Table of Contents

Registration No. 333-253154

As filed with the Securities and Exchange Commission on May 24,October 20, 2021

Registration No. 333-_______

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

AMENDMENT NO. 3

TO

FORM S-1

REGISTRATION STATEMENT

UNDER THE SECURITIES ACT OF 1933

GROM SOCIAL ENTERPRISES, INC.

(Exact nameName of registrantRegistrant as specifiedSpecified in its charter)Its Charter)

2060 NW Boca Raton Blvd., #6

Boca Raton Florida , Florida 33431

(561)287-5776

(Address, including zip code,Including Zip Code, and telephone number, including area codeTelephone Number, Including Area Code, of registrant’s principal executive offices)Registrant’s Principal Executive Offices)

Darren Marks

Chief Executive Officer

Grom Social Enterprises, Inc.

2060 NW Boca Raton Blvd., #6

Boca Raton, Florida 33431

(561) 287-5776

(Name, address, including zip code,Address, Including Zip Code, and telephone number, including area code,Telephone Number, Including Area Code, of agentAgent for service)Service)

CopiesPlease send copies of all communications to:

Approximate date of commencement of proposed sale to the public: As soon as practicable and from time to time after the effective date of this Registration Statement is declared effective.Statement. 

If the only securities being registered on this form are being offered pursuant to dividend or interest reinvestment plans, please check the following box. ☐

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act, of 1933other than securities offered only in connection with dividend or interest reinvestment plans, check the following box. [X]box: ☒

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [  ]☐

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [  ]☐

If this Form is a registration statement pursuant to General Instruction I.D. or a post-effective amendment thereto that shall become effective upon filing with the Commission pursuant to Rule 462(e) under the Securities Act, check the following box. ☐

If this Form is a post-effective amendment to a registration statement filed pursuant to General Instruction I.D. filed to register additional securities or additional classes of securities pursuant to Rule 462(d)413(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [  ]box. ☐

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

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)7(a)(2)(B) of the ExchangeSecurities Act. [_]☐

CALCULATION OF REGISTRATION FEE

___________________________ 

The registrantRegistrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the registrantRegistrant shall file a further amendment which specifically states that this registration statementRegistration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until thisthe Registration Statement shall become effective on such date as the Securities and Exchange Commission acting pursuant to said Section 8(a), may determine.

THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.

The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and is not soliciting an offer to buy these securities in any state or other jurisdiction where the offer or sale is not permitted.

3,104,945 Shares

SUBJECT TO COMPLETION, DATED MAY 24, 2021 

PRELIMINARY PROSPECTUS

GROM SOCIAL ENTERPRISES, INC.

2,000,000 Units

Each Unit ConsistingThis prospectus relates to the resale, from time to time, by the selling stockholder named herein (the “Selling Stockholder”) of

One Share (i) an aggregate of Common Stock and

One Warrant to Purchase One Share of Common Stock

We are offering to sell 2,000,000 units, each unit consisting of one share2,291,667 shares of our common stock, $0.001 par value $0.001 per share, issuable upon the conversion of certain outstanding convertible promissory notes and one warrant, each warrant exercisable for one share(ii) and aggregate of common stock, in a firm commitment underwritten offering at an assumed public offering price of $5.00 per unit (the midpoint of the $4.00 to $6.00 estimated price range of the public offering price) (the “Underwritten Offering”).

The warrants included within the units are exercisable immediately, will have an exercise price per share of common stock of $[●] per share (equal to 110% of the public offering price of one unit, and will expire five years from the date of issuance. The813,278 shares of common stock and warrants that are part of the units are immediately separable and will be issued separately in the Underwritten Offering. The Underwritten Offering also includes the shares of common stock issuable from time to time upon exercise of the warrants.

The selling shareholders identified in this prospectus are offering an aggregate of 1,536,911 shares of our common stock issuable upon exercise of convertible promissory notes and common stock purchasecertain outstanding warrants (the “Selling Shareholder Shares”“Warrants”) held by such.

We are not selling shareholders (the “Selling Shareholders Offering”). Weany securities under this prospectus and we will not receive any proceeds from the sale of anythe shares of our common stock by the Selling Stockholder. However, we may receive proceeds from the cash exercise of the Warrants, which, if exercised in cash at the current applicable exercise price with respect to all of the 813,278 shares of common stock, would result in gross proceeds to us of approximately $3,415,768.

We will pay the expenses of registering the shares of common stock offered by this prospectus, but all selling shareholders.and other expenses incurred by the Selling Stockholder will be paid by the Selling Stockholder. The Selling Stockholder may sell our shares of common stock offered by this prospectus from time to time on terms to be determined at the time of sale through ordinary brokerage transactions or through any other means described in this prospectus under “Plan of Distribution.” The prices at which the Selling Stockholder may sell shares will be determined by the prevailing market price for our common stock or in negotiated transactions.

Our common stock is currently tradedquoted on the OTCQB Marketplace operated by the OTC Markets Group, Inc. (the “OTCQB)The Nasdaq Capital Market, or Nasdaq, under the symbol "GRMMD."“GROM.” On May 21,October 15, 2021, the last reported sale price for our common stock on Nasdaq was $6.00 per share (which reflects$3.85.

Investing in our securities involves a reverse stock split athigh degree of risk. See “Risk Factors” beginning on page 10 of this prospectus for a ratiodiscussion of 1-for-32, which was effective asinformation that should be considered in connection with an investment in our securities.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of May 13, 2021 and which became effective for quotation onthese securities or determined if this prospectus is truthful or complete. Any representation to the OTCQB on May 19, 2021). We have applied to list our common stock and warrants on the Nasdaq Capital Market under the proposed symbols “GROM” and “GROMW,” respectively, which listingcontrary is a condition to the closing of the Underwritten Offering. Based on discussions with Nasdaq, we expect that our listing will be under committee review on May 24, 2021 and, hopefully, will be approved on such date, or soon thereafter. No assurance can be given that our application will be approved or that the trading prices of our common stock on the OTCQB will be indicative of the prices of our common stock if our common stock were traded on the Nasdaq Capital Market. In addition, no assurance can be given that a trading market will develop for the warrants included within the units. If our listing application is not approved by the Nasdaq Stock Market, we will not be able to consummate the Underwritten Offering and will terminate the Underwritten Offering, but will proceed with the Selling Shareholders Offering.criminal offense.

The numberdate of units offered in this prospectus and all other applicable information has been determined based on an assumed public offering price of $5.00 per unit (the midpoint of the $4.00 to $6.00 estimated price range of the public offering price). The actual number of units and the public offering price per unit in the Underwritten Offering will be determined between the underwriters and us at the time of pricing, considering our historical performance and capital structure, prevailing market conditions, and overall assessment of our business, and may be at a discount to the current market price. Therefore, the assumed public offering price per unit used throughout this prospectus may not be indicative of the actual public offering price for the units.

On September 14, 2020, our Board approved, and on September 16, 2020, our 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 the Company’s common stock, by a ratio of no less than 1-for-2 and no more than 1-for-25, 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 April 7, 2021, our Board approved, and on April 8, 2021, our shareholders approved, an increase to the range of the ratio for the reverse stock split to a ratio of no less than 1-for-2 and no more than 1-for-50. On May 6, 2021, our Board fixed the ratio for our reverse stock split at 1-for-32 and, on May 7, 2021, we filed a certificate of amendment to our articles of incorporation with the Secretary of State of the State of Florida to effect the reverse stock split which became effective as of May 13, 2021. Our common stock began being quoted on the OTCQB on a post-reverse split basis beginning on May 19,is _______________, 2021.

Unless otherwise noted, and other than in our financial statements and the notes thereto, the share and per share information in this prospectus reflects a reverse stock split of our outstanding common stock at a 1-for-32 ratio, effective as of May 13, 2021.

The Selling Shareholder Shares may be resold from time to time by the selling shareholders listed in the section titled “Selling Shareholders” beginning on page 71.

The selling shareholders, or their respective transferees, pledgees, donees or other successors-in-interest, may sell the Selling Shareholder Shares through public or private transactions at prevailing market prices, at prices related to prevailing market prices or at privately negotiated prices. The selling shareholders may sell any, all or none of the securities offered by this prospectus, and we do not know when or in what amount the selling shareholders may sell their Selling Shareholder Shares hereunder following the effective date of this registration statement. We provide more information about how a selling shareholder may sell its Selling Shareholder Shares in the section titled “Plan of Distribution” on page 74.

We are an “emerging growth company” under federal securities laws and are subject to reduced public company reporting requirements.

INVESTING IN OUR SECURITIES INVOLVES A HIGH DEGREE OF RISK. BEFORE MAKING ANY INVESTMENT DECISION, YOU SHOULD CAREFULLY REVIEW AND CONSIDER ALL THE INFORMATION IN THIS PROSPECTUS AND THE DOCUMENTS INCORPORATED BY REFERENCE HEREIN, INCLUDING THE RISKS AND UNCERTAINTIES DESCRIBED UNDER “RISK FACTORS” BEGINNING ON PAGE 8.

The Underwritten Offering is being underwritten on a firm commitment basis. We have granted the underwriters an option to buy up to an additional 300,000 units from us, upon the same terms as the units sold in the Underwritten Offering, to cover over-allotments, if any (such units not to exceed, in the aggregate, 15% of the units offered hereby). The underwriters may exercise this option at any time and from time to time during the 45-day period from the date of this prospectus.

(1) We have agreed to reimburse the underwriters for certain expenses. Underwriting discounts and commissions do not include a non-accountable expense allowance equal to 1% of the public offering price payable to the underwriters. The underwriters will receive an underwriting discount equal to 8% of the gross proceeds in the Underwritten Offering. In addition, we have agreed to pay up to a maximum of $150,000 of the fees and expenses of the underwriters in connection with the Underwritten Offering, which includes the fees and expenses of underwriters’ counsel. See “Underwriting” Section for more information.

(2) We have also agreed to issue to the underwriters warrants to purchase up to an aggregate of 120,000 shares of our common stock. See “Underwriting” beginning on page 81 for additional information regarding these warrants and underwriting compensation generally.

The Underwritten Offering is being conducted on a firm commitment basis. The underwriters are obligated to take and pay for all the units offered by this prospectus if the Underwritten Offering is consummated.

The underwriters expect to deliver the shares on or about __________, 2021.

NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

Sole Book Running Manager

KINGSWOOD CAPITAL MARKETS

division of Benchmark Investments, Inc.

The date of this prospectus is __________, 2021

GROM SOCIAL ENTERPRISES, INC.

TABLE OF CONTENTS

You should rely only on the information contained in this prospectus or in any free writing prospectus we or the underwriters or the selling shareholders may authorize to be delivered or made available to you. Neither we, the underwriters nor the selling shareholders have authorized anyone to provide you with different information. We and the selling shareholders are offering to sell, and seeking offers to buy, units, shares of common stock and warrants only in jurisdictions where offers and sales are permitted. The information in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or of any sale of shares of units, our common stock and warrants. Our business, financial condition, operating results and prospects may have changed since that date.

No action is being taken in any jurisdiction outside the United States to permit a public offering of our shares or possession or distribution of this prospectus in any such jurisdiction. Persons who come into possession of this prospectus in jurisdictions outside the United States are required to inform themselves about and to observe any restrictions as to the Underwritten Offering and Selling Shareholders Offering and the distribution of this prospectus applicable to that jurisdiction.

EXPLANATORY NOTEABOUT THIS PROSPECTUS

This Prospectus relatesprospectus is part of a registration statement on Form S-1 that we filed with the U.S. Securities and Exchange Commission (the “SEC”). You should read this prospectus and the information and documents incorporated herein by reference carefully. Such documents contain important information you should consider when making your investment decision. See “Where You Can Find Additional Information” and “Incorporation of Certain Documents by Reference” in this prospectus.

You should rely only on the information contained in or incorporated by reference into this prospectus. Neither we nor the selling stockholder named herein (the “Selling Stockholder”) have authorized anyone to two separate offerings.provide you with information different from, or in addition to, that contained in or incorporated by reference into this prospectus. This prospectus is an offer to sell only the securities offered hereby but only under circumstances and in jurisdictions where it is lawful to do so. The firstinformation contained in or incorporated by reference into this prospectus is a publiccurrent only as of their respective dates or on the date or dates that are specified in those documents. Our business, financial condition, results of operations and prospects may have changed since those dates.

The Selling Stockholder are not offering to sell or seeking offers to purchase these securities in any jurisdiction where the offer or sale is not permitted. Neither we nor the Selling Stockholder have done anything that would permit this offering (the “Offering”) or possession or distribution of upthis prospectus in any jurisdiction where action for that purpose is required, other than in the United States. Persons outside the jurisdiction of the United States who come into possession of this prospectus are required to 2,000,000 units,inform themselves about and to observe any restrictions relating to this Offering and the distribution of this prospectus applicable to that jurisdiction.

If required, each unit consisting of one share of our common stock and one warrant, each warrant exercisable for one sharetime the Selling Stockholder offer shares of common stock, (excluding 300,000 units whichwe will provide you with, in addition to this prospectus, a prospectus supplement that will contain specific information about the terms of that offering. We may also authorize the Selling Stockholder to use one or more free writing prospectuses to be sold upon exerciseprovided to you that may contain material information relating to that offering. We may also use a prospectus supplement and any related free writing prospectus to add, update or change any of the underwriters’ over-allotment option) throughinformation contained in this prospectus or in documents we have incorporated by reference. This prospectus, together with any applicable prospectus supplements, any related free writing prospectuses and the underwriter named ondocuments incorporated by reference into this prospectus, includes all material information relating to this offering. To the cover pageextent that any statement that we make in a prospectus supplement is inconsistent with statements made in this prospectus, the statements made in this prospectus will be deemed modified or superseded by those made in a prospectus supplement. Please carefully read both this prospectus and any prospectus supplement together with the additional information described below under the section entitled “Incorporation of Certain Documents by Reference” before buying any of the prospectus (the “Underwritten Offering”). The second is an offering by certain selling shareholders of an aggregate of 1,536,911 shares ofsecurities offered.

Unless the context otherwise requires, the terms “the Company,” “we,” “us” and “our” refer to Grom Social Enterprises, Inc. and our common stock, consisting of (i) 955,142 shares of our common stock issuable upon exercise of outstanding convertible promissory notes held by certain of the selling shareholders, and (ii) 581,769 shares of our common stock issuable upon exercise of outstanding warrants held by certain of the selling shareholders (the “Selling Shareholders Offering”). Certain sections and disclosure in the prospectus relate specifically to either the Underwritten Offering or the Selling Shareholders Offering, as indicated in the prospectus.subsidiaries.

Unless otherwise noted, and other than in our financial statements and the notes thereto, the share and per shareindicated, information contained in this prospectus reflectsor incorporated by reference herein concerning our industry and the markets in which we operate is based on information from independent industry and research organizations, other third-party sources (including industry publications, surveys and forecasts), and management estimates. Management estimates are derived from publicly available information released by independent industry analysts and third-party sources, as well as data from our internal research, and are based on assumptions made by us upon reviewing such data and our knowledge of such industry and markets, which we believe to be reasonable. Although we believe the data from these third-party sources is reliable, we have not independently verified any third-party information. In addition, projections, assumptions and estimates of the future performance of the industry in which we operate and our future performance are necessarily subject to uncertainty and risk due to a reverse stock splitvariety of factors, including those described in “Risk Factors” and “Cautionary Note Regarding Forward-Looking Statements.” These and other factors could cause results to differ materially from those expressed in the estimates made by the independent parties and by us.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

When used in this prospectus, 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”)). In particular, statements pertaining to our trends, liquidity and capital resources, among others, contain forward-looking statements. You can also identify forward-looking statements by discussions of strategy, plans or intentions. Examples of forward-looking statements include, but are not limited to, statements about the following:

These 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 that could cause our actual results, performance or achievements, or industry results, to differ materially from any future results, performance or achievements described in or implied by such statements. Actual results may differ materially from expected results described in our forward-looking statements, including with respect to correct measurement and identification of factors affecting our business or the extent of their likely impact, the accuracy and completeness of the publicly-available information with respect to the factors upon which our business strategy is based, or the success of our outstanding common stockbusiness.

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 a 1-for-32 ratio, effectivethe time those statements are made and management’s belief as of May 13, 2021. Our common stock began trading on a post-split basisthat 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 over-the-counter market on May 19, 2021.forward-looking statements. 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 prospectus as well as other risks and factors identified from time to time in our SEC filings.

PROSPECTUS SUMMARY

This summary highlights information contained elsewhere or incorporated by reference in this prospectus. This summary provides an overview of selected informationis not complete and does not contain all of the information that you should consider before investing in our securities. You shouldcommon stock. We urge you to read thethis entire prospectus and the documents incorporated by reference herein carefully, especiallyincluding the “Risk Factors,” and our financial statements and the accompanying notes to those financial statements included elsewhere inincorporated by reference herein and therein. Please read the section of this prospectus entitled “Risk Factors” for more information about important risks that you should consider before making an investment decision. Unless the context requires otherwise, references to the “Company”, “we”, “us,” and “our” refer to Grom Social Enterprises, Inc., a Florida corporation.investing in our common stock.

Overview

We were incorporated in the State of Florida on April 14, 2014, as Illumination America, Inc. andWe changed our name to Grom Social Enterprises, Inc. on August 17, 2017, in connection with our acquisition of Grom Holdings, Inc., a Delaware corporation (“Grom Holdings”).

Effective August 17, 2017, we acquired Grom Holdings pursuant to the terms of 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 issued an aggregate of 3,464,184 shares of its common stock to the Grom Holdings stockholders, pro rata to their respective ownership percentage of Grom Holdings. Each share of Grom Holdings was exchanged for approximately 0.1303 shares of our common stock. As a result, the stockholders of Grom Holdings owned approximately 92% of the Company’s issued and outstanding shares of common stock at such time.

We are a media, technology and entertainment company that focuses on 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. We operateconduct our business through the following four wholly-ownedour five operating subsidiaries:

We own 100% of each of Grom Social, TD Holdings, GES and GNS, and 80% of CIM.

Recent Developments

Listing on the Nasdaq Capital MarketReverse Stock Split

Our common stock is currently quoted on the OTCQB under the symbol “GRMMD”. In connection with the Underwritten Offering, we have applied to list our common stock and warrants on the Nasdaq Capital Market (“Nasdaq”) under the proposed symbols “GROM” and “GROMW,” respectively. If our listing application is approved, we expect to list our common stock and warrants on Nasdaq upon consummation of the Underwritten Offering, at which point our common stock will cease to be traded on the OTCQB. No assurance can be given that our listing application will be approved. The Underwritten Offering will occur only if Nasdaq approves the listing of our common stock. Nasdaq listing requirements include, among other things, a stock price threshold. As a result, prior to effectiveness, we will need to take the necessary steps to meet Nasdaq listing requirements. Based on discussions with Nasdaq, we expect that our listing will be under committee review on May 24, 2021 and, hopefully, will be approved on such date, or soon thereafter. If Nasdaq does not approve the listing of our common stock, we will terminate the Underwritten Offering, but will proceed with the Selling Shareholders Offering. There can be no assurance that our common stock or warrants will be listed on the Nasdaq.

Reverse Stock Split

On September 14, 2020, our Board approved, and on September 16, 2020, our 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 the Company’s common stock, by a ratio of no less than 1-for-2 and no more than 1-for-25, 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 April 7, 2021, our Boardthe Company’s board of directors (the “Board”) approved, and, on April 8, 2021, ourthe Company’s shareholders approved, an increase to the range of the ratio for thea reverse stock split toat a ratio of no less than 1-for-2 and no more than 1-for-50. On May 6, 2021, ourthe Board fixed the ratio for oura reverse stock split at 1-for-32, and, on May 7, 2021, wethe Company filed a certificate of amendment to ourits articles of incorporation with the Secretary of State of the State of Florida to effect athe reverse stock split, which became effective as of May 13, 2021. OurThe Company’s common stock began being quoted on the OTCQB on a post-reverse split basis beginning on May 19, 2021.

Unless otherwise noted,

Listing on the Nasdaq Capital Market

On June 17, 2021, our common stock and registered warrants began trading on the Nasdaq Capital Market under the symbols “GROM” and “GROMW,” respectively.

Registered Offering

On June 21, 2021 (in this case, the “Closing Date”), the Company, sold an aggregate of 2,409,639 units (the “Units”), at a price to the public of $4.15 per Unit (the “Underwritten Offering”), each Unit consisting of one share of common stock and a warrant to purchase one share of common stock at an exercise price of $4.565 per share pursuant to an underwriting agreement, dated as of June 16, 2021 (the “Underwriting Agreement”), between the Company and EF Hutton, division of Benchmark Investments, LLC, as representative (the “EF Hutton”) of the several underwriters named in the Underwriting Agreement. In addition, pursuant to the Underwriting Agreement, the Company granted EF Hutton a 45-day option to purchase up to 361,445 additional Units of common stock and warrants, to cover over-allotments in connection with the Offering, which EF Hutton exercised with respect to warrants exercisable for up to an additional 361,445 shares on the Closing Date.

The shares and the warrants were offered and sold to the public pursuant to the Company’s registration statement on Form S-1, as amended (File No. 333-253154), filed by the Company with the SEC under the Securities Act, which became effective on June 16, 2021.

On the Closing Date, the Company received gross proceeds of approximately $10,000,000, before deducting underwriting discounts and commissions of 8% of the gross proceeds and estimated offering expenses. The Company is using the net proceeds from the Underwritten Offering primarily for sales and marketing activities, product development, acquisition of, or investment in, technologies, solutions, or businesses that complement the Company’s business, and for working capital and general corporate purposes.

Pursuant to the Underwriting Agreement, the Company issued to EF Hutton five-year warrants to purchase up to 144,578 shares (6% of the shares sold in the Underwritten Offering), on the Closing Date. EF Hutton’s warrants are exercisable at $4.15 per share and are subject to a lock-up for 180 days from the commencement of sales in the Underwritten Offering, including a mandatory lock-up period in accordance with FINRA Rule 5110(e).

The total expenses of the Underwritten Offering were approximately $1,162,738, which included the underwriting discounts and commissions and EF Hutton’s reimbursable expenses relating to the Underwritten Offering.

