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 Form S-1/A which we filed with the Securities and Exchange Commission on
June 13, 2022, that could cause actual results or events to differ materially
from those expressed or implied by the forward-looking statements. Our actual
results and the timing of events could differ materially from those anticipated
in these forward-looking statements as a result of several factors. We do not
undertake any obligation to update forward-looking statements to reflect events
or circumstances occurring after the date of this Quarterly Report.
Overview
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. was incorporated in the State of Florida on March 5,
2012 and operates our social media network designed for children under the
age of 13 years.
· TD Holdings Limited ("TD Holdings") was incorporated in Hong Kong on
September 15, 2005. TD Holdings operates through its two subsidiary
companies: (i) Top Draw Animation Hong Kong Limited, a Hong Kong
corporation, and (ii) Top Draw Animation, Inc., a Philippines corporation.
The group's principal activities are the production of animated films and
televisions series.
· Grom Educational Services, Inc. ("GES") was incorporated in the State of
Florida on January 17, 2017. GES operates our web filtering services
provided to schools and government agencies.
· Grom Nutritional Services, Inc. ("GNS") was incorporated in the State of
Florida on April 19, 2017. GNS intends to market and distribute
nutritional supplements to children. GNS has been nonoperational since its
inception.
· Curiosity Ink Media, LLC ("Curiosity") was incorporated in the State of
Delaware on January 9, 2017. Curiosity creates, acquires, and develops the
commercial potential of kids & family entertainment properties and
associated business opportunities.
We own 100% of each of Grom Social, TD Holdings, GES and GNS, and 80% of
Curiosity. We are headquartered in Boca Raton, Florida with offices in Los
Angeles, California; Salt Lake City, Utah; Norcross, Georgia; and Manila,
Philippines.
Business Description
Grom Social
Grom Social is a growing social media platform and original content provider of
entertainment for children under 13 years of age, which provides safe and secure
digital environments for kids that can be monitored by their parents or
guardians. We initially launched our mobile app in 2019. We continue to invest
in research, development, and technology to enhance the user experience. We
remain committed to increasing user growth and expanding our reach in an effort
to monetize the app.
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Top Draw Animation
Top Draw Animation is an award-winning, full-service production and
pre-production animation studio that specializes in providing two-dimensional
digital production services for animated television series and movies on a
contract basis or under co-production arrangements. Top Draw's pre-production
services include planning and creating storyboards, location design, model and
props design, background color and color styling. Its production services focus
on library creation, digital asset management, background layout scene assembly,
posing, animation and after-effects.
As part of its COVID-19 protocols, Top Draw continues to operate at
approximately 50% seat capacity at its studio. However, it supplements its
reduced studio capacity through its work-from-home program. For the three and
six months ended June 30, 2022, our animation services revenues trailed the
levels that we recognized during the corresponding periods of 2021. This is
largely attributable to changes in our production schedule resulting from
customer delays in providing us with necessary materials and content, changes to
project start dates, or cancellation of an anticipated project. As a byproduct,
we realized higher production costs by deploying the resources necessary to
service our customers' needs efficiently and effectively prior to these changes
to our schedule.
During the six months ended June 30, 2022, we announced approximately $3.9
million in new contracts for Top Draw. These projects are all expected to
commence during the year and have service periods up to twelve months in length.
Based upon our current production schedule, we believe that our efficiency and
productivity will increase through December 31, 2022.
Grom Educational Services
Grom Educational Services provides scalable network monitoring and security
solutions that are compliant with Children Internet Protection Act (CIPA)
guidelines. Our goal is to enhance safety, good digital citizenship, education,
and social responsibility by giving schools and parents the ability to monitor
and filter their students' and children's access to technology while
simultaneously educating them.
Our products include web filtering appliances and software, reporting and event
management solutions, and our Digital Citizenship License (DCL) Program. The
proprietary DCL program is a series of videos design to teach minors about
appropriate online behavior.
On January 28, 2022, the Company announced the early release of enhancements to
its DCL Program as part of strengthening the security features of its web
filtering solutions.
