GROM

Table of Contents

As filed with the Securities and Exchange Commission on November 10, 2021

Registration No. 333-260389

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

AMENDMENT NO. 1

TO

FORM S-1/A

REGISTRATION STATEMENT

UNDER THE SECURITIES ACT OF 1933

GROM SOCIAL ENTERPRISES, INC.

(Exact Name of Registrant as Specified in Its Charter)

2060 NW Boca Raton Blvd., #6

Boca Raton, Florida 33431

(561) 287-5776

(Address, Including Zip Code, and Telephone Number, Including Area Code, of 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, and Telephone Number, Including Area Code, of Agent for Service)

Please send copies of all communications to:

Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this Registration 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, other than securities offered only in connection with dividend or interest reinvestment plans, check the following box: ☒

If this Form is filed to register additional securities for an offering pursuant to Rule 462(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. ☐

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 413(b) under the Securities Act, check the following 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”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. 

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 7(a)(2)(B) of the Securities Act. ☐

CALCULATION OF REGISTRATION FEE

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the Registration Statement shall become effective on such date as the 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 or other jurisdiction where the offer or sale is not permitted.

3,104,945 Shares 

GROM SOCIAL ENTERPRISES, INC.

This prospectus relates to the resale, from time to time, by the selling stockholder named herein (the “Selling Stockholder”) of (i) an aggregate of 2,291,667 shares of our common stock, par value $0.001 per share, issuable upon the conversion of certain outstanding convertible promissory notes and (ii) and aggregate of 813,278 shares of common stock issuable upon exercise of certain outstanding warrants (the “Warrants”).

We are not selling any securities under this prospectus and we will not receive proceeds from the sale of the 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 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 quoted on The Nasdaq Capital Market, or Nasdaq, under the symbol “GROM.” On November 8, 2021, the last reported sale price for our common stock on Nasdaq was $3.76.

Investing in our securities involves a high degree of risk. See “Risk Factors” beginning on page 10 of this prospectus for a discussion of information 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 these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

The date of this prospectus is _______________, 2021.

GROM SOCIAL ENTERPRISES, INC.

TABLE OF CONTENTS

ABOUT THIS PROSPECTUS

This prospectus 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 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 information contained in or incorporated by reference into this prospectus is current 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 this 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 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 time the Selling Stockholder offer shares of common stock, we 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 provided 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 information 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 documents incorporated by reference into this prospectus, includes all material information relating to this offering. To the extent 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 securities offered.

Unless the context otherwise requires, the terms “the Company,” “we,” “us” and “our” refer to Grom Social Enterprises, Inc. and our subsidiaries.

Unless otherwise indicated, information contained in this prospectus or 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 variety 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 business.

Forward-looking statements should not be read as a guarantee of future performance or results and will not necessarily be accurate indications of whether, or the times by which, our performance or results may be achieved. Forward-looking statements are based on information available at the time those statements are made and management’s belief as of that time with respect to future events and are subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in or suggested by the forward-looking statements. 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 is not complete and does not contain all of the information that you should consider before investing in our common stock. We urge you to read this entire prospectus and the documents incorporated by reference herein carefully, including the financial statements and notes to those financial statements incorporated 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 investing in our common stock.

Overview

We were incorporated in the State of Florida on April 14, 2014, as Illumination America, Inc. We 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 conduct our business through our five operating subsidiaries:

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

Recent Developments

Reverse Stock Split

On April 7, 2021, the Company’s board of directors (the “Board”) approved, and, on April 8, 2021, the Company’s shareholders approved, a reverse stock split at a ratio of no less than 1-for-2 and no more than 1-for-50. On May 6, 2021, the Board fixed the ratio for a reverse stock split at 1-for-32, and, on May 7, 2021, the Company filed a certificate of amendment to its articles of incorporation with the Secretary of State of the State of Florida to effect the reverse stock split, which became effective as of May 13, 2021. The Company’s common stock began being quoted on the OTCQB on a post-reverse split basis on May 19, 2021.

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 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 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 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 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.

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 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 received a fee of $316,800.

The Original Note is convertible into common stock at a rate 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, 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. Neither the Company, nor L1 Capital, may convert any portion of the Original Note to the extent that, after giving effect to such conversion, L1 Capital (together with any affiliated parties) would beneficially own in excess of 4.99% of the Company’s outstanding common stock.

The 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. L1 Capital shall not have the right to exercise any portion of the Original Warrant to the extent that, after giving effect to such exercise, L1 Capital (together with any affiliated parties), would beneficially own in excess of 4.99% of the Company’s outstanding common stock.

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 Factors,” which begins on page 10 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 $1.07 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 shares of common stock outstanding and the shares of common stock to be outstanding after this offering is based on 12,598,979 shares outstanding as of November 8, 2021 and excludes an aggregate of up to approximately 10,398,975 shares of common stock based upon the following:

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.

Our obligations to L1 Capital and other noteholders are secured by a security interest in substantially all of our assets, so if we default on those obligations, the noteholders could foreclose on, liquidate and/or take possession of our assets. If that were to happen, we could be forced to curtail, or even to cease, our operations

On September 14, 2021, the Company entered into a Securities Purchase Agreement with L1 Capital, pursuant to which it issued L1 Capital a 10% Original Issue Discount Senior Secured Convertible Promissory Note in the principal amount of $4,400,000 (the “L1 Capital Note”), which matures on March 13, 2023. Simultaneously, the Company entered into a Security Agreement with L1 Capital, pursuant to which L1 Capital was granted a security interest in all of the assets of the Company and certain of its subsidiaries to secure repayment of amounts due under the L1 Capital Note. As further inducement for L1 Capital to enter into the Security Agreement, certain of the Company’s pre-existing secured creditors (the “Additional Noteholders”), holding convertible promissory notes in the aggregate principal amount of $438,560 (the “Additional Notes”), agreed to give up their exclusive senior security interest in the assets of the Company’s subsidiary TD Holdings, in exchange for a shared senior secured interest with L1 Capital on a pari pasu basis on all assets of the Company. As a result, if we default on our obligations under the L1 Capital Note and/or the Additional Notes, L1 Capital the Additional Noteholders could foreclose on their security interests and liquidate or take possession of some or all of the assets of the Company and its subsidiaries, which would harm our business, financial condition and results of operations and could require us to curtail, or even to cease our operations.

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 certain of our executive officers and 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 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 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.

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.

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 six months ended June 30, 2021 and the year ended December 31, 2020, Top Draw accounted for approximately 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 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 Russell Hicks, Jared Wolfson and Stella Dearing to operate and manage Top Draw. The loss of the services of Russell 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 Corporate 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 board of directors 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 C Stock 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 C Stock. As of the date hereof, no shares of our Series A Stock or Series B Stock, and 9,400,309 shares of Series C Stock, are issued and outstanding. The holders of our outstanding Series C Stock may at any time, after the 6-month anniversary of the issuance of their shares of Series C Stock, convert such shares into shares of our common stock at a conversion price equal to $1.92. In addition, the Company may, at any time, 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 will dilute your interests. If all of the shares of our Series C Stock were converted, we would have 4,895,994 additional shares of common stock issued and outstanding, which, based on the 12,598,979 shares outstanding as of November 8, 2021, would represent approximately 28.0% of our shares of common stock outstanding prior to the Offering and approximately 23.8% of our shares our common stock outstanding after the Offering.

