
Salary increase rate		2.00%

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CONVERTIBLE NOTES

3 Months Ended

Mar. 31, 2023

Debt Disclosure [Abstract]

CONVERTIBLE NOTES

14. CONVERTIBLE NOTES

The following tables set forth the components of the Company’s convertible notes as of March 31, 2023 and December 31, 2022:

	March 31, 2023			December 31, 2022
8% Unsecured Convertible Note (Curiosity)	$	278,000		$	278,000
12% Senior Convertible Notes with Original Issuance Discounts (OID Notes)		75,000			75,000
12% Senior Secured Convertible Notes (TDH Secured Notes)		171,219			204,907
12% Senior Secured Convertible Notes (Additional Secured Notes)		32,518			38,932
Loan discounts		(19,957	)		(25,164	)
Total convertible notes, net		536,780			571,664
Less: current portion of convertible notes, net		(536,780	)		(503,465	)
Convertible notes, net	$	–		$	68,199

8% Unsecured Convertible Notes – Curiosity

On July 29, 2021, the Company entered into a membership interest purchase agreement with Curiosity and the holders of all of Curiosity’s outstanding membership interests, for the purchase of 80% of Curiosity’s outstanding membership interests from the sellers. Pursuant to the purchase agreement, the Company issued 8% eighteen-month convertible promissory notes in the aggregate principal amount $278,000 to pay-down and refinance certain outstanding loans and advances previously made by certain of its principals. The notes are convertible into shares of common stock of the Company at a conversion price of $98.40 per share but may not be converted if, after giving effect to such conversion, the noteholder and its affiliates would beneficially own in excess of 9.99% of the Company’s outstanding common stock. The notes may be prepaid at any time, in whole or in part. The notes are subordinate to the Company’s senior indebtedness. 

As of March 31, 2023, the principal balance of the Curiosity note was $278,000.

10% Senior Secured Convertible Note with Original Issuance Discount (L1)

On September 14, 2021, the Company entered into a securities purchase agreement (the “Purchase Agreement”) with L1 Capital Global Master Fund (“L1”) pursuant to which it issued (i) a 10% original issue discount senior secured convertible note in the principal amount of $4,400,000 to L1 (the “L1 Note”) and (ii) a 5 five-year warrant to purchase 27,109 shares of the Company’s common stock at an exercise price of $126.00 per share (“Warrant Shares”) in exchange for $3,960,000 (the “First Tranche Financing”). The Purchase Agreement also provided, subject to shareholder approval, for the issuance, subject to certain conditions, of an additional $1,500,000 of notes and warrants to purchase 9,259 shares of common stock (the “Second Tranche Financing”) on the same terms.

On October 20, 2021, the Company and L1 entered into an amended and restated purchase agreement which increased the amount of the Second Tranche Financing from $1,500,000 to $6,000,000 and provides (i) for an amended and restated 10% original issue discount senior secured convertible note to be issued in exchange for the L1 Note pursuant to the Purchase Agreement and (ii) for the issuance of a five-year warrant to purchase 34,706 shares of the Company’s common stock at an exercise price of $126.00 per share.

During the three months ended March 31, 2022, the Company issued an aggregate 191,192 shares of common stock to L1 upon the conversion of $4,125,000 of outstanding principal.

As of March 31, 2023, the principal balance of L1 Note was $0 and all associated loan discounts were fully amortized.

10% Senior Secured Convertible Note with Original Issuance Discount (L1– Second Tranche)

On January 20, 2022 (the “Second Tranche Closing”), the Company and LI Capital closed on the Second Tranche of the offering, resulting in the issuance of (i) a $1,750,000 10% Original Issue Discount Senior Secured Convertible Note, due July 20, 2023, (the “Second Tranche Note”); and (ii) a five year warrant to purchase 10,123 shares of Common Stock of the Company at an exercise price of $126.00 per share (the “Second Tranche Warrants”), in exchange for consideration of $1,575,000 (i.e. the face amount less the 10% Original Issue Discount of $175,000).

In connection with the Second Tranche Closing, the Company paid to EF Hutton a fee of $126,000.

The Second Tranche Note is convertible into common stock of the Company at a rate of $126.00 per share (the “Conversion Price”) into 13,889 shares of common stock (the “Second Tranche Conversion Shares”) and, is repayable in equal monthly installments of $111,563 commencing on the date that the SEC declares a registration statement with respect to the resale of such shares effective, with all remaining amounts due on July 20, 2023. The Second Tranche Note is repayable by payment of cash, or, at the discretion of the Company and if the below listed “Equity Conditions” are met, by issuance of shares of the common stock at a price of 95% of the lowest daily VWAP during the ten-trading day period prior to the respective monthly redemption dates (with a floor of $57.60) multiplied by 102% of the amount due on such date. In the event that the ten-trading day VWAP drops below $57.60 the Company will have the right to pay in stock at such ten-trading day VWAP with any shortfall paid in cash. The Conversion Price may be adjusted in the event of dilutive issuances but in no event to less than $16.20 (the “Monthly Conversion Price”).

The Company’s right to make monthly payments in stock in lieu of cash for the Second Tranche Note is conditioned on certain conditions (the “Equity Conditions”). The Equity Conditions required to be met each month in order to redeem the Second Tranche Note with stock in lieu of a monthly cash payment, among other conditions set forth therein, include without limitation, that a registration statement be in effect with respect to the resale of the shares issuable upon conversion or redemption of the Second Tranche Note (or, that an exemption under Rule 144 is available), that no default be in effect, that the average daily trading volume of the Company’s common stock would have to be at least $550,000 during the five trading days prior to the respective monthly redemption and that the outstanding principal amounts of the First Tranche Note and Second Tranche Note combined, shall not exceed 30% of the market capitalization of the Company’s Common Stock as reported on Bloomberg L.P., which percentage is subject to increase by LI Capital at its sole discretion.

Other provisions of the Second Tranche Note, which is similar in terms to the First Tranche Note, include that the Second Tranche Note Conversion Price is subject to full anti-dilution price protections in the event of financings that are below the Conversion Price with a floor of $16.20.

In the event of an Event of Default as defined in the notes, if the stock price is below the Conversion Price at the time of default and only for so long as a default is continuing, the Second Tranche Notes would be convertible at a rate of 80% of the lowest VWAP in the ten prior trading days, provided, that if the default is cured the default conversion rate elevates back to the normal Conversion Price

As part of the Second Tranche Closing, the Company issued Second Tranche Warrants exercisable for five years from the date of issuance, at $126.00 per share which carry the same anti-dilution protection as the Second Tranche Notes, subject to the same adjustment floor. The Second Tranche Warrants are exercisable via cashless exercise only for so long as no registration statement covering resale of the shares is in effect.

The Second Tranche Note continues to be subject to (i) the repayment and performance guarantees by the subsidiaries of the Company pursuant to a subsidiary guaranty and, (ii) the Security Agreement pursuant to which the LI Capital was granted a security interest in all of the assets of the Company and certain of its subsidiaries, each as entered into in connection with the First Tranche closing on September 14, 2021.

During the year ended December 31, 2022, the Company issued an aggregate 108,025 shares of common stock and repaid $1,146,901 in cash to L1 upon the conversion of $1,750,000 of outstanding principal.

As of March 31, 2023, the principal balance of the Second Tranche Notes was $0 and all associated loan discounts were fully amortized.

10% Secured Convertible Notes with Original Issuance Discounts (“OID Notes”)

During the year ended December 31, 2017, the Company issued a series of secured, convertible notes with original issuance discounts to accredited investors. The notes were issued with original issuance discounts of 10.0%, bear interest at a rate of 10% per annum (payable semiannually in cash), and carry a two-year term with a fixed conversion price of $748.80. As of March 31, 2023, the remaining principal balance of these notes was $25,000.

During the year ended December 31, 2018, the Company issued a series of secured, convertible notes with original issuance discounts to accredited investors. The notes were issued with original issuance discounts of 20.0%, bear interest at a rate of 10% per annum (payable semiannually in cash), and carry a two-year term with a fixed conversion price of $480.00. As of March 31, 2023, the remaining principal balance of these notes was $50,000.