Curiosity Ink Media
Curiosity Ink Media is a global media company that develops, acquires, builds,
grows and maximizes the short, mid, and long-term commercial potential of kids &
family entertainment properties and associated business opportunities. Driven by
a best-in-class leadership team, Curiosity's multi-faceted intellectual property
library is designed to amass ongoing value through strategic stewardship,
partnerships, and highly targeted market entry.
Depending upon the nature, Curiosity's original properties can require a
substantial amount of time to develop and produce. The Company continuously
evaluates the viability of its entertainment properties, and works with its
strategic partners and advisors to determine the appropriate form of media and
channels of distribution for each property to ensure their greatest potential
for success.
We are preparing to relaunch our Santa.com website in the fourth quarter of
2022. The enhanced digital holiday entertainment hub will include a bold new
look, including a marketplace where consumers can fulfill all of their holiday
needs, and an improved user experience featuring a virtual North Pole with
curated gifting ideas, decor and entertainment tips, alongside other immersive
content for kids and adults. Furthermore, we continue to develop Santa.com into
an original animated musical holiday special for future release.
Curiosity has released two graphic novels, Thunderousand The Legion of
Forgettable Supervillains, in 2022. It continues to develop concepts and seek
partnerships for additional and subsequent series publications. On May 17, 2022,
Curiosity and Dynamite Entertainment announced a project with the United States
Postal Service to introduce a new children's book series based on a modern-day
adaptation of Mr. Zip, the iconic 1960's cartoon figure initially used by the
U.S. Post Office Department to help introduce and promote ZIP Code use.
In addition, Curiosity has started to broaden its business opportunities and
relationships by offering licensing agent services. On May 23, 2022, Curiosity
announced that it will partner with Cepia LLC to serve as a licensing agent for
the Cats vs Pickles franchise.
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.
34
We have 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 Manila-based animation studio, which accounts for
approximately 85% 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 have instituted employee
safety protocols to contain the spread, including domestic and international
travel restrictions, work-from-home practices, extensive cleaning protocols,
social distancing and various temporary closures of its administrative offices
and production studio. We have implemented a range of actions aimed at
temporarily reducing costs and preserving liquidity. In January 2022, we started
to recall artist and employees to return to the studio which is 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 Events
L1 Capital Financing
The Purchase Agreement, as amended on October 20, 2021, with L1 Capital
contemplated a closing of a second tranche of the offering (the "Second
Tranche") of up to an additional $6,000,000 principal amount of Notes identical
to the First Tranche Note, and warrants exercisable for five years to purchase
up to 1,041,194 shares at an exercise price of $4.20 per share.
On January 20, 2022 (the "Second Tranche Closing"), we closed on the Second
Tranche of the offering with L1 Capital, resulting in the issuance of (i) a
$1,750,000 10% original issue discount senior secured convertible note, due July
20, 2023, (the "Second Tranche Note"); and (ii) a five year warrant to purchase
303,682 shares of our common stock at an exercise price of $4.20 per share (the
"Second Tranche Warrants"), in exchange for consideration of $1,575,000 (i.e.
the face amount less the 10% original issue discount of $175,000).
In connection with the Second Tranche Closing, we paid to EF Hutton a fee of
$126,000.
The Second Tranche Note is convertible into our common stock at a rate of $4.20
per share (the "Conversion Price") into 416,667 shares of common stock (the
"Second Tranche Conversion Shares") and, is repayable in equal monthly
installments of $111,563 commencing on the 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 our discretion and if the below listed "Equity
Conditions" are met, by issuance of shares of our 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 $1.92) multiplied by 102%
of the amount due on such date. In the event that the ten-trading day VWAP drops
below $1.92 we will have the right to pay in stock at such ten-trading day VWAP
with any shortfall paid in cash. The Conversion Price may be adjusted in the
event of dilutive issuances but in no event to less than $0.54 (the "Monthly
Conversion Price").
35
Our right to make monthly payments in stock in lieu of cash for the Second
Tranche Note is conditioned on certain conditions (the "Equity Conditions"). The
Equity Conditions required to be met each month in order to redeem the Second
Tranche Note with stock in lieu of a monthly cash payment, among other
conditions set forth therein, include without limitation, that a registration
statement be in effect with respect to the resale of the shares issuable upon
conversion or redemption of the Second Tranche Note (or, that an exemption under
Rule 144 is available), that no default be in effect, that the average daily
trading volume of our common stock would have to be at least $550,000 during the
five trading days prior to the respective monthly redemption and that the
outstanding principal amounts of the First Tranche Note and Second Tranche Note
combined, shall not exceed 30% of the market capitalization of our common stock
as reported on Bloomberg L.P., which percentage is subject to increase by the
investor at its sole discretion.