In addition, the holders of shares of 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 9,400,309 shares of Series C Stock, have an aggregate of approximately 14,687,982 votes, representing approximately 53.8% of our voting power.

The effects of the voting and conversion rights tied to shares of 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 Offering, we will have 15,703,924 shares outstanding of our common stock, based on the 12,598,979 shares outstanding as of November 8, 2021. This includes the shares included in the Offering, which may be resold in the public market immediately without restriction, unless purchased by our affiliates or existing stockholders.

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.

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.

Our common stock is listed on 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,” 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 Offering and could delay or prevent a change in corporate control. After the 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, 63.7% of our outstanding common 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:

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 $1.07 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 public float, and lack of profits, which could lead to wide fluctuations in our share price.

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 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.

USE OF PROCEEDS

We are not selling any securities under this prospectus and will not receive any proceeds from the sale of the common stock offered by this prospectus by the Selling Stockholder. However, we may receive proceeds from the cash exercise of the Warrants, which, if exercised in cash at the current exercise price with respect to all Warrants, would result in gross proceeds to us of approximately $3,415,768 million. The proceeds from such Warrant exercises, if any, will be used for working capital and general corporate purposes. We cannot predict when or whether the Warrants 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 counsel and accountants.

MARKET PRICE

Market Information

Our common stock is listed on the Nasdaq Capital Market under the symbol “GROM.” The last reported sales price of our common stock on November 8, 2021 was $3.76. Prior to June 17, 2021, our common stock traded on the OTCQB under the ticker symbol “GRMM.”

Holders

As of November 8, 2021, there were 478 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.

  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 conduct our business through our 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 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

Reverse Stock Split

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

Listing on the Nasdaq Capital Market

On June 17, 2021, our common stock and 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 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 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 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 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.

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 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 received a fee of $316,800.

The Original Note is convertible into common stock at a rate 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, 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. Neither the Company, nor L1 Capital, may convert any portion of the Original Note to the extent that, after giving effect to such conversion, L1 Capital (together with any affiliated parties) would beneficially own in excess of 4.99% of the Company’s outstanding common stock.

The 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. L1 Capital shall not have the right to exercise any portion of the Original Warrant to the extent that, after giving effect to such exercise, L1 Capital (together with any affiliated parties), would beneficially own in excess of 4.99% of the Company’s outstanding common stock.

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.

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.

Results of Operations

For the Three Months Ended June 30, 2021 and 2020

Revenue

Revenue for the three months ended June 30, 2021 was $1,388,551, compared to revenue of $1,746,979 during the three months ended June 30, 2020, representing a decrease of $358,428 or 20.5%.

Animation revenue for the three months ended June 30, 2021 was $1,276,555, compared to animation revenue of $1,534,377 during the three months ended June 30, 2020, representing a decrease of $257,822 or 16.8%. The decrease in animation revenue is primarily attributable to a decrease in the overall number of contracts completed due to client delays caused by concerns related to the spread of COVID-19.

Web filtering revenue for the three months ended June 30, 2021 was $111,507, compared to web filtering revenue of $211,855 during the three months ended June 30, 2020, representing a decrease of $100,348 or 47.4%. The decrease is primarily due to 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 June 30, 2021 was $489 compared to subscription and advertising revenue of $747 during the three months ended June 30, 2020, representing a decrease of $258 or 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 June 30, 2021 and 2020 were $554,870, or 40.0%, and $1,085,799, or 62.2%, respectively. The decrease in gross profit is primarily attributable to the absorption of fixed overhead expenses against reduced revenue levels and certain projects trending over budget in our animation business.

Operating expenses

Operating expenses for the three months ended June 30, 2021 were $2,021,895, compared to operating expenses of $1,410,234 during the three months ended June 30, 2020, representing an increase of $611,661 or 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 June 30, 2021 due to the Company’s recapitalization and Nasdaq stock exchange uplisting. General and administrative expenses were $1,440,355 for the three months ended June 30, 2021, compared to $1,093,880 for the three months ended June 30, 2020, representing an increase of $346,475 or 31.7%. Professional fees were $325,922 for the three months ended June 30, 2021, compared to $54,760 for the three months ended June 30, 2020, representing an increase of $271,162 or 495.2%.

Other Income (Expense)

Net other expense for the three months ended June 30, 2021 was $1,037,480, compared to a net other expense of $628,673 for the three months ended June 30, 2020, representing an increase of $408,807 or 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 Stock.

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

Net Loss Attributable to Common Stockholders

We realized a net loss attributable to common stockholders of $2,504,505, or $0.42 per share, for the three months ended June 30, 2021, compared to a net loss attributable to common stockholders of $953,108, or $0.18 per share, during the three months ended June 30, 2020, representing an increase in net loss attributable to common stockholders of $1,551,397 or 162.8%.

For the Six Months Ended June 30, 2021 and 2020

Revenue

Revenue for the six months ended June 30, 2021 was $3,263,835, compared to revenue of $3,039,218 during the six months ended June 30, 2020, representing an increase of $224,617 or 7.4%.

Animation revenue for the six months ended June 30, 2021 was $2,990,213, compared to animation revenue of $2,687,613 during the six months ended June 30, 2020, representing an increase of $302,600 or 11.3%. The increase in animation revenue is primarily attributable an increase in the overall number of contracts completed offset, in part, by client delays caused by concerns related to the spread of COVID-19.

Web filtering revenue for the six months ended June 30, 2021 was $272,748, compared to web filtering revenue of $349,998 during the six months ended June 30, 2020, representing a decrease of $77,250 or 22.1%. The decrease is primarily due to 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 six months ended June 30, 2021 was $874 compared to subscription and advertising revenue of $1,607 during the six months ended June 30, 2020, representing a decrease of $733 or 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 six months ended June 30, 2021 and 2020 were $1,629,720, or 49.9%, and $1,765,945, or 58.1%, respectively. The decrease in gross profit is primarily attributable to the absorption of fixed overhead expenses, reduced revenue levels, and certain projects trending over budget in our animation business.

Operating Expenses

Operating expenses for the six months ended June 30, 2021 were $3,807,594, compared to operating expenses of $3,158,782 during the six months ended June 30, 2020, representing an increase of $648,812 or 20.5%. The increase is primarily attributable to an increase in general and administrative costs and fees for professional services rendered during the six months ended June 30, 2021 due to the Company’s recapitalization and Nasdaq stock exchange uplisting. General and administrative expenses were $2,791,154 for the six months ended June 30, 2021, compared to $2,543,228 for the six months ended June 30, 2020, representing an increase of $247,926 or 9.8%. Professional fees were $513,031 for the six months ended June 30, 2021, compared to $107,478 for the six months ended June 30, 2020, representing an increase of $405,553 or 377.3%.