On July 15, 2021, EF Hutton exercised in full the over-allotment option with respect to all 361,445 additional shares. After giving effect to the full exercise of the over-allotment option, the total number of Units sold by the Company in the Underwritten Offering was 2,771,084, for total gross proceeds to the Company of approximately $11,500,000, before deducting underwriting discounts and commissions and other than in our financial statementsoffering expenses payable by the Company.

Curiosity Acquisition

On July 29, 2021, the Company entered into a membership interest purchase agreement (in this case, the “Purchase Agreement”) with CIM, and the notes thereto,holders of all of CIM’s outstanding membership interests (the “Sellers”), for the sharepurchase of 80% of CIM’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 informationwhich represents to the 20-day volume-weighted average price of the Company’s common stock on August 19, 2021.

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

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

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

Executive Officers

On July 26, 2021, Melvin Leiner resigned as Chief Financial Officer, Secretary and Treasurer of the Company. Mr. Leiner remains the Company’s Executive Vice President and Chief Operating Officer, and a director.

On July 26, 2021, effective immediately upon Mr. Leiner’s resignation, Jason Williams was appointed the Company’s Chief Financial Officer, Secretary and Treasurer.

Payoff of TDH Sellers Notes

On August 18, 2021, the Company paid the holders of certain secured promissory notes (the “TDH Secured Notes”) an aggregate of $834,759.77, representing all remaining amounts due and payable under the TDH Secured Notes. Upon receipt of such payment by the holders of the TDH Secured Notes, the pledged shares of TDH Holdings and its subsidiary, Top Draw HK were released from escrow, and the holders of the TDH Secured Notes had no further security interest in the assets of the Company or its subsidiaries.

L1 Capital Financing

Closing of First Tranche

On September 14, 2021, the Company entered into a Securities Purchase Agreement (the “Purchase Agreement”) with L1 Capital Global Opportunities Master Fund (“L1 Capital”), pursuant to which it sold L1 Capital (i) a 10% Original Issue Discount Senior Secured Convertible Note in the principal amount of $4,400,000, due March 13, 2023 (the “Original Note”), and (ii) a five-year warrant to purchase 813,278 shares of the Company’s common stock splitat an exercise price of our outstanding$4.20 per share (the “Original Warrant”), for consideration of $3,960,000 (the “First Tranche”).

EF Hutton acted as exclusive placement agent for the offering and received a fee of $316,800.

The Original Note is convertible into common stock at a 1-for-32 ratio, effective asrate of May 13, 2021.

The reverse stock split did not impact our number$4.20 per share (the “Conversion Price”), and is repayable in 18 equal monthly installments, in cash, or, at the discretion of authorizedthe Company, and if the Equity Conditions described below are met, by issuance of shares of common stock which remained at 500,000,000 shares.a price equal to 95% of the volume weighted average price (“VWAP”) 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 10-day VWAP drops below $1.92, the Company will have the right to pay in shares of common stock at said VWAP, with any shortfall to be paid in cash. The Conversion Price may be adjusted in the event of dilutive issuances but in no event to less than $0.54. In addition, under the terms of the Original Note, L1 Capital had the right to accelerate up to 3 of the monthly payments.

Risk FactorsThe Equity Conditions required to be met in order for the Company to redeem the Original Note with shares of common stock in lieu of a monthly cash payment, include, without limitation, that (i) a registration statement must be in effect with respect to the resale of the shares issuable upon conversion or redemption of the Original Note (or, that an exemption under Rule 144 is available), and (ii) that the average daily trading volume of the Company’s common stock will be at least $250,000 immediately prior to the date of the monthly redemption.

The Original Warrant has the same anti-dilution protection as the Original Note and same adjustment floor. The Original Warrant is exercisable for cash, or on a cashless basis only for so long as no registration statement covering resale of the shares is in effect.

The Company entered into a Security Agreement with L1 Capital pursuant to which L1Capital was granted a security interest in all of the assets of the Company and certain of its subsidiaries. As further inducement for L1 Capital to enter into the Security Agreement, certain of the Company’s pre-existing secured creditors agreed to give up their exclusive senior security interest in the assets of TD Holdings, in exchange for a shared senior secured interest with L1 Capital on a pari pasu basis on all assets of the Company. Repayment of the Note is also guaranteed by certain subsidiaries of the Company pursuant to a subsidiary guaranty. 

The Company agreed to file a registration statement with the SEC within 35 days of the closing of the First Tranche registering all Conversion Shares and Warrant Shares for resale, to go effective no later than 75 days after the closing of the First Tranche.

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The Purchase Agreement also contemplated the purchase by L1 Capital (the “Second Tranche”) of an additional 10% Original Issue Discount Senior Secured Convertible Note in the principal amount of $1,500,000, and warrants to purchase approximately 277,000 shares (presuming current market prices) of common stock on identical terms to the Original Note and Warrant, subject to, and upon receipt of, shareholder approval under Nasdaq rules and effectiveness of a registration statement covering the resale of the shares issuable under the Original Note and Warrant issued in the First Tranche.

Amendment to Purchase Agreement and Original Note

On October 20, 2021, the Company and L1 Capital entered into an Amended and Restated Purchase Agreement (the “Amended Purchase Agreement”), pursuant to which the amount of the proposed Second Tranche investment was increased from $1,500,000 to $6,000,000. In the event that the conditions to closing the Second Tranche investment are satisfied, the Company intends on issuing (i) a 10% Original Issue Discount Senior Secured Convertible Note in the principal amount of $6,000,000 (the “Additional Note”), identical to the Original Note, but due 18 months from the closing of the Second Tranche, and (ii) a five-year warrant to purchase 1,041,194 at an exercise price of $4.20 per share (the “Additional Warrant”), for consideration of $5,400,000.

The closing of the Second Tranche is subject to a registration statement being declared effective by the SEC covering the shares issuable upon conversion or redemption of the Original Note and Original Warrant, shareholder consent being obtained as required by Nasdaq Rule 5635(d), and a limitation on the principal amount of notes that may be issued to no more than 30% of the Company’s market capitalization as reported by Bloomberg L.P., which requirement may be waived by L1 Capital.

The conversion and redemption terms, as well as all other material terms of the Additional Note, and exercise price of terms of the warrants to be issued in the Second Tranche, are identical in all other material respects as the originally issued note and warrants, except for the amendments provided herein.

As of October 20, 2021, and as part of the terms of the Amended Purchase Agreement, the Original Note was amended (the “Amended Original Note”) to increase the monthly redemption amount for the 18 monthly installments from $275,000 to $280,500. In addition, the Amended Original Note provides that, in the event that the Second Tranche closes, the Equity Conditions required to be satisfied in order for the Company to elect to make monthly note payments by issuance of common stock in lieu of cash (and in addition to the requirement that a registration statement is in effect or an exemption exists) the average trading volume of the Company’s common stock must be at least $550,000 (increased from $250,000) during the five trading days prior to the respective monthly redemption. Except as described above, the other terms of the Original Note as previously disclosed remain in full force and effect. In addition, if the Second Tranche is consummated, L1 Capital will have the right to accelerate up to 6 of the monthly payments as opposed to just 3.

Risks Associated With Our Business

Our business is subject to a number of risks. You should be aware of these risks before making an investment decision. These risks are discussed more fully in the section of this prospectus titled “Risk“Risk Factors,” which begins on page 810 of this prospectus and includes:

Our Corporate Information

Our principal executive offices are located at 2060 NW Boca Raton, #6, Boca Raton, Florida 33431. Our telephone number is (561) 287-5776. Our website address is www.gromsocial.com. Information contained in, or that can be accessed through, our website is not incorporated by reference into this prospectus, and you should not consider information on our website to be part of this prospectus.

Emerging Growth Company

We are an "emerging growth company," as defined in the Jumpstart Our Business Startups Act of 2012 (“JOBS Act”). We will remain an emerging growth company until the earlier of (i) December 31, 2021, the last day of the fiscal year following the fifth anniversary of the date of the first sale of our common stock pursuant to an effective registration statement under the Securities Act; (ii) the last day of the fiscal year in which we have total annual gross revenues of $1$1.07 billion or more; (iii) the date on which we have issued more than $1 billion in nonconvertible debt during the previous three years; or (iv) the date on which we are deemed to be a large accelerated filer under applicable SEC rules. We expect that we will remain an emerging growth company for the foreseeable future but cannot retain our emerging growth company status indefinitely and will no longer qualify as an emerging growth company on or before December 31, 2021. References herein to "emerging growth company" have the meaning associated with it in the JOBS Act. For so long as we remain an emerging growth company, we are permitted and intend to rely on exemptions from specified disclosure requirements that are applicable to other public companies that are not emerging growth companies.

These exemptions include:

For as long as we continue to be an emerging growth company, we expect that we will take advantage of the reduced disclosure obligations available to us as a result of that classification. We have taken advantage of certain of those reduced reporting burdens in this prospectus. Accordingly, the information contained herein may be different than the information you receive from other public companies in which you hold stock.

An emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. This allows an emerging growth company to delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have irrevocably elected to avail ourselves of this extended transition period and, as a result, we will not be required to adopt new or revised accounting standards on the dates on which adoption of such standards is required for other public reporting companies.

We are also a "smaller reporting company" as defined in Rule 12b-2 of the Securities Exchange Act of 1934, as amended, or the Exchange Act, and have elected to take advantage of certain of the scaled disclosure available for smaller reporting companies.

THE OFFERING

The Offering

Unless we indicate otherwise, the number of shares of our common stock that will be outstanding immediately after the Underwriting Offering and Selling Shareholders Offering is based on 6,037,528The shares of common stock outstanding and the shares of common stock to be outstanding after this offering is based on 3,104,945 shares outstanding as of May 21, 2021. The number gives effect to the reverse stock split of our common stock at a ratio of 1-for-32, effective as of May 13,October 15, 2021 and excludes an aggregate of up to approximately 10,419,725 shares of common stock based upon the following:

In addition, the number of shares of our common stock that will be outstanding immediately after the Underwriting Offering does not include 955,142 shares of common stock underlying the convertible notes and 581,769 shares of common stock underlying the warrants to be offered by the selling shareholders in the Selling Shareholders Offering.

Except as otherwise indicated herein, all information in this prospectus assumes no exercise by the underwriter of its over-allotment option to purchase additional shares.

RISK FACTORS

Investing in our securities involves a high degree of risk. Before investing in our common stock and warrants, you should carefully consider the risks described below, as well as the other information in this prospectus, including our consolidated financial statements and the related notes. In addition, we may face additional risks and uncertainties not currently known to us, or which as of the date of this registration statement we might not consider significant, which may adversely affect our business. If any of the following risks occur, our business, financial condition and results of operations could be materially adversely affected. In such case the trading price of our common stock and warrants could decline due to any of these risks or uncertainties, and you may lose part or all of your investment.

Risks Related to our Business and Industry

Our independent auditors have expressed their concern as to our ability to continue as a going concern.

On a consolidated basis, the Company has incurred significant operating losses since inception and has a working capital deficit. The Company’s financial statements do not include any adjustments that might result from the outcome of this uncertainty.

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

These factors, among others, raise substantial doubt about the Company’s ability to continue as a going concern. If we are unable to obtain sufficient funding, our business, prospects, financial condition and results of operations will be materially and adversely affected, and we may be unable to continue as a going concern.

We have a $1,000,000 note issued to the TDH Sellers which matures on June 30, 2021 and $3,000,000 in notes issued to certain accredited investors which mature on March 16, 2024 that are secured by all of the assets of TDH.

On March 16, 2020, the maturity date of the TDH Note was extended from April 1, 2020 to June 30, 2021. If the TDH Note is not paid in full by June 30, 2021, the TDH Sellers could foreclose on their collateral causing us to lose our TDH subsidiary. Furthermore, we issued $3,000,000 of our 12% senior secured convertible notes, dated March 16, 2020, to certain accredited investors. If the senior secured convertible notes are not paid in full by March 16, 2024, the accredited investors could foreclose on their collateral causing us to lose our TDH subsidiary. Either occurrence would have a material adverse impact on the Company.

Our future performance will depend on the continued engagement of key members of the management team of the Company.

Our future performance depends to a large extent on the continued services of members of the Company’s current management and other key personnel, including Zachary Marks. While we have employment agreements with Messrs. Marks, Dearingcertain of our executive officers and Leiner,key employees, the failure to secure the continued services of these or other key personnel for any reason, could have a material adverse effect on our business, operations, and prospects. We currently do not carry “key man insurance” on any of our executives.

Failure to manage our growth effectively could cause our business to suffer and have an adverse effect on our financial condition and operating results.

Failure to manage our growth effectively could cause our business to suffer and have an adverse effect on our financial condition and operating results. To manage our growth effectively, we must continually evaluate and evolve our business and manage our employees, operations, finances, technology and development, and capital investments efficiently. Our efficiency, productivity and the quality of our Grom Social platform, animation business and web filtering user services and content may be adversely impacted if we fail to appropriately coordinate across our business operations. Additionally, rapid growth may place a strain on our resources, infrastructure, and ability to maintain the quality of our Grom Social platform. If and when our structure becomes more complex as we add additional staff, we will need to improve our operational, financial and management controls as well as our reporting systems and procedures. Our failure to manage our growth could disrupt our operations and ultimately prevent us from generating revenues.

Future business acquisitions, strategic investments or alliances, if any, as well as business acquisition transactions, could disrupt our business and may not succeed in generating the intended benefits and may, therefore, adversely affect our business, revenue and results of operations.

We completed the acquisition of TD Holdings in 2016, and recently acquired 80% of Curiosity. In the future, we may explore potential acquisitions of companies or technologies, strategic investments, or alliances to strengthen our business. Acquisitions involve numerous risks, any of which could harm our business, including:

Failure to appropriately mitigate these risks or other issues related to such strategic investments and acquisitions could result in reducing or completely eliminating any anticipated benefits of transactions and harm our business generally. Future acquisitions could also result in dilutive issuances of our equity securities, the incurrence of debt, contingent liabilities, amortization expenses or the impairment of goodwill, any of which could harm our business, financial condition, and operating results.

We face intense competition in all aspects of our business including competition in the animation and web filtering businesses. If we do not provide features and content that will engage and attract users, advertisers and developers we may not remain competitive, and our potential revenues and operating results could be adversely affected.

We face intense competition in almost every aspect of our business, including from companies such as Facebook, YouTube, Twitter and Google, which offer a variety of Internet products, services, content, and online advertising offerings, as well as from mobile companies and smaller internet companies that offer products and services that may compete directly with Grom Social for users, such as Yoursphere, Fanlala, Franktown Rocks and Sweety High. As we introduce new services and products, as our existing services and products evolve, or as other companies introduce new products and services, we may become subject to additional competition.

Some of our current and potential competitors have significantly greater resources and better competitive positions than we do. These factors may allow our competitors to respond more effectively than us to new or emerging technologies and changes in market requirements. Our competitors may develop products, features, or services that are similar to ours or that achieve greater market acceptance, may undertake more far-reaching and successful product development efforts or marketing campaigns, or may adopt more aggressive pricing policies. In addition, our users, content providers or application developers may use information shared by our users through Grom Social in order to develop products or features that compete with us. Certain competitors, including Facebook, could use strong or dominant positions in one or more markets to gain a competitive advantage against us in areas where we operate, including by creating a social networking experience similar to ours with similar content and features. As a result, our competitors may acquire and engage users at the expense of the growth or engagement of our user base, which may negatively affect our business and financial results.

We believe that our ability to compete effectively depends upon many factors, including:

If we are not able to effectively compete, our user base and level of user engagement may decrease, which could make us less attractive to developers and advertisers and materially and adversely affect our revenue and results of operations.

We are a holding company organized in Florida, with no operations of our own, and we depend on our subsidiaries, incorporated in Hong Kong, Manila and Florida for cash to fund our operations.

Our operations are conducted entirely through our subsidiaries and our ability to generate cash to fund operations or to meet debt service obligations is dependent on the earnings and the receipt of funds from our subsidiaries. Deterioration in the financial condition, earnings or cash flow of TD Holdings and its subsidiaries for any reason could limit or impair their ability to make payments to us. Additionally, to the extent that we need funds and our subsidiaries are restricted from making such distributions under applicable law or regulation or are otherwise unable to provide such funds, it could materially adversely affect our business, financial condition, results of operations or prospects.

Our intellectual property rights are critical to our success, and the loss of such rights could materially adversely affect our business.

We regard our trademarks, copyrights, and other intellectual property rights as critical to our success and attempt to protect such intellectual property with registered and common law trademarks and copyrights, restrictions on disclosure and other actions to prevent infringement. However, there can be no assurance that other third parties will not infringe or misappropriate our trademarks and similar proprietary rights. If we lose some or all of our intellectual property rights, our business may be materially adversely affected.

We may be subject to claims alleging the intellectual property subject to our licensing agreements is violating the intellectual property rights of others.

We may face significant expense and liability as a result of litigation or other proceedings relating to patents and intellectual property rights of others. We could be required to participate in interference proceedings involving issued patents and pending applications of another entity. The cost to us of any such proceeding could be substantial. An adverse outcome in an interference proceeding could require us to cease using the technology, substantially modify it or to license rights from prevailing third parties. There is no guarantee that any prevailing patent owner would offer us a license so that we could continue to engage in activities claimed by the patent, or that such a license is made available to us, could be acquired on commercially acceptable terms. In addition, third parties may, in the future, assert other intellectual property infringement claims against us with respect to our services, technologies or other matters.

Risks Related to Grom Social

If we fail to retain existing users or add new users, or if our users decrease their level of engagement, our revenue, financial results, and business may be significantly harmed.

The size of our user base and our users’ level of engagement are critical to our success. We have over 10,000,000 Grom Social users under the age of 13 and an almost equal number of parents in our database as of May 28, 2020. Our future financial performance will be significantly determined by our success in adding, retaining, and engaging users. If people do not perceive our site and the content that we offer to be enjoyable, engaging, reliable, and trustworthy, we may not be able to attract or retain users or otherwise maintain or increase the frequency and duration of their interaction on our website. A number of other social networking companies that achieved early popularity have since seen their active user bases or levels of engagement decline, in some cases precipitously. There is no guarantee that we will not experience a similar erosion of our user base or engagement levels. A decrease in user retention, growth, or engagement could render us less attractive to developers and advertisers, which may have a material and adverse impact on our revenue, business, financial condition, and results of operations. Any number of factors could potentially negatively affect our ability to attract and retain user and to increase their engagement on the website, including, if:

If we are unable to maintain and increase our user base and user engagement, our revenue, financial results, and future growth potential may be adversely affected.

Our strategy at Grom Social to create new and original content, charge users for that content and attempt to secure advertisers to pay to advertise on our app, could fail to attract or retain users or generate revenue.

Our ability to retain, increase, and engage our user base and to increase our revenue will depend heavily on our ability to create successful new content, both independently and in conjunction with third parties. If new or enhanced content fails to engage users, developers, or advertisers, we may fail to attract or retain users or to generate sufficient revenue, operating margin, or other value to justify our investments, and our business may be adversely affected. In the future, we may invest in new products and initiatives to generate revenue, but there is no guarantee these approaches will be successful. If we are not successful with new approaches to monetization, we may not be able to maintain or grow our revenue as anticipated or recover any associated development costs, and our financial results could be adversely affected. 

If we are not able to maintain and enhance our brand, or if events occur that damage our reputation and brand, our ability to expand our user base may be impaired, and our business and financial results may be harmed.

We believe that maintaining and enhancing the Grom Social brand is central to expanding our base of users and advertisers. Many of our new users are referred by existing users, and therefore we strive to ensure that our users remain favorably inclined towards our brand. Maintaining and enhancing our brand will depend largely on our ability to continue to provide age-appropriate, enjoyable, reliable, trustworthy, and innovative content and services, which we may not do successfully. We may introduce new content or terms of service that users do not like, which may negatively affect our brand. Additionally, the actions of third-party developers may affect our brand if users do not have a positive experience using third-party apps and websites integrated with our website. We also may fail to provide adequate customer service, which could erode confidence in our brand. Our brand may also be negatively affected by the actions of users that are deemed to be hostile or inappropriate to other users, or by users acting under false or inauthentic identities. Maintaining and enhancing our brand may require us to make substantial investments and these investments may not be successful. If we fail to successfully promote and maintain the Grom Social brand or if we incur excessive expenses in this effort, our business and financial results may be adversely affected.

Our Grom Social platform may be misused by users, despite the safeguards we have in place to protect against such behavior.

Users may be able to circumvent the controls we have in place to prevent abusive, illegal or dishonest activities and behavior on our website, and may engage in such activities and behavior despite these controls. For example, our Grom Social platform could be used to exploit children and to facilitate individuals seeking to engage in improper communications or contact with children. Such potential behavior of such users would injure our other users and would jeopardize the reputation and integrity of our Grom Social platform. Fraudulent users could also post fraudulent profiles or create false or unauthorized profiles on behalf of other, non-consenting parties. This behavior could expose us to liability or lead to negative publicity that could injure the reputation of our Grom Social platform and materially adversely affect our brand.

We could experience system failures or capacity constraints that could negatively impact our Grom Social platform and business.

Our ability to provide reliable service to our users largely depends on the efficient and uninterrupted operation of our Grom Social platform, relying on people, processes, and technology to function effectively. Any significant interruption to, failure of, or security breaches affecting, our Grom Social platform could result in significant expense, a loss of users, and harm to our business and reputation. Interruptions, system failures or security breaches could result from a wide variety of causes, including disruptions to the Internet, malicious attacks or cyber incidents such as unauthorized access, loss or destruction of data (including confidential and/or personal customer information), account takeovers, computer viruses or other malicious code, and the loss or failure of systems over which we have no control. The failure of our Grom Social platform, or the loss of data, could result in disruption to our operations, damage to our reputation and remediation costs, which could individually or in the aggregate adversely affect our business and brand.

Improper access to or disclosure of our users’ information, or violation of our terms of service or policies, could harm our reputation and adversely affect our business.