Other provisions of the Second Tranche Note, which is similar in terms to the
First Tranche Note, include that the Second Tranche Note Conversion Price is
subject to full anti-dilution price protections in the event of financings that
are below the Conversion Price with a floor of $0.54.
In the event of an Event of Default as defined in the notes, if the stock price
is below the Conversion Price at the time of default and only for so long as a
default is continuing, the Second Tranche Notes would be convertible at a rate
of 80% of the lowest VWAP in the ten prior trading days, provided, that if the
default is cured the default conversion rate elevates back to the normal
Conversion Price.
As part of the Second Tranche Closing, we issued Second Tranche Warrants
exercisable for five years from the date of issuance, at $4.20 per share which
carry the same anti-dilution protection as the Second Tranche Notes, subject to
the same adjustment floor. The Second Tranche Warrants are exercisable via
cashless exercise only for so long as no registration statement covering resale
of the shares is in effect.
The Second Tranche Note continues to be subject to (i) the repayment and
performance guarantees by our subsidiaries pursuant to a subsidiary guaranty
and, (ii) the security agreement pursuant to which the LI Capital was granted a
security interest in all of our assets and certain of our subsidiaries, each as
entered into in connection with the First Tranche closing on September 14, 2021.
Executive Separation Agreement and Departure of Director
On April 22, 2022, we entered into an Executive Separation Agreement with Melvin
Leiner (the "Separation Agreement"), pursuant to which Mr. Leiner retired from
his positions as our Executive Vice President and Chief Operating Officer.
Pursuant to the Separation Agreement, Mr. Leiner's employment with us ended on
April 22, 2022 and he is to receive separation payments over a nine (9) month
period equal to his base salary, as well as certain limited health benefits.
In accordance with the Separation Agreement, we will pay to Mr. Leiner the sum
of $236,250 in biweekly installments over the nine (9) month period beginning on
our first regular pay period after April 22, 2022 and ending on January 13,
2023. The Separation Agreement also contains non-disparagement covenants and a
mutual release of claims by the parties thereto.
On the same day, Mr. Leiner resigned from our Board of Directors, effectively
immediately. Mr. Leiner did not resign as a result of any disagreement with us
on any matter relating to our operations, policies or practices.
36
Notice of Delisting of Failure to Satisfy a Continue Listing Rule or Standard
On May 24, 2022, we received a deficiency letter (the "Notice") from the Listing
Qualifications Department of The Nasdaq Stock Market LLC ("Nasdaq") notifying
the Company that, based upon the closing bid price of the Company's common
stock, par value $0.001 per share ("Common Stock"), for the last 30 consecutive
business days, the Company is not currently in compliance with the requirement
to maintain a minimum bid price of $1.00 per share for continued listing on The
Nasdaq Capital Market, as set forth in Nasdaq Listing Rule 5550(a)(2) (the
"Minimum Bid Requirement").
The Notice has no immediate effect on the continued listing status of the
Company's common stock on The Nasdaq Capital Market, and, therefore, the
Company's listing remains fully effective.
The Company is provided a compliance period of 180 calendar days from the date
of the Notice, or until November 21, 2022, to regain compliance with Nasdaq
Listing Rule 5550(a)(2). If at any time before November 21, 2022, the closing
bid price of the Company's common stock closes at or above $1.00 per share for a
minimum of 10 consecutive business days, subject to Nasdaq's discretion to
extend this period pursuant to Nasdaq Listing Rule 5810(c)(3)(G), Nasdaq will
provide written notification that the Company has achieved compliance with the
Minimum Bid Requirement, and the matter would be resolved.
If the Company does not regain compliance with the Minimum Bid Requirement
during the initial 180 calendar day period, the Company may be eligible for an
additional 180 calendar day compliance period. To qualify, the Company would be
required to meet the continued listing requirement for market value of publicly
held shares and all other initial listing standards for The Nasdaq Capital
Market, with the exception of the Minimum Bid Requirement, and would need to
provide written notice of its intention to cure the deficiency during the second
compliance period, by effecting a reverse stock split, if necessary.