Other Income (Expense)

Net other expense for the six months ended June 30, 2021 was $2,642,206, compared to a net other expense of $907,105 for the six months ended June 30, 2020, representing an increase of $1,735,101 or 191.3%. The increase in net other expense is primarily attributable to increased interest expense related to the amortization of debt discounts, and 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 Stock.

Interest expense is comprised of interest incurred on our convertible notes and from the amortization of note discounts. Interest expense was $1,743,762 for the six months ended June 30, 2021, compared to $890,142 during the six months ended June 30, 2020, representing a decrease of $853,620 or 95.9%. The increase is primarily attributable to an increase in amortization expense associated with debt discounts recorded during the six months ended June 30, 2021 compared to the six months ended June 30, 2020.

Net Loss Attributable to Common Stockholders

We realized a net loss attributable to common stockholders of $4,820,080, or $0.79 per share, for the six months ended June 30, 2021, compared to a net loss attributable to common stockholders of $2,299,942, or $0.42 per share, during the six months ended June 30, 2020, representing an increase in net loss attributable to common stockholders of $2,520,138 or 109.6%.

Liquidity and Capital Resources

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

Net cash used in operating activities for the six months ended June 30, 2021 was $2,622,824, compared to net cash used in operating activities of $767,926 during the six months ended June 30, 2020, representing an increase in cash used of $1,854,898, primarily due to the increase in our loss from operations and the change in working capital assets and liabilities.

Net cash used in investing activities for the six months ended June 30, 2020 was $2,790, compared to net cash used in investing activities of $38,025 during the six months ended June 30, 2020 representing a decrease in cash used of $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 six months ended June 30, 2021.

Net cash provided by financing activities for the six months ended June 30, 2021 was $10,644,545, compared to net cash provided by financing activities of $1,015,767 for the six months ended June 30, 2020, representing an increase in cash provided of $9,628,778. Our primary sources of cash from financing activities were attributable to $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 six months ended June 30, 2021, as compared to $3,655,000 in proceeds from the sale of 12% senior secured convertible notes during the six months ended 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.

Based upon our current cash balances, we believe we have adequate working capital to meet our operational needs for at least the next 12 months

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.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements.

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 conduct our business through our 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. 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 was 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 were 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 were cancelled.

On May 7, 2021, the Company filed a certificate of amendment to the Company’s articles of incorporation, as previously amended, with the Secretary of State of the State of Florida, to effect a reverse stock split of the Company’s common stock at a rate of 1-for-32, which became effective as of May 13, 2021. The reverse stock split did not have any impact on the number of authorized shares of common stock which remains at 500,000,000 shares. 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 conduct our business through our 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

Publishing and Distribution

We believe that Grom Social offers a great way to get user feedback and see how kids respond to content. We believe offering book titles to be previewed and added to wish lists for parents to purchase is a good way to get titles out to the Grom Social kids demographic.

Comments could be used for reviews and a rating star system could be implemented. Badges could be awarded to users to complete different book titles, similar to an online e-book store.

Authors could schedule a live reading where users would be able to log on during the live time-period and listen to the author live read a chapter of their book to the kids, with Q&A with the author live in public forum.

Throughout our monetization efforts, we will maintain a free version of the app in an effort to not negatively impact our user base. The Grom Social website and mobile app have generated nominal revenues to date.

TD Holdings

TD Holdings is a holding company that operates through its two wholly-owned subsidiaries Top Draw Hong Kong and (ii) Top Draw Philippines. Based in Manila, Philippines, the group’s principal activities are the production of animated films and televisions series. Top Draw Hong Kong, which owns our animation studio in Manila, Philippines, contracts with third parties for the production of animated films and televisions series. Through an intercompany agreement, Top Draw Philippines then does the production work at our studio in Manila, Philippines.

Top Draw Philippines is a full-service production and pre-production animation studio working with international clients. It specializes in providing two-dimensional digital production services for animated television series and movies on a contract basis or under co-production arrangements.

Top Draw Philippines’ pre-production services include planning and creating storyboards, location design, model and props design, background color and color styling. Its production services focus on library creation, digital asset management, background layout scene assembly, posing, animation and after-effects. Top Draw Philippines currently provides services to high-profile properties, including Tom and Jerry, My Little Pony and Disney Animation’s Penn Zero: Part-Time Hero. Its studio produces over two hundred half-hour segments of animated content for television annually, which we believe makes it one of the top producers of animation for television worldwide.

The following table depicts some of Top Draw Philippines’ recent notable projects:

Grom Educational Services, Inc.

On January 2, 2017, we acquired certain assets including Internet content filtering software called “NetSpective Webfilter” from TeleMate.net. Since inception, we have sold hardware and/or subscriptions for web filtering software to thousands of schools with more than 4,000,000 children in attendance. Clients pay for hardware within 30 days of delivery and in advance for filtering service ranging between one to five years. We offer a proprietary digital citizenship program that assists K-12 schools in the United States to comply with The Children's Internet Protection Act (“CIPA”) requirements. CIPA requirements include the use Internet content filters and implementation of other protective measures to prevent children from exposure to harmful online content.

Grom Nutritional Services, Inc.

GNS was formed with the intention of developing, marketing and distributing nutritional supplement beverages to children to support the healthy development of neurological structure and intellectual development of cognitive skills. We initially intend to market and distribute nutritional based supplements to our user base of children and their parents, then subsequently expand our marketing efforts to the wholesale/retail grocery, convenience, and big box sectors. GNS has had no significant operations to date, but the Company is exploring partnerships.

Acquisition Strategy

Our acquisition strategy is to acquire synergistic companies, products or intellectual property that will help grow our Grom Social user base and operate profitably as both a stand-alone enterprise as well as enhance Grom’s overall monetization strategy.

Acquisition of TD Holdings

On July 1, 2016, we entered into a share sale agreement (the “TDH Share Sale Agreement”) for the acquisition of 100% of the capital stock of TD Holdings for which we paid $4,000,000 in cash, issued a 5% secured promissory note in the principal amount of $4,000,000 which originally matured on July 1, 2018 (the “TDH Note”), and 230,219 shares of our common stock valued at $4,240,000, or approximately $18.56 per share, to the selling shareholders of TDH (“TDH Sellers”).

Under the terms of the TDH Share Sale Agreement, we were also required to make additional payments (“Earnout Payments”) of up to $5,000,000 to the TDH Sellers, if TD Holdings achieved certain adjusted earnings before interest, taxes, depreciation, and amortization (“EBITDA”) during the three-year period following the acquisition (the “Earnout Period”), to be paid 25% in cash and the balance in shares of common stock at a share price equal to the lower of a 10% discount to our last private placement price per share prior to making the Earnout Payment, or if such shares are listed on a recognized stock exchange and publicly traded, at a 10% discount to the previous 20 day weighted average closing price per share.