As of March 31, 2023, the aggregate principal balance of these notes was $75,000 and all associated loan discounts were fully amortized. No notices of default or demands for payment have been received by the Company.

12% Senior Secured Convertible Notes (“TDH Secured Notes”)

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

The TDH Secured Notes are convertible at the option of the holders at 75% of the average sales price of the Company’s common stock over the 60 trading days immediately preceding conversion provided that the conversion price shall not be less than $96.00 per share.

The Company’s obligations under the TDH Secured Notes, are secured by Grom Holdings’ shares of stock of TDH, and of its wholly owned subsidiary, TDAHK. The TDH Secured Notes rank equally and ratably on a pari passu basis with (i) the other TDH Secured Notes and (ii) the Original TDH Notes issued by the Company pursuant to TDH Share Sale Agreement.

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

In connection with the issuance of the TDH Secured Notes, the Company issued to each TDH Secured Note holder shares of common stock equal to 20% of the principal amount of such holder’s TDH Secured Note, divided by $96.00. Accordingly, an aggregate of 6,250 shares of common stock were issued to the TDH Secured Note holders on March 16, 2020. These shares were valued at $420,000, or $67.20 per share, which represents fair market value. The Company recorded the value of these shares as a loan discount to be amortized as interest expense over the term of the notes.

As of March 31, 2023, the principal balance of the TDH Secured Notes was $171,219 and the remaining balance on the associated loan discounts was $16,771.

12% Senior Secured Convertible Notes (Additional Secured Notes)

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

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

The Additional Secured Notes are convertible at the option of the holders at 75% of the average sales price of the Company’s common stock over the 60 trading days immediately preceding conversion provided that the conversion price shall not be less than $96.00 per share.

In connection with the issuance of the Additional Secured Notes, the Company issued to each Additional Secured Note Lender shares of common stock equal to 20% of the principal amount of such holder’s Additional Secured Note, divided by $96.00. Accordingly, an aggregate of 2,208 shares of common stock were issued. These shares were valued at $148,000, or $67.20 per share, which represents fair market value. The Company recorded the value of these shares as a loan discount to be amortized as interest expense over the term of the related convertible notes.

As of March 31, 2023, the principal balance of the Additional Secured Notes was $32,518 and the remaining balance on the associated loan discounts was $3,186.

Future Minimum Principal Payments

The remaining principal repayments based upon the maturity dates of the Company’s borrowings for each of the next five years are as follows:

Remainder of 2023	$	480,651
2024		76,086
Total future minimum principal payments	$	556,737

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INCOME TAXES

3 Months Ended

Mar. 31, 2023

Income Tax Disclosure [Abstract]

INCOME TAXES

15. INCOME TAXES

In calculating the provision for income taxes on an interim basis, the Company uses an estimate of the annual effective tax rate based upon currently known facts and circumstances and applies that rate to its year-to-date earnings or losses. The Company’s effective tax rate is based on expected income and statutory tax rates and takes into consideration permanent differences between financial statement and tax return income applicable to the Company in the various jurisdictions in which the Company operates. The effect of discrete items, such as changes in estimates, changes in rates or tax status, and unusual or infrequently occurring events, is recognized in the interim period in which the discrete item occurs. The accounting estimates used to compute the provision for income taxes may change as new events occur, additional information is obtained or as the result of new judicial interpretations or regulatory or tax law changes.

The Company’s interim effective tax rate, inclusive of discrete items, for the three-month periods ended March 31, 2023 and 2022 was 0%, respectively, due to recurrent net losses for the periods presented.

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STOCKHOLDERS’ EQUITY

3 Months Ended

Mar. 31, 2023

Equity [Abstract]

STOCKHOLDERS’ EQUITY

16. STOCKHOLDERS’ EQUITY

Preferred Stock

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

Series A Preferred Stock

As of March 31, 2023 and December 31, 2022, the Company had no shares of Series A Stock issued and outstanding.

Series B Preferred Stock

As of March 31, 2023 and December 31, 2022, the Company had no shares of Series B Stock issued and outstanding, respectively.

Series C Preferred Stock

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

The holder may, at any time after the 6-month anniversary of the issuance of the shares of Series C Preferred Stock, convert such shares into common stock at a conversion rate of $57.60 per share. In addition, the Company may, at any time after the issuance of the shares, convert any or all of the outstanding shares of Series C Preferred Stock at a conversion rate of $57.60 per share.

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

Cumulative dividends accrue on each share of Series C Stock at the rate of 8% per annum of the stated value of $1.00 per share and are payable in arrears quarterly commencing 90 days from issuance. The dividend shall be payable in shares of common stock (a “PIK Dividend”) and are be due and payable on the date on which such PIK Dividend was declared.

Upon a liquidation, dissolution or winding up of the Company, the holders of the Series C Stock are entitled to $1.00 per share plus all accrued and unpaid dividends. No distribution may be made to holders of shares of capital stock ranking junior to the Series C Stock upon a liquidation until Series C stockholders receive their liquidation preference. The holders of 66 2/3% of the then outstanding shares of Series C Stock, may elect to deem a merger, reorganization or consolidation of the Company into or with another corporation, not affiliated with said majority, or other similar transaction or series of related transactions in which more than 50% of the voting power of the Company is disposed of in exchange for property, rights or securities distributed to holders thereof by the acquiring person, firm or other entity, or the sale of all or substantially all of the assets of the Company.

On January 24, 2022, the Company issued 686 shares of common stock to a stockholder upon the conversion of 39,500 shares of Series C preferred stock.

As of March 31, 2023 and December 31, 2022, the Company had 9,281,809 shares of Series C Stock issued and outstanding, respectively.

For the three months ended March 31, 2023, the Company declared cumulative dividends totaling $185,636 for amounts accrued on its Series C Stock.

Common Stock

The Company is authorized to issue 500,000,000 shares of common stock, par value of $0.001 per share and had 7,339,677 and 2,514,858 shares of common stock issued and outstanding as of March 31, 2023 and December 31, 2022, respectively.

Reverse Stock Split

On October 4, 2022, the Board and shareholders approved the granting of authority to the Board to amend the Company’s articles of incorporation to effect a reverse stock split of the issued and outstanding shares of its common stock, by a ratio of no less than 1-for-2 and no more than 1-for-30, with the exact ratio to be determined by the Board in its sole discretion, and with such reverse stock split to be effective at such time and date, if at all, as determined by the Board in its sole discretion. On December 9, 2022, the Board effected a 1-for-30 reverse stock split in connection with the Company’s continued listing of its common stock on Nasdaq.

PIPE Offering and Related Waiver

On January 25, 2023, the Company consummated a private investment in public equity financing (the “PIPE Offering”) pursuant to the terms of the Securities Purchase Agreement, dated January 25, 2023, as amended (the “2023 SPA”), by and between it and the purchaser named therein (the “2023 SPA Selling Stockholder”) and issued (i) 100,000 shares of common stock; (ii) 1,327,434 warrants (the “Purchase Warrants”) to purchase an aggregate of 2,323,010 shares of common stock; and (iii) 1,227,434 prefunded warrants (the “Pre-Funded Warrants,” and together with the Purchase Warrants, the “Warrants”) to purchase an aggregate of 1,227,434 shares of common stock. The purchase price of each share of common stock and associated Purchase Warrant was $2.26. The purchase of each Pre-Funded Warrant and associated Purchase Warrant was $2.25. The aggregate gross proceeds of the PIPE Offering was approximately $3.0 million, before deducting fees to the placement agent and other expenses payable by the Company. EF Hutton, division of Benchmark Investments, LLC, acted as the exclusive placement agent in connection with the PIPE Offering.

In connection with the PIPE Offering, the Company entered into a waiver agreement (the “Waiver”) with L1 Capital Global Opportunities Master Fund (“L1”) waiving certain provisions of the Securities Purchase Agreement, dated as of September 14, 2021 (the “2021 SPA”), by and between it and L1. Pursuant to the terms of the Waiver, L1 waived certain provisions of the 2021 SPA and in consideration thereof, the Company (i) issued 150,000 purchase warrants substantially similar to the Purchase Warrants issued in connection with the 2023 SPA; and (ii) paid a cash fee of $50,000 to L1.