The Company will continue to monitor the closing bid price of its Common Stock
and seek to regain compliance with all applicable Nasdaq requirements within the
allotted compliance periods. If the Company does not regain compliance within
the allotted compliance periods, including any extensions that may be granted by
Nasdaq, Nasdaq will provide notice that the Company's common stock will be
subject to delisting. The Company would then be entitled to appeal that
determination to a Nasdaq hearings panel.
The Company intends to actively monitor the closing bid price of the common
stock and will evaluate available options to regain compliance with the Minimum
Bid Requirement. However, there can be no assurance that the Company will regain
compliance with the Minimum Bid Requirement during the 180-day compliance
period, secure a second period of 180 days to regain compliance or maintain
compliance with the other Nasdaq listing requirements.
If the common stock ceases to be listed for trading on the Nasdaq Capital
Market, the Company would expect that the common stock would be traded on one of
the three tiered marketplaces of the OTC Markets Group.
37
Results of Operations
Comparison of Results of Operations for the Three Months Ended June 30, 2022 and
2021
Revenue
Revenue for the three months ended June 30, 2022 was $1,139,582, compared to
revenue of $1,388,551 during the three months ended June 30, 2021, representing
a decrease of $248,969 or 17.9%.
Animation revenue for the three months ended June 30, 2022 was $1,025,966,
compared to animation revenue of $1,276,555 during the three months ended June
30, 2021, representing a decrease of $250,589 or 19.6%. The decrease in
animation revenue is primarily attributable to client delays in providing us
with necessary productions materials and content and in the execution and
commencement of previously negotiated contracts.
Web filtering revenue for the three months ended June 30, 2022 was $113,472,
compared to web filtering revenue of $111,507 during the three months ended June
30, 2021, representing an increase of $1,965 or 1.8%. The increase is primarily
due to the timing of multi-year contract renewals.
Subscription and advertising revenue from our Grom Social mobile app has been
nominal. Subscription and advertising revenue for the three months ended June
30, 2022 was $144 compared to subscription and advertising revenue of $489
during the three months ended June 30, 2021, representing a decrease of $345 or
70.6%, primarily attributable to a decrease in marketing and promotion
activities.
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 margins percentages may not be indicative of future gross margin
performance.
38
Gross profit for the three months ended June 30, 2022 and 2021 were $192,123, or
16.9%, and $392,708, or 28.3%, respectively. The decrease in gross profit is
primarily attributable to lower contract margins in our animation business due
to the absorption of fixed overhead expenses against reduced revenue levels and
certain projects exceeding budgeted costs.
Operating Expenses
Operating expenses for the three months ended June 30, 2022 were $2,142,800,
compared to operating expenses of $1,859,733 during the three months ended June
30, 2021, representing an increase of $283,067 or 15.2%. The increase is
primarily attributable to an increase in selling, general and administrative
costs incurred during the three months ended June 30, 2022 due to an increase in
research and development, employee headcount, compensation and benefits from the
acquisition of Curiosity, and stock-based compensation from the grant of stock
and stock option awards.
Selling, general and administrative ("SG&A") are comprised of selling, marketing
and promotional expenses, compensation and benefits, insurance, rent and related
facility costs, research and development, and other general expenses. SG&A
expenses were $1,778,696 for the three months ended June 30, 2022, compared to
$1,400,485 for the three months ended June 30, 2021, representing an increase of
$378,211 or 27.0%.
Professional fees are comprised of accounting and compliance services, legal
services, investor relations and other advisory fees. Professional fees were
$299,941 for the three months ended June 30, 2022, compared to $325,922 for the
three months ended June 30, 2021, representing a decrease of $25,981 or 8.0%.
Depreciation and amortization included in operating expenses was $64,163 for the
three months ended June 30, 2022, compared to $133,326 for the three months
ended June 30, 2021, representing a decrease of $69,163 or 51.9%. The decrease
is attributable to certain fixed assets that are fully depreciated having
reached the end of their estimated useful lives and certain intangible assets
that were impaired during the fourth quarter of 2021. These fixed and intangible
assets were subject to depreciation and amortization during the three months
ended June 30, 2021.