No earnout was achieved for the original three-year Earnout Period. The original Earnout Period was extended to December 31, 2019, pursuant to the First Amendment described below. However, no earnout was achieved during the extended Earnout Period through December 31, 2019.

First Amendment to the TDH Share Sale Agreement

On January 3, 2018, we entered into an amendment to the TDH Share Sale Agreement with the TDH Sellers (the “First Amendment”). Under the terms of the First Amendment:

As consideration for the First Amendment, we issued 800,000 shares of our common stock valued at $480,000 to the TDH Sellers.

Second Amendment to the TDH Share Sale Agreement

On January 15, 2019, we entered into a second amendment to the TDH Share Sale Agreement with the TDH Sellers (the “Second Amendment”). Under the terms of the Second Amendment:

As consideration for the Second Amendment, we issued 25,000 shares of our common stock valued at $220,000 to the TDH Sellers.

Third Amendment to the TDH Share Sale Agreement

On March 16, 2020, we entered into a third amendment to the TDH Share Sale Agreement with the TDH Sellers (the “Third Amendment”). We used the proceeds received from the TDH Secured Notes Offering to pay the TDH Sellers $3,000,000 of the principal due under the TDH Notes, leaving an outstanding principal balance due to the TDH Sellers under the TDH Note of $1,000,000 in principal (plus accrued interest and costs). In addition, accrued interest of $361,767 due to the TDH Sellers pursuant to the TDH Note was agreed to be paid in three monthly installments of $93,922 commencing April 16, 2020, and 12 monthly installments of $6,667 commencing April 16, 2020.

The terms of the Third Amendment provide that, among other things:

On August 18, 2021, the Company paid the holders of 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.

Acquisition of the MamaBear Mobile Software Application Assets

On September 30, 2016, we purchased the online application and website “MamaBear” from GeoWaggle, LLC. As consideration therefor, we issued 6,516 shares of our common stock valued at approximately $162,500, or approximately $24.96 per share.

Acquisition of the NetSpective Webfilter Assets

On January 1, 2017, we acquired NetSpective webfilter assets from TeleMate.net Software, LLC, a Georgia limited liability company, (“TeleMate”) pursuant to an asset purchase agreement (the “NetSpective APA”).  Under the terms of the NetSpective APA, we issued a three-year 0.68% $1,000,000 redeemable, convertible promissory note to TeleMate (the “TeleMate Note”). The TeleMate Note is convertible into our common stock at a conversion rate of $24.96 per share. If not converted by TeleMate by November 1, 2019, the note may be converted by the Company into shares of common stock at a conversion rate of $15.36 per share. In addition, we entered into a master services agreement (“MSA”) with TeleMate under which TeleMate provided engineering and sales support for twelve months and assumed all risks of NetSpective negative cash flow for one year.

Additionally, TeleMate was entitled to an earnout payment of up to $362,500, payable in our common stock at a price of $24.96 per share or 14,524 shares, if the NetSpective WebFilter assets generated $362,500 in “net cash flow” as defined in the NetSpective APA over a one-year period. Such net cash flow milestone was achieved and NetSpective became entitled to such earnout payment. However, TeleMate did not meet the terms of the MSA and failed to remit $146,882 collected on our behalf from NetSpective customers pursuant to the MSA. As a result, on January 12, 2018, we entered into a First Modification to the NetSpective APA (the “First Modification”).

Under the terms of the First Modification, TeleMate agreed to pay us in monthly installments of $10,000 against their outstanding balance of $146,822. Additionally, the TeleMate Note may not be converted or any earnout shares issued until the outstanding balance is paid in full, and all interest payments under the TeleMate Note were suspended until all payments owing the Company were made. If and when TeleMate is permitted to convert the TeleMate Note, the number of shares converted thereunder will be subject to a one-year leak-out agreement.

In April 2019, TeleMate paid the TeleMate Note in full. On December 4, 2019, the Company converted the outstanding principal and interest of $1,013,200 under the TeleMate Note into 66,045 shares of its common stock.

Acquisition of the Assets of Fyoosion LLC

On December 27, 2017, we acquired all of the assets of Fyoosion LLC, a Delaware limited liability company (“Fyoosion”), which included proprietary software, its website, and source code. The acquired software utilizes a digital automation marketing platform to help companies to efficiently generate sales leads and improve customer retention.

In consideration therefor, we issued an aggregate of 9,375 shares of our common stock to Fyoosion. Such shares were subject to a -leak-out agreement limiting the number of shares that could be sold for one year following the acquisition to 25% of the daily average trading volume during the period prior to such sale. The Company’s proposed business in the first year utilizing the acquired assets did not attain EBITDA of $125,000, and accordingly, Fyoosion was not entitled to 6,250 additional shares as provided in the acquisition agreement.

Acquisition of Curiosity Ink Media, LLC

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

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

We hope to grow our business through a combination of marketing initiatives and synergistic acquisitions in an effort to increase our Grom Social user base to a large enough size to enable us to attract advertisers and paid users for our premium content. However, there can be no assurance that our strategy will be successful or that our revenues will increase as a result of our business strategies.

Our Growth Strategy

Our current growth strategy is as follows:

Competition

Grom Social

The markets in which we compete are characterized by innovation and new and rapidly evolving technologies. We believe we will face significant and intense competition in every aspect of our intended business, including from Facebook, YouTube, Twitter, and Google, which offer a variety of Internet products, services, and content that will compete for our user's Internet time and spending dollars. In addition to facing general competition from these large, well-funded companies, we also face competition from smaller Internet companies that offer products and services that may compete directly with Grom Social for users, such as TikTok, SnapChat, Video Star and Zoomerang. Additionally, 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 from:

Many of these companies have substantially greater resources than us.

We believe that the following features differentiate us from our competitors and provide us with a possible competitive advantage with respect to our target market:

We believe that Grom Social is one of the only social media platforms that offers games, chatrooms, educational services, social interaction, exclusive content, global connectivity, and group collaboration to develop new content and activities based on user behavior in one platform.

TD Holdings

We have extensive competition in our animation business from production companies in Korea, Taiwan, Canada, India and, to a lesser degree, China, Malaysia, Singapore, and Thailand. Businesses in these countries, such as Malaysia, may receive government subsidies which can increase competitive pressure.

Our intention is for Top Draw Philippines to remain competitive for the production of family-oriented, animated television series and movies and other family-oriented entertainment products produced by major movie studios, including Disney, DreamWorks Animation, Warner Bros. Entertainment, Netflix, Nickelodeon, and numerous other independent motion picture production companies.

The primary competitors of Top Draw Philippines in the Philippines are Toon City Animation, Snipple Animation Studio, and Synergy 88 Digital.

Growth in the television industry is being driven by larger streaming companies such as Netflix, Disney Plus, NBC, Amazon Prime, and Facebook. Competition is primarily based on the ability to reach an audience directly and deliver products that meet consumer demand. The success of these streaming companies is primarily related to the size and reach of their user or subscriber base.