Our efforts to protect the information that our users have chosen to share using Grom Social may be unsuccessful due to the actions of third parties, software bugs or other technical malfunctions, employee error or malfeasance, or other factors. In addition, third parties may attempt to fraudulently induce employees or users to disclose information in order to gain access to our data or our users’ data. If any of these events occur, our users’ information could be accessed or disclosed improperly. We have a privacy policy that governs the use of information that users have chosen to share using the Grom Social website and how that information may be used by us and third parties. Some third-party developers may store the information provided by our users through apps on the Grom Social platform or websites. If these third parties or developers fail to adopt or adhere to adequate data security practices or fail to comply with our terms and policies, or in the event of a breach of their networks, our users’ data may be improperly accessed or disclosed.

Any incidents involving unauthorized access to or improper use of the information of our users or incidents involving violation of our terms of service or policies, including our privacy policy, could damage our reputation and our brand and diminish our competitive position. In addition, the affected users or government authorities could initiate legal or regulatory action against us in connection with such incidents, which could cause us to incur significant expense and liability or result in orders or consent decrees forcing us to modify our business practices. Any of these events could have a material and adverse effect on our business, reputation, or financial results.

We face intense competition in all aspects of our business including competition in the animation and web filtering businesses. If we do not provide features and content that will engage and attract users, advertisers and developers we may not remain competitive, and our potential revenues and operating results could be adversely affected.

We face intense competition in almost every aspect of our business, including from companies such as Facebook, YouTube, Twitter and Google, which offer a variety of Internet products, services, content, and online advertising offerings, as well as from mobile companies and smaller Internet companies that offer products and services that may compete directly with Grom Social for users, such as Yoursphere, Fanlala, Franktown Rocks and Sweety High. As we introduce new services and products, as our existing services and products evolve, or as other companies introduce new products and services, we may become subject to additional competition.

Some of our current and potential competitors have significantly greater resources and better competitive positions than we do. These factors may allow our competitors to respond more effectively than us to new or emerging technologies and changes in market requirements. Our competitors may develop products, features, or services that are similar to ours or that achieve greater market acceptance, may undertake more far-reaching and successful product development efforts or marketing campaigns, or may adopt more aggressive pricing policies. In addition, our users, content providers or application developers may use information shared by our users through Grom Social in order to develop products or features that compete with us. Certain competitors, including Facebook, could use strong or dominant positions in one or more markets to gain a competitive advantage against us in areas where we operate including: by creating a social networking experience similar to ours with similar content and features. As a result, our competitors may acquire and engage users at the expense of the growth or engagement of our user base, which may negatively affect our business and financial results.

We believe that our ability to compete effectively depends upon many factors, including:

If we are not able to effectively compete, our user base and level of user engagement may decrease, which could make us less attractive to developers and advertisers and materially and adversely affect our revenue and results of operations.

Failure to manage our growth effectively could cause our business to suffer and have an adverse effect on our financial condition and operating results.

Failure to manage our growth effectively could cause our business to suffer and have an adverse effect on our financial condition and operating results. To manage our growth effectively, we must continually evaluate and evolve our business and manage our employees, operations, finances, technology and development, and capital investments efficiently. Our efficiency, productivity and the quality of our Grom Social platform, animation business and web filtering user services and content may be adversely impacted if we fail to appropriately coordinate across our business operations. Additionally, rapid growth may place a strain on our resources, infrastructure, and ability to maintain the quality of our Grom Social platform. If and when our structure becomes more complex as we add additional staff, we will need to improve our operational, financial and management controls as well as our reporting systems and procedures. Our failure to manage our growth could disrupt our operations and ultimately prevent us from generating revenues.

We collect, process, share, retain and use personal information and other data, which subjects us to governmental regulations and other legal obligations related to privacy, and our actual or perceived failure to comply with such obligations could harm our business.

A variety of federal, state and foreign laws and regulations govern privacy and the collection, use, retention, sharing and security of personal information. We collect, process, use, share and retain personal information and other user data, including information about our users as they interact with our platform, and we have a privacy policy concerning our use of data on our platform. We are subject to COPPA which regulates the collection, use, and disclosure of personal information from children under 13 years of age.age and CIPA, which addresses concerns about children's access to obscene or harmful content over the Internet.

Any failure or perceived failure by us to comply with COPPA, CIPA, or other applicable privacy laws and regulations or with our privacy policy or any compromise of security that results in the unauthorized release or transfer of sensitive information, which may include personally identifiable information or other user data, may result in governmental enforcement actions or litigation, which could be costly to defend and may require us to pay significant fines or damages. Such failures or perceived failures could also result in public statements against us by consumer advocacy groups, our users or others, which could harm our brand and could cause our users, and parents to lose trust in us which in turn could have an adverse effect on our business. Additionally, if third parties we work with, such as advertisers, vendors, content or platform providers, violate applicable laws or our policies, such violations may also put the information of our users at risk and could, in turn, have an adverse effect on our business.

We also are or may become required to comply with varying and complex privacy laws and regulations in multiple jurisdictions, and laws and regulations in foreign jurisdictions are sometimes more restrictive than those in the United States. Complying with these laws as they evolve could cause us to incur substantial costs or require us to change our business practices in a manner adverse to our business.

As a result of our collection, retention, and use of personal data, we are or may become subject to diverse laws and regulations in the United States and foreign jurisdictions mandating notification to affected individuals in the event that personal data (as defined in the various governing laws) is accessed or acquired by unauthorized persons. Complying with such numerous and complex regulations in the event of unauthorized access would be expensive and difficult, and failure to comply with these regulations could subject us to regulatory scrutiny and additional liability.

User trust regarding privacy and data security is very important to our brand and the growth of our business, and privacy or data security concerns relating to our Grom Social platform could damage our reputation and brand and deter current and potential users from using our platform, even if we are in compliance with applicable privacy and data security laws and regulations.

Users may curtail or stop their use of our Grom Social platform if our security measures are compromised, if our platform is subject to attacks that degrade or deny the ability of users to access our platform or if our member data is compromised.

Our Grom Social platform collects, processes, stores, shares, discloses and uses the information of our users and their communications. We are vulnerable to computer viruses, break-ins, phishing attacks, and attempts to overload our servers with denial-of-service and other cyber-attacks and similar disruptions from unauthorized use of our computer systems. Our security measures may also be breached due to employee error, malfeasance or otherwise. Several recent, highly publicized data security breaches and denial of service attacks at other companies have heightened public awareness of this issue and may embolden individuals or groups to target our systems. Any of the foregoing could lead to interruptions, delays or platform shutdowns, causing loss of critical data or the unauthorized disclosure or use of personally identifiable or other confidential or sensitive information, such as credit card information or information about our members. If our security is compromised, we could experience platform performance or availability problems, the complete shutdown of our platform or the loss or unauthorized disclosure of confidential or sensitive information. We could be subject to liability and litigation and reputational harm, and our users may be harmed, lose confidence in us and decrease or terminate the use of our platform.

We also rely on certain third parties to provide critical services and to store sensitive customer information. For example, our platform is hosted using data centers operated by third parties. However, we have little or no control over the security measures implemented by these parties, and if these measures are compromised, we could be exposed to similar risks and liabilities to those described above.

Unauthorized parties may also fraudulently induce employees or members to disclose sensitive information in order to gain access to our information or the information of our members or access this information through other means. They might also abuse our systems in other ways, such as by sending spam, which could diminish or otherwise degrade the experience of our members or by compromising or gaining unauthorized access to member accounts. Because the techniques used to obtain unauthorized access, disable or degrade service or sabotage systems change frequently and are becoming increasingly sophisticated, they often are not recognized until launched against a target. Furthermore, such attacks may originate from less regulated and remote areas around the world, and we may be unable to proactively address these techniques or to implement adequate preventative measures. Any or all of these issues could negatively impact our ability to attract new members and increase engagement by existing members, cause existing members to stop using our platform or subject us to lawsuits, regulatory fines or other action or liability, thereby harming our business and operating results.

Moreover, if a high-profile security breach occurs with respect to another social media provider, our users and potential users may lose trust in the security of our platform generally, which could adversely impact our ability to retain existing users or attract new ones.

Future business acquisitions, strategic investments or alliances, if any, as well as business acquisition transactions, could disrupt our business and may not succeed in generating the intended benefits and may, therefore, adversely affect our business, revenue and results of operations.

We completed the acquisition of TD Holdings in 2016 and we may in the future explore potential acquisitions of companies or technologies, strategic investments, or alliances to strengthen our business. Acquisitions involve numerous risks, any of which could harm our business, including:

Failure to appropriately mitigate these risks or other issues related to such strategic investments and acquisitions could result in reducing or completely eliminating any anticipated benefits of transactions and harm our business generally. Future acquisitions could also result in dilutive issuances of our equity securities, the incurrence of debt, contingent liabilities, amortization expenses or the impairment of goodwill, any of which could harm our business, financial condition, and operating results.

If any of our relationships with internet search websites terminate, if such websites' methodologies are modified or if we are outbid by competitors, traffic to our websites could decline.

We depend in part on various internet search websites, such as Google.com, Bing.com, Yahoo.com, and other websites to direct a significant amount of traffic to our websites. Search websites typically provide two types of search results, algorithmic and purchased listings. Algorithmic listings generally are determined and displayed as a result of a set of unpublished formulas designed by search engine companies in their discretion. Purchased listings generally are displayed if particular word searches are performed on a search engine. We rely on both algorithmic and purchased search results, as well as advertising on other internet websites, to direct a substantial share of visitors to our websites and to direct traffic to the advertiser customers we serve. If these internet search websites modify or terminate their relationship with us or we are outbid by our competitors for purchased listings, meaning that our competitors pay a higher price to be listed above us in a list of search results, traffic to our websites could decline. Such a decline in traffic could affect our ability to generate advertising revenue and could reduce the desirability of advertising on our websites.

We may have difficulty scaling and adapting our existing network infrastructure to accommodate increased traffic and technology advances or changing business requirements, which could cause us to incur significant expenses and lead to the loss of users and advertisers.

To be successful, our network infrastructure has to perform well and be reliable. The greater the user traffic and the greater the complexity of our products and services, the more computer power we will need. We could incur substantial costs if we need to modify our websites or our infrastructure to adapt to technological changes. If we do not maintain our network infrastructure successfully, or if we experience inefficiencies and operational failures, the quality of our products and services and our users' experience could decline. Maintaining an efficient and technologically advanced network infrastructure is particularly critical to our business because of the pictorial nature of the products and services provided on our websites. A decline in quality could damage our reputation and lead us to lose current and potential users and advertisers. Cost increases, loss of traffic or failure to accommodate new technologies or changing business requirements could harm our operating results and financial condition.

We are a holding company organized in Florida, with no operations of our own, and we depend on our subsidiaries, incorporated in Hong Kong, Manila and Florida for cash to fund our operations.

Our operations are conducted entirely through our subsidiaries and our ability to generate cash to fund operations or to meet debt service obligations is dependent on the earnings and the receipt of funds from our subsidiaries. Deterioration in the financial condition, earnings or cash flow of TD Holdings and its subsidiaries for any reason could limit or impair their ability to make payments to us. Additionally, to the extent that we need funds and our subsidiaries are restricted from making such distributions under applicable law or regulation or are otherwise unable to provide such funds, it could materially adversely affect our business, financial condition, results of operations or prospects.

Future capital raises may dilute our existing stockholders’ ownership and/or have other adverse effects on our operations.

If we raise additional capital by issuing equity securities, our existing stockholders’ percentage ownership may decrease, and these stockholders may experience substantial dilution. If we raise additional funds by issuing debt instruments, these debt instruments could impose significant restrictions on our operations, including liens on our assets. If we raise additional funds through collaborations and licensing arrangements, we may be required to relinquish some rights to our technologies or products, or to grant licenses on terms that are not favorable to us or could diminish the rights of our stockholders.

Our intellectual property rights are critical to our success, and the loss of such rights could materially adversely affect our business.

We regard our trademarks, copyrights, and other intellectual property rights as critical to our success and attempt to protect such intellectual property with registered and common law trademarks and copyrights, restrictions on disclosure and other actions to prevent infringement. However, there can be no assurance that other third parties will not infringe or misappropriate our trademarks and similar proprietary rights. If we lose some or all of our intellectual property rights, our business may be materially adversely affected.

We may be subject to claims alleging the intellectual property subject to our licensing agreements is violating the intellectual property rights of others.

We may face significant expense and liability as a result of litigation or other proceedings relating to patents and intellectual property rights of others. We could be required to participate in interference proceedings involving issued patents and pending applications of another entity. The cost to us of any such proceeding could be substantial. An adverse outcome in an interference proceeding could require us to cease using the technology, substantially modify it or to license rights from prevailing third parties. There is no guarantee that any prevailing patent owner would offer us a license so that we could continue to engage in activities claimed by the patent, or that such a license is made available to us, could be acquired on commercially acceptable terms. In addition, third parties may, in the future, assert other intellectual property infringement claims against us with respect to our services, technologies or other matters.

Risks Related to Grom Nutritional Services

The Company’s supplement that it intends to market to children, will be subject FDA regulations.

Although the FDA does not require supplement manufacturers to submit their products to the FDA for review nor receive FDA approval before marketing, companies must ensure they are not making false or misleading claims on the product label. Like other food substances, dietary supplements are not subject to the safety and efficacy testing requirements imposed on drugs, and unlike drugs they do not require prior approval by the FDA; however, they are subject to FDA regulations regarding adulteration and misbranding. In the event we do not properly follow FDA regulation and guidelines we could be subject to regulatory action that would have a material adverse impact on the Company.

Risks Related to Top Draw Animation

Since Top Draw’s business operations are located in the Philippines, our results of operations or financial condition could be materially adversely affected by economic or political developments in the Philippines.

Top Draw’s business operations are located in the Philippines. As a result, we are subject to certain risks presented by the Philippine economy and regulatory environment. We believe that the Philippine government exercises substantial control over virtually every sector of the Philippine economy through regulations and, in some cases, state-ownership. Our ability to operate Top Draw’s business in the Philippines may be harmed by changes in the local laws and regulations, including those relating to employment, taxation, business regulation, intellectual property rights, property, and other matters.

In the event of adverse weather conditions, calamity or epidemic that may occur in the Philippines, the lack of a fully developed infrastructure could have a material adverse impact on Top Draw’s business.

The vast majority of Top Draw’s employees do not own an automobile and must commute to work using public transportation. Additionally, the power grid in the Philippines is considered substandard compared to developed countries. Any negative event that impacts public transportation or power generation could result in Top Draw’s employees not being able to go to the office to perform their work thus potentially delaying projects.

Operating Top Draw in the Philippines subjects us to challenges and risks unique to operating a business in the Philippines and if we are unable to manage those challenges and risks, the growth of our business could be limited, and our business could suffer.

Operating Top Draw in the Philippines subjects us to a number of risks and challenges that specifically relate to our Philippine operations. Our Philippine operations may not be successful if we are unable to meet and overcome these challenges, which could limit the growth of our business and may have an adverse effect on our revenue and operating results. These risks and challenges include:

Although we report our results of operations in U.S. dollars, approximately 90.0% of our revenue is currently denominated in foreign currencies. We do not hedge against currency fluctuations and unfavorable fluctuations in foreign currency exchange rates. Such fluctuations could have a material adverse effect on our results of operations.

Because our consolidated financial statements are presented in U.S. dollars, we must translate our Top Draw’s revenues, expenses, and income, as well as assets and liabilities, into U.S. dollars at exchange rates in effect during or at the end of each reporting period. Therefore, changes in the value of the U.S. dollar against other currencies will affect our revenues, operating income and the value of balance-sheet items, including intercompany payables and receivables, originally denominated in other currencies. These changes cause our growth in consolidated earnings stated in U.S. dollars to be higher or lower than our growth in other currencies when compared against other periods.

An increase in the value of other currencies, against the U.S. dollar could increase costs for delivery of our digital animation services by increasing labor and other costs that are denominated in other currencies. Conversely, a decrease in the value of other currencies, against the U.S. dollar could place us at a competitive disadvantage compared to service providers that benefit to a greater degree from such a decrease and can, as a result, deliver services at a lower cost.

Historically, Top Draw’s business has been reliant and concentrated upon a limited number of key clients, the loss of any one of which could have a material adverse effect on Top Draw’s and our revenue and financial condition.

During the threesix months ended March 31,June 30, 2021 and the year ended December 31, 2020, Top Draw accounted for approximately 91.4%91.6% and 89.0% of our consolidated revenue, respectively. During the same periods, four of Top Draw’s clients accounted for approximately 76.5% and three of Top Draw’s clients accounted for approximately 91.3% and 68.5% of our consolidated revenue, respectively. Although the relative percentages by client may change from quarter to quarter, the reliance upon a limited number of clients is not expected to change for the foreseeable future. As a result, a decrease in business or revenue from any one or more of these key clients could materially negatively impact Top Draw’s and our revenue, results of operation, and financial condition.

The success of Top Draw, and consequently our success, depends on certain key employees.

The success of Top Draw, and consequently our success depends to a significant extent on the performance of certain senior management personnel and other key employees. In particular, we are dependent upon the services of Wayne DearingRussell Hicks, Jared Wolfson and Stella Dearing to operate and manage Top Draw. The loss of the services of WayneRussell Hicks, Jared Wolfson or Stella Dearing could have a material adverse effect on our business, revenue, and results of operations.

In order for our digitally animated content and related products to be successful, we must develop appealing creative content.

The success of each digitally animated feature developed and produced by Top Draw depends in large part upon our ability to develop and produce compelling stories and characters that will appeal to our target audience. Traditionally, this process has been extremely difficult. While we believe Top Draw has enjoyed success with its digitally animated features, there can be no assurance that similar levels of success will be achieved by Top Draw’s subsequent features and our other future projects.

We expect to experience intense competition with respect to Top Draw’s digitally animated features and related content.

We expect that Top Draw’s digitally animated features will compete with family-oriented, animated and live-action feature films and other family-oriented entertainment products produced by major movie studios, including Disney, DreamWorks Animation SKG, Inc., Warner Bros. Entertainment, Sony Pictures Entertainment, Fox Entertainment Group Inc., Paramount Pictures, Lucasfilm Ltd., Universal Studios, Inc., MGM/UA, and Studio Ghibli as well as numerous other independent motion picture production companies.

We believe competition from animated feature films and family-oriented feature films will likely continue to intensify over the next several years. Some of the other movie studios with which we compete have significantly greater financial, marketing and other resources than we do. In addition to the box office and home video competition, other family-oriented features and films will compete with Top Draw Animation’s digital features.

If we are not able to produce digital features and content that can compete successfully with offerings from our competitors, it could have a material adverse impact on our business, revenue, and results of operations.

Risks Related to Our Common StockCorporate Structure and Ownership of Our Securities

Future capital raises may dilute our existing stockholders’ ownership and/or have other adverse effects on our operations.

If we raise additional capital by issuing equity securities, our existing stockholders’ percentage ownership may decrease, and these stockholders may experience substantial dilution. If we raise additional funds by issuing debt instruments, these debt instruments could impose significant restrictions on our operations, including liens on our assets. If we raise additional funds through collaborations and licensing arrangements, we may be required to relinquish some rights to our technologies or products, or to grant licenses on terms that are not favorable to us or could diminish the rights of our stockholders.

We do not anticipate paying any cash dividends on our common stock in the foreseeable future; therefore, capital appreciation, if any, of our common stock, will be your sole source of gain for the foreseeable future.

We have never declared or paid cash dividends on our common stock. We do not anticipate paying any cash dividends on our common stock in the foreseeable future. We currently intend to retain all available funds and any future earnings to fund the development and growth of our business. In addition, future loan arrangements, if any, may contain, terms prohibiting or limiting the amount of dividends that may be declared or paid on our common stock. As a result, capital appreciation, if any, of our common stock, will be your sole source of gain for the foreseeable future.

Our Boardboard of Directorsdirectors may authorize and issue shares of new classes of stock that could be superior to or adversely affect you as a holder of our common stock.

Our board of directors has the power to authorize and issue shares of classes of stock, including preferred stock that have voting powers, designations, preferences, limitations and special rights, including preferred distribution rights, conversion rights, redemption rights and liquidation rights without further shareholder approval which could adversely affect the rights of the holders of our common stock. In addition, our board could authorize the issuance of a series of preferred stock that has greater voting power than our common stock or that is convertible into our common stock, which could decrease the relative voting power of our common stock or result in dilution to our existing shareholders.

Any of these actions could significantly adversely affect the investment made by holders of our common stock. Holders of common stock could potentially not receive dividends that they might otherwise have received. In addition, holders of our common stock could receive less proceeds in connection with any future sale of the Company, whether in liquidation or on any other basis.

The voting and conversion rights of our issued and outstanding shares of Series B Stock, and the Series C Stock into which they will be exchanged, will have the effect of diluting the voting power of existing common stockholders.

Our authorized capital stock includes 25,000,000 shares of preferred stock, of which 2,000,000 shares are designated as Series A Stock, 10,000,000 shares are designated as Series B Stock, and 10,000,000 shares are designated as Series BC Stock. As of the date hereof, no shares of our Series A Stock or Series B Stock, and 9,215,0599,400,309 shares of Series BC Stock, are issued and outstanding. The holders of our outstanding shares of Series B Stock may at any time, after the 12-month anniversary of the issuance of their shares of Series B Stock, convert each such shares into shares of our common stock at a conversion price equal to the 30-day volume weighted average price (“VWAP”) of a share of common stock. In addition, the Company may, at any time, require conversion of all or any of the Series B Stock then outstanding at a 50% discount to the 30-day VWAP. The conversion of shares of our Series B Stock will dilute your interests. The 30-day VWAP of our common stock for the period ended May 21, 2021 was $6.38. Therefore, if all of the outstanding shares of our Series B Stock were converted as of May 21, 2021, we would have 1,443,809 additional shares of common stock issued and outstanding, which, based on the 6,037,528 shares outstanding as of May 21, 2021, would represent 19.30% of our shares of common stock outstanding prior to the Underwritten Offering and 15.23% of our shares our common stock outstanding after the Underwritten Offering, assuming the issuance of 2,000,000 shares of common stock in the Underwritten Offering, no exercise of the over-allotment option by the underwriters and no exercise of any of the warrants issued in connection with the Underwritten Offering.