Other Income (Expense)
Net other expense for the three months ended June 30, 2022 was $1,248,703,
compared to a net other expense of $1,037,480 for the three months ended June
30, 2021, representing an increase of $211,223 or 20.4%. The increase in other
expense is primarily attributable to recognition of interest expense of
$1,052,350 related to the derivative liability recognized during the three
months ended June 30, 2022, offset by a decrease interest expense related to
payment of principal balance and decrease in convertible notes outstanding
balance due to conversions recorded during the three months ended June 30, 2022
compared to the three months ended June 30, 2021.
Interest expense is comprised of interest accrued and paid on our convertible
notes and recorded from the amortization of note discounts. Interest expense was
$1,314,508 for the three months ended June 30, 2022, compared to $1,094,916
during the three months ended June 30, 2021, representing an increase of
$219,592 or 20.1%.
Net Loss Attributable to Common Stockholders
We realized a net loss attributable to common stockholders of $3,295,571, or
$0.17 per share, for the three months ended June 30, 2022, compared to a net
loss attributable to common stockholders of $2,504,505, or $0.42 per share,
during the three months ended June 30, 2021, representing an increase in net
loss attributable to common stockholders of $791,066 or 31.6%.
39
Comparison of Results of Operations for the Six Months Ended June 30, 2022 and
2021
Revenue
Revenue for the six months ended June 30, 2022 was $2,370,707, compared to
revenue of $3,263,835 during the six months ended June 30, 2021, representing a
decrease of $893,128 or 27.4%.
Animation revenue for the six months ended June 30, 2022 was $2,074,579,
compared to animation revenue of $2,990,213 during the six months ended June 30,
2021, representing a decrease of $915,634 or 30.6%. The decrease in animation
revenue is primarily attributable to client delays in providing us with
necessary productions materials and content and in the execution and
commencement of previously negotiated contracts.
Web filtering revenue for the six months ended June 30, 2022 was $295,716,
compared to web filtering revenue of $272,748 during the six months ended June
30, 2021, representing an increase of $22,968 or 8.4%. The increase is primarily
due to the timing of multi-year contract renewals.
Subscription and advertising revenue from our Grom Social mobile app has been
nominal. Subscription and advertising revenue for the six months ended June 30,
2022 was $412 compared to subscription and advertising revenue of $874 during
the six months ended June 30, 2021, representing a decrease of $462 or 52.9%,
primarily attributable to a decrease in marketing and promotion activities.
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 margins percentages may not be indicative of future gross margin
performance.
Gross profit for the six months ended June 30, 2022 and 2021 were $506,299, or
21.4%, and $1,249,871, or 38.3%, respectively. The decrease in gross profit is
primarily attributable to lower contract margins in our animation business due
to the absorption of fixed overhead expenses against reduced revenue levels and
certain projects exceeding budgeted costs.
Operating Expenses
Operating expenses for the six months ended June 30, 2022 were $4,306,135,
compared to operating expenses of $3,427,745 during the six months ended June
30, 2021, representing an increase of $878,390 or 25.6%. The increase is
primarily attributable to an increase in selling, general and administrative
costs and fees for professional services rendered during the six months ended
June 30, 2022 due to an increase in research and development, employee
headcount, compensation and benefits from the acquisition of Curiosity, and
stock-based compensation from the grant of stock and stock option awards.
Selling, general and administrative ("SG&A") are comprised of selling, marketing
and promotional expenses, compensation and benefits, insurance, rent and related
facility costs, research and development, and other general expenses. SG&A
expenses were $3,473,515 for the six months ended June 30, 2022, compared to
$2,662,750 for the six months ended June 30, 2021, representing an increase of
$810,765 or 30.5%.
40
Professional fees are comprised of accounting and compliance services, legal
services, investor relations and other advisory fees. Professional fees were
$704,007 for the six months ended June 30, 2022, compared to $513,031 for the
six months ended June 30, 2021, representing an increase of $190,976 or 37.2%.