Grom Educational Services

We believe our primary competitors for web filtering products and services are iBoss, Lightspeed, Go Guardian and Securly. There are other large companies that offer web filtering products including Forcepoint (Websense), Bluecoat, Palo Alto Networks, Barracuda and Cisco. However, we believe these companies are enterprise focused whereby they sell numerous products with web filtering representing a minimal component of their portfolio.

Grom Nutritional Services

We believe that consumer awareness regarding the benefits of dietary supplements and new product availability are the major drivers for the market worldwide. The global nutritional supplements market size was valued at $273.9 billion in 2018 and is anticipated to expand at a compound annual growth rate of 6.4% over the forecast period from 2019 to 2025, according to Grand View Research. The largest of our competitors are Axxess Pharma Inc., Celsius Holdings, Inc., GNC Holdings Inc., and Pfizer Inc.

Government Regulation

We are subject to several U.S. federal and state and foreign laws and regulations that affect companies conducting business on the Internet. Many of these laws and regulations are still evolving and being tested in courts and could be interpreted in ways that could harm our business. These may involve user privacy and data protection, rights of publicity, content, intellectual property, advertising, marketing, distribution, data security, data retention and deletion, personal information, electronic contracts and other communications, competition, protection of minors, consumer protection, telecommunications, product liability, taxation, economic or other trade prohibitions or sanctions, securities law compliance, and online payment services. In particular, we are subject to federal, state, and foreign laws regarding privacy and protection of data. Foreign data protection, privacy, and other laws and regulations can be more restrictive than those in the United States. U.S. federal and state and foreign laws and regulations, which in some cases can be enforced by private parties in addition to government entities, are constantly evolving and can be subject to significant change. In addition, the application, interpretation, and enforcement of these laws and regulations are often uncertain, particularly in the new and rapidly evolving industry in which we operate and may be interpreted and applied inconsistently from country to country and inconsistently with our current policies and practices. There are also a number of legislative proposals pending before federal, state, and foreign legislative and regulatory bodies. including data protection regulation.

In addition, some countries are considering or have passed legislation implementing data protection requirements or requiring local storage and processing of data or similar requirements that could increase the cost and complexity of delivering our services.

Our platforms follow the guidelines of the Children's Online Privacy Protection Act of 1998, 15 U.S.C. 6501–6505. COPPA imposes certain requirements on operators of websites or online services directed to children under 13 years of age, and on operators of other websites or online services that have actual knowledge that they are collecting personal information online from a child under 13 years of age.

Additionally, our K-12 NetSpective web filter clients are subject to CIPA, which was enacted by Congress in 2000 to address concerns about children's access to obscene or harmful content over the Internet. CIPA imposes certain requirements on schools or libraries that receive discounts for Internet access or internal connections through the E-rate program – a program that makes certain communications services and products more affordable for eligible schools and libraries. In early 2001, the FCC issued rules implementing CIPA and provided updates to those rules in 2011.

The nutritional supplements that we intend to market to children are governed by the US Food and Drug Administration (“FDA”). The FDA defines supplements as a product intended to increase its levels in the diet. These may include vitamins, minerals, herbs, amino acids, or other plant-based substances. Over-the-counter supplements do not undergo the same formal approval process as prescription and over-the-counter drugs. The FDA does not require supplement manufacturers to submit their products to the FDA for review nor receive FDA approval, however, before marketing, companies must ensure they are not making false claims on the product label to mislead consumers. 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 the FDA regulations regarding adulteration and misbranding.

Intellectual Property

To establish and protect our proprietary rights we rely on a combination of trademarks, copyrights, trade secrets, including know-how, license agreements, confidentiality procedures, non-disclosure agreements with third parties, employee non-disclosure and invention assignment agreements, and other contractual rights. We do not believe that our proprietary website is dependent on any single copyright or groups of related patents or copyrights. We currently own six trademarks as follows:

Employees

As of November 8, 2021, the Company had 20 full-time employees, 4 part-time employee and 7 independent contractors in the United States and Top Draw had 78 full-time employees, 37 part-time employees and 268 contracted employees in the Philippines.

Properties

We lease approximately 2,100 square feet of office space as our principal executive offices in Boca Raton, Florida for approximately $4,000 per month pursuant to a three-year lease expiring on March 31, 2022.

Our animation business leases portions of three floors comprised of an aggregate of approximately 28,800 square feet in the West Tower of the Philippine Stock Exchange Centre in Pasig City, Manila for administration and production purposes. We currently pay approximately $24,000 per month for such space (which increases by approximately 5% per year). These leases expire in December 2022.

Our web filtering business leases approximately 1,400 square feet in Norcross, Georgia, for approximately $2,100 per month pursuant to a five-year lease which expires in December 2023. The lease payments increase by approximately 3% annually.

Our original content business leases approximately 1,700 square feet in Los Angeles, California, for approximately $4,800 per month pursuant to a two-year lease which expires in October 2023. The lease payments increase by approximately 3.5% annually

We believe our leased space for the present time is adequate and additional space at comparable prices is available at all locations.

Legal Proceedings

There are no pending legal proceedings to which we are a party or in which any director, officer or affiliate of ours, any owner of record or beneficially of more than 5% of any class of our voting securities, or security holder is a party adverse to us or has a material interest adverse to us.

MANAGEMENT

Directors, Executive Officers and Significant Employees

The following table sets forth information regarding our current directors and executive officers:

Our directors hold office until the next annual meeting of shareholders of the Company and until their successors have been elected and qualified. Our officers are elected by the board of directors and serve at the discretion of the board of directors.

Business Experience

Darren Marks, Chief Executive Officer and President and Director

Darren Marks has served as our Chief Executive Officer and Director since June 2012 and as our President since the Share Exchange on August 17, 2017. From July 6, 2015 until the Share Exchange, Mr. Marks was chairman, chief executive officer, president and a director of Grom Holdings, Inc. From January 2011 to February 2016, Mr. Marks was the President of DNA Brands, Inc., a beverage distributor and formerly a public company quoted on the OTCBB (“DNA Brands”). Mr. Marks has more than 20 years of executive management experience. In 1991, Mr. Marks co-founded and served as Vice-President of Sims Communications, Inc. a telecommunications company that formerly traded on the Nasdaq (“Sims”), where he was responsible for the creation, design, and funding of a national telecommunications program for clients such as Alamo Rental Car and the American Automobile Association. Mr. Marks attended the University of Florida/Santa Fe Community College from 1986 to 1988.

Mr. Marks’ management and public company experience and his role as Chief Executive Officer and President of the Company, led to the conclusion that he should serve as a director.

Jason Williams, Chief Financial Officer, Secretary and Treasurer

Jason Williams has served as our Chief Financial Officer, Secretary and Treasurer since June 26, 2021. Mr. Williams has more than 20 years of leadership experience in accounting, finance, and operations. Before joining the Company, Mr. Williams served as President of WM Consulting, LLC, offering executive-level, strategic and financial consulting services since 2016. Prior to this, Mr. Williams served as Chief Financial Officer for two publicly traded companies and in varying financial leadership roles with several other entities. Mr. Williams earned his Bachelor of Science in Accounting from Florida Atlantic University in 1995 and is a Certified Public Accountant (inactive).