On May 20, 2021, we entered into exchange agreements with all of the holders of our Series B Stock, pursuant to which they agreed to exchange all of the 9,215,059 issued and outstanding shares of Series B Stock for an equal number of shares of our Series C Stock. The exchange will be effective upon the acceptance for filing of the Certificate of Designation we filed with the Secretary of State of the State of Florida, which may be as of May 20, 2021, or a later date. Following the exchange, the holders of the Series C Stock would have the right,may at any time, after the 6-month anniversary of the issuance of their shares of Series C Stock, to convert such shares into shares of our common stock at a conversion price equal to $1.92. In addition, upon exchange, the Company would have the right,may, at any time, to require conversion of all or any of the Series C Stock then outstanding at a conversion price equal to $1.92. The conversion of shares of our Series C Stock wouldwill dilute your interests. If all of the shares of our Series C Stock that would be issued upon exchange were converted, we would have 4,799,5104,895,994 additional shares of common stock issued and outstanding, which, based on the 6,037,52812,552,106 shares outstanding as of May 21,October 15, 2021, would represent 44.29%approximately 28.1% of our shares of common stock outstanding prior to the Underwritten Offering and 37.39%approximately 23.8% of our shares our common stock outstanding after the Underwritten Offering, assuming the issuance of 2,000,000 shares of common stock in the Underwritten Offering, no exercise of the over-allotment option by the underwriters and no exercise of any of the warrants issued in connection with the Underwritten Offering,Offering.

In addition, the holders of shares of our Series B Stock and, upon exchange, our Series C Stock vote together as a single class with the holders of shares of our common stock, with each share entitling the holder to 1.5625 votes per share. Therefore, as of the date hereof, the holders of our 9,215,0599,400,309 shares of Series B Stock and, upon exchange, our Series C Stock, have an aggregate of 14,398,530approximately 14,687,982 votes, representing 70.5%approximately 54.0% of our voting power.

The effects of the voting and conversion rights tied to shares of our Series B Stock and, upon exchange, our Series C Stock may affect the rights of our common stockholders by, among other things, restricting dividends on our common stock, diluting the voting power of our common stockholders, reducing the market price of our common stock, or impairing the liquidation rights of our common stock.

Substantial future sales of shares of our common stock could cause the market price of our common stock to decline.

The market price of shares of our common stock could decline as a result of substantial sales of our common stock, particularly sales by our directors, executive officers and significant stockholders, a large number of shares of our common stock becoming available for sale or the perception in the market that holders of a large number of shares intend to sell their shares. After the Underwritten Offering, we will have 8,037,52815,657,051 shares outstanding of our common stock, assuming no exercise of the over-allotment option, and no exercise of any of the warrants issued in connection with the Underwritten Offering, based on the 6,037,52812,552,106 shares outstanding as of May 21,October 15, 2021. This includes the shares included in the Underwritten Offering, which may be resold in the public market immediately without restriction, unless purchased by our affiliates or existing stockholders. The remaining 1,700,200 shares are currently restricted as a result of lock-up agreements.

Moreover, after Underwritten Offering, none of the holders of shares of our common stock, will have rights, subject to some conditions, to require us to file registration statements covering their shares or to include their shares in registration statements that we may file for ourselves or our stockholders (other than the selling shareholders included in the Selling Shareholders Offering). We, our directors, and officers, and certain of our principal shareholders, have agreed with the Underwriter not to offer for sale, issue, sell, contract to sell, pledge or otherwise dispose of any of our common stock or securities convertible into common stock for a period of 360 days (with respect to us and our officers and directors) and 180 days (with respect to certain principal shareholders) after the date of this prospectus.

Our shares will be subordinate to all of our debts and liabilities, which increases the risk that you could lose your entire investment.

Our shares are equity interests that will be subordinate to all of our current and future indebtedness with respect to claims on our assets. In any liquidation, all of our debts and liabilities must be paid before any payment is made to our shareholders.

The market price of our shares of common stock is subject to fluctuation.

The market prices of our shares may fluctuate significantly in response to factors, some of which are beyond our control, including:

Recently, the stock market, in general, has experienced extreme price and volume fluctuations. Continued market fluctuations could result in extreme market volatility in the price of our shares of common stock which could cause a decline in the value of our shares.

There is currently a limited trading market for our shares.

There is currently only a limited trading market for our common stock. We cannot predict the extent investor interest will lead to the development of an active trading market or how liquid that trading market might become. If an active trading market does not develop or is not sustained, it may be difficult for investors to sell shares of our common stock at a price that is attractive or at all. In such a case, you may find that you are unable to achieve any benefit from your investment or liquidate your shares.

Prior to the completion of the Underwritten Offering, there will have been no public trading market for our warrants. An active public trading market for the warrants may not develop, which may affect the market price and liquidity of the warrants.

The Underwritten Offering under this prospectus is an initial public offering of our warrants. Prior to the closing of the Underwritten Offering, there will have been no public market for any of our warrants. An active public trading market for our warrants offered under this prospectus may not develop after the completion of the Underwritten Offering. If an active trading market for our warrants does not develop after the Underwritten Offering, the market price and liquidity of the warrants offered under this prospectus may be materially and adversely affected.

The warrants offered by this prospectus may not have any value.

The warrants offered by this prospectus will be exercisable for five years from the date of initial issuance at an initial exercise price equal to 110% of the public offering price per unit set forth on the cover page of this prospectus. There can be no assurance that the market price of our common stock will ever equal or exceed the exercise price of the warrants offered by this prospectus. In the event that our common stock price does not exceed the exercise price of such warrants during the period when such warrants are exercisable, the warrants may not have any value.

A warrant does not entitle the holder to any rights as common stockholders until the holder exercises the warrant for a share of our common stock.

Until you acquire shares of our common stock upon exercise of your warrants, your warrants will not provide you any rights as a common stockholder. Upon exercise of your warrants, you will be entitled to exercise the rights of a common stockholder only as to matters for which the record date occurs after the exercise date.

If we are unable to maintain compliance with all applicable continued listing requirements and standards of Nasdaq, our common stock could be delisted from Nasdaq.

At the time of the closing of the Underwritten Offering, ourOur common stock will beis listed on Nasdaq.the Nasdaq Capital Market under the symbol “GROM.” In order to maintain that listing, we must satisfy minimum financial and other continued listing requirements and standards, including those regarding director independence and independent committee requirements, minimum stockholders’ equity, minimum share price, and certain corporate governance requirements. There can be no assurances that we will be able to remain in compliance with Nasdaq’s listing standards or if we do later fail to comply and subsequently regain compliance with Nasdaq’s listing standards, that will be able to continue to comply with the applicable listing standards. If we are unable to maintain compliance with these Nasdaq requirements, our common stock will be delisted from Nasdaq.

In the event that our common stock is delisted from Nasdaq due to our failure to continue to comply with any requirement for continued listing on Nasdaq, and is not eligible for quotation on another market or exchange, trading of our common stock could, again, be conducted in the over-the-counter market or on an electronic bulletin board established for unlisted securities such as the OTC Pink or the OTCQB tiers of the OTC marketplace. In such event, it could become more difficult to dispose of, or obtain accurate price quotations for, our common stock, and it would likely be more difficult to obtain coverage by securities analysts and the news media, which could cause the price of our common stock to decline further. Also, it may be difficult for us to raise additional capital if we are not listed on a national exchange.

In the event that our common stock is delisted from Nasdaq, U.S. broker-dealers may be discouraged from effecting transactions in shares of our common stock because they may be considered penny stocks and thus be subject to the penny stock rules.

The SEC has adopted a number of rules to regulate “penny stock” that restricts transactions involving stock which is deemed to be penny stock. Such rules include Rules 3a51-1, 15g-1, 15g-2, 15g-3, 15g-4, 15g-5, 15g-6, 15g-7, and 15g-9 under the Exchange Act. These rules may have the effect of reducing the liquidity of penny stocks. “Penny stocks” generally are equity securities with a price of less than $5.00 per share (other than securities registered on certain national securities exchanges or quoted on Nasdaq if current price and volume information with respect to transactions in such securities is provided by the exchange or system). Our shares of common stock have in the past constituted, and may again in the future constitute, “penny stock” within the meaning of the rules. The additional sales practice and disclosure requirements imposed upon U.S. broker-dealers may discourage such broker-dealers from effecting transactions in shares of our common stock, which could severely limit the market liquidity of such shares of common stock and impede their sale in the secondary market.

A U.S. broker-dealer selling penny stock to anyone other than an established customer or “accredited investor” (generally, an individual with a net worth in excess of $1,000,000 or an annual income exceeding $200,000, or $300,000 together with his or her spouse) must make a special suitability determination for the purchaser and must receive the purchaser’s written consent to the transaction prior to sale, unless the broker-dealer or the transaction is otherwise exempt. In addition, the “penny stock” regulations require the U.S. broker-dealer to deliver, prior to any transaction involving a “penny stock”,stock,” a disclosure schedule prepared in accordance with SEC standards relating to the “penny stock” market, unless the broker-dealer or the transaction is otherwise exempt. A U.S. broker-dealer is also required to disclose commissions payable to the U.S. broker-dealer and the registered representative and current quotations for the securities. Finally, a U.S. broker-dealer is required to submit monthly statements disclosing recent price information with respect to the “penny stock” held in a customer’s account and information with respect to the limited market in “penny stocks”.

Stockholders should be aware that, according to the SEC, the market for “penny stocks” has suffered in recent years from patterns of fraud and abuse. Such patterns include (i) control of the market for the security by one or a few broker-dealers that are often related to the promoter or issuer; (ii) manipulation of prices through prearranged matching of purchases and sales and false and misleading press releases; (iii) “boiler room” practices involving high-pressure sales tactics and unrealistic price projections by inexperienced sales persons; (iv) excessive and undisclosed bid-ask differentials and markups by selling broker-dealers; and (v) the wholesale dumping of the same securities by promoters and broker-dealers after prices have been manipulated to a desired level, resulting in investor losses. Our management is aware of the abuses that have occurred historically in the penny stock market. Although we do not expect to be in a position to dictate the behavior of the market or of broker-dealers who participate in the market, management will strive within the confines of practical limitations to prevent the described patterns from being established with respect to our securities.

Our officers, directors and principal stockholders own a significant percentage of our stock and will be able to exert significant control over matters subject to stockholder approval.

Our directors, executive officers and significant stockholders will continue to have substantial control over us after the Underwritten Offering and could delay or prevent a change in corporate control. After the Underwritten Offering, our directors, executive officers and holders of more than 5% of our common stock, together with their affiliates, will beneficially own, in the aggregate, 74.1%63.8% of our outstanding common stock (excluding the warrants and the Underwriter’s Warrants issued in the Underwritten Offering and the shares offered by the selling shareholders in the Selling Shareholders Offering, and assuming the Underwriter does not exercise the over-allotment option).stock. As a result, these stockholders, acting together, would have the ability to control the outcome of matters submitted to our stockholders for approval, including the election of directors and any merger, consolidation or sale of all or substantially all of our assets. In addition, these stockholders, acting together, would have the ability to control the management and affairs of our company. Accordingly, this concentration of ownership might adversely affect the market price of our common stock by:

Our management will have discretion in the use of the net proceeds from the Underwritten Offering and may not use them in a way which increases the value of your investment.

We currently intend to use the net proceeds of the Underwritten Offering for working capital and general corporate purposes, including sales and marketing activities, product development, and capital expenditures, and we may also use a portion of the net proceeds for the acquisition of, or investment in, technologies, solutions or businesses that complement our business, although we have no present commitments or agreements to enter into any acquisitions or investments. However, our management will have considerable discretion in the application of the net proceeds from the Underwritten Offering and investors will be relying on the judgment of our management regarding the application of those proceeds. Our management may spend the proceeds in ways that do not improve our operating results or enhance the value of our common stock, and you will not have the opportunity to influence management’s decisions on how to use the proceeds from the Underwritten Offering. Our failure to apply these funds effectively could have a material adverse effect on our business and cause the price of our common stock to decline.

Purchasers in the Underwritten Offering will experience immediate and substantial dilution in the book value of their investment.

The public offering price of our common stock being offered in the units is substantially higher than the net tangible book value per share of our common stock immediately after the Underwritten Offering. Therefore, if you purchase our common stock in the Underwritten Offering, you will incur an immediate dilution of $4.43 in net tangible book value per share from the price you paid, based on an assumed public offering price of $5.00 per share, which is the midpoint of the price range for the units set forth on the cover page of this prospectus. The exercise of outstanding options and warrants will result in further dilution. In addition, if we raise additional funds by issuing equity securities, our stockholders may experience further dilution. For a detailed description of the dilution that you will experience immediately after the Underwritten Offering, see “Dilution.” If an active, liquid trading market for our common stock does not develop, you may not be able to sell your shares quickly or at or above the public offering price.

We qualify as an "emerging growth company" under the JOBS Act. As a result, we are permitted to, and intend to, rely on exemptions from certain disclosure requirements. For so long as we are an emerging growth company, we will not be required to:

We will remain an "emerging growth company" for up to five years, or until the earliest of (i) the last day of the first fiscal year in which our total annual gross revenues exceed $1$1.07 billion, (ii) the date that we become a "large accelerated filer" as defined in Rule 12b-2 under the Securities Exchange Act of 1934, which would occur if the market value of our ordinary shares that is held by non-affiliates exceeds $700 million as of the last business day of our most recently completed second fiscal quarter or (iii) the date on which we have issued more than $1 billion in non-convertible debt during the preceding three year period.

Until such time, however, we cannot predict if investors will find our common stock less attractive because we may rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile.

The market price for our common stock is particularly volatile given our status as a relatively unknown company with a small and thinly traded public float, and lack of profits, which could lead to wide fluctuations in our share price. You may be unable to sell your shares of common stock at or above the offering price of the securities in the Underwritten Offering, which may result in substantial losses to you.

The market for our common stock is characterized by significant price volatility when compared to the shares of larger, more established companies that have large public floats, and we expect that our share price will continue to be more volatile than the shares of such larger, more established companies for the indefinite future. The volatility in our share price is attributable to a number of factors. First, as noted above, our common stock is, compared to the shares of such larger, more established companies, sporadically and thinly traded. The price for our common stock could, for example, decline precipitously in the event that a large number of our common stock is sold on the market without commensurate demand. Secondly, we are a speculative or “risky” investment due to our lack of profits to date. As a consequence of this enhanced risk, more risk-adverse investors may, under the fear of losing all or most of their investment in the event of negative news or lack of progress, be more inclined to sell their shares of common stock on the market more quickly and at greater discounts than would be the case with the stock of a larger, more established company that has a large public float. Many of these factors are beyond our control and may decrease the market price of our common stock regardless of our operating performance.

If and when a larger trading market for our common stock develops, the market price of our common stock is still likely to be highly volatile and subject to wide fluctuations, and you may be unable to resell your shares of common stock at or above the offering price of the securities in the Underwritten Offering.

The market price of our common stock may be highly volatile and could be subject to wide fluctuations in response to a number of factors that are beyond our control, including, but not limited to:

In addition, if the market for technology stocks or the stock market in general experiences loss of investor confidence, the trading price of our common stock could decline for reasons unrelated to our business, financial condition or operating results. The trading price of our common stock might also decline in reaction to events that affect other companies in our industry, even if these events do not directly affect us. Each of these factors, among others, could harm the value of your investment in our common stock. In the past, following periods of volatility in the market, securities class-action litigation has often been instituted against companies. Such litigation, if instituted against us, could result in substantial costs and diversion of management’s attention and resources, which could materially and adversely affect our business, operating results and financial condition.

Being a public company is expensive and administratively burdensome.

As a public reporting company, we are subject to the information and reporting requirements of the Securities Act, the Securities Exchange Act of 1934, as amended (the "Exchange Act") and other federal securities laws, rules and regulations related thereto, including compliance with the Sarbanes-Oxley Act of 2002 ("Sarbanes-Oxley Act"). Complying with these laws and regulations requires the time and attention of our board of directors and management and increases our expenses. Among other things, we are required to: 

The costs of preparing and filing annual and quarterly reports, proxy statements, when required, and other information with the SEC and furnishing audited reports to stockholders is expensive and much greater than that of a privately-held company, and compliance with these rules and regulations may require us to hire additional financial reporting, internal controls and other finance personnel, and will involve a material increase in regulatory, legal and accounting expenses and the attention of management. There can be no assurance that we will be able to comply with the applicable regulations in a timely manner, if at all. In addition, being a public company makes it more expensive for us to obtain director and officer liability insurance. In the future, we may be required to accept reduced coverage or incur substantially higher costs to obtain this coverage.

Failure to achieve and maintain effective internal controls in accordance with Section 404 of the Sarbanes Oxley Act of 2002 could prevent us from producing reliable financial reports or identifying fraud. In addition, current and potential stockholders could lose confidence in our financial reporting, which could have an adverse effect on our stock price. 

We are subject to Section 404 of the Sarbanes-Oxley Act of 2002. Effective internal controls are necessary for us to provide reliable financial reports and effectively prevent fraud, and a lack of effective controls could preclude us from accomplishing these critical functions. We are required to document and test our internal control procedures in order to satisfy the requirements of Section 404 of the Sarbanes-Oxley Act of 2002, in connection with, PCAOB Auditing Standard No. 5 which requires annual management assessments of the effectiveness of our internal controls over financial reporting. Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2020 and concluded that our internal controls and procedures were effective.

Risks Related to Covid-19

The uncertainty and extent of the Covid-19 pandemic may continue to have an adverse effect on our operations and on the global capital markets.

The current outbreak of Covid-19 could continue to have a material and adverse effect on the Company’s business operations. These could include disruptions or restrictions on the Company’s ability to travel or to distribute its products, as well as temporary closures of production facilities. Any such disruption or delay would likely impact our sales and operating results. In addition, Covid-19 has resulted in a widespread health crisis that could adversely affect the economies and financial markets of many other countries, resulting in an economic downturn that could affect demand for our products and significantly impact our operating results.

As the result of current restrictions put in place to address COVID-19, we have limited access to our corporate and Manila offices, cannot efficiently and fully access our data and records, and many of our corporate and administrative staff is required to work remotely, disrupting interactions among our staff, with our customers and suppliers, and with our accountants, consultants and advisors. The extent to which our results continue to be affected by COVID-19 will largely depend on future developments which cannot be accurately predicted, including the duration and scope of the pandemic, governmental and business responses to the pandemic and the impact on the global economy, demand for our products, and our ability to provide our products, particularly as result of our employees working remotely and/or the closure of certain offices and production facilities. While these factors are uncertain, the COVID-19 pandemic or the perception of its effects could continue to have a material adverse effect on our business, financial condition, results of operations, or cash flows.

We may not be entitled to forgiveness of our recently received PPP Loans, and our application for the PPP Loans could in the future be determined to have been impermissible or could result in damage to our reputation.

On May 3, 2020 and May 14, 2020, we received proceeds of $127,958 and $100,954, respectively, from loans under the Paycheck Protection Program of the CARES Act, a portion of which may be forgiven, which we used to retain current employees, maintain payroll and make lease and utility payments. The PPP Loans mature on May 3, 2022 and May 14, 2022, respectively, and bear annual interest at a rate of 1.0%. Commencing on the date that is the latter of (i) the date that is the 10th month after the end of the Company’s PPP Loans covered period (as described below) and (ii) assuming the Company has applied for PPP Loans forgiveness within the period described in clause (i), the date on which SBA remits the loan forgiveness amount on the Company’s PPP Loans to the PPP lender (or notifies such lender that no loan forgiveness is allowed), we are required to pay the lender equal monthly payments of principal and interest as required to fully amortize by May 3, 2022 and May 14, 2022, respectively, any principal amount outstanding on the PPP Loans as of November 1, 2022 and November 12, 2020, respectively. A portion of the PPP Loans may be forgiven by the SBA upon our application and upon documentation of expenditures in accordance with the SBA requirements. Under the CARES Act, loan forgiveness is available for the sum of documented payroll costs, covered rent payments, covered mortgage interest and covered utilities during the twenty-four week period or, if elected by the Company, the eight week period beginning on the date of the loan is advanced. Not more than 40% of the forgiven amount may be for non-payroll costs. The amount of the PPP Loans eligible to be forgiven may be limited due to declines in headcount, whether voluntary or involuntary, or if salaries and wages for employees with salaries of $100,000 or less annually are reduced by more than 25% as compared to the period of January 1, 2020 through March 31, 2020. We will be required to repay any portion of the outstanding principal that is not forgiven, along with accrued interest, in accordance with the amortization schedule described above, and we cannot provide any assurance that we will be eligible for loan forgiveness, that we will ultimately apply for forgiveness, or that any amount of the PPP Loans will ultimately be forgiven by the SBA.

In order to apply for the PPP Loan, we were required to certify, among other things, that the current economic uncertainty made the PPP Loan request necessary to support our ongoing operations. We made this certification in good faith after analyzing, among other things, our financial situation and access to alternative forms of capital, and believe that we satisfied all eligibility criteria for the PPP Loan, and that our receipt of the PPP Loan is consistent with the broad objectives of the Paycheck Protection Program of the CARES Act. The certification described above does not contain any objective criteria and is subject to interpretation. On April 23, 2020, the SBA issued guidance stating that it is unlikely that a public company with substantial market value and access to capital markets will be able to make the required certification in good faith. The lack of clarity regarding loan eligibility under the Paycheck Protection Program has resulted in significant media coverage and controversy with respect to public companies applying for and receiving loans. If, despite our good-faith belief that given our Company's circumstances we satisfied all eligible requirements for the PPP Loan, we are later determined to have violated any of the laws or governmental regulations that apply to us in connection with the PPP Loan, such as the False Claims Act, or it is otherwise determined that we were ineligible to receive the PPP Loan, we may be subject to penalties, including significant civil, criminal and administrative penalties and could be required to repay the PPP Loan in its entirety. In addition, receipt of a PPP Loan may result in adverse publicity and damage to reputation, and a review or audit by the SBA or other government entity or claims under the False Claims Act could consume significant financial and management resources. Any of these events could have a material adverse effect on our business, results of operations and financial condition.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This prospectus contains forward-looking statements that involve substantial risks and uncertainties. All statements, other than statements of historical fact, contained in this prospectus, including statements regarding our strategy, future financial position, projected costs, prospects, plans and objectives of management, are forward-looking statements. The words “anticipate,” “believe,” “contemplate,” “could,” “estimate,” “expect,” “intend,” “seek,” “may,” “might,” “plan,” “potential,” “predict,” “project,” “target,” “aim,” “should,” ‘will” “would,” or the negative of these words or other similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these words. Forward-looking statements reflect our current views with respect to future events and are based on assumptions and subject to risks and uncertainties.