The Purchase Warrants are immediately exercisable for $2.26 per share of common stock, subject to certain adjustments, including with respect to stock dividends, splits, subsequent rights offerings, pro rata distributions and a Fundamental Transaction (as defined in the purchase warrant agreement (the “Purchase Warrant Agreement”)), until the fifth anniversary of the original issuance date (the “Expiration Date”). The Prefunded Warrants are immediately exercisable for $0.01 per share of common stock, subject to certain adjustments, including with respect to stock dividends, splits, subsequent rights offerings, pro rata distributions and a Fundamental Transaction (as defined in the Prefunded Warrant), until all of the Prefunded Warrants are exercised in full. The exercise of the Warrants is subject to beneficial ownership limitations.

Pursuant to the 2023 SPA, the Company is obligated to hold a special stockholders’ meeting no later than 60 days following the date of the 2023 SPA to solicit the approval of the issuance of the shares of common stock, Warrants and the shares of common stock underlying the Warrants in compliance with the rules of the Nasdaq Stock Market (without regard to any limitations on exercise set forth in the Purchase Warrant Agreement or the prefunded warrant agreement (the “Prefunded Warrant Agreement”). On March 27, 2023, the Company held a virtual special meeting of stockholders, and at the meeting, the issuance of the securities in compliance with the rules of the Nasdaq Stock Market has been approved.

In connection with the PIPE Offering, the Company entered into a Registration Rights Agreement with the Purchasers, dated January 25, 2023 (the “Registration Rights Agreement”). The Registration Rights Agreement provides that we shall file a registration statement covering the resale of all of the Registrable Securities (as defined in the Registration Rights Agreement) with the SEC no later than the 7th calendar day following the date of the Registration Rights Agreement, and have the registration statement declared effective by the SEC as promptly as possible after the filing thereof, but in any event no later than the 30th calendar day following the date of the Registration Rights Agreement, or in the event of a “full review” by the SEC, the 45th day following the date of the Registration Rights Agreement. On February 2, 2023, the Company filed the registration statement, and on February 9, 2023, the registration statement was declared effective by the SEC.

Common Stock Issued in Exchange for Consulting, Professional and Other Services

During the three months ended March 31, 2023, the Company issued 23,334 shares of common stock with a fair market value of $31,968 to contractors for services rendered.

During the three months ended March 31, 2022, the Company issued 2,486 shares of common stock with a fair market value of $76,822 to contractors for services rendered.

Common Stock Issued in Connection with the Conversion of Note Principal and Accrued Interest

During the three months ended March 31 2022, the Company issued 191,192 shares of common stock upon the conversion of $4,125,000 in note principal and accrued interest.

Common Stock Issued in Connection with Series C Stock Dividends

During the three months ended March 31, 2022, the Company issued 5,842 shares of common stock valued at $459,068 for cumulative dividends declared as of December 31, 2021 on its Series C Stock.

Stock Purchase Warrants

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

The following table reflects all outstanding and exercisable warrants at March 31, 2023 and December 31, 2022. All warrants are exercisable for a period of three to five years from the date of issuance:

	Number of Warrants Outstanding			Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (Yrs.)
Balance January 1, 2022		141,572		$	132.00		1.75
Warrants issued		4,280,355			3.20
Warrants exercised		(279,069	)		–
Warrants forfeited		(5,678	)		–
December 31, 2022		4,137,180			7.29		4.89
Warrants issued		3,812,944			2.26
Warrants exercised		(5,770,379	)		–
Warrants forfeited		–			–
Balance March 31, 2023		2,179,745		$	10.66		4.73

On January 31, 2023, in connection with the PIPE Offering described above, the Company issued 1,327,434 Purchase Warrants to purchase an aggregate of 2,323,010 shares of common stock. The Purchase Warrants are immediately exercisable for $2.26 per share of common stock. The Purchase Warrant holders may also effect an alternative cashless exercise on or after the later of (i) the 30 day anniversary of the initial exercise date and (ii) the stockholder approval date (as defined in the 2023 SPA). In such event, the aggregate number of shares of common stock issuable in such alternative cashless exercise shall equal the product of the aggregate number of shares of common stock that would be issuable upon exercise of the Purchase Warrants and 0.85.

The Purchase Warrants were valued using the Black-Scholes option pricing model with the following average assumptions: the Company’s stock price on the date of the issuance ($2.15), an expected dividend yield of 0%, a historical volatility of 176.6%, a risk-free interest rate of 3.6%, and an expected term of one year. The Purchase Warrants were allocated a relative fair value of $1,387,429.

On January 31, 2023, the Company also issued 150,000 purchase warrants, substantially similar to the Purchase Warrants issued in connection with the PIPE Offering, to purchase an aggregate of 262,500 shares of common stock. The Purchase Warrants were valued using the Black-Scholes option pricing model with the following average assumptions: the Company’s stock price on the date of the issuance ($2.15), an expected dividend yield of 0%, a historical volatility of 176.6%, a risk-free interest rate of 3.6%, and an expected term of 1 year. The fair value of the purchase warrants was $350,039.

During the three months ended March 31, 2023, the Company issued 1,262,787 shares of common stock upon the exercise of 1,262,787 prefunded warrants for gross proceeds of $12,309.

During the three months ended March 31, 2023, the Company also issued 3,438,698 shares of common stock upon the cashless exercise of 4,507,592 purchase warrants.

As of March 31, 2023, the outstanding stock purchase warrants had an aggregate intrinsic value of $0.

Stock Options

The following table represents all outstanding and exercisable stock options as of March 31, 2023.

Year Issued	Options Issued		Options Forfeited			Options Outstanding		Vested Options		Weighted Average Exercise Price		Weighted Average Remaining Life (Yrs.)
2013		8,058		(869	)		7,189		7,189	$	230.40		0.47
2018		62		–			62		62		748.80		0.08
2021		6,950		–			6,950		2,317		89.40		3.33
Total		15,070		(869	)		14,201		9,568	$	163.68		1.86

During the three months ended March 31, 2023 and 2022, the Company recorded $44,822 and $48,142, respectively, in stock-based compensation costs related to stock options.

As of March 31, 2023, the total unrecognized cost of stock-based compensation related to stock options was $124,130. This cost is expected to be recognized over a weighted average period of 1.3 years.

As of March 31, 2023, the outstanding stock options had an aggregate intrinsic value of $0.

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COMMITMENTS AND CONTINGENCIES

3 Months Ended

Mar. 31, 2023

Commitments and Contingencies Disclosure [Abstract]

COMMITMENTS AND CONTINGENCIES

17. COMMITMENTS AND CONTINGENCIES

In the ordinary course of business, the Company and its subsidiaries are subject to various pending and potential legal actions, arbitration proceedings, claims, investigations, examinations, regulatory proceedings, information gathering requests, subpoenas, inquiries and matters relating to compliance with laws and regulations (collectively, legal proceedings).

Based on the Company’s current knowledge, and taking into consideration its legal expenses, the Company does not believe it is a party to, nor are any of its subsidiaries the subject of, any legal proceeding that would have a material adverse effect on the Company’s consolidated financial condition or liquidity.

See also Note 8 (“Leases”).

See also Note 9 (“Business Combinations”).

See also Note 15 (“Income Taxes”).

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SUBSEQUENT EVENTS

3 Months Ended

Mar. 31, 2023

Subsequent Events [Abstract]

SUBSEQUENT EVENTS

18. SUBSEQUENT EVENTS

On April 14, 2023, the Company issued 493,000 shares of common stock upon the cashless exercise of 580,000 purchase warrants.

On April 21, 2023, the Company repaid $50,000 of note principal to Dr. Thomas Rutherford, one of its directors.

On April 26, 2023, the Company issued 223,125 shares of common stock upon the cashless exercise of 262,500 purchase warrants.

On April 28, 2023, the Company issued 493,000 shares of common stock upon the cashless exercise of 580,000 purchase warrants.