Melvin Leiner, Executive Vice President, Chief Operating Officer and Director

Melvin Leiner has served as our Executive Vice President since December 2012, and as our Chief Operating Officer as of the Share Exchange on August 17, 2017. He also served as our Chief Financial Officer, Treasurer and Secretary from December 2012 through June 2021. From July 6, 2015, until the Share Exchange, Mr. Marks was vice chairman, executive vice president, chief financial officer, secretary and a director of Grom Holdings, Inc. Mr. Leiner was the co-founder of DNA Brands where, from January 2011 to February 2016, he served as executive vice president and a director. Mr. Leiner co-founded Sims Communications, Inc. in 1991 where he served as its chairman, president, and chief executive officer until his resignation in 1997. Mr. Leiner has 50 years of entrepreneurial domestic and international business experience ranging from product creation, development to sales and marketing for public and private companies. Mr. Leiner attended Marshall College where he studied business.

Mr. Leiner’s business experience including with public companies and his sales and marketing experience led to the conclusion that he should serve as a director.

Dr. Thomas J. Rutherford, Director

Dr. Thomas J. Rutherford has served as a director of the Company since August 2017 and as a director of Grom Holdings Inc. since July 2015. Dr. Rutherford is an oncologist and a national expert in cancer, with more than 30 years of highly specialized surgical and clinical expertise in gynecologic cancer care. Dr. Rutherford has been the Director of Oncology for South Florida University in Tampa, Florida since January 2017. Prior thereto, from January 2015 through December 2016, Dr. Rutherford was the Director of Oncology for Connecticut Oncology, a Division of Women’s Health of Connecticut and Director of Cancer Services for Western Connecticut Health Network leading more than 100 physician subspecialists including surgeons, medical oncologists and radiation oncologists. Dr. Rutherford served as Chair of Gynecological Oncology at Yale University Medical School until January 2015. Dr. Rutherford has served on the Strategic Advisory Board at Mira Dx, Inc., a Delaware corporation. Dr. Rutherford practiced at Yale Oncology and served as Professor of Oncology and Director of Oncology Fellowship at Yale University School of Medicine from July 1993 through December 2014. Dr. Rutherford received a Bachelor of Science degree in 1976 from Roanoke College, a Master of Science degree from John Carroll University in 1979 and a Ph.D. from the Medical College of Ohio in 1989.

Mr. Rutherford’s operational experience led to the conclusion that he should serve as a director.

Robert Stevens, Director

Robert Stevens has served as a director since June 2018. Mr. Stevens founded Somerset Capital Ltd., a private capital firm that employs industry-specific skillsets to make strategic investments in distressed and turnaround situations as well as merger and direct investments in private and pre-public companies and has served as its president and managing director since 2001. Mr. Stevens also serves as a court-appointed receiver. Mr. Stevens also served as Managing Director of Technology Partners, a private equity and M&A firm, from 2010 to 2013.

Mr. Stevens financial experience led to the conclusion that he should serve as a director.

Norman Rosenthal, Director

Norman Rosenthal has served as a director since June 2018. Mr. Rosenthal founded Tempest Systems Inc., a technology consultancy firm which offers business development, relationship management and competitive intelligence services and has served as its chief executive officer since 1986. Mr. Rosenthal has also served in senior management/advisory positions at Micro Focus International plc and Computer Associates International, Inc.

Mr. Rosenthal’s financial experience led to the conclusion that he should serve as a director.

Significant Employees

Russell Hicks, President and Chief Content Officer, Curiosity Ink Media and President, Top Draw Animation

Russell Hicks has served as our President and Chief Content Officer of Curiosity Ink Media and President of Top Draw Animation since September 26, 2021. Before joining the Company, Mr. Hicks founded and served as Chief Creative Officer for Curiosity Ink Media since April 2018. Prior to this, Mr. Hicks served as President of Content Development and Production for Nickelodeon, and as Chief Creative Officer of Viacom. Mr. Hicks attended California State University, Fullerton where he studied Art & Illustration.

 Jared Wolfson, Chief Executive Officer, Curiosity Ink Media and Executive Vice President, Top Draw Animation

Jared Wolfson has served as our Chief Executive Officer of Curiosity Ink Media and Executive Vice President of Top Draw Animation since September 26, 2021. Before joining the Company, Mr. Wolfson served as Senior Vice President of Media & Entertainment for Jakks Pacific from January 2018 through September 2021. Prior to this, Mr. Wolfson served as Senior Vice President of Entertainment Licensing and Business Development for Skyrocket Toys, and as President of Franchise Development, Content Distribution and Marketing of ZAG Entertainment. Mr. Wolfson earned his Bachelor of Arts in Economics from the University of California and his Master of Business Administration in Entertainment & Marketing from the University of Southern California.

Director Independence

With the exception of Darren Marks and Melvin Leiner, our Board has determined that all of our directors are independent, in accordance with the Listing Rules of the Nasdaq Stock Market LLC (the “Nasdaq Listing Rules”). Our Board has determined that, under the Nasdaq Listing Rules, Messrs. Marks and Leiner are not independent directors because they are employees of the Company.

Term of Office

Our directors are appointed for a one-year term to hold office until the next annual general meeting of our shareholders or until removed from office in accordance with our bylaws. Our officers are appointed by our Board and hold office until removed by the Board.

Board Committees

On June 1, 2018, concurrently with the appointment of two independent directors, Mr. Stevens and Mr. Rosenthal, we formed an Audit Committee, a Compensation Committee, and a Nominating and Governance Committee.

Mr. Stevens was appointed to the Nominating and Governance Committee, Audit Committee and Compensation Committee. Mr. Stevens was appointed chair of the Audit Committee and “audit committee financial expert” as defined in Item 407(d)(5)(ii) of Regulation S-K.

Mr. Rosenthal was appointed to the Nominating and Governance Committee, Audit Committee and Compensation Committee. Mr. Rosenthal was appointed the chair of the Nominating and Governance Committee.

Dr. Rutherford was appointed to the Nominating and Governance Committee, Audit Committee and Compensation Committee. Dr. Rutherford was appointed the chair of the Compensation Committee.

Audit Committee

The Audit Committee is composed of three independent directors: Robert Stevens (Chair), Thomas Rutherford, and Norman Rosenthal. Mr. Stevens is also an “audit committee financial expert” as defined in Item 407(d)(5)(ii) of Regulation S-K. Each member of the Audit Committee is an independent director as defined by the rules of the SEC and Nasdaq. The Audit Committee has the sole authority and responsibility to select, evaluate and engage independent auditors for the Company.

The Audit Committee’s primary responsibilities are to:

The Audit Committee meets at least on a quarterly basis to discuss with management the annual audited financial statements and quarterly financial statements and meets from time to time to discuss general corporate matters.