The forward-looking statements in this prospectus include, among other things, statements relating to:

We may not actually achieve the plans, intentions, or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. Actual results or events could differ materially from the plans, intentions, and expectations disclosed in the forward-looking statements we make. We have included important factors in the cautionary statements included in this prospectus, particularly in the “Risk Factor” section, that we believe could cause actual results or events to differ materially from the forward-statements that we make. Furthermore, we operate in a competitive and rapid changing environment. New risks and uncertainties emerge from time to time, and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this prospectus.

You should read this prospectus and the documents we reference in this prospectus and have filed as exhibits to the registration statement of which this prospectus is a part completely and with the understanding that our actual future results may be materially different from what we expect. The forward-looking statements contained in this prospectus are made as of the date of this prospectus, and we do not assume any obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by applicable law.

In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this prospectus, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete. Our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements.

MARKET AND INDUSTRY DATA

This prospectus contains estimates, projections and other information concerning our industry, our business and the markets for our products, including data regarding the estimated size of such markets. We obtained the industry, market and similar data set forth in this prospectus from our internal estimates and research and from industry research, publications, surveys and studies conducted by third parties. In some cases, we do not expressly refer to the sources from which this data is derived. Information that is based on estimates, forecasts, projections, market research or similar methodologies is inherently subject to uncertainties and actual events or circumstances may differ materially from events and circumstances that are assumed in this information. While we believe our internal research is reliable, such research has not been verified by any third party. You are cautioned not to give undue weight to any such information, projections and estimates.

USE OF PROCEEDS

We estimate that the net proceeds from the Underwritten Offering will be approximately $8,837,262 ($10,202,262 if the underwriters exercise their over-allotment option in full), after deducting the underwriting discountare not selling any securities under this prospectus and estimated offering expenses payable by us.

We intend to use the net proceeds from the Underwritten Offering as follows:

We will retain broad discretion over the use of the net proceeds of the Underwritten Offering which may result in an allocation of net proceeds in differing amounts than those listed above, or in entirely new areas. The amount and timing of these proposed expenditures will depend on a number of factors, including the progress of our user acquisition efforts, and any unforeseen cash needs. As a result, you will be relying on the judgment of our management with regard to the use of these net proceeds, and you will not have the opportunity, as part of your investment decision, to assess whether the proceeds are being used appropriately. It is possible that the proceeds will be used in a way that does not yield a favorable, or any, return for us. Pending application of the net proceeds as described above, we intend to invest the proceeds in investment grade interest bearing instruments or will hold the proceeds in interest bearing or non-interest-bearing bank accounts.

Management believes that the proceeds from the Underwritten Offering will be sufficient to satisfy the Company’s cash needs for the next 12 - 18 months.

We will not receive any proceeds from the salessale of shares of ourthe common stock offered by this prospectus by the selling shareholders in the Selling Shareholders Offering.Stockholder. However, we may receive proceeds from the cash exercise of $1,079,160the Warrants, which, if exercised in cash at the selling shareholderscurrent exercise price with respect to all Warrants, would result in gross proceeds to us of their warrants for cash.

DIVIDEND POLICY

We do not anticipate declaring or paying, in the foreseeable future, any cash dividends on our capital stock. We intend to retain all available funds and future earnings, if any, to fund the development and expansion of our business. Any future determination regarding the declaration and payment of dividends,approximately $3,415,768 million. The proceeds from such Warrant exercises, if any, will be atused for working capital and general corporate purposes. We cannot predict when or whether the discretionWarrants will be exercised, and it is possible that some or all of the Warrants may expire unexercised. For information about the Selling Stockholder, see “Selling Stockholder.”

The Selling Stockholder will pay any underwriting discounts and commissions and expenses incurred by the Selling Stockholder for brokerage or legal services or any other expenses incurred by the Selling Stockholder in disposing of the shares of common stock offered hereby. We will bear all other costs, fees and expenses incurred in effecting the registration of the shares of common stock covered by this prospectus, including all registration and filing fees and fees and expenses of our board of directorscounsel and will depend on then-existing conditions, including our financial condition, operating results, contractual restrictions, capital requirements, business prospects and other factors our board of directors may deem relevant.

accountants.

MARKET PRICE

Market Information

Our shares of our common stock are quotedis listed on the OTCQBNasdaq Capital Market under the symbol “GRMMD.“GROM.” Such quotations reflect inter-dealer prices, without retail mark-up, mark-down, or commission and do not necessarily represent actual transactions.

The last reported sales price of our common stock which trades under the symbol “GRMMD”on October 15, 2021 was $3.85. Prior to June 17, 2021, our common stock traded on the OTCQB on May 21, 2021, was $6.00 (which reflects a reverse stock split at a ratio of 1-for-32, which was effective as of May 13, 2021 and which became effective for quotation onunder the OTCQB on May 19, 2021).ticker symbol “GRMM.”

Holders

As of May 21,October 15, 2021, there were 533491 stockholders of record of our common stock.

Dividends

We have never declared or paid any cash dividends on our common stock. We intend to retain future earnings, if any, to finance the expansion of our business. As a result, the Company does not anticipate paying any cash dividends in the foreseeable future.

DILUTION

If you invest in our units in the Underwritten Offering, your ownership interest will be diluted immediately to the extent of the difference between the public offering price per share of our common stock that is part of the unit and the pro forma as adjusted net tangible book value per share of our common stock immediately after the Underwritten Offering.

As of March 31, 2021, we had a net tangible book value of approximately $(3,112,375) or approximately ($0.52) per share.

On a pro forma basis, after giving effect to the sale of 2,000,000 units in the Underwritten Offering at an assumed public offering price of $5.00 per unit, which is the midpoint of the price range for the units set forth on the cover page of this prospectus, and assuming no exercise of any warrants or the underwriter’s warrants, no exercise of the over-allotment option after deducting the underwriting discount and estimated offering expenses payable by us in connection with the Underwritten Offering, and also excluding the issuance and sale of any of the shares of common stock being offered by the Selling Shareholders in the Selling Shareholders Offering, our as adjusted net tangible book value per share as of March 31, 2021, would have been approximately $5,724,887 or approximately $0.71 per share. This represents an immediate increase in net tangible book value per share of $1.23 to existing stockholders and an immediate dilution of approximately $4.29 per share to new investors purchasing units in the Underwritten Offering.

Dilution in pro forma net tangible book value per share represents the difference between the public offering price of the units in the Underwritten Offering and the pro forma as adjusted net tangible book value per share of our common stock immediately after the Underwritten Offering.

The following table illustrates this dilution on a per share basis:

If the underwriter exercises its over-allotment option in full, our pro forma as adjusted net tangible book value would be approximately $7,089,887, or approximately $0.85 per share, representing an increase in the net tangible book value to existing stockholders of approximately $1.37 per share and immediate dilution of approximately $4.15 per share to new investors purchasing units in the Underwritten Offering.

A $1.00 increase (decrease) in the assumed public offering price of $5.00 per unit would increase (decrease) our as adjusted net tangible book value after giving effect to the Underwritten Offering by $1,820,000 the as adjusted net tangible book value per share after giving effect to this Underwritten Offering by $0.23 per share and the dilution in as adjusted net tangible book value per share to new investors in the Underwritten Offering by $0.77 per share, assuming no change to the number of units offered by us as set forth on the front cover of this prospectus and assuming no exercise of the warrants offered hereby, no exercise of the Underwriter’s Warrants, or any exercise of the over-allotment option, and after deducting underwriters’ fees and estimated offering expenses payable by us.

The table and discussion above are based on 5,916,135 shares of common stock outstanding as of March 31, 2021 (giving effect to our 1-for-32 reverse stock split, effective as of May 13, 2021), and excludes, as of that date, the following:

(i)       230,574 shares of common stock issuable upon exercise of outstanding stock options at a weighted average exercise price of $8.64 per share;

(ii)      192,649 shares of common stock issuable upon the exercise of outstanding common stock purchase warrants;

(iii)     320,023 shares of common stock issuable upon the conversion of by convertible promissory note holders of all of the outstanding principal amount and accrued and unpaid interest;

(iv)     2,221,059 shares issuable upon the conversion of Series B Stock (to be exchanged for shares of Series C Stock on a one for one basis);

(v)      2,000,000 shares of common stock underlying the warrants to be issued to investors in the Underwritten Offering;

(vi)        120,000 shares of common stock underlying the warrants to be issued to the underwriters in connection with the Underwritten Offering; and

(vii)       1,875,000 shares of common stock reserved for issuance under our 2020 Equity Incentive Plan.

In addition, we may choose to raise additional capital in the future. To the extent that capital is raised through equity or convertible securities, the issuance of those securities may result in further dilution to the holders of common stock.

CAPITALIZATION

The following table sets forth our cash and cash equivalents and capitalization as of March 31, 2021:

You should read this information together with our consolidated financial statements and related notes, as well as the information set forth under the headings "Use of Proceeds" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" appearing elsewhere in this prospectus.

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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 elsewhere in this prospectus, 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 prospectus.

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

Overview

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

Effective August 17, 2017, we acquired Grom Holdings pursuant to the terms of the Share Exchange Agreement entered into on May 15, 2017. In connection with the Share Exchange, the Company issued an aggregate of 3,464,184 shares of its common stock to the Grom Holdings stockholders, pro rata to their respective ownership percentage of Grom Holdings. Each share of Grom Holdings was exchanged for 0.1303 shares of our common stock. As a result, the stockholders of Grom Holdings owned approximately 92% of the Company’s issued and outstanding shares of common stock at such time.

In connection with the Share Exchange, we changed our name from Illumination America, Inc. to “Grom Social Enterprises, Inc.”

We are a media, technology and entertainment company that focuses on delivering content to children under the age of 13 years in a safe secure platform that is compliant with COPPA and can be monitored by parents or guardians. We operateconduct our business through the following four wholly-ownedour five operating subsidiaries:

We own 100% of each of Grom Social, TD Holdings, GES and GNS, and 80% of CIM.

Impact of COVID-19

The Company has experienced significant disruptions to its business and operations due to circumstances related to COVID-19, and as a result of delays caused government-imposed quarantines, office closings and travel restrictions, which affect both the Company’s and its service providers. The Company has significant operations in Manila, Philippines, which was locked down by the government on March 12, 2020, due to concerns related to the spread of COVID-19. As a result of the Philippines government’s call to contain COVID-19, the Company’s animation studio, located in Manila, Philippines, which accounts for approximately 89%90.0% of the Company’s total revenues on a consolidated basis, has been closed.

In response to the outbreak and business disruption, the Company has instituted employee safety protocols to contain the spread, including domestic and international travel restrictions, work-from-home practices, extensive cleaning protocols, social distancing and various temporary closures of its administrative offices and production studio. The Company has implemented a range of actions aimed at temporarily reducing costs and preserving liquidity.

Recent Events

Series B PreferredReverse Stock Designation

On August 4, 2020, the Company filed a Certificate of Designation of Preferences, Rights and Limitations of Series B Stock with the Secretary of State of the State of Florida designating 10,000,000 shares as Series B Stock. The Series B 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 12-month anniversary of the issuance of the shares of Series B Stock convert such shares into common stock at a conversion price equal to the 30-day volume weighted average price (“VWAP”) of a share of common stock for each share of Series B Stock to be converted. In addition, the Company at any time may require conversion of all or any of the Series B Stock then outstanding at a 50% discount to the 30-day VWAP.

Each share of Series B Stock entitles the holder to fifty votes for each share of Series B Stock. The consent of the holders of at least two-thirds of the shares of Series B Stock is required for the amendment to any of the terms of the Series B Stock, to create any additional class of stock unless the stock ranks junior to the Series B Stock, to make any distribution or dividend on any securities ranking junior to the Series B 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 B Stock at the rate of 8% per annum of the stated value of $1.00 per share and are payable in common stock in arrears quarterly commencing 90 days from issuance.

Upon a liquidation, dissolution or winding up of the Company, the holders of the Series B 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 B Stock upon a liquidation until Series B stockholders receive their liquidation preference. The holders of 66 2/3% of the then outstanding shares of Series B 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.

Series B Stock Purchases

On August 2, 2020, November 30, 2020, February 17, 2021, and March 31, 2021, the Company entered into subscription agreements with accredited investors pursuant to which the Company sold an aggregate of 250,000 shares, 233,500 shares, 300,000 shares, and 650,000 shares of Series B Stock for aggregate gross proceeds of $250,000, $233,500, $300,000, and $650,000, respectively.

August 2020 Exchange Agreements

On August 6, 2020, the Company, entered into debt exchange agreements (the “Debt Exchange Agreements”) with holders of the Company’s (a) 10% convertible notes in the aggregate amount of $411,223 of outstanding principal and accrued and unpaid interest; (b) 12% secured convertible notes, which were secured against the assets of TD Holdings, in the aggregate amount of $1,101,000 of outstanding principal and accrued and unpaid interest; and (iii) 12% secured convertible notes, which were secured against all of the other assets of the Company in the aggregate amount of $782,500 of outstanding principal and accrued and unpaid interest (collectively, the “Exchange Notes”). Pursuant to the terms of the Debt Exchange Agreements, the holders of the Exchange Notes exchanged the outstanding Exchange Notes, and all amounts owed by the Company thereunder, for an aggregate of 3,623,884 shares of the Company’s newly designated 8% Series B convertible preferred stock (the “Series B Stock”). At the time of the exchange, all amounts due under the Exchange Notes were deemed to be paid-in-full and the Exchange Notes were cancelled.

In addition, on August 6, 2020, the Company entered into exchange agreements (the “Series A Exchange Agreements” and together with the Debt Exchange Agreements, the “Exchange Agreements”) with the holders of 925,000 issued and outstanding shares of the Company’s Series A Stock. Pursuant to the terms of the Series A Exchange Agreements, the holders of Series A Stock exchanged their shares for an aggregate of 1,202,500 shares of the Company’s Series B Stock. At the time of the exchange, all of the exchanged shares of Series A Preferred Stock were cancelled.

November 2020 Exchange Agreements

On November 30, 2020, the Company, entered into Debt Exchange Agreements with holders of two of the Company’s convertible promissory notes in the aggregate amount of $200,000 of outstanding principal and accrued and unpaid interest. The holders of the notes exchanged the outstanding notes, and all amounts owed by the Company thereunder for an aggregate of 316,000 shares of Series B Stock. At the time of the exchange, all amounts due under the notes were deemed to be paid in full and the notes were cancelled.

February 2021 Exchange Agreements

On February 17, 2021, the Company, entered into Debt Exchange Agreements with holders of three of the Company’s convertible promissory notes in the aggregate amount of $1,700,905 of outstanding principal and accrued and unpaid interest. The holders of the notes exchanged the outstanding notes, and all amounts owed by the Company thereunder for an aggregate of 2,564,175 shares of Series B Stock. At the time of the exchange, all amounts due under the notes were deemed to be paid in full and the notes were cancelled.

In connection with the execution and delivery of the Exchange Agreements, the holders of the notes and the Series A stockholders executed and delivered proxies to Darren Marks and Melvin Leiner, both officers and directors of the Company, granting each of them the power to vote all their shares in the Company for a period of two years. As a result, Messrs. Marks and Leiner, collectively, have an aggregate of 16,523,630, votes, or 81.2% of the voting capital of the Company.

EMA Financial Financing

On November 30, 2020, the Company entered into a securities purchase agreement with EMA Financial, LLC, a Delaware limited liability company (“EMA”), pursuant to which the Company issued EMA a nine-month 8% convertible promissory note in the principal amount of $260,000 (the “EMA Note”) for a $234,000 investment. The term of the EMA Note may be extended by EMA up to an additional year. EMA also has the right to purchase an additional nine-month convertible promissory note on the same terms.

If the Company fails to maintain the listing and trading and of its common stock, or does not comply with the SEC reporting obligations, such failure will result in liquidated damages of $15,000 payable to EMA, at its election, in cash or an additional EMA Note.

EMA will have the right of first refusal to participate in future financings of the Company to the extent that such participation would not result in EMA and its affiliates beneficially owning more than 4.99% of the Company’s outstanding shares of common stock. If future financings of the Company have more favorable terms than the EMA Note, EMA will be entitled to such favorable terms. Failure to timely notify EMA of a financing will result in liquidated damages of $1,000 per day in cash, or, at the option of EMA, as additional EMA Note principal.

EMA has piggyback registration rights for shares issuable upon conversion of the EMA Note. Failure to register EMA’s shares will result in liquidated damages of 50% of the outstanding principal amount of the EMA Note, but not less than $25,000, payable to EMA, at its election, in cash or additional EMA Note principal.

If the Company engages in capital raising transactions, EMA may compel the Company to redeem up to 25% of the outstanding balance of the EMA Note from the gross proceeds of such transaction, or 100%, if such financing is $1,000,000 or greater.

EMA is entitled to liquidated damages of $250 for each business day that the delivery of unlegended shares is not timely made and, if the delivery is late for an aggregate of 30 days during any 360-day period, EMA may require the Company to redeem such shares at a price per share as set forth in the EMA Note.

If delivery of the common stock issuable upon conversion the EMA Note is not timely made, the Company will pay EMA $250 per day in cash or, at the option of EMA, as additional EMA Note principal.

The Company’s performance and payment obligations under the EMA Note are jointly and severally guaranteed by the Company’s subsidiaries.

If the EMA Note is not paid when due, it will bear interest at 24% per annum until paid.

The EMA Note is convertible into common stock of the Company at any time after 180 days from issuance, provided that no such conversion would result in beneficial ownership by EMA and its affiliates of more than 4.99% of the Company’s outstanding shares of common stock.

The conversion price of the EMA Note is equal to the lower of: (i) $1.92 per share, or (ii) 70% of the lowest trading price of the common stock during the ten consecutive trading days including and immediately preceding the conversion date. If an event of default as described in the EMA Note has occurred, EMA may elect to use a conversion price equal to the lower of: (i) the lowest traded price of the common stock on the trading day immediately preceding the date of issuance of the EMA Note, or (ii) 70% of either the lowest traded price or the closing bid price. The conversion price of the EMA Note is subject to adjustment in the event of stock distributions, subdivisions, combinations, splits or reclassifications. The conversion price is also subject to a 15% discount if the Company’s common stock is chilled for DTC deposit or for certain other trading restrictions if the Company ceases to be a reporting company, or the EMA Note cannot be converted into free trading shares after 181 days from the issuance date.

If in connection with a merger, consolidation, exchange of shares, recapitalization, reorganization, or other similar event, shares are changed into the same or a different number of shares of another class of stock or securities of the Company or another entity, or in case of any sale or conveyance of substantially all of the assets of the Company, EMA has the right to receive, in lieu of common stock, such securities or assets which EMA would have been entitled to receive if the EMA Note been converted in full immediately prior to such transaction.

If the Company makes a distribution of its assets to its common shareholders as a dividend, stock repurchase, or otherwise, EMA is entitled, to receive the amount of such assets which would have been payable to EMA with respect to shares issuable upon such conversion had such shares been converted.

If the Company issues convertible securities or rights to purchase securities or other property pro rata to its shareholders, EMA will be entitled to acquire such securities or rights upon the same terms as if the EMA Note had been converted.

The Company pay prepay the EMA Note at any time until 180 days following the date of issuance of the EMA Note at a 105% premium if prior to 30 days, 115% if from 31 days through 60 days, 120% if from 61 days through 90 days, 125% if from 91 days through 120 days; 130% if from 121 days through 159 days; 135% if from 151 days through 180 days following the date of issuance of the EMA Note.

The EMA Note contains certain negative covenants, including restricting the Company from certain distributions, stock repurchases, borrowing, sale of assets, loans and exchange offers.

Upon the occurrence of an event of default as described in the EMA Note, the Note will become immediately due and payable at a default interest rate of 125% of the then outstanding principal amount of the EMA Note plus any other default interest or amounts owing to EMA or the parity value of common stock as calculated in accordance with the terms of the EMA Note.

As of December 17, 2020, the terms of the EMA financing were amended to (a) increase the principal amount of the EMA Note to $265,200, (b) reduce the conversion rate to $1.28, and (c) add a three-year warrant to purchase up to 82,875 shares of the Company’s common stock, at an exercise price of $1.60 per share.

Quick Capital Financing

On December 17, 2020, the Company entered into a note purchase agreement with Quick Capital, LLC, a Wyoming limited liability company (“Quick Capital”), pursuant to which the Company issued Quick Capital a nine-month convertible promissory note in the principal amount of $113,587 (the “Quick Note”) for a $100,000 investment, which included an original issuance discount of 8% and a $4,500 credit for Quick Capital’s transaction expenses. In connection with the Note issuance, Quick Capital was also issued a three-year warrant (the “Quick Warrant”) to purchase up to an aggregate of 36,975 shares of the Company’s common stock at an exercise price of $1.60 per share (the “Quick Warrant Shares”).

Quick Capital is entitled to a cash payment of $25,000 as liquidated damages for any failure to include all shares issuable upon the conversion of the Quick Note and the exercise of the Quick Warrant on any registration statement filed with the SEC. For twelve months following the issuance of the Quick Note, Quick Capital will have the right of first refusal to participate in future financings proposed to the Company by bonafide third parties on the same terms as such third party. If the Company receives cash proceeds, the Quick Capital has the right to require that such proceeds be used to repay outstanding amounts under the Quick Note.

The Company must use its best efforts to uplist its common stock to Nasdaq or the New York Stock Exchange within 90 days of the issuance of the Quick Note.

The Quick Note may be prepaid in whole or in part, subject to a 10% premium if prepaid in the first 60 days of the term of the Quick Note and a 30% premium thereafter.