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)

3 Months Ended

Mar. 31, 2023

Accounting Policies [Abstract]

Impact of COVID-19

Impact of COVID-19

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

The Company experienced significant disruptions to its business and operations due to circumstances related to COVID-19, and delays caused government-imposed quarantines, office closings and travel restrictions, which affected both the Company’s and its service providers. The Company has significant operations in Manila, Philippines, which was locked down by the government on March 12, 2020 due to concerns related to the spread of COVID-19. As a result of the Philippines government’s call to contain COVID-19, the Company’s animation studio, located in Manila, Philippines, which accounts for approximately 88% of the Company’s total revenues on a consolidated basis, was forced to close its offices for significant periods of time from March 2020 through December 2021.

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

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

Basis of Presentation

Basis of Presentation

The accompanying condensed consolidated financial statements are unaudited and have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and in conjunction with the instructions to Form 10-Q of the Securities and Exchange Commission (“SEC”). Accordingly, certain information and footnote disclosures required by GAAP for complete financial statements have been condensed or omitted. For the three months ended March 31, 2023, the condensed consolidated financial statements include the accounts of the Company and its operating subsidiaries Grom Social, TD Holdings, GES, GNS, and Curiosity. The Company recognizes noncontrolling interest related to its less-than-wholly-owned subsidiary, Curiosity, as equity in the consolidated financial statements separate from the parent entity’s equity. The net loss attributable to noncontrolling interest is included in net loss in the condensed consolidated statements of operations and comprehensive loss.

These condensed consolidated financial statements include all of the adjustments, which in the opinion of management are necessary for a fair presentation of financial position and results of operations. All such adjustments, which include intercompany balances and transactions are of a normal and recurring nature. Interim results are not necessarily indicative of results for a full year. These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto at December 31, 2022, as presented in the Company’s Annual Report on Form 10-K filed on April 17, 2023 with the SEC.

Certain amounts for the prior year period have been reclassified to conform to current year’s presentation.

Use of Estimates

Use of Estimates

The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. The most significant estimates relate to revenue recognition, valuation of accounts receivable, goodwill and other long-lived assets, 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.

Update to Significant Accounting Policies

Update to Significant Accounting Policies

There have been no new or material changes to the significant accounting policies discussed in the Company’s audited financial statements in its Annual Report on Form 10-K for the fiscal year ended December 31, 2022 as filed with the SEC on April 17, 2023, that are of significance, or potential significance, to the Company.

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REVENUES (Tables)

3 Months Ended

Mar. 31, 2023

Revenue from Contract with Customer [Abstract]

Schedule of disaggregated revenue

	Three Months Ended March 31, 2023		Three Months Ended March 31, 2022
Animation	$	1,057,669	$	1,048,613
Web Filtering		90,810		182,244
Publishing		10,101		–
Other		41,063		268
Total Sales	$	1,199,643	$	1,231,125

Schedule of accounts receivable

	March 31, 2023			December 31, 2022
Billed accounts receivable	$	317,619		$	607,524
Unbilled accounts receivable		553,900			592,932
Allowance for doubtful accounts		(45,125	)		(38,226	)
Total accounts receivable, net	$	826,394		$	1,162,230
Total advanced payments and deferred revenues	$	445,477		$	576,338

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PROPERTY AND EQUIPMENT (Tables)

3 Months Ended

Mar. 31, 2023

Property, Plant and Equipment [Abstract]

Schedule of property and equipment

	March 31, 2023							December 31, 2022
	Cost		Accumulated Depreciation			Net Book Value		Cost		Accumulated Depreciation			Net Book Value
Capital assets subject to depreciation:
Computers, software and office equipment	$	2,554,434	$	(2,470,748	)	$	83,686	$	2,774,308	$	(2,651,872	)	$	122,436
Machinery and equipment		177,916		(173,642	)		4,274		189,641		(182,180	)		7,461
Vehicles		11,995		(11,995	)		–		41,112		(35,504	)		5,608
Furniture and fixtures		383,379		(369,159	)		14,220		409,996		(391,783	)		18,213
Leasehold improvements		1,100,013		(1,018,647	)		81,366		1,172,501		(1,065,148	)		107,353
Total fixed assets		4,227,737		(4,044,191	)		183,546		4,587,558		(4,326,487	)		261,071
Capital assets not subject to depreciation:
Construction in progress		–		–			–		24,605		–			24,605
Total fixed assets	$	4,227,737	$	(4,044,191	)	$	183,546	$	4,612,163	$	(4,326,487	)	$	285,676

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OTHER ASSETS (Tables)

3 Months Ended

Mar. 31, 2023

Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract]

Schedule Of Other Assets

	March 31, 2023		December 31, 2022
Capitalized website development costs	$	963,664	$	1,057,312
Prepublication costs		166,112		164,042
Produced and licensed content costs		436,549		325,966
Deposits		74,278		72,027
Other noncurrent assets		–		7,731
Total other assets	$	1,640,603	$	1,627,078

Schedule of capitalized cost

	March 31, 2023							December 31, 2022
	Gross Carrying Value		Accumulated Amortization			Net Book Value		Gross Carrying Value		Accumulated Depreciation			Net Book Value
Prepublication costs	$	168,398	$	(2,286	)	$	166,112	$	165,524	$	(1,482	)	$	164,042
Produced and licensed content costs		436,549		–			436,549		325,966		–			325,966
Capitalized website development costs		1,123,772		(160,108	)		963,664		1,123,772		(66,460	)		1,057,312
Total capitalized costs	$	1,728,720	$	(162,394	)	$	1,566,325	$	1,615,262	$	(67,942	)	$	1,547,320

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LEASES (Tables)

3 Months Ended

Mar. 31, 2023

Leases

Schedule of future minimum lease payment

Remainder of 2023	$	287,404
2024		280,112
2025		281,663
2026		228,798
2027		240,239
Thereafter		–
Total future minimum payment obligations		1,318,216
Less: Imputed interest		(289,669	)
Present value of lease liabilities	$	1,028,547

Schedule of operating right-of-use assets

	Three Months Ended March 31, 2023
Cash paid for operating lease liabilities	$	95,300
Weighted-average remaining lease term in years		3.1
Weighted-average discount rate		10%

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BUSINESS COMBINATIONS (Tables)

3 Months Ended

Mar. 31, 2023

Business Combination and Asset Acquisition [Abstract]

Schedule of consideration paid

Consideration Paid:
Cash consideration	$	400,000
Common stock issued		5,421,962
Convertible notes		278,000
Contingent purchase consideration		5,586,493
Total consideration	$	11,686,455

Schedule of Recognized Identified Assets Acquired and Liabilities Assumed

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

Schedule of identifiable intangible assets

Licensing agreements	$	341,728
Books and stories content		126,698
Total identifiable intangible assets	$	468,426

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GOODWILL AND INTANGIBLE ASSETS (Tables)

3 Months Ended

Mar. 31, 2023

Goodwill and Intangible Assets Disclosure [Abstract]

Schedule of intangible assets

			March 31, 2023							December 31, 2022
	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	$	1,526,282	$	(1,030,241	)	$	496,041	$	1,526,282	$	(992,083	)	$	534,199
Licensing agreement		19.60		341,728		(28,989	)		312,739		341,728		(24,641	)		317,087
Subtotal				1,868,010		(1,059,230	)		808,780		1,868,010		(1,016,724	)		851,286
Intangible assets not subject to amortization:
Books and stories content				126,698		–			126,698		126,698		–			126,698
Trade names				4,386,247		–			4,386,247		4,386,247		–			4,386,247
Total intangible assets			$	6,380,955	$	(1,059,230	)	$	5,321,725	$	6,380,955	$	(1,016,724	)	$	5,364,231

Schedule of amortization

Remainder of 2023	$	127,516
2024		170,022
2025		170,022
2026		93,708
2027		17,394
Thereafter		230,118
Total remaining intangible assets subject to amortization	$	808,780

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ACCRUED LIABILITIES (Tables)

3 Months Ended

Mar. 31, 2023

Payables and Accruals [Abstract]