Depreciation and amortization included in operating expenses was $128,613 for
the six months ended June 30, 2022, compared to $251,964 for the six months
ended June 30, 2021, representing a decrease of $123,351 or 49.0%. The decrease
is attributable to certain fixed assets that are fully depreciated having
reached the end of their estimated useful lives and certain intangible assets
that were impaired during the fourth quarter of 2021. These fixed and intangible
assets were subject to depreciation and amortization during the six months ended
June 30, 2021.
Other Income (Expense)
Net other expense for the six months ended June 30, 2022 was $2,855,989,
compared to a net other expense of $2,642,206 for the six months ended June 30,
2021, representing an increase of $213,783 or 8.1%. The increase in net other
expense is primarily attributable recognition of interest expense of $1,052,350
related to the derivative liability recognized during the six months ended June
30, 2022, offset by an extinguishment loss of $947,179 related to the exchange
of $1,447,996 in principal and interest accrued under certain convertible notes
for 2,395,175 shares of our Series B Stock during 2021.
Interest expense is comprised of interest incurred on our convertible notes and
from the amortization of note discounts. Interest expense was $2,945,530 for the
six months ended June 30, 2022, compared to $1,743,762 during the six months
ended June 30, 2021, representing an increase of $1,201,768 or 68.9%. The
increase is primarily attributable to recognition of interest expense of
$1,052,350 related to the derivative liability and increase in amortization
expense associated with debt discount recorded during the six months ended June
30, 2022 compared to the six months ended June 30, 2021.
Net Loss Attributable to Common Stockholders
We realized a net loss attributable to common stockholders of $6,849,022, or
$0.42 per share, for the six months ended June 30, 2022, compared to a net loss
attributable to common stockholders of $4,820,080, or $0.79 per share, during
the six months ended June 30, 2021, representing an increase in net loss
attributable to common stockholders of $2,028,942 or 42.1%.
Liquidity and Capital Resources
At June 30, 2022, we had cash and cash equivalents of $4,174,763.
Net cash used in operating activities for the six months ended June 30, 2022 was
$3,383,231, compared to net cash used in operating activities of $2,662,823
during the six months ended June 30, 2021, representing an increase in cash used
of $760,408, primarily due to the increase in our net loss, recognition of a
derivative liability, change in our operating assets and liabilities,
stock-based compensation and amortization of debt discounts.
Net cash used in investing activities for the six months ended June 30, 2022 was
$33,308, compared to net cash used in investing activities of $2,790 during the
six months ended June 30, 2021 representing an increase in cash used of $30,518.
This change is attributable to an increase in the amount of fixed assets
purchased and/or leasehold improvements made by our animation studio in Manilla,
Philippines during the six months ended June 30, 2022.
41
Net cash provided by financing activities for the six months ended June 30, 2022
was $1,040,992, compared to net cash provided by financing activities of
$10,644,544 for the six months ended June 30, 2021, representing a decrease in
cash provided of $9,308,013. The primary reason for the decrease is attributable
to our public equity offering completed in June 2021.
Our primary sources of cash from financing activities during the six months
ended June 30, 2022 were attributable to $1,444,000 in proceeds from second
tranche of convertible notes issued to L1 Capital, as compared to $8,953,616 in
proceeds from the sale of our common stock, $950,000 and $100,000 in proceeds
from the sale of our Series B Stock and Series C Stock, respectively, and
$908,500 in proceeds from the sale of 8% to 12% senior secured convertible notes
during the six months ended June 30, 2021. These sources of cash were offset, in
part, by the repayment of convertible notes and loans payable of $107,469 and
cash settlement of a derivative liability of $295,539 in accordance with a note
conversion during the six months ended June 30, 2022, as compared to repayments
of convertible notes and loans for $267,572 during the six months ended June 30,
2021.
We believe we have adequate working capital to meet our operational needs for at
least the next 12 months.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements.
Critical Accounting Estimates
Our condensed consolidated financial statements and accompanying notes have been
prepared in accordance with GAAP. The preparation of these condensed
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 condensed 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.
During the three and six months ended June 30, 2022, there were no significant
changes to the critical accounting estimates disclosed under the "Management's
Discussion and Analysis of Financial Condition and Results of Operations" in our
2021 Annual Report on Form 10-K.
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GROM SOCIAL ENTERPRISES, INC. 