The Quick Note may be converted into shares of common stock at (i) a 30% discount to the lowest price per share of any debt or securities offering by the Company if the Company’s common stock is listed on Nasdaq or NYSE within 90 days of the Quick Note issuance; (ii) the lesser of (A) $1.28 or (B) a 30% discount to the average of the two lowest closing prices during the ten trading days prior to the conversion date; (iii) $1.28 per share, upon an event of default as described in the Quick Note. If delivery of conversion shares is not timely made, the Company is obligated to pay Quick Capital $2,000 for each day that the delivery is late as liquidated damages. The conversion price of the Quick Note will be reduced if the Company issues common stock or grants derivative securities for consideration at a price less than the conversion price to the amount of the consideration of such dilutive issuance.

If the Company makes a distribution of its assets, Quick Capital will be entitled to receive the amount of such assets which would have been payable had Quick Capital been the holder of such shares on the record date for such distribution. If the Company issues convertible securities or rights to purchase securities or other property pro rata to its common shareholders, Quick Capital will be entitled to acquire such securities or rights upon the same terms as if Quick Capital had converted the Quick Note.

The Quick Note also contains certain restrictive covenants limiting the Company’s ability to repurchase its securities, incur debt, sell its assets, make loans, or engage in exchange offers.

If the Company receives cash proceeds from any source, Quick Capital has the right to require the Company to apply such proceeds to repay outstanding amounts owed under the Quick Note.

If an event of default (as described in the Quick Note) occurs, the Quick Note will become immediately due and payable in an amount equal to (i) 150% of the then outstanding principal amount of the Quick Note plus any other default interest or amounts owing to Quick Capital or (ii) the parity value of common stock as calculated in accordance with the terms of the Quick Note.

Quick Capital is entitled to the same terms of future financings of the Company that are more favorable than the terms of the Quick Note.

The Quick Warrant provides, among other things, that if the Quick Warrant Shares are not timely delivered, the Company will be obligated to pay $3,000 per day as liquidated damages. If there is no effective registration statement covering the Quick Warrant Shares, Quick Capital may exercise the Quick Warrant on a cashless basis in accordance with the terms of the Quick Warrant. The exercise price and number of Quick Warrant Shares are subject to adjustment in the event of certain corporate actions as described in the Quick Warrant, including stock dividends, distributions, stock splits and dilutive issuances. Upon the occurrence of certain fundamental transactions including mergers, the sale of all of the Company’s assets and tender offers, Quick Capital will be entitled to alternative consideration related to those transactions.

The Quick Note may not be converted and the Quick Warrant may not be exercised if after giving effect to such conversion or exercise, as the case may be, Quick Capital and its affiliates would beneficially own more than 4.99% of the outstanding common stock of the Company.

Auctus Fund Financing

On February 9, 2021, the Company entered into a securities purchase agreement (the “Auctus Purchase Agreement”) with Auctus Fund, LLC, a Delaware limited liability company (“Auctus”), pursuant to which the Company issued Auctus a one-year convertible promissory note in the principal amount of $500,000 which accrues interest at 12% per annum (the “Auctus Note”) for proceeds of $428,000 (after deducting fees and expenses related to the transaction). Auctus was also issued a five-year warrant (the “Auctus Warrant”) to purchase 195,313 shares of the Company’s common stock, at an exercise price of $1.92 per share (the “Auctus Warrant Shares”).

The Company granted Auctus piggyback registration rights with respect to the shares underlying the Auctus Note and the Auctus Warrant. In addition, the Company agreed that, while any amount remains unpaid under the Auctus Note, it would not sell securities on more favorable terms than those provided to Auctus, without adjusting Auctus’ terms accordingly. Further, among other things, the Company agreed that, while any amount remains unpaid under the Auctus Note, it would not enter into any variable rate transactions.

In the event the Company fails to pay any amount when due under the Auctus Note, the interest rate will increase to the greater of 16%, or the maximum amount permitted by law. The Auctus Note may not be prepaid. Auctus may convert any amount due under the Auctus Note at any time and its affiliates into shares of common stock at a conversion price of $0.06 per share; provided, that no such conversion would result in Auctus beneficially owning in excess of 4.99% of the Company’s then outstanding common stock. The conversion price and number of shares issuable upon conversion of the Auctus Note will be subject to adjustment for any subdivision or consolidation of shares and other dilutive events.

Auctus may not exercise the Auctus Warrant with respect to any number of Auctus Warrant Shares that would cause it to beneficially own in excess of 4.99% of the Company’s common stock. The Auctus Warrant may be exercised for cash, or, if the “market price” of the Company’s common stock is greater than the Auctus Warrant’s exercise price, and there is not an effective registration statement covering the Auctus Warrant Shares, the Auctus Warrant may be exercised on a cashless basis. The number of Warrant Shares is subject to adjustment for subdivision or consolidation of shares and other dilutive events, or in the event the Company effects a reorganization, reclassification, merger, consolidation, disposition of assets, or other fundamental transaction.

FirstFire Global Financing

On March 11, 2021 the Company entered into a securities purchase agreement (the “FirstFire Purchase Agreement”) with FirstFire Global Opportunities Fund, LLC, a Delaware limited liability company (“FirstFire”), pursuant to which the Company issued to FirstFire a one-year 12% convertible promissory note in the principal amount of $300,000 (the “FirstFire Note”). In connection with the issuance of the FirstFire Note, FirstFire was also issued a five-year warrant (the “FirstFire Warrant”) to purchase up to an aggregate of 117,188 shares of the Company’s common stock (the “FirstFire Warrant Shares”), at an exercise price of $0.06 per share. The net proceeds received by the Company were $270,000, after deducting an original issue discount in the amount of $30,000.

In the event the Company fails to pay any amount when due under the FirstFire Note, the interest rate will increase to the lesser of 20%, or the maximum amount permitted by law. At any time while the FirstFire Warrant Shares are subject to an effective registration statement, or, if no registration statement covering the FirstFire Warrant Shares is effective, at any time after 180 days from the date of issuance, FirstFire may convert any amount due under the FirstFire Note into shares of the Company’s common stock (“FirstFire Conversion Shares”) at a conversion price of $1.92 per share; provided, however, that, if an event of default exists, the conversion price will be the lesser of (i) $0.96 per share, or (ii) 70% of the lowest trading price of the Company’s common stock during the ten consecutive trading days prior to the conversion. FirstFire may not convert any portion of the FirstFire Note of the FirstFire Warrant that would cause it and its affiliates to beneficially own in excess of 4.99% of the Company’s common stock (which may be waived, up to 9.99%, by FirstFire upon 61 days' prior notice to the Company). The conversion price and number of shares of the Company’s common stock issuable upon conversion of the FirstFire Note will be subject to adjustment in the event of any merger, consolidation, distribution of shares, or other dilutive issuances.

The FirstFire Warrant may be exercised for cash, or, if there is not an effective registration statement covering the FirstFire Warrant Shares, on a cashless basis. The exercise price and number of Warrant Shares is subject to adjustment for subdivision or consolidation of shares, or other dilutive issuances.

Pursuant to the FirstFire Purchase Agreement, the Company agreed that, while any of the FirstFire Note, the FirstFire Conversion Shares, the FirstFire Warrants, or the FirstFire Warrant Shares remain outstanding, it would not sell securities on more favorable terms than those provided to FirstFire without adjusting FirstFire’s securities to incorporate those more favorable terms.

FirstFire has a right of first refusal to participate in sale of the Company’s securities for a period of 18 months and mandatory registration rights with respect to the FirstFire Conversion Shares and the FirstFire Warrant Shares.

Labrys Fund Financing

On April 16, 2021 (the “Effective Date”), Grom Social Enterprises, Inc., a Florida corporation (the “Company”), entered into a securities purchase agreement (the “Labrys Purchase Agreement”) with Labrys Fund, LP, a Delaware limited partnership (“Labrys”), pursuant to which the Company issued to Labrys a convertible promissory note in the principal amount of $300,000 (the “Labrys Note”). In connection with the issuance of the Labrys Note, Labrys was also issued a five-year warrant (the “Labrys Warrant”) to purchase up to an aggregate of 117,188 shares of the Company’s common stock (the “Labrys Warrant Shares”), at an exercise price of $1.92 per share. The net proceeds received by the Company were $266,000, after deducting an original issue discount in the amount of $30,000 and $4,000 to cover Labrys’s legal fees. The Company intends to use the net proceeds for working capital and general corporate purposes.

The Labrys Note has a principal balance of $300,000, and a stated maturity date of one year from the Effective Date. The Labrys Note bears interest at a rate of 12% per annum, which is payable when the Labrys Note becomes due, whether at maturity, or upon acceleration, or by prepayment, or otherwise, with the understanding that the first twelve months of interest (equal to $36,000) is guaranteed and deemed to be earned in full as of the date of issuance. In the event the Company fails to pay any amount when due under the Labrys Note, the interest rate will increase to the lesser of 16%, or the maximum amount permitted by law. Labrys may convert any amount due under the Labrys Note into shares of the Company’s common stock (the “Labrys Conversion Shares”) at a conversion price of $1.92 per share. Labrys may not convert any portion of the Labrys Note that would cause it, together with its affiliates, to beneficially own in excess of 4.99% of the Company’s common stock. The conversion price and number of shares of the Company’s common stock issuable upon conversion of the Labrys Note will be subject to adjustment from time to time in the event of any merger, consolidation, distribution of shares, or other dilutive issuances.

The Labrys Warrant provides for the purchase of up to 117,188 shares of the Company's common stock, an exercise price of $1.92 per share. The Labrys Warrant is exercisable for a term of five years from the Effective Date. Labrys may not exercise the Labrys Warrant with respect to any number of Labrys Warrant Shares that would cause it, together with its affiliates, to beneficially own in excess of 4.99% of the Company’s common stock. The Labrys Warrant may be exercised for cash, or, if the market price of the Company’s common stock is greater than the Labrys Warrant’s exercise price, the Labrys Warrant may be exercised on a cashless basis. The number of shares of common stock to be deliverable upon exercise of the Labrys Warrant is subject to adjustment for subdivision or consolidation of shares and other dilutive events, or in the event the Company effects a reorganization, reclassification, merger, consolidation, disposition of assets, or other fundamental transaction.

Pursuant to the Labrys Purchase Agreement, the Company agreed to give Labrys a right of first refusal to participate in any offer or sale of the Company’s equity or debt securities for as long as the Labrys Note is outstanding. In addition, the Company granted Labrys piggyback registration rights with respect to the Labrys Conversion Shares and the Labrys Warrant Shares. Also, the Company agreed that, while any of the Labrys Note, the Labrys Conversion Shares, the Labrys Warrants, or the Labrys Warrant Shares remain outstanding, it would not sell securities on more favorable terms than those provided to Labrys without adjusting Labrys’s securities to incorporate those more favorable terms. Further, the Company agreed that, while any amount remains unpaid under the Labrys Note, it would not enter into any subsequent variable rate transactions.

Curiosity Ink Media Letter of IntentSplit

On April 1,7, 2021, the Company entered intoCompany’s board of directors approved, and, on April 8, 2021, the Company’s shareholders approved, a binding letterreverse stock split at a ratio of intent with Curiosity Ink Media, LLC, a California limited liability company (“Curiosity”), Russell Hicks (“Hicks”), Brent Watts (“Watts”),no less than 1-for-2 and no more than 1-for-50. On May 6, 2021, the other members of Curiosity (collectively,board fixed the “Sellers”), pursuant to which the Company agreed to acquire an aggregate of 80% of Curiosity’s membership interests (the “80% Membership Interests”) from the Sellers, on a pro rata basis,ratio for a purchase price of $3,678,000, of which: (i) $400,000 is payable in cash, to be used to pay down a portion of loans made to Curiosity by Hicksreverse stock split at 1-for-32, and, Watts; (ii) $3,000,000 is payable in shares of the Company’s common stock, valued at a price per share equal to the 20-day volume-weighted average price of the Company’s common stock; and (iii) $278,000 is payable by the issuance to Hicks and Watts of 8% convertible promissory notes payable in equal monthly installments, on an amortized basis over 18 months. The Sellers will have the opportunity to receive up to an additional $2,000,000 in acquisition consideration, paid in shares of the Company’s common stock, based upon the successful execution of certain specified contracts and/or material agreements. The Sellers will also have the opportunity to receive an additional $17,500,000 in purchase consideration, paid 50% in cash and 50% in shares of the Company’s common stock, based upon achieving certain performance milestones through December 31, 2023. The Company has the exclusive right to acquire the 80% Membership Interests through June 30, 2021. The consummation of the acquisition is contingent upon the parties entering into a definitive agreement and other closing conditions.

Reverse Stock Split

On May 7, 2021, the Company filed a certificate of amendment to the Company’sits articles of incorporation as previously amended, with the Secretary of State of the State of Florida to effect athe reverse stock split of the Company’s common stock at a rate of 1-for-32, which became effective as of May 13, 2021. OurThe Company’s common stock began tradingbeing quoted on the OTCQB on a post-splitpost-reverse split basis in the over-the-counter marketbeginning on May 19, 2021. At

Listing on the open ofNasdaq Capital Market

On June 17, 2021, our common stock and warrants began trading on Maythe Nasdaq Capital Market under the symbols “GROM” and “GROMW,” respectively.

Registered Offering

On June 21, 2021 (in this case, the “Closing Date”), the Company, sold an aggregate of 2,409,639 units (the “Units”), at a price to the public of $4.15 per Unit (the “Underwritten Offering”), each Unit consisting of one share of common stock and a warrant to purchase one share of common stock at an exercise price of $4.565 per share pursuant to an underwriting agreement, dated as of June 16, 2021 (the “Underwriting Agreement”), between the Company and EF Hutton, division of Benchmark Investments, LLC, as representative (the “EF Hutton”) of the several underwriters named in the Underwriting Agreement. In addition, pursuant to the Underwriting Agreement, the Company granted EF Hutton a 45-day option to purchase up to 361,445 additional Units of common stock and warrants, to cover over-allotments in connection with the Offering, which EF Hutton exercised with respect to warrants exercisable for up to an additional 361,445 shares on the Closing Date.

The shares and the warrants were offered and sold to the public pursuant to the Company’s registration statement on Form S-1, as amended (File No. 333-253154), filed by the Company with the SEC under the Securities Act, which became effective on June 16, 2021.

On the Closing Date, the Company received gross proceeds of approximately $10,000,000, before deducting underwriting discounts and commissions of 8% of the gross proceeds and estimated offering expenses. The Company is using the net proceeds from the Underwritten Offering primarily for sales and marketing activities, product development, acquisition of, or investment in, technologies, solutions, or businesses that complement the Company’s business, and for working capital and general corporate purposes.

Pursuant to the Underwriting Agreement, the Company issued to EF Hutton five-year warrants to purchase up to 144,578 shares (6% of the shares sold in the Underwritten Offering), on the Closing Date. EF Hutton’s warrants are exercisable at $4.15 per share and are subject to a lock-up for 180 days from the commencement of sales in the Underwritten Offering, including a mandatory lock-up period in accordance with FINRA Rule 5110(e).

The total expenses of the Underwritten Offering were approximately $1,162,738, which included the underwriting discounts and commissions and EF Hutton’s reimbursable expenses relating to the Underwritten Offering.

On July 15, 2021, EF Hutton exercised in full the over-allotment option with respect to all 361,445 additional shares. After giving effect to the full exercise of the over-allotment option, the total number of Units sold by the Company in the Underwritten Offering was 2,771,084, for total gross proceeds to the Company of approximately $11,500,000, before deducting underwriting discounts and commissions and other offering expenses payable by the Company.

Curiosity Acquisition

On July 29, 2021, the Company entered into a membership interest purchase agreement (in this case, the “Purchase Agreement”) with CIM, and the holders of all of CIM’s outstanding membership interests (the “Sellers”), for the purchase of 80% of CIM’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 trading symbol changed from “GRMM”common stock to “GRMMD.”the Sellers, pro rata to their membership interests immediately prior to the closing of the Acquisition. The “D” will be removed 20 business days aftershares were valued at $2.82 per share which represents to the split becomes effective20-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 market. principal amount $278,000 (the “Note”) to pay-down and refinance certain outstanding loans and advances previously made to CIM by two of the Sellers, Russell Hicks and Brett Watts.

The reverse stock split did not have any impact on the number of authorizedNote is convertible into shares of common stock which remainsof the Company at 500,000,000 shares. Unless otherwise noted, and other than in the financial statements and the notes thereto, the share anda conversion price of $3.28 per share, informationbut may not be converted if, after giving effect to such conversion, the noteholder and its affiliates would beneficially own in this prospectus reflects the reverse stock splitexcess of 9.99% of the Company’s outstanding common stockstock. The Note may be prepaid at a 1-for-32 ratio, effectiveany time, in whole or in part. The Note is subordinate to the Company’s senior indebtedness.

The Sellers also have the ability to earn up to $17,500,000 (payable 50% in cash and 50% in stock) upon the achievement of certain performance milestones as of May 13, 2021.December 31, 2025.

Executive Officers

On July 26, 2021, Melvin Leiner resigned as Chief Financial Officer, Secretary and Treasurer of the Company. Mr. Leiner remains the Company’s Executive Vice President and Chief Operating Officer, and a director.

On July 26, 2021, effective immediately upon Mr. Leiner’s resignation, Jason Williams was appointed the Company’s Chief Financial Officer, Secretary and Treasurer.

Series C Preferred Stock DesignationPayoff of TDH Sellers Notes

On August 18, 2021, the Company paid the holders of certain secured promissory notes (the “TDH Secured Notes”) an aggregate of $834,759.77, representing all remaining amounts due and Exchangepayable under the TDH Secured Notes. Upon receipt of such payment by the holders of the TDH Secured Notes, the pledged shares of TDH Holdings and its subsidiary, Top Draw HK were released from escrow, and the holders of the TDH Secured Notes had no further security interest in the assets of the Company or its subsidiaries.

L1 Capital Financing

Closing of First Tranche

On May 20,September 14, 2021, the Company submittedentered into a CertificateSecurities Purchase Agreement (the “Purchase Agreement”) with L1 Capital Global Opportunities Master Fund (“L1 Capital”), pursuant to which it sold L1 Capital (i) a 10% Original Issue Discount Senior Secured Convertible Note in the principal amount of Designation of Preferences, Rights$4,400,000, due March 13, 2023 (the “Original Note”), and Limitations of Series C Stock for filing with the Secretary of State of the State of Florida(ii) a five-year warrant to designate 10,000,000purchase 813,278 shares as Series C Stock and is currently awaiting confirmation of such filing, which may be as of May 20, 2021, or a later date. The Series C Stock will rank senior and prior to all other classes or series of the Company’s preferredcommon stock at an exercise price of $4.20 per share (the “Original Warrant”), for consideration of $3,960,000 (the “First Tranche”).

EF Hutton acted as exclusive placement agent for the offering and common stock.received a fee of $316,800.

The holder may at any time after the 6-month anniversary of the issuance of the shares of Series C Stock convert such sharesOriginal Note is convertible into common stock at a conversionrate of $4.20 per share (the “Conversion Price”), and is repayable in 18 equal monthly installments, in cash, or, at the discretion of the Company, and if the Equity Conditions described below are met, by issuance of shares of common stock at a price equal to 95% of the volume weighted average price (“VWAP”) 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 10-day VWAP drops below $1.92, per share.the Company will have the right to pay in shares of common stock at said VWAP, with any shortfall to be paid in cash. The Conversion Price may be adjusted in the event of dilutive issuances but in no event to less than $0.54. In addition, the Company at any time may require conversion of all or any of the Series C Stock then outstanding at a conversion price equal to $1.92 per share.

Each share of Series C Stock will entitle 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 will be required for the amendment to any ofunder the terms of the Series C Stock,Original Note, L1 Capital had the right to create any additional classaccelerate up to 3 of the monthly payments.

The Equity Conditions required to be met in order for the Company to redeem the Original Note with shares of common stock unless the stock ranks juniorin lieu of a monthly cash payment, include, without limitation, that (i) a registration statement must be in effect with respect to the Series C Stock, to make any distributionresale of the shares issuable upon conversion or dividend on any securities ranking juniorredemption of the Original Note (or, that an exemption under Rule 144 is available), and (ii) that the average daily trading volume of the Company’s common stock will be at least $250,000 immediately prior to the Series C Stock,date of the monthly redemption.

The Original Warrant has the same anti-dilution protection as the Original Note and same adjustment floor. The Original Warrant is exercisable for cash, or on a cashless basis only for so long as no registration statement covering resale of the shares is in effect.

The Company entered into a Security Agreement with L1 Capital pursuant to merge or sell all or substantiallywhich L1Capital was granted a security interest in all of the assets of the Company or acquire another business or effectuate any liquidationand certain of its subsidiaries. As further inducement for L1 Capital to enter into the Security Agreement, certain of the Company’s pre-existing secured creditors agreed to give up their exclusive senior security interest in the assets of TD Holdings, in exchange for a shared senior secured interest with L1 Capital on a pari pasu basis on all assets of the Company. Cumulative dividends will accrue on each share of Series C Stock at the rate of 8% per annumRepayment of the stated value of $1.00 per share and will be payable in common stock in arrears quarterly commencing 90 days from issuance.

Upon a liquidation, dissolution or winding upNote is also guaranteed by certain subsidiaries of the Company the holders of the Series C Stock will be entitledpursuant 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.subsidiary guaranty.

The Company agreed to file a registration statement with the SEC within 35 days of the closing of the First Tranche registering all Conversion Shares and Warrant Shares for resale, to go effective no later than 75 days after the closing of the First Tranche.

The Purchase Agreement also contemplated the purchase by L1 Capital (the “Second Tranche”) of an additional 10% Original Issue Discount Senior Secured Convertible Note in the principal amount of $1,500,000, and warrants to purchase approximately 277,000 shares (presuming current market prices) of common stock on identical terms to the Original Note and Warrant, subject to, and upon receipt of, shareholder approval under Nasdaq rules and effectiveness of a registration statement covering the resale of the shares issuable under the Original Note and Warrant issued in the First Tranche.