Schedule accrued liabilities

	March 31, 2023		December 31, 2022
Executive and employee compensation	$	92,981	$	102,151
Interest on convertible notes and promissory notes		92,457		84,292
Other accrued expenses and liabilities		117,425		192,511
Total accrued liabilities	$	302,863	$	378,954

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EMPLOYEE BENEFIT PLAN (Tables)

3 Months Ended

Mar. 31, 2023

Retirement Benefits [Abstract]

Defined benefit liability

	March 31, 2023		December 31, 2022
Benefit obligation	$	226,602	$	434,974
Plan assets		–		–
Total	$	226,602	$	434,974

Components of accumulated benefit cost

	March 31, 2023		March 31, 2022
Current service cost	$	56,630	$	2,471
Net interest expense		5,374		–
Total	$	59,004	$	2,471

Schedule of changes in accumulated benefit cost

	2023
Balance, January 1	$	434,974
Foreign currency translation		8,185
Expense recognized in other comprehensive income		59,004
Remeasurement on actuarial gain (loss) recognized		(48,683	)
Contributions paid		(226,878	)
Balance, March 31	$	226,602

Schedule of actuarial gains

	2023			2022
Balance, January 1	$	(37,303	)	$	60,518
Foreign currency translation		–			–
Actuarial gain (loss)		(46,307	)		–
Balance, March 31		83,610			60,518
Tax effect		20,903			(12,439	)
Cumulative actuarial gain (loss), net of tax	$	(62,707	)	$	48,079

Assumption used to determine retirement benefits

	March 31, 2023
Discount rate		6.44%
Salary increase rate		2.00%

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CONVERTIBLE NOTES (Tables)

3 Months Ended

Mar. 31, 2023

Debt Disclosure [Abstract]

Schedule of convertible debt

	March 31, 2023			December 31, 2022
8% Unsecured Convertible Note (Curiosity)	$	278,000		$	278,000
12% Senior Convertible Notes with Original Issuance Discounts (OID Notes)		75,000			75,000
12% Senior Secured Convertible Notes (TDH Secured Notes)		171,219			204,907
12% Senior Secured Convertible Notes (Additional Secured Notes)		32,518			38,932
Loan discounts		(19,957	)		(25,164	)
Total convertible notes, net		536,780			571,664
Less: current portion of convertible notes, net		(536,780	)		(503,465	)
Convertible notes, net	$	–		$	68,199

Schedule of future debt maturity payments

Remainder of 2023	$	480,651
2024		76,086
Total future minimum principal payments	$	556,737

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STOCKHOLDERS’ EQUITY (Tables)

3 Months Ended

Mar. 31, 2023

Equity [Abstract]

Schedule of warrants

	Number of Warrants Outstanding			Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (Yrs.)
Balance January 1, 2022		141,572		$	132.00		1.75
Warrants issued		4,280,355			3.20
Warrants exercised		(279,069	)		–
Warrants forfeited		(5,678	)		–
December 31, 2022		4,137,180			7.29		4.89
Warrants issued		3,812,944			2.26
Warrants exercised		(5,770,379	)		–
Warrants forfeited		–			–
Balance March 31, 2023		2,179,745		$	10.66		4.73

Schedule of options

Year Issued	Options Issued		Options Forfeited			Options Outstanding		Vested Options		Weighted Average Exercise Price		Weighted Average Remaining Life (Yrs.)
2013		8,058		(869	)		7,189		7,189	$	230.40		0.47
2018		62		–			62		62		748.80		0.08
2021		6,950		–			6,950		2,317		89.40		3.33
Total		15,070		(869	)		14,201		9,568	$	163.68		1.86

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GOING CONCERN (Details Narrative) - USD ($)	3 Months Ended
	Mar. 31, 2023	Mar. 31, 2022	Dec. 31, 2022
Organization, Consolidation and Presentation of Financial Statements [Abstract]
Accumulated Deficit	$ 85,802,343		$ 83,472,412
Net cash used in operating activities	$ 2,172,556	$ 1,600,696

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REVENUES (Details - Revenue by segment) - USD ($)	3 Months Ended
	Mar. 31, 2023	Mar. 31, 2022
Total Sales	$ 1,199,643	$ 1,231,125
Animation [Member]
Total Sales	1,057,669	1,048,613
Web Filtering [Member]
Total Sales	90,810	182,244
Publishing [Member]
Total Sales	10,101	0
Other Revenue [Member]
Total Sales	$ 41,063	$ 268

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REVENUES (Details - Accounts Receivable) - USD ($)	Mar. 31, 2023	Dec. 31, 2022
Revenue from Contract with Customer [Abstract]
Billed accounts receivable	$ 317,619	$ 607,524
Unbilled accounts receivable	553,900	592,932
Allowance for doubtful accounts	(45,125)	(38,226)
Total accounts receivable, net	826,394	1,162,230
Total advanced payments and deferred revenues	$ 445,477	$ 576,338

XML

REVENUES (Details Narrative) - Customer Concentration Risk [Member]	3 Months Ended		12 Months Ended
	Mar. 31, 2023	Mar. 31, 2022	Dec. 31, 2022
Three Customers [Member] | Revenue Benchmark [Member]
Disaggregation of Revenue [Line Items]
Concentration percentage	76.30%	65.90%
Three Customers [Member] | Accounts Receivable [Member]
Disaggregation of Revenue [Line Items]
Concentration percentage	78.90%
Two Customers [Member] | Accounts Receivable [Member]
Disaggregation of Revenue [Line Items]
Concentration percentage			73.60%

XML

INVENTORY (Details Narrative) - USD ($)	Mar. 31, 2023	Dec. 31, 2022
Inventory Disclosure [Abstract]
Inventory, Net	$ 99,070	$ 92,303
Inventory work-in-progress	85,830	85,324
Inventory finished goods	$ 13,240	$ 6,979

XML

PROPERTY AND EQUIPMENT (Details) - USD ($)	Mar. 31, 2023	Dec. 31, 2022
Property, Plant and Equipment [Line Items]
Property and equipment, gross	$ 4,227,737	$ 4,612,163
Accumulated depreciation	(4,044,191)	(4,326,487)
Property and equipment, net	183,546	285,676
Computers Software [Member]
Property, Plant and Equipment [Line Items]
Property and equipment, gross	2,554,434	2,774,308
Accumulated depreciation	(2,470,748)	(2,651,872)
Property and equipment, net	83,686	122,436
Machinery and Equipment [Member]
Property, Plant and Equipment [Line Items]
Property and equipment, gross	177,916	189,641
Accumulated depreciation	(173,642)	(182,180)
Property and equipment, net	4,274	7,461
Vehicles [Member]
Property, Plant and Equipment [Line Items]
Property and equipment, gross	11,995	41,112
Accumulated depreciation	(11,995)	(35,504)
Property and equipment, net	0	5,608
Furniture and Fixtures [Member]
Property, Plant and Equipment [Line Items]
Property and equipment, gross	383,379	409,996
Accumulated depreciation	(369,159)	(391,783)
Property and equipment, net	14,220	18,213
Leasehold Improvements [Member]
Property, Plant and Equipment [Line Items]
Property and equipment, gross	1,100,013	1,172,501
Accumulated depreciation	(1,018,647)	(1,065,148)
Property and equipment, net	81,366	107,353
Construction in Progress [Member]
Property, Plant and Equipment [Line Items]
Property and equipment, gross	0	24,605
Accumulated depreciation	0	0
Property and equipment, net	$ 0	$ 24,605

XML

PROPERTY AND EQUIPMENT (Details Narrative) - USD ($)	3 Months Ended
	Mar. 31, 2023	Mar. 31, 2022
Property, Plant and Equipment [Abstract]
Depreciation expense	$ 69,876	$ 92,674

XML

OTHER ASSETS (Details - Schedule of other assets) - USD ($)	Mar. 31, 2023	Dec. 31, 2022
Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract]
Capitalized website development costs	$ 963,664	$ 1,057,312
Prepublication costs	166,112	164,042
Produced and licensed content costs	436,549	325,966
Deposits	74,278	72,027
Other noncurrent assets	0	7,731
Total other assets	$ 1,640,603	$ 1,627,078