Compensation Committee

The Compensation Committee is composed of three independent directors: Thomas Rutherford (Chair), Robert Stevens and Norman Rosenthal.

The general responsibilities of our Compensation Committee include:

The Compensation Committee meets in executive session to determine the compensation of the Chief Executive Officer of the Company. In determining the amount, form, and terms of such compensation, the Committee considers the annual performance evaluation of the Chief Executive Officer conducted by the Board in light of company goals and objectives relevant to Chief Executive Officer compensation, competitive market data pertaining to Chief Executive Officer compensation at comparable companies, and such other factors as it deems relevant, and is guided by, and seeks to promote, the best interests of the Company and its shareholders.

In addition, subject to existing agreements, the Compensation Committee determines the salaries, bonuses, and other matters relating to compensation of the executive officers of the Company using similar parameters. It sets performance targets for determining periodic bonuses payable to executive officers. It also reviews and makes recommendations to the Board regarding executive and employee compensation and benefit plans and programs generally, including employee bonus and retirement plans and programs (except to the extent specifically delegated to a Board appointed committee with authority to administer a particular plan). In addition, the Compensation Committee approves the compensation of non-employee directors and reports it to the full Board.

Nominating and Corporate Governance Committee

The Nominating and Corporate Governance Committee consists of Norman Rosenthal (Chair), Thomas Rutherford and Robert Stevens. All members must satisfy the independence requirements of the Exchange Act, the rules adopted by the SEC thereunder and the corporate governance and other listing standards of the Nasdaq as in effect from time to time.

The duties and responsibilities of the Nominating and Corporate Governance Committee include the following:

The Nominating and Corporate Governance Committee identifies individuals qualified to become members of the Board, consistent with criteria approved by the Board; recommends to the Board the director nominees for the next annual meeting of stockholders or special meeting of shareholders at which directors are to be elected; recommends to the Board candidates to fill any vacancies on the Board; develops, recommends to the Board, and reviews the corporate governance guidelines applicable to the Company; and oversees the evaluation of the Board and management.

In recommending director nominees for the next annual meeting of shareholders, the Nominating and Governance Committee ensures the Company complies with its contractual obligations, if any, governing the nomination of directors. It considers and recruits candidates to fill positions on the Board, including as a result of the removal, resignation or retirement of any director, an increase in the size of the Board or otherwise. The Committee conducts, subject to applicable law, any and all inquiries into the background and qualifications of any candidate for the Board and such candidate’s compliance with the independence and other qualification requirements established by the Committee. The Committee also recommends candidates to fill positions on committees of the Board.

In selecting and recommending candidates for election to the Board or appointment to any committee of the Board, the Nominating and Governance Committee does not believe that it is appropriate to select nominees through mechanical application of specified criteria. Rather, the Nominating and Governance Committee shall consider such factors at it deems appropriate, including, without limitation, the following: personal and professional integrity, ethics and values; experience in corporate management, such as serving as an officer or former officer of a publicly-held company; experience in the Company’s industry; experience as a board member of another publicly-held company; diversity of expertise and experience in substantive matters pertaining to the Company’s business relative to other directors of the Company; practical and mature business judgment; and composition of the Board (including its size and structure).

The Nominating and Governance Committee develops and recommends to the Board a policy regarding the consideration of director candidates recommended by the Company’s shareholders and procedures for submission by stockholders of director nominee recommendations.

In appropriate circumstances, Nominating and Corporate Committee, in its discretion, will consider and may recommend the removal of a director, in accordance with the applicable provisions of the Company’s articles of incorporation, as amended, and amended bylaws. If the Company is subject to a binding obligation that requires director removal structure inconsistent with the foregoing, then the removal of a director shall be governed by such instrument.

The Nominating and Governance Committee oversees the evaluation of the Board and management. It also develops and recommends to the Board a set of corporate governance guidelines applicable to the Company, which the Nominating and Governance Committee shall periodically review and revise as appropriate. In discharging its oversight role, the Nominating and Governance Committee is empowered to investigate any matter brought to its attention.

Family Relationships

There are no family relationships among any of our officers or directors.

Code of Ethics

We have adopted a Code of Business Conduct and Ethics that applies to our principal executive officer, financial and accounting officers (or persons performing similar functions), copy of which is included herewith as Exhibit 14.1.

Involvement in Certain Legal Proceedings

To our knowledge, our directors and executive officers have not been involved in any of the following events during the past ten years:

Board Leadership Structure and Role in Risk Oversight

Although we have not adopted a formal policy on whether the Chairman and Chief Executive Officer positions should be separate or combined, we have traditionally determined that it is in the best interests of the Company and its shareholders to combine these roles. Due to the small size and early stage of the Company, we believe it is currently most effective to have the Chairman and Chief Executive Officer positions combined. In addition, having one person serve as both Chairman and Chief Executive Officer eliminates the potential for confusion and provides clear leadership for the Company, with a single person setting the tone and managing our operations.

Shareholder Communications to the Board

Shareholders who are interested in communicating directly with members of the Board, or the Board as a group, may do so by writing directly to the individual Board member c/o Secretary, Grom Social Enterprises, Inc., 2060 NW Boca Raton Blvd., #6, Boca Raton, Florida 33431. The Company’s Secretary will forward communications directly to the appropriate Board member. If the correspondence is not addressed to the particular member, the communication will be forwarded to a Board member to bring to the attention of the Board. The Company’s Secretary will review all communications before forwarding them to the appropriate Board member.

EXECUTIVE COMPENSATION

The following table sets forth information concerning all cash and non-cash compensation awarded to, earned by or paid to our Chief Executive Officer and the other executive officer with compensation exceeding $100,000 during 2020 and 2019 (each a "Named Executive Officer").

Summary Compensation Table

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Employment Agreements

On June 1, 2016, the Company entered into an employment agreement with Darren Marks pursuant to which Mr. Marks serves as the Company’s Chief Executive Officer. The employment agreement is for an initial term of three years, which term automatically renews for successive and additional two-year periods unless either party provides written notice of termination to the other at least 90 days prior to the end of the then-current term. Under the agreement, Mr. Marks is entitled to an annual base salary of $245,000 (subject to a minimum 5% annual increase each year commencing on January 1, 2017) and an annual incentive bonus of up to an 80% of his base salary. The employment agreement may be terminated by the Company for “cause” (as such term is defined in the agreement), in which case Mr. Marks shall be entitled to his base salary up to the date of termination, without “cause” by the Company or for “good reason” (as such term is defined in the agreement), by Mr. Marks upon 90 days’ prior written notice, in which case Mr. Marks shall be entitled to his base salary and health benefits for 18 months from the expiration of the agreement and shall have ten years to exercise any outstanding stock options. The employment agreement provides that Mr. Marks has the obligation to mitigate any such severance. with any income he may subsequently receive. The employment agreement also provides that Mr. Marks will not compete with the Company and will keep all Company information confidential for one year after the term of the agreement.