Amendment to Purchase Agreement and Original Note

On MayOctober 20, 2021, the Company and L1 Capital entered into exchange agreements with all of the holders of the Company’s Series B Stock,an Amended and Restated Purchase Agreement (the “Amended Purchase Agreement”), pursuant to which the holders agreed to exchange allamount of the issued and outstanding sharesproposed Second Tranche investment was increased from $1,500,000 to $6,000,000. In the event that the conditions to closing the Second Tranche investment are satisfied, the Company intends on issuing (i) a 10% Original Issue Discount Senior Secured Convertible Note in the principal amount of $6,000,000 (the “Additional Note”), identical to the Company’s Series B Stock for shares of Series C Stock, on a one for one basis. The exchange will be effective upon the acceptance for filing of the Certificate of Designation by the Secretary of State of the State of Florida, which may be as of May 20, 2021, or a later date. Upon effectiveness of the exchange, all 9,215,059 issued and outstanding shares of the Company’s Series B Stock will be exchanged for an aggregate of 9,215,059 shares of the Company’s Series C Stock, and all of the exchanged shares of Series B Stock will be cancelled.

Amendments to Bridge Loan Documents

The Company is in negotiations with certain of its lenders to amend their respective loan documents, and the securities issued thereunder, to remove certain full-ratchet anti-dilution provisions and variable conversion rates to satisfy Nasdaq requirements. The Company expects to complete these amendments prior toOriginal Note, but due 18 months from the closing of the Underwritten Offering.

Second Tranche, and (ii) a five-year warrant to purchase 1,041,194 at an exercise price of $4.20 per share (the “Additional Warrant”), for consideration of $5,400,000.

The closing of the Second Tranche is subject to a registration statement being declared effective by the SEC covering the shares issuable upon conversion or redemption of the Original Note and Original Warrant, shareholder consent being obtained as required by Nasdaq Rule 5635(d), and a limitation on the principal amount of notes that may be issued to no more than 30% of the Company’s market capitalization as reported by Bloomberg L.P., which requirement may be waived by L1 Capital.

The conversion and redemption terms, as well as all other material terms of the Additional Note, and exercise price of terms of the warrants to be issued in the Second Tranche, are identical in all other material respects as the originally issued note and warrants, except for the amendments provided herein.

As of October 20, 2021, and as part of the terms of the Amended Purchase Agreement, the Original Note was amended (the “Amended Original Note”) to increase the monthly redemption amount for the 18 monthly installments from $275,000 to $280,500. In addition, the Amended Original Note provides that, in the event that the Second Tranche closes, the Equity Conditions required to be satisfied in order for the Company to elect to make monthly note payments by issuance of common stock in lieu of cash (and in addition to the requirement that a registration statement is in effect or an exemption exists) the average trading volume of the Company’s common stock must be at least $550,000 (increased from $250,000) during the five trading days prior to the respective monthly redemption. Except as described above, the other terms of the Original Note as previously disclosed remain in full force and effect. In addition, if the Second Tranche is consummated, L1 Capital will have the right to accelerate up to 6 of the monthly payments as opposed to just 3.

Results of Operations

For the Three Months Ended March 31,June 30, 2021 and 2020

Revenue

Revenue for the three months ended March 31,June 30, 2021 was $1,875,284,$1,388,551, compared to revenue of $1,292,239$1,746,979 during the three months ended March 31,June 30, 2020, representing an increasea decrease of $583,045$358,428 or 45.1%20.5%.

Animation revenue for the three months ended March 31,June 30, 2021 was $1,713,958,$1,276,555, compared to animation revenue of $1,153,236$1,534,377 during the three months ended March 31,June 30, 2020, representing an increasea decrease of $560,722$257,822 or 48.6%16.8%. The increasedecrease in animation revenue is primarily attributable to the increasea decrease in the overall number of contracts completed asdue to client delays caused by concerns related to the spread of COVID-19 began to subside.COVID-19.

Web filtering revenue for the three months ended March 31,June 30, 2021 was $161,241,$111,507, compared to web filtering revenue of $138,143$211,855 during the three months ended March 31,June 30, 2020, representing an increasea decrease of $23,098$100,348 or 16.7%47.4%. The increasedecrease is primarily due to an increase in organic sales growth, and the timing or loss of multi-year contract renewals.

Subscription and advertising revenue from our Grom Social website, Grom Social mobile application and MamaBear safety mobile application have been nominal. Subscription and advertising revenue for the three months ended March 31,June 30, 2021 was $384$489 compared to subscription and advertising revenue of $860$747 during the three months ended March 31,June 30, 2020, representing a decrease of $476$258 or 55.3%34.5%, primarily attributable to a decrease in marketing and promotion activities.

Gross Profit

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

Gross profit for the three months ended March 31,June 30, 2021 and 2020 were $1,074,850,$554,870, or 57.3%40.0%, and $680,146,$1,085,799, or 52.6%62.2%, respectively. The increasedecrease in gross profit is primarily attributable to an increase in web filtering salesthe absorption of fixed overhead expenses against reduced revenue levels and higher contract marginscertain projects trending over budget in our animation business.

Operating expenses

Operating expenses for the three months ended March 31,June 30, 2021 were $1,785,699,$2,021,895, compared to operating expenses of $1,748,548$1,410,234 during the three months ended March 31,June 30, 2020, representing an increase of $37,151$611,661 or 2.1%43.4%. The increase is primarily attributable to an increase in general and administrative costs and fees for professional services rendered during the three months ended March 31, 2021.June 30, 2021 due to the Company’s recapitalization and Nasdaq stock exchange uplisting. General and administrative expenses were $1,350,799$1,440,355 for the three months ended March 31,June 30, 2021, compared to $1,449,348$1,093,880 for the three months ended March 31,June 30, 2020, representing a decreasean increase of $98,549$346,475 or 6.8%31.7%. Professional fees were $187,109$325,922 for the three months ended March 31,June 30, 2021, compared to $52,718$54,760 for the three months ended March 31,June 30, 2020, representing an increase of $134,391$271,162 or 254.9%495.2%.

Other Income (Expense)

Net other expense for the three months ended March 31,June 30, 2021 was $1,604,726,$1,037,480, compared to a net other expense of $278,432$628,673 for the three months ended March 31,June 30, 2020, representing an increase of $1,326,294$408,807 or 476.3%65.0%. The increase in net other expense is primarily attributable to a one-time 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 preferred stock.Stock.

Interest expense is comprised of interest incurred on our convertible notes and from the amortization of note discounts. Interest expense was $648,846$1,094,916 for the three months ended March 31,June 30, 2021, compared to $277,763$612,379 during the three months ended March 31,June 30, 2020, representing a decreasean increase of $371,083$482,537 or 133.6%78.8%. The increase is primarily attributable to an increase in amortization expense associated with debt discounts recorded during the three months ended March 31,June 30, 2021 compared to the three months ended March 31,June 30, 2020.

Net Loss Attributable to Common Stockholders

We realized a net loss attributable to common stockholders of $2,315,575,$2,504,505, or $0.39$0.42 per share, for the three months ended March 31,June 30, 2021, compared to a net loss attributable to common stockholders of $1,346,834,$953,108, or $0.26$0.18 per share, during the three months ended March 31,June 30, 2020, representing an increase in net loss attributable to common stockholders of $969,741$1,551,397 or 71.9%162.8%.

For the years ended December 31,Six Months Ended June 30, 2021 and 2020 and December 31, 2019

Revenue

Revenue for the yearsix months ended December 31, 2020June 30, 2021 was $6,159,531,$3,263,835, compared to revenue of $8,296,997$3,039,218 during the yearsix months ended December 31, 2019,June 30, 2020, representing a decreasean increase of $2,137,466$224,617 or 25.8%7.4%.

Animation revenue for the yearsix months ended December 31, 2020June 30, 2021 was $5,483,332,$2,990,213, compared to animation revenue of $7,565,672$2,687,613 during the yearsix months ended December 31, 2019,June 30, 2020, representing a decreasean increase of $2,082,340$302,600 or 27.5%11.3%. The decreaseincrease in animation revenue is primarily attributable to the declinean increase in the overall number of contracts completed andoffset, in part, by client delays to the timing and production of certain animation projects due tocaused by concerns related to the spread of COVID-19.

Web filtering revenue for the yearsix months ended December 31, 2020June 30, 2021 was $673,182,$272,748, compared to web filtering revenue of $723,800$349,998 during the yearsix months ended December 31, 2019,June 30, 2020, representing a decrease of $50,618$77,250 or 7.0%22.1%. The decrease is primarily due to a decline in organic sales growth, and the timing or loss of multi-year contract renewals.

Subscription and advertising revenue from our Grom Social website, Grom Social mobile application and MamaBear safety mobile application have been nominal. Subscription and advertising revenue for the yearsix months ended December 31, 2020June 30, 2021 was $3,017$874 compared to subscription and advertising revenue of $7,525$1,607 during the yearsix months ended December 31, 2019,June 30, 2020, representing a decrease of $4,508$733 or 59.9%45.6%, primarily attributable to a decrease in marketing and promotion activities.

Gross Profit

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

Gross profit for the yearssix months ended December 31,June 30, 2021 and 2020 and 2019 were $2,806,891,$1,629,720, or 45.6%49.9%, and $3,686,036,$1,765,945, or 44.4%58.1%, respectively. The decrease in gross profit is primarily attributable to the higher percentageabsorption of web filteringfixed overhead expenses, reduced revenue to total revenue when compared to the prior year,levels, and higher contract margins realizedcertain projects trending over budget in our animation business.

Operating Expenses

Operating expenses for the yearsix months ended December 31, 2020June 30, 2021 were $6,188,689,$3,807,594, compared to operating expenses of $6,664,933$3,158,782 during the yearsix months ended December 31, 2019,June 30, 2020, representing a decreasean increase of $476,244$648,812 or 7.2%20.5%. The decreaseincrease is primarily attributable to a decreasean increase in general and administrative expensescosts and fees for professional services fees resulting from reduced investor relations servicesrendered during the six months ended June 30, 2021 due to the Company’s recapitalization and general cost cutting efforts undertaken by the Company.Nasdaq stock exchange uplisting. General and administrative expenses were $4,462,095$2,791,154 for the yearsix months ended December 31, 2020,June 30, 2021, compared to $5,140,100$2,543,228 for the yearsix months ended December 31, 2019,June 30, 2020, representing a decreasean increase of $678,005$247,926 or 13.2%9.8%. Professional fees were $623,014$513,031 for the yearsix months ended December 31, 2020,June 30, 2021, compared to $908,093$107,478 for the yearsix months ended December 31, 2019,June 30, 2020, representing a decreasean increase of $285,079$405,553 or 31.4%377.3%. At December 31, 2020, we performed our annual impairment tests as prescribed by ASC 350 on the carrying value of our goodwill and recorded an impairment charge totaling $472,757; of which $420,257 was attributed to the assets of Fyoosion LLC acquired in 2017 and $52,500 was attributed to the assets of Bonnie Boat and Friends acquired in 2018.

Other Income (Expense)

Net other expense for the yearsix months ended December 31, 2020June 30, 2021 was $2,585,662,$2,642,206, compared to a net other expense of $1,577,002$907,105 for the yearsix months ended December 31, 2019,June 30, 2020, representing an increase of $1,008,660$1,735,101 or 64.0%191.3%. The increase in net other expense is primarily attributable to increased interest expense related to the loss recorded on the extinguishmentamortization of debt realized throughdiscounts, and a one-time extinguishment loss of $947,179 related to the conversionexchange of $1,447,996 in principal and interest accrued under certain convertible promissory notes intofor 2,395,175 shares of our Series B Stock.

Interest expense is comprised of interest accrued and paidincurred on our convertible notes and recorded from the amortization of note discounts. Interest expense was $1,398,731$1,743,762 for the yearsix months ended December 31, 2020,June 30, 2021, compared to $1,705,123$890,142 during the yearsix months ended December 31, 2019,June 30, 2020, representing a decrease of $306,392$853,620 or 18.0%95.9%. The decreaseincrease is primarily attributable to servicing lower levels of debt and recording loweran increase in amortization expense on noteassociated with debt discounts recorded during the yearsix months ended December 31, 2020.

During the year ended December 31, 2020, we recorded extinguishment losses of $1,312,983 relatedJune 30, 2021 compared to the conversion of approximately $2.6 million of convertible promissory notes into 3,939,884 shares of our Series B preferred stock. During the yearsix months ended December 31, 2019, we recorded an extinguishment loss of $363,468 related to the amendment of our $4,000,000 promissory note issued with our acquisition of TD Holdings. During the year ended December 31, 2019, we also recorded gains of $429,000 related to the change in fair value of contingent consideration and $45,521 related to the settlement of certain accounts payable.June 30, 2020.

Net Loss Attributable to Common Stockholders

We realized a net loss attributable to common stockholders of $6,020,933,$4,820,080, or $1.07$0.79 per share, for the yearsix months ended December 31, 2020,June 30, 2021, compared to a net loss attributable to common stockholders of $5,332,173,$2,299,942, or $1.16$0.42 per share, during the yearsix months ended December 31, 2019June 30, 2020, representing an increase in net loss attributable to common stockholders of $688,760$2,520,138 or 12.9%109.6%.

Liquidity and Capital Resources

At March 31,June 30, 2021, we had cash and cash equivalents of $581,950.$8,161,908.

Net cash used in operating activities for the threesix months ended March 31,June 30, 2021 was $988,573,$2,622,824, compared to net cash used in operating activities of $244,122$767,926 during the threesix months ended March 31,June 30, 2020, representing an increase in cash used of $744,461,$1,854,898, primarily due to the increase in our loss from operations and the change in operatingworking capital assets and liabilities.

Net cash used in investing activities for the threesix months ended March 31, 20201June 30, 2020 was $2,391,$2,790, compared to net cash used in investing activities of $15,267$38,025 during the threesix months ended March 31,June 30, 2020 representing a decrease in cash used of $12,876.$35,235. 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 threesix months ended March 31,June 30, 2021.

Net cash provided by financing activities for the threesix months ended March 31,June 30, 2021 was $1,433,438,$10,644,545, compared to net cash provided by financing activities of $576,143$1,015,767 for the threesix months ended March 31,June 30, 2020, representing an increase in cash provided of $857,295.$9,628,778. Our primary sources of cash from financing activities were attributable to $666,500$8,953,616 in proceeds from the sale of our common stock, $908,500 in proceeds from the sale of 8% - 12% convertible notes, and $950,000 and $100,000 in proceeds from the sale of our Series B Stock and Series C Stock, respectively, during the threesix months ended March 31,June 30, 2021, as compared to $3,655,000 in proceeds from the sale of 12% senior secured convertible notes during the threesix months ended March 31,June 30, 2020. On March 16, 2020, the Company repaid $3,000,000 in principal due to the former shareholders of TD Holdings Limited on a convertible note originally dated September 20, 2016.

We currentlyBased upon our current cash balances, we believe we have a monthly consolidated cash operating loss ranging between $100,000adequate working capital to $150,000, or approximately $1,200,000 to $1,800,000 annually. In order to fundmeet our operationsoperational needs for at least the next twelve12 months we believe that we will need to raise $2,000,000. Historically, we have funded our operations through sales of equity, debt issuances and officer loans. We currently have no commitment from any investment banker or other traditional funding sources and no definitive agreement with any third party to provide us with financing, either debt or equity, and there can be no assurances that we will be able to raise additional funds, or if we are successful, on favorable terms. Future equity sales may result in dilution to current shareholders and debt may have negative covenants. In addition, the COVID-19 pandemic has had and may continue to have an adverse effect on the capital markets and our ability to raise additional funding. The failure to obtain the financing necessary to allow us to continue to implement our business plan will have a significant negative impact on our anticipated results of operations.

Going Concern

Critical Accounting Policies and Estimates

Use of Estimates

The accompanyingpreparation of consolidated financial statements have been prepared assuming we will continue as a going concern, which contemplates realizationin conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of liabilities and disclosure of contingent assets and liabilities at the satisfactiondate of liabilities in the normal coursefinancial statements and the reported amounts of business forrevenues and expenses during the twelve-month period followingreporting period. The most significant estimates relate to revenue recognition, valuation of accounts receivable and inventories, purchase price allocation of acquired businesses, impairment of long-lived assets and goodwill, valuation of financial instruments, income taxes, and contingencies. We base our 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. OnThe results of these assumptions provide the basis for making estimates about the carrying amounts of assets and liabilities that are not readily apparent from other sources. Actual results could differ from these estimates.

Revenue Recognition

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

Animation Revenue

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 after effects. We provide services under fixed-price contracts. Under fixed-price contracts, we agree to perform the specified work for a pre-determined price. To the extent actual costs vary from estimated costs, our profit may increase, decrease, or result in a loss.

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

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

We determine the transaction price for each contract based on the consideration we expect to receive for the distinct services being provided under the contract.

We recognize revenue as performance obligations are satisfied and the customer obtains control of the services. In determining when performance obligations are satisfied, we consider factors such as contract terms, payment terms and whether there is an alternative future use of the product or service. Substantially all of our revenue is recognized over time as we perform under the contract due to the contractual terms present in each contract which irrevocably transfer control of the work product to the customer as the services are performed.

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

Web Filtering Revenue

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

Fair Value Measurements

The Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 820 “Fair Value Measurements and Disclosures” (“ASC 820”) defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:

Level 1 - Quoted prices in active markets for identical assets or liabilities.

Level 2 - Inputs other than quoted prices included within Level 1 that are either directly or indirectly observable.

Level 3 - Unobservable inputs that are supported by little or no market activity, therefore requiring an entity to develop its own assumptions about the assumptions that market participants would use in pricing.

Fair value estimates discussed herein are based upon certain market assumptions and pertinent information available to management as of December 31, 2020 and December 31, 2019. We use the market approach to measure fair value for its Level 1 financial assets and liabilities. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities. The respective carrying value of certain balance sheet financial instruments approximates its fair value. These financial instruments include cash, trade receivables, related party payables, accounts payable, accrued liabilities and short-term borrowings. Fair values were estimated to approximate carrying values for these financial instruments since inception. Because we do not expect that existing operationalthey are short term in nature, and they are receivable or payable on demand.

The estimated fair value of assets and liabilities acquired in business combinations and reporting units and long-lived assets used in the related asset impairment tests utilize inputs classified as Level 3 in the fair value hierarchy.

We determine the fair value of contingent consideration based on a probability-weighted discounted cash flow will be sufficientanalysis. The fair value remeasurement is based on significant inputs not observable in the market and thus represents a Level 3 measurement as defined in the fair value hierarchy. In each period, we reassess our current estimates of performance relative to fund presently anticipated operations, this raises substantial doubt about our abilitythe stated targets and adjusts the liability to continuefair value. Any such adjustments are included as a going concern. Therefore,component of Other Income (Expense) in the Consolidated Statements of Operations and Comprehensive Loss.

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 our acquisitions is attributable to the value of the potential expanded market opportunity with new customers. Intangible assets have either an identifiable or indefinite useful life. Intangible assets with identifiable useful lives are amortized on a straight-line basis over their economic or legal life, whichever is shorter. Our amortizable intangible assets consist of customer relationships and non-compete agreements. Their useful lives range from 1.5 to 10 years. Our indefinite-lived intangible assets consist of trade names.

Goodwill and indefinite-lived assets are not amortized but are subject to annual impairment testing unless circumstances dictate more frequent assessments. We perform an annual impairment assessment for goodwill and indefinite-lived assets during the fourth quarter of each year and more frequently whenever events or changes in circumstances indicate that the fair value of the asset may be less than the carrying amount. Goodwill impairment testing is a two-step process performed at the reporting unit level. Step one compares the fair value of the reporting unit to its carrying amount. The fair value of the reporting unit is determined by considering both the income approach and market approaches. The fair values calculated under the income approach and market approaches are weighted based on circumstances surrounding the reporting unit. Under the income approach, we will needdetermine fair value based on estimated future cash flows of the reporting unit, which are discounted to raise additional fundsthe present value using discount factors that consider the timing and risk of cash flows. For the discount rate, we rely on the capital asset pricing model approach, which includes an assessment of the risk-free interest rate, the rate of return from publicly traded stocks, our risk relative to the overall market, our size and industry and other Company-specific risks. Other significant assumptions used in the income approach include the terminal value, growth rates, future capital expenditures and changes in future working capital requirements. The market approaches use key multiples from guideline businesses that are comparable and are currently exploring sourcestraded on a public market. If the fair value of financing. Historically, we have raised capital through private offeringsthe reporting unit is greater than its carrying amount, there is no impairment. If the reporting unit’s carrying amount exceeds its fair value, then the second step must be completed to measure the amount of debtimpairment, if any. Step two calculates the implied fair value of goodwill by deducting the fair value of all tangible and equityintangible net assets of the reporting unit from the fair value of the reporting unit as calculated in step one. In this step, the fair value of the reporting unit is allocated to all of the reporting unit’s assets and officer loansliabilities in a hypothetical purchase price allocation as if the reporting unit had been acquired on that date. If the carrying amount of goodwill exceeds the implied fair value of goodwill, an impairment loss is recognized in an amount equal to finance working capital needs.the excess.

Indefinite-lived intangible assets are evaluated for impairment at the individual asset level by assessing whether it is more likely than not that the asset is impaired (for example, that the fair value of the asset is below its carrying amount). If it is more likely than not that the asset is impaired, its carrying amount is written down to its fair value.

Determining the fair value of a reporting unit is judgmental in nature and requires the use of significant estimates and assumptions, including revenue growth rates, strategic plans, and future market conditions, among others. There can be no assurancesassurance that weour estimates and assumptions made for purposes of the goodwill impairment testing will prove to be accurate predictions of the future. Changes in assumptions and estimates could cause us to perform an impairment test prior to scheduled annual impairment tests.

We performed our annual fair value assessment at December 31, 2020 on our subsidiaries with material goodwill and intangible asset amounts on their respective balance sheets and determined that an impairment charge of $472,757 was necessary.

Long-Lived Assets

We evaluate the recoverability of our long-lived assets whenever events or changes in circumstances have indicated that an asset may not be recoverable. The long-lived asset is grouped with other assets at the lowest level for which identifiable cash flows are largely independent of the cash flows of other groups of assets and liabilities. If the sum of the projected undiscounted cash flows is less than the carrying value of the assets, the assets are written down to the estimated fair value.