XML

OTHER ASSETS (Details - Schedule of capitalized costs) - USD ($)	Mar. 31, 2023	Dec. 31, 2022
Property, Plant and Equipment [Line Items]
Website development costs	$ 1,728,720	$ 1,615,262
Accumulated Amortization	(162,394)	(67,942)
Net Book Value	1,566,325	1,547,320
Prepublication Costs [Member]
Property, Plant and Equipment [Line Items]
Website development costs	168,398	165,524
Accumulated Amortization	(2,286)	(1,482)
Net Book Value	166,112	164,042
Produced And Licensed Content [Member]
Property, Plant and Equipment [Line Items]
Website development costs	436,549	325,966
Accumulated Amortization	0	0
Net Book Value	436,549	325,966
Capitalized Website Development Costs [Member]
Property, Plant and Equipment [Line Items]
Website development costs	1,123,772	1,123,772
Accumulated Amortization	(160,108)	(66,460)
Net Book Value	$ 963,664	$ 1,057,312

XML

OTHER ASSETS (Details Narrative) - USD ($)	3 Months Ended
	Mar. 31, 2023	Mar. 31, 2022
Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract]
Amortization expense	$ 94,452	$ 0

XML

LEASES (Details - Future minimum payment obligations)	Mar. 31, 2023 USD ($)
Leases
Remainder of 2023	$ 287,404
2024	280,112
2025	281,663
2026	228,798
2027	240,239
Thereafter	0
Total future minimum payment obligations	1,318,216
Less: Imputed interest	(289,669)
Present value of lease liabilities	$ 1,028,547

XML

LEASES (Details - Operating right-of-use assets and related lease liabilities)	3 Months Ended
	Mar. 31, 2023 USD ($)
Leases
Cash paid for operating lease liabilities	$ 95,300
Weighted-average remaining lease term (in years)	3 years 1 month 6 days
Weighted-average discount rate	10.00%

XML

LEASES (Details Narrative) - USD ($)	3 Months Ended
	Mar. 31, 2023	Mar. 31, 2022
Leases
Operating lease right of use assets	$ 0
Operating Lease, Expense	$ 100,102	$ 105,340

XML

BUSINESS COMBINATIONS (Details - Consideration paid) - Curiosity Ink Media L L C [Member]	Aug. 19, 2021 USD ($) shares
Business Acquisition [Line Items]
Payments to Acquire Businesses, Gross	$ 400,000
Business Acquisition, Equity Interest Issued or Issuable, Number of Shares | shares	5,421,962
Notes Issued	$ 278,000
Contingent purchase consideration	5,586,493
Business Combination, Consideration Transferred	$ 11,686,455

XML

BUSINESS COMBINATIONS (Details - Recognized identifiable assets and liabilities) - Curiosity Ink Media L L C [Member]	Aug. 19, 2021 USD ($)
Business Combination, Separately Recognized Transactions [Line Items]
Cash and cash equivalents	$ 26,408
Inventory	65,734
Produced and licensed content cost	187,920
Goodwill And Intangible Assets	14,271,969
Accounts payable	(113,462)
Noncontrolling interest	(2,752,114)
Total identifiable assets acquired, and liabilities assumed	$ 11,686,455

XML

BUSINESS COMBINATIONS (Details - Intangible assets)	Mar. 31, 2023 USD ($)
Acquired Finite-Lived Intangible Assets [Line Items]
Total identifiable intangible assets	$ 468,426
Licensing Agreements [Member]
Acquired Finite-Lived Intangible Assets [Line Items]
Total identifiable intangible assets	341,728
Books And Stories Content [Member]
Acquired Finite-Lived Intangible Assets [Line Items]
Total identifiable intangible assets	$ 126,698

XML

BUSINESS COMBINATIONS (Details Narrative) - USD ($)		3 Months Ended
	Aug. 19, 2021	Mar. 31, 2023	Dec. 31, 2022	Jul. 29, 2021
Business Acquisition [Line Items]
Goodwill		$ 10,567,484	$ 10,567,484
Curiosity Ink Media [Member]
Business Acquisition [Line Items]
Stock issued for acquisition, shares	1,771,883
Long-Term Debt, Gross	$ 400,000
Debt Instrument, Interest Rate, Effective Percentage	8.00%
Note issued on acquisition	$ 278,000
Goodwill	$ 14,271,969
Decrease in goodwill		468,426
Increase in intangible assets		$ 468,426
Curiosity Ink Media [Member]
Business Acquisition [Line Items]
Purchase of outstanding interest percentage				80.00%

XML

GOODWILL AND INTANGIBLE ASSETS (Details - Intangibles) - USD ($)	3 Months Ended
	Mar. 31, 2023	Dec. 31, 2022
Finite-Lived Intangible Assets [Line Items]
Finite intangible assets, gross	$ 1,868,010	$ 1,868,010
Accumulated amortization	(1,059,230)	(1,016,724)
Indefinite lived intangible asset	808,780	851,286
Total intangible assets	6,380,955	6,380,955
Total Accumulated Amortization	(1,059,230)	(1,016,724)
Total intangible assets	5,321,725	5,364,231
Books And Stories Content [Member]
Finite-Lived Intangible Assets [Line Items]
Accumulated amortization	0	0
Indefinite lived intangible asset	126,698	126,698
Indefinite-Lived Intangible Assets (Excluding Goodwill)	126,698	126,698
Trade Names [Member]
Finite-Lived Intangible Assets [Line Items]
Accumulated amortization	0	0
Indefinite lived intangible asset	4,386,247	4,386,247
Indefinite-Lived Intangible Assets (Excluding Goodwill)	$ 4,386,247	4,386,247
Customer Relationships [Member]
Finite-Lived Intangible Assets [Line Items]
Acquired Finite-Lived Intangible Assets, Weighted Average Useful Life	10 years
Finite intangible assets, gross	$ 1,526,282	1,526,282
Accumulated amortization	(1,030,241)	(992,083)
Indefinite lived intangible asset	$ 496,041	534,199
Licensing Agreements [Member]
Finite-Lived Intangible Assets [Line Items]
Acquired Finite-Lived Intangible Assets, Weighted Average Useful Life	19 years 7 months 6 days
Finite intangible assets, gross	$ 341,728	341,728
Accumulated amortization	(28,989)	(24,641)
Indefinite lived intangible asset	$ 312,739	$ 317,087

XML

GOODWILL AND INTANGIBLE ASSETS (Details - Amortization schedule) - USD ($)	Mar. 31, 2023	Dec. 31, 2022
Goodwill and Intangible Assets Disclosure [Abstract]
Remainder of 2023	$ 127,516
2024	170,022
2025	170,022
2026	93,708
2027	17,394
Thereafter	230,118
Total remaining intangible assets subject to amortization	$ 808,780	$ 851,286

XML

GOODWILL AND INTANGIBLE ASSETS (Details Narrative) - USD ($)	3 Months Ended
	Mar. 31, 2023	Mar. 31, 2022	Dec. 31, 2022
Goodwill and Intangible Assets Disclosure [Abstract]
Goodwill	$ 10,567,484		$ 10,567,484
Amortization of Intangible Assets	$ 42,505	$ 38,157

XML

ACCRUED LIABILITIES (Details) - USD ($)	Mar. 31, 2023	Dec. 31, 2022
Payables and Accruals [Abstract]
Executive and employee compensation	$ 92,981	$ 102,151
Interest on convertible notes and promissory notes	92,457	84,292
Other accrued expenses and liabilities	117,425	192,511
Total accrued liabilities	$ 302,863	$ 378,954