On June 1, 2016, the Company entered into an employment agreement with Melvin Leiner pursuant to which Mr. Leiner serves as the Company’s Executive Vice President and Chief Financial Officer. The employment agreement is for an initial term of three years, which term automatically renews for successive and additional two-year periods unless either party shall provide written notice of termination at least 90 days prior to the then current term. Under the agreement Mr. Leiner is entitled to an annual base salary of $237,500 (subject to a minimum 5% annual increase each year commencing on January 1, 2017) and an annual incentive bonus of up to 80% of his base salary. The employment agreement may be terminated by the Company for “cause” (as such term is defined in the agreement), in which case Mr. Leiner shall be entitled to his base salary up to the date of termination, without “cause” by the Company or for “good reason”( as such term is defined in the agreement), by Mr. Leiner upon 90 days’ prior written notice, in which case Mr. Leiner shall be entitled to base salary and health benefits for 18 months from the expiration of the agreement and shall have ten years to exercise any outstanding stock options. The agreement provides that Mr. Leiner has the obligation to mitigate any such severance with any income he may subsequently receive. The agreement also provides that Mr. Leiner will not compete with the Company and will keep all Company information confidential for one year after the term of the agreement.

2020 Equity Incentive Plan

General

On September 14, 2020, the Company’s board of directors and on September 16, 2020, its shareholders approved the Company’s 2020 Equity Incentive Plan (the “Plan”) which reserves a total of 1,875,000 shares of common stock (giving effect to our reverse stock split at a ratio of 1-for-32, which was effective on May 13, 2021) for incentive awards. Incentive awards generally may be issued to officers, key employees, consultants and directors and include the grant of nonqualified stock options, incentive stock options, stock appreciation rights (“SARs”), restricted stock, restricted stock units (“RSUs”), performance shares and performance units.

Administration

The compensation committee of the Board of Directors, or the Board of Directors in the absence of such a committee, will administer the Plan. Subject to the terms of the Plan, the compensation committee, or the Board of Directors in the absence of such a committee, has complete authority and discretion to determine the terms of awards under the Plan.

Adjustment for Awards and Payouts

Unless determined otherwise by the compensation committee or the Board of Directors in absence of such a committee, the following awards and payouts will reduce, on a one-for-one basis, the number of shares available for issuance under the Plan:

Unless determined otherwise by the compensation committee or the Board of Directors in the absence of such a committee, unless a participant has received a benefit of ownership such as dividend or voting rights with respect to the incentive award, the following transactions will restore, on a one-for-one basis, the number of shares available for issuance under the Plan:

In addition, the number of shares of common stock subject to the Plan, any number of shares subject to any numerical limit in the Plan, and the number of shares and terms of any incentive award are expected to be adjusted in the event of any change in the outstanding shares of common stock by reason of any stock dividend, spin-off, split-up, stock split, reverse stock split, recapitalization, reclassification, merger, consolidation, liquidation, business combination or exchange of shares or similar transaction.

Grants

The Plan authorizes the grant of nonqualified stock options, incentive stock options, restricted stock awards, restricted RSUs, performance units and performance shares (which may be designed to comply with Section 162(m) of the Internal Revenue Code (as amended, the “Code”)) and SARs, as described below:

Options granted entitle the grantee, upon exercise, to purchase a specified number of shares at a specified exercise price per share. The exercise price for shares of our common stock covered by an option cannot be less than the fair market value of our common stock on the date of grant. In addition, in the case of an incentive stock option granted to an employee who, at the time the incentive stock option is granted, owns stock representing more than 10% of the voting power of all classes of stock of the Company or any parent or subsidiary, the per share exercise price will be no less than 110% of the fair market value of our common stock on the date of grant. Options expire at such time as the compensation committee or the Board of Directors in the absence of such a committee, shall determine provided that no option shall be exercisable later than the tenth anniversary of the date of its grant and provided further that no incentive stock option shall be exercisable later than the fifth anniversary following the date of its grant to a grantee, who at the time of such grant owns more than 10% of the total combined voting power of all classes of stock of the Company.

Restricted stock awards and RSUs may be awarded on terms established by the compensation committee, or the Board in the absence of such a committee, which may include time-based and performance-based conditions for restricted stock awards and the lapse of restrictions on the achievement of one or more performance goals for restricted stock units.

A performance share award and/or a performance unit award may be granted to participants. Each performance unit will have an initial value that is established by the compensation committee, or the Board of Directors in the absence of such a committee, at the time of grant. Each performance share will have an initial value equal to the fair market value of one share of common stock on the date of grant. Such awards may be earned based upon satisfaction of certain specified performance criteria, subject to such other terms as the compensation committee, or the Board of Directors in the absence of such a committee, deems appropriate.

SARs entitle the participant to receive a distribution in an amount not to exceed the number of shares of our common stock subject to the portion of the SAR exercised multiplied by the difference between the market price of a share of our common stock on the date of exercise of the SAR and the market price of a share of our common stock on the date of grant of the SAR. An option and a SAR may be granted “in tandem” with each other. An option and a SAR are considered to be in tandem with each other because the exercise of the option aspect of the tandem unit automatically cancels the right to exercise the SAR aspect of the tandem unit, and vice versa. The option may be an incentive stock option or a nonqualified stock option.

Change in Control

Generally, upon the occurrence of a change in control, as such term is defined in the Plan:

1.            all options and SARs granted shall become fully vested and immediately exercisable;

2.            any restrictions imposed on Restricted Stock or RSUs which are not intended to qualify for the means the performance-based exception from the tax deductibility limitations of Section 162(m) of the Internal Revenue Code (the “Code”) shall lapse; and

3.            any award intended to qualify for the performance-based exception from the tax deductibility limitations of Section 162(m) of the Code shall be earned in accordance with the applicable award agreement.

Notwithstanding the foregoing, with respect to any incentive award subject to Internal Revenue Code Section 409A, a “change in control” of the Company is defined in a manner to ensure compliance with Section 409A.

Duration, Amendment, and Termination

The Board of Directors upon recommendation of the compensation committee has the power to amend, suspend or terminate the Plan without shareholder approval or ratification at any time or from time to time. No change may be made that increases the total number of shares of common stock reserved for issuance pursuant to incentive awards, materially increase the benefits accruing to participants or materially modify the requirements for participation in the Plan, unless such change is authorized by shareholders. Unless sooner terminated, the Plan will terminate ten years after it is adopted.

As of November 8, 2021, 157,943 shares of restricted stock and 208,500 non-qualified stock options to purchase shares of common stock had been issued under the Plan.

The table below reflects all outstanding equity awards made to each Named Executive Officer that were outstanding on December 31, 2020, and reflects a reverse stock split of our shares of common stock at a ratio of 1-for-32, which was effective on May 13, 2021.

Outstanding Equity Awards at December 31, 2020

Director Compensation

2020 Director Compensation Table

All directors are reimbursed for out-of-pocket expenses related to their board duties. Our