We evaluated the recoverability of our long-lived assets at December 31, 2020, respectively on its subsidiaries with material amounts on their respective balance sheets and determined that no impairment exists.

Recent Accounting Pronouncements

The Company has implemented all new accounting pronouncements that are in effect and that may impact its financial statements and does not believe that there are any other new pronouncements that have been issued that might have a material impact on its financial position or results of operations except as noted below:

In January 2017, the FASB issued Accounting Standards Update No. 2017-04, Simplifying the Test for Goodwill Impairment (“ASU 2017-04”). ASU 2017-04 simplifies the accounting for goodwill impairment by removing Step 2 of the goodwill impairment test, which requires a hypothetical purchase price allocation. Under this pronouncement, an entity would perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount and would recognize an impairment change for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized is not to exceed the total amount of goodwill allocated to that reporting unit. In addition, income tax effects will be able to continue to raise additional capital through the sale of common stockconsidered, if applicable. ASU 2017-04 is effective for annual or other securities or obtain short-term loans.interim goodwill impairment tests in fiscal years beginning after December 15, 2019 and should be applied on a prospective basis.

On November 15, 2019, the FASB issued ASU 2019-10, which (1) provides a framework to stagger effective dates for future major accounting standards and (2) amends the effective dates for certain major new accounting standards to give implementation relief to certain types of entities. Specifically, ASU 2019-10 amends the effective date for ASU 2017-04 to fiscal years beginning after December 15, 2022, and interim periods therein.

Early adoption continues to be permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company does not anticipate the adoption of ASU 2017-04 will have a material impact on its financial statements for both annual and interim reporting periods.

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740) which enhances and simplifies various aspects of the income tax accounting guidance, including requirements such as tax basis step-up in goodwill obtained in a transaction that is not a business combination, ownership changes in investments, and interim-period accounting for enacted changes in tax law. The amendment will be effective for public companies with fiscal years beginning after December 15, 2020; early adoption is permitted. We are evaluating the impact of this amendment on our consolidated financial statements.

In February 2020, the FASB issued ASU 2020-02, Financial Instruments-Credit Losses (Topic 326) and Leases (Topic 842) - Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 119 and Update to SEC Section on Effective Date Related to Accounting Standards Update No. 2016-02, Leases (Topic 842) which amends the effective date of the original pronouncement for smaller reporting companies. ASU 2016-13 and its amendments will be effective for us for interim and annual periods in fiscal years beginning after December 15, 2022. We believe the adoption will modify the way we analyze financial instruments, but we do not anticipate a material impact on results of operations. We are in the process of determining the effects adoption will have on our consolidated financial statements.

In August 2020, the FASB issued ASU 2020-06, Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815 – 40), (“ASU 2020-06”). ASU 2020-06 simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity’s own equity. The ASU2020-06 amendments are effective for fiscal years beginning after December 15, 2023, and interim periods within those fiscal years.  Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. The Company is evaluating the impact of this guidance on its consolidated financial statements.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Use of Estimates

The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The most significant estimates relate to revenue recognition, valuation of accounts receivable and inventories, purchase price allocation of acquired businesses, impairment of long-lived assets and goodwill, valuation of financial instruments, income taxes, and contingencies. We base our estimates on historical experience, known or expected trends and various other assumptions that are believed to be reasonable given the quality of information available as of the date of these financial statements. The results of these assumptions provide the basis for making estimates about the carrying amounts of assets and liabilities that are not readily apparent from other sources. Actual results could differ from these estimates.

Revenue Recognition

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

Animation Revenue

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 after effects. We provide services under fixed-price contracts. Under fixed-price contracts, we agree to perform the specified work for a pre-determined price. To the extent actual costs vary from estimated costs, our profit may increase, decrease, or result in a loss.

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

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

We determine the transaction price for each contract based on the consideration we expect to receive for the distinct services being provided under the contract.

We recognize revenue as performance obligations are satisfied and the customer obtains control of the services. In determining when performance obligations are satisfied, we consider factors such as contract terms, payment terms and whether there is an alternative future use of the product or service. Substantially all of our revenue is recognized over time as we perform under the contract due to the contractual terms present in each contract which irrevocably transfer control of the work product to the customer as the services are performed.

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

Web Filtering Revenue

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

Fair Value Measurements

The Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 820 “Fair Value Measurements and Disclosures” (“ASC 820”) defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:

Level 1 - Quoted prices in active markets for identical assets or liabilities.

Level 2 - Inputs other than quoted prices included within Level 1 that are either directly or indirectly observable.

Level 3 - Unobservable inputs that are supported by little or no market activity, therefore requiring an entity to develop its own assumptions about the assumptions that market participants would use in pricing.

Fair value estimates discussed herein are based upon certain market assumptions and pertinent information available to management as of December 31, 2020 and December 31, 2019. We use the market approach to measure fair value for its Level 1 financial assets and liabilities. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities. The respective carrying value of certain balance sheet financial instruments approximates its fair value. These financial instruments include cash, trade receivables, related party payables, accounts payable, accrued liabilities and short-term borrowings. Fair values were estimated to approximate carrying values for these financial instruments since they are short term in nature, and they are receivable or payable on demand.

The estimated fair value of assets and liabilities acquired in business combinations and reporting units and long-lived assets used in the related asset impairment tests utilize inputs classified as Level 3 in the fair value hierarchy.

We determine the fair value of contingent consideration based on a probability-weighted discounted cash flow analysis. The fair value remeasurement is based on significant inputs not observable in the market and thus represents a Level 3 measurement as defined in the fair value hierarchy. In each period, we reassess our current estimates of performance relative to the stated targets and adjusts the liability to fair value. Any such adjustments are included as a component of Other Income (Expense) in the Consolidated Statements of Operations and Comprehensive Loss.

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 our acquisitions is attributable to the value of the potential expanded market opportunity with new customers. Intangible assets have either an identifiable or indefinite useful life. Intangible assets with identifiable useful lives are amortized on a straight-line basis over their economic or legal life, whichever is shorter. Our amortizable intangible assets consist of customer relationships and non-compete agreements. Their useful lives range from 1.5 to 10 years. Our indefinite-lived intangible assets consist of trade names.

Goodwill and indefinite-lived assets are not amortized but are subject to annual impairment testing unless circumstances dictate more frequent assessments. We perform an annual impairment assessment for goodwill and indefinite-lived assets during the fourth quarter of each year and more frequently whenever events or changes in circumstances indicate that the fair value of the asset may be less than the carrying amount. Goodwill impairment testing is a two-step process performed at the reporting unit level. Step one compares the fair value of the reporting unit to its carrying amount. The fair value of the reporting unit is determined by considering both the income approach and market approaches. The fair values calculated under the income approach and market approaches are weighted based on circumstances surrounding the reporting unit. Under the income approach, we determine fair value based on estimated future cash flows of the reporting unit, which are discounted to the present value using discount factors that consider the timing and risk of cash flows. For the discount rate, we rely on the capital asset pricing model approach, which includes an assessment of the risk-free interest rate, the rate of return from publicly traded stocks, our risk relative to the overall market, our size and industry and other Company-specific risks. Other significant assumptions used in the income approach include the terminal value, growth rates, future capital expenditures and changes in future working capital requirements. The market approaches use key multiples from guideline businesses that are comparable and are traded on a public market. If the fair value of the reporting unit is greater than its carrying amount, there is no impairment. If the reporting unit’s carrying amount exceeds its fair value, then the second step must be completed to measure the amount of impairment, if any. Step two calculates the implied fair value of goodwill by deducting the fair value of all tangible and intangible net assets of the reporting unit from the fair value of the reporting unit as calculated in step one. In this step, the fair value of the reporting unit is allocated to all of the reporting unit’s assets and liabilities in a hypothetical purchase price allocation as if the reporting unit had been acquired on that date. If the carrying amount of goodwill exceeds the implied fair value of goodwill, an impairment loss is recognized in an amount equal to the excess.

Indefinite-lived intangible assets are evaluated for impairment at the individual asset level by assessing whether it is more likely than not that the asset is impaired (for example, that the fair value of the asset is below its carrying amount). If it is more likely than not that the asset is impaired, its carrying amount is written down to its fair value.

Determining the fair value of a reporting unit is judgmental in nature and requires the use of significant estimates and assumptions, including revenue growth rates, strategic plans, and future market conditions, among others. There can be no assurance that our estimates and assumptions made for purposes of the goodwill impairment testing will prove to be accurate predictions of the future. Changes in assumptions and estimates could cause us to perform an impairment test prior to scheduled annual impairment tests.

We performed our annual fair value assessment at December 31, 2020 on our subsidiaries with material goodwill and intangible asset amounts on their respective balance sheets and determined that an impairment charge of $472,757 was necessary.

Long-Lived Assets

We evaluate the recoverability of our long-lived assets whenever events or changes in circumstances have indicated that an asset may not be recoverable. The long-lived asset is grouped with other assets at the lowest level for which identifiable cash flows are largely independent of the cash flows of other groups of assets and liabilities. If the sum of the projected undiscounted cash flows is less than the carrying value of the assets, the assets are written down to the estimated fair value.

We evaluated the recoverability of our long-lived assets at December 31, 2020, respectively on its subsidiaries with material amounts on their respective balance sheets and determined that no impairment exists.

RECENT ACCOUNTING PRONOUNCEMENTS

The Company has implemented all new accounting pronouncements that are in effect and that may impact its financial statements and does not believe that there are any other new pronouncements that have been issued that might have a material impact on its financial position or results of operations except as noted below:

In January 2017, the FASB issued Accounting Standards Update No. 2017-04, Simplifying the Test for Goodwill Impairment (“ASU 2017-04”). ASU 2017-04 simplifies the accounting for goodwill impairment by removing Step 2 of the goodwill impairment test, which requires a hypothetical purchase price allocation. Under this pronouncement, an entity would perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount and would recognize an impairment change for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized is not to exceed the total amount of goodwill allocated to that reporting unit. In addition, income tax effects will be considered, if applicable. ASU 2017-04 is effective for annual or interim goodwill impairment tests in fiscal years beginning after December 15, 2019 and should be applied on a prospective basis.

On November 15, 2019, the FASB issued ASU 2019-10, which (1) provides a framework to stagger effective dates for future major accounting standards and (2) amends the effective dates for certain major new accounting standards to give implementation relief to certain types of entities. Specifically, ASU 2019-10 amends the effective date for ASU 2017-04 to fiscal years beginning after December 15, 2022, and interim periods therein.

Early adoption continues to be permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company does not anticipate the adoption of ASU 2017-04 will have a material impact on its financial statements for both annual and interim reporting periods.

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740) which enhances and simplifies various aspects of the income tax accounting guidance, including requirements such as tax basis step-up in goodwill obtained in a transaction that is not a business combination, ownership changes in investments, and interim-period accounting for enacted changes in tax law. The amendment will be effective for public companies with fiscal years beginning after December 15, 2020; early adoption is permitted. We are evaluating the impact of this amendment on our consolidated financial statements.

In February 2020, the FASB issued ASU 2020-02, Financial Instruments-Credit Losses (Topic 326) and Leases (Topic 842) - Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 119 and Update to SEC Section on Effective Date Related to Accounting Standards Update No. 2016-02, Leases (Topic 842) which amends the effective date of the original pronouncement for smaller reporting companies. ASU 2016-13 and its amendments will be effective for us for interim and annual periods in fiscal years beginning after December 15, 2022. We believe the adoption will modify the way we analyze financial instruments, but we do not anticipate a material impact on results of operations. We are in the process of determining the effects adoption will have on our consolidated financial statements.

In August 2020, the FASB issued ASU 2020-06, Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815 – 40), (“ASU 2020-06”). ASU 2020-06 simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity’s own equity. The ASU2020-06 amendments are effective for fiscal years beginning after December 15, 2023, and interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. The Company is evaluating the impact of this guidance on its consolidated financial statements.

DESCRIPTION OF BUSINESS

Overview

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

Effective August 17, 2017, we acquired Grom Holdings pursuant to the terms of the Share Exchange Agreement entered into on May 15, 2017. In connection with the Share Exchange, the Company issued an aggregate of 3,464,184 shares of its common stock to the Grom Holdings stockholders, pro rata to their respective ownership percentage of Grom Holdings. Each share of Grom Holdings was exchanged for 0.1303 shares of our common stock. As a result, the stockholders of Grom Holdings owned approximately 92% of the Company’s issued and outstanding shares of common stock at such time.

In connection with the Share Exchange, we changed our name from Illumination America, Inc. to “Grom Social Enterprises, Inc.”

We are a media, technology and entertainment company that focuses on 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. We operateconduct our business through the following four wholly-ownedour five operating subsidiaries:

We own 100% of each of Grom Social, TD Holdings, GES and GNS, and 80% of CIM.

Recent Developments

On May 20, 2021, the Company submitted a Certificate of Designation of Preferences, Rights and Limitations of Series C Stock for filing with the Secretary of State of the State of Florida to designate 10,000,000 shares as Series C Stock and is currently awaiting confirmation of such filing, which may be as of May 20, 2021, or a later date.Stock. In addition, on May 20, 2021, the Company entered into exchange agreements with all of the holders of the Company’s Series B Stock, pursuant to which the holders agreed to exchange all of the issued and outstanding shares of the Company’s Series B Stock for shares of Series C Stock, on a one for one basis. The exchange will bewas effective upon the acceptance for filing of the Certificate of Designation by the Secretary of State of the State of Florida. Upon effectiveness of the exchange, all 9,215,059 issued and outstanding shares of the Company’s Series B Stock will bewere exchanged for an aggregate of 9,215,059 shares of the Company’s Series C Stock, and all of the exchanged shares of Series B Stock will bewere cancelled.

On September 14, 2020, our boardMay 7, 2021, the Company filed a certificate of directors (the “Board”) approved and on September 16, 2020, our shareholders approved the granting of authorityamendment to the Board to amend the Company’s articles of incorporation, as previously amended, with the Secretary of State of the State of Florida, to effect a reverse stock split of the issued and outstanding shares of the Company’s common stock byat a ratiorate of no less than 1-for-2 and no more than 1-for-25, with the exact ratio to be determined by the Board in its sole discretion (the “Reverse Split”), and with such Reverse Split to be effective at such time and date, if at all, as determined by the Board in its sole discretion. On April 7, 2021, our Board approved, and on April 8, 2021, our shareholders approved, an increase to the range of the ratio for the reverse stock split to a ratio of no less than 1-for-2 and no more than 1-for-50. On May 6, 2021, our Board fixed the ratio for our reverse stock split at 1-for-32, and, on May 7, 2021, we filed a certificate of amendment to our articles of incorporation to effect the reverse stock split, which became effective as of May 13, 2021.

Our common stock is currently quoted on the OTCQB under the symbol “GRMMD”. We intend to list our common stock and the warrants being offered in the Underwritten Offering on the Nasdaq Capital Market under the proposed symbols “GROM” and “GROMW,” respectively. Based on discussions with Nasdaq, we expect that our listing will be under committee review on May 24, 2021 and, hopefully, will be approved on such date, or soon thereafter. However, we cannot guarantee that the Nasdaq Stock Market will approve the listing of our common stock and warrants.

Unless otherwise noted, and other than in our financial statements and the notes thereto, the share and per share information in this prospectus reflects a The reverse stock split of our outstanding common stock at a 1-for-32, which was effective as of May 13, 2021. The Reverse Split did not have any impact on the number of authorized shares of common stock which remains at 500,000,000 shares. Unless otherwise noted, and other than in the financial statements and the notes thereto, the share and per share information in this prospectus reflects the reverse stock split of the Company’s outstanding common stock at a 1-for-32 ratio, effective as of May 13, 2021.

Our common stock and warrants have been approved for listing on the Nasdaq Capital Market under the symbols “GROM” and “GROMW,” respectively.

On July 29, 2021, the Company entered into a membership interest purchase agreement (the “Purchase Agreement”) with Curiosity Ink Media LLC, a Delaware limited liability company (“Curiosity”), and the holders of all of Curiosity’s outstanding membership interests (the “Sellers”), for the purchase of 80% of Curiosity’s outstanding membership interests (the “Purchased Interests”) from the Sellers (the “Acquisition). On August 19, 2021, pursuant to the terms of the Purchase Agreement, the Company consummated the Acquisition and acquired the Purchased Interests in consideration for the issuance to the Sellers of an aggregate of 1,771,883 shares of the Company’s common stock to the Sellers, pro rata to their membership interests immediately prior to the closing of the Acquisition. The shares were valued at $2.82 per share which represents to the 20-day volume-weighted average price of the Company’s common stock on August 19, 2021.

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

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

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

Business

We are a media, technology and entertainment company focused on delivering content to children under the age of 13 years in a safe secure Children’s Online Privacy Protection Act (“COPPA”) compliant platform that can be monitored by parents or guardians.

The following diagram illustrates our corporate structure as of the date of this prospectus:

We operateconduct our business through the following four wholly-ownedour five operating subsidiaries:

We own 100% of each of Grom Social, TD Holdings, GES and GNS, and 80% of CIM.

Grom Social

Grom Social is a media, technology and entertainment company for kids focused on producing original content on Grom Social’s website, www.gromsocial.com and mobile application. Visitors to the Grom Social website may log on via mobile phone, desktop computer or tablet and chat with friends, view original content or play games created by us.

The name “Grom” is derived from Australian surfing slang and is defined by us to mean “a promising young individual who is quick to learn.” Grom Social was conceptualized and developed in 2012 by Zachary Marks, who was 12 years old at the time. He is the son of our Chief Executive Officer, Darren Marks.

Our business model is based upon providing children under the age of 13 with a safe environment on the Internet while promoting “fun,” “wholesomeness” and “family values.” We require that each child receive parental approval prior to gaining full access to the Grom Social platform. In certain jurisdictions and circumstances, we allow parents, teachers and guardians (collectively, “Guardians”) to sign up groups of children at one time. If a Guardian’s approval is not granted, a child’s account will not be opened. If a child does not follow the proper registration process, he or she will be considered a user with limited access. Limited access does not allow the child to chat with other children or visit certain sections of the platform.

Based on data provided by Google Data Analytics and Joomla Management Systems, in February 2021, our platforms have generated approximately 22,000,000 users in over 200 countries and territories since our inception in 2012. We define a "user" as any child under the age of 13 who registers for a Grom Social account through the website or downloads the Grom Social app from a mobile app store, and any parent who registers for a Grom Social account, any parent who registers or downloads the MamaBear app and any student or faculty that uses our NetSpective web filtering platform.

Monthly active users (“MAUs”) is a usage metric which reveals the total number of users who visit our platforms within a 30-day period. As of February 2, 2021, there were approximately 2,300,000 MAUs on all platforms.

Based upon statistics provided by the Joomla Management System, the average online duration of users logged onto our Grom Social platforms is approximately 51 minutes.

Grom Social App

In May 2019, our Grom Social mobile application (or “app”) for Apple Store and Google Play Store was approved within each platform’s family designated section. The Apple Store markets iPhone operating system (“IOS”) applications for download solely on Apple devices. The Google Play Store markets applications for download on Android devices.

We communicate with the children through messaging on a child’s profile page and through seventeen unique Grom characters that engage with children with many additional “fun” and safety features.

We believe our mobile app is the only children’s app where kids can:

We have established the following safeguards and procedures which we believe will ensure our Grom Social platform is a safe place for children:

These safeguards and procedures are a critical component of our business model. We believe that children are increasingly accessing the Internet at younger ages and therefore the need for safe, age-appropriate platforms for younger children to browse and interact with other children is increasing. According to recent statistics on GuardChild.com:

GuardChild.com is a website providing software and applications to promote safe Internet browsing for children and statistics collected from various resources including: Social Media and Young Adults, Pew Internet & American Life Project, Global Insights Into Family Life Online, Norton/Symantec & StrategyOne, Teen/Mom Internet Safety Survey, McAfee & Harris Interactive, Pew Research Center, FOSI, Cable in the Classroom 2011, Journal of Adolescent Health, National Cyber Security Alliance (NCSA)-McAfee Online Safety Study, American Osteopathic Association, Social Media and Young Adults, Pew Internet, American Life Project and Grunwald Associates.

MamaBear App

MamaBear is a mobile, all-in-one parenting app that we acquired in September 2016. By using MamaBear, a parent can follow and protect their child’s online presence by monitoring their social networking/media accounts, including, Facebook, Instagram, Twitter, and YouTube. The app is available for IOS devices through the Apple Store and Android devices though the Google Play Store. MamaBear provides parents with a powerful all-in-one safety and awareness tool that we believe offers a unique set of social media monitoring features, family mapping.

Content

In addition to providing a safe, fun, social media platform for children to interact with their peers, we create our own content consisting of animated characters, interactive chats, videos, blogs, and games geared to provide wholesome family entertainment. We create our own short-form content consisting of animated characters, interactive chats, videos, blogs, games and five live action shows released weekly. We currently have over 1,400 hours of live action shows in our content library. This exclusive content is only available on our platforms.

Our Grom Social app features include direct messaging, video recordings with face filters and effects, notifications, profiles with custom colors, Gromatar cartoon avatars, over 1,400 hours of Grom TV exclusive videos on demand, a search and discovery section, hashtags and mentions in post descriptions, liking, commenting, sharing of content, including the ability to share photos, videos and doodle drawings in direct messages. With this feature set and the safety permissions in place, the app will provide children their own social platform similar to the popular adult platforms, but in a safe controlled environment. Kids can upload videos along with a variety of different music, similar to TikTok. Users also have a vast variety of face filters similar to Snapchat and Instagram. The Company produces up to 5 new short-form videos each week similar to Netflix to maintain user engagement.

According to a survey released on October 29, 2019 from Common Sense Media, a nonprofit that tracks young people’s tech habits reports, twice as many young people watch videos every day as they did four years ago, and the average time spent watching videos, mostly on You Tube has roughly doubled, to an hour a day. The survey also found that on average, American children from 8 to 12 years old spend 4 hours and 44 minutes on screen media each day and teens average 7 hours and 22 minutes, not including time spent using screens for school or homework. Based upon statistics provided by the Joomla Management System, the average online duration of users logged onto our Grom Social platform was approximately 51 minutes as of February 2, 2021. We believe the longer duration time is a result of our ability to better engage users through our original content.

Strategy