XML

RELATED PARTY TRANSACTIONS AND PAYABLES (Details Narrative) - USD ($)		3 Months Ended		12 Months Ended
	Jul. 11, 2018	Mar. 31, 2023	Mar. 31, 2022	Dec. 31, 2022
Zach Marks [Member]
Related Party Transaction [Line Items]
Annual salary				$ 103,000
Luke Marks [Member]
Related Party Transaction [Line Items]
Annual salary				30,000
Marks Family [Member]
Related Party Transaction [Line Items]
Annual salary		$ 33,250	$ 30,000
Rutherford [Member]
Related Party Transaction [Line Items]
Accounts payable, related parties	$ 50,000
Debt interest rate	10.00%
Maturity date	Aug. 11, 2018
Interest expense		1,233	$ 1,233
Executive Officers And Directors [Member]
Related Party Transaction [Line Items]
Accounts payable, related parties		73,616		72,383
Accounts payable, related parties		$ 23,616		$ 22,383

XML

EMPLOYEE BENEFIT PLAN (Details - Defined benefit liability) - USD ($)	Mar. 31, 2023	Dec. 31, 2022
Retirement Benefits [Abstract]
Benefit obligation	$ 226,602	$ 434,974
Plan assets	0	0
Total	$ 226,602	$ 434,974

XML

EMPLOYEE BENEFIT PLAN (Details - Accumulated benefit cost) - USD ($)	3 Months Ended
	Mar. 31, 2023	Mar. 31, 2022
Retirement Benefits [Abstract]
Current service cost	$ 56,630	$ 2,471
Net interest expense	5,374	0
Total	$ 59,004	$ 2,471

XML

EMPLOYEE BENEFIT PLAN (Details - Changes in accumulated benefit cost)	3 Months Ended
	Mar. 31, 2023 USD ($)
Retirement Benefits [Abstract]
Balance, January 1	$ 434,974
Foreign currency translation	8,185
Expense recognized in other comprehensive income	59,004
Remeasurement on actuarial gain (loss) recognized	(48,683)
Contributions paid	(226,878)
Balance, March 31	$ 226,602

XML

EMPLOYEE BENEFIT PLAN (Details - Actuarial gains) - USD ($)	3 Months Ended
	Mar. 31, 2023	Mar. 31, 2022	Dec. 31, 2022	Dec. 31, 2021
Other comprehensive income (loss)	$ (136,493)		$ (166,129)
Top Draw Animation [Member]
Other comprehensive income (loss)	83,610	$ 60,518	$ (37,303)
Foreign currency translation	0	0
Actuarial gain (loss)	(46,307)	0
Tax effect	20,903	(12,439)
Actuarial gain (loss)	$ (62,707)	$ 48,079
Subsidiaries [Member]
Other comprehensive income (loss)				$ 60,518

XML

EMPLOYEE BENEFIT PLAN (Details - Assumptions)	Mar. 31, 2023
Retirement Benefits [Abstract]
Discount rate	6.44%
Salary increase rate	2.00%

XML

CONVERTIBLE NOTES (Details - Convertible debentures) - USD ($)	Mar. 31, 2023	Dec. 31, 2022
Debt Instrument [Line Items]
Convertible Debt, Current	$ (536,780)	$ (503,465)
Convertible Debt, Noncurrent	0	68,199
Unsecured Convertible Notes Curiosity [Member]
Debt Instrument [Line Items]
Convertible debt, gross	278,000	278,000
Convertible Debentures [Member]
Debt Instrument [Line Items]
Convertible debt, gross	536,780	571,664
Debt Instrument, Unamortized Discount	(19,957)	(25,164)
Convertible Debentures [Member] | Secured Convertible Notes O I D [Member]
Debt Instrument [Line Items]
Convertible debt, gross	75,000	75,000
Convertible Debentures [Member] | Senior Secured Convertible T D H Notes [Member]
Debt Instrument [Line Items]
Convertible debt, gross	171,219	204,907
Convertible Debentures [Member] | Senior Secured Convertible Additional Secured Notes [Member]
Debt Instrument [Line Items]
Convertible debt, gross	$ 32,518	$ 38,932

XML

CONVERTIBLE NOTES (Details - Debt maturities)	Mar. 31, 2023 USD ($)
Debt Disclosure [Abstract]
Remainder of 2023	$ 480,651
2024	76,086
Total future minimum principal payments	$ 556,737

XML

CONVERTIBLE NOTES (Details Narrative) - USD ($)				1 Months Ended		3 Months Ended
	Oct. 20, 2021	Sep. 14, 2021	Jul. 29, 2021	Jan. 20, 2022	Mar. 16, 2020	Mar. 31, 2023	Mar. 31, 2022	Mar. 16, 2020	Dec. 31, 2022	Dec. 31, 2021
Debt Instrument [Line Items]
Class of Warrant or Right, Exercise Price of Warrants or Rights						$ 10.66			$ 7.29	$ 132.00
Proceeds from Convertible Debt						$ 0	$ 1,444,000
Original issue discount				$ 175,000
Debt Instrument, Face Amount						550,000
Original Tdh Notes [Member]
Debt Instrument [Line Items]
Convertible debt, gross						$ 126,000
Second Tranche [Member]
Debt Instrument [Line Items]
Conversion price						$ 126.00
First Tranche [Member]
Debt Instrument [Line Items]
Conversion price						$ 16.20
Unsecured Convertible Notes Curiosity [Member]
Debt Instrument [Line Items]
Convertible note						$ 278,000			$ 278,000
L 1 Capital Secured Note [Member]
Debt Instrument [Line Items]
Debt converted, shares issued							191,192
Debt Conversion, Original Debt, Amount						4,125,000
Senior Ten Percentage Secured Convertible Note With Original Issuance Discount L 1 [Member]
Debt Instrument [Line Items]
Convertible debt, gross						0	$ 0
Number of securities called by each warrant				10,123
Convertible note						0	$ 0
Senior Ten Percentage Secured Convertible Note With Original Issuance Discount L 1 [Member] | Second Tranche [Member]
Debt Instrument [Line Items]
Proceeds from Convertible Debt				$ 1,750,000
Secured 10 Conv Notes [Member]
Debt Instrument [Line Items]
Convertible debt, gross						25,000
Debt interest rate				10.00%
Secured Convertible Notes Issued 2018 [Member]
Debt Instrument [Line Items]
Convertible debt, gross						50,000
Secured Convertible Notes Issued 2017 And 2018 [Member]
Debt Instrument [Line Items]
Convertible note						75,000
Secured 12 Conv Notes [Member] | Orginal T D H Secured Notes [Member]
Debt Instrument [Line Items]
Convertible debt, gross					$ 3,000,000			$ 3,000,000
Secured 12 Conv Notes [Member] | T D H Secured Notes [Member]
Debt Instrument [Line Items]
Convertible debt, gross						171,219
Stock issued with debt, shares								6,250
Stock issued with debt, value								$ 420,000
Unamortized discount						16,771
Secured 12 Conv Notes [Member] | Additional Secured Notes [Member]
Debt Instrument [Line Items]
Convertible debt, gross					$ 1,060,000	32,518		$ 1,060,000
Debt interest rate					12.00%			12.00%
Debt maturity date					Mar. 16, 2024
Stock issued with debt, shares								2,208
Stock issued with debt, value								$ 148,000
Unamortized discount						3,186
Purchase Agreement [Member] | Unsecured Convertible Notes Curiosity [Member]
Debt Instrument [Line Items]
Convertible debt, gross			$ 278,000
Conversion price			$ 98.40
Convertible debt, gross						$ 278,000
Securities Purchase Agreement [Member] | L 1 Capital Secured Note [Member]
Debt Instrument [Line Items]
Convertible debt, gross		$ 4,400,000
Warrants and Rights Outstanding, Term		5 years
Number of securities called by each warrant		27,109
Class of Warrant or Right, Exercise Price of Warrants or Rights		$ 126.00
Securities Purchase Agreement [Member] | L 1 Capital Secured Note [Member] | First Tranche Financing [Member]
Debt Instrument [Line Items]
Exchange shares value		$ 3,960,000
Securities Purchase Agreement [Member] | L 1 Capital Secured Note [Member] | Second Tranche Financing [Member]
Debt Instrument [Line Items]
Proceeds from Convertible Debt	$ 6,000,000
Securities Purchase Agreement [Member] | Senior Ten Percentage Secured Convertible Note With Original Issuance Discount L 1 [Member]
Debt Instrument [Line Items]
Class of Warrant or Right, Exercise Price of Warrants or Rights				$ 126.00
Securities Purchase Agreement [Member] | Senior Ten Percentage Secured Convertible Note With Original Issuance Discount L 1 [Member] | Second Tranche Financing [Member]
Debt Instrument [Line Items]
Exchange shares value				$ 1,575,000
Third Amendment [Member] | Secured 12 Conv Notes [Member] | Original Tdh Notes [Member]
Debt Instrument [Line Items]
Debt maturity date								Mar. 16, 2024

XML

INCOME TAXES (Details Narrative)	3 Months Ended
	Mar. 31, 2023	Mar. 31, 2022
Income Tax Disclosure [Abstract]
Effective tax rate	0.00%	0.00%

XML

STOCKHOLDERS' EQUITY (Details - Warrant activity) - $ / shares	3 Months Ended	12 Months Ended
	Mar. 31, 2023	Dec. 31, 2022	Dec. 31, 2021
Equity [Abstract]
Warrants outstanding, beginning balance	4,137,180	141,572
Weighted Average Exercise Price, Warrants outstanding, beginning balance	$ 7.29	$ 132.00
Average Remaining Contractual Term, Warrants outstanding	4 years 8 months 23 days	4 years 10 months 20 days	1 year 9 months
Warrants issued	3,812,944	4,280,355
Weighted Average Exercise Price, Warrants issued	$ 2.26	$ 3.20
Warrants exercised	(5,770,379)	(279,069)
Weighted Average Exercise Price, Warrants exercised	$ 0	$ 0
Warrants forfeited	0	(5,678)
Weighted Average Exercise Price, Warrants forfeited	$ 0	$ 0
Warrants outstanding, ending balance	2,179,745	4,137,180	141,572
Weighted Average Exercise Price, Warrants outstanding, ending balance	$ 10.66	$ 7.29	$ 132.00

XML

STOCKHOLDERS' EQUITY (Details - Option Activity) - Equity Option [Member]	3 Months Ended
	Mar. 31, 2023 $ / shares shares
Share-Based Compensation Arrangement by Share-Based Payment Award [Line Items]
Options issued	15,070
Options forfeited	(869)
Options outstanding	14,201
Vested options	9,568
Weighted average exercise price | $ / shares	$ 163.68
Weighted average remaining life	1 year 10 months 9 days
Options Issued 2013 [Member]
Share-Based Compensation Arrangement by Share-Based Payment Award [Line Items]
Options issued	8,058
Options forfeited	(869)
Options outstanding	7,189
Vested options	7,189
Weighted average exercise price | $ / shares	$ 230.40
Weighted average remaining life	5 months 19 days
Options Issued 2018 [Member]
Share-Based Compensation Arrangement by Share-Based Payment Award [Line Items]
Options issued	62
Options forfeited	0
Options outstanding	62
Vested options	62
Weighted average exercise price | $ / shares	$ 748.80
Weighted average remaining life	29 days
Options Issued 2021 [Member]
Share-Based Compensation Arrangement by Share-Based Payment Award [Line Items]
Options issued	6,950
Options forfeited	0
Options outstanding	6,950
Vested options	2,317
Weighted average exercise price | $ / shares	$ 89.40
Weighted average remaining life	3 years 3 months 29 days

XML

STOCKHOLDERS’ EQUITY (Details Narrative) - USD ($)			1 Months Ended		3 Months Ended
	Jan. 24, 2022	Oct. 04, 2020	Jan. 31, 2023	Jan. 25, 2023	Mar. 31, 2023	Mar. 31, 2022	Dec. 31, 2022	Dec. 31, 2021
Class of Stock [Line Items]
Preferred stock, shares authorized					25,000,000
Preferred stock, par value					$ 0.001
Common stock, shares authorized					500,000,000		500,000,000
Common stock, par value					$ 0.001		$ 0.001
Common stock, shares issued					7,339,677		2,514,858
Common stock, shares outstanding					7,339,677		2,514,858
Reverse stock split		1-for-30
Warrant exericse price					$ 10.66		$ 7.29	$ 132.00
Stock issued for services, value					$ 31,968	$ 76,822
Stock price			$ 2.15		$ 2.15
Expected dividend yield			0.00%		0.00%
Volatility rate			176.60%		176.60%
Risk-free interest rate			3.60%		3.60%
Warrants fair value					$ 1,387,429
Expected term			1 year
Fair value of purchase warrant			$ 350,039
Intrinsic value					0
Stock based compensation expenses					44,822	$ 48,142
Uunrecognized cost of stock-based compensation					$ 124,130
Rrecognized weighted average period					1 year 3 months 18 days
Intrinsic value					$ 0
Warrant [Member]
Class of Stock [Line Items]
Warrant exericse price			$ 0.85
Warrant issued			1,327,434
Warrant purchase			2,323,010
Warrants exercisable			$ 2.26
Warrant 1 [Member]
Class of Stock [Line Items]
Warrant issued			150,000
Warrant purchase			262,500
Common Stock [Member]
Class of Stock [Line Items]
Conversion of Stock, Shares Issued						686
Stock issued for services, shares					23,334	2,486
Stock issued for services, value					$ 23	$ 2
Number of shares issued upon exercise, warrants					1,262,787
Number of shares issued other					3,438,698
Purchase warrants					4,507,592
Pre Funded Warrants [Member]
Class of Stock [Line Items]
Number of shares issued upon exercise, warrants					1,262,787
Number of shares issued upon exercise, value					$ 12,309
Conv Debt And Interest [Member]
Class of Stock [Line Items]
Issuance of common stock in connection with the amendment of terms of promissory notes, shares					191,192
Issuance of common stock in connection with the amendment of terms of promissory notes, value					$ 4,125,000
Contractors [Member]
Class of Stock [Line Items]
Stock issued for services, shares					23,334	2,486
Stock issued for services, value					$ 31,968	$ 76,822
Securities Purchase Agreement [Member] | L 1 Capital Global [Member]
Class of Stock [Line Items]
Number of shares purchase				150,000
Payment for fee				$ 50,000
Purchase Warrant Agreement [Member]
Class of Stock [Line Items]
Warrant exericse price				$ 0.01
Common Stocks [Member] | Securities Purchase Agreement [Member]
Class of Stock [Line Items]
Number of shares issued				100,000
Number of shares purchase				2,323,010
Warrants [Member] | Securities Purchase Agreement [Member]
Class of Stock [Line Items]
Number of shares issued				1,327,434
Number of shares purchase				1,227,434
Warrant purchase price				$ 2.26
Warrants [Member] | Purchase Warrant Agreement [Member]
Class of Stock [Line Items]
Warrant exericse price				$ 2.26
Series C Preferred Converted [Member]
Class of Stock [Line Items]
Conversion of Stock, Shares Issued	686
Conversion of Stock, Shares Converted	39,500
Series A Preferred Stock [Member]
Class of Stock [Line Items]
Preferred stock, shares authorized					10,000,000		10,000,000
Preferred stock, par value					$ 0.001		$ 0.001
Preferred stock, shares issued					0		0
Preferred stock, shares outstanding					0		0
Series B Preferred Stock [Member]
Class of Stock [Line Items]
Preferred stock, shares authorized					10,000,000		10,000,000
Preferred stock, par value					$ 0.001		$ 0.001
Preferred stock, shares issued					0		0
Preferred stock, shares outstanding					0		0
Series C Preferred Stock [Member]
Class of Stock [Line Items]
Preferred stock, shares authorized					10,000,000		10,000,000
Preferred stock, par value					$ 0.001		$ 0.001
Preferred stock, shares issued					9,281,809		9,281,809
Preferred stock, shares outstanding					9,281,809		9,281,809
Declared cumulative dividends					$ 185,636
Series C Preferred Stock Dividend [Member]
Class of Stock [Line Items]
Issuance Of Common Stock In Connection With Issuance Of Preferred Stock Dividend Shares					5,842
Issuance Of Common Stock In Connection With Issuance Of Preferred Stock Dividend Value					$ 459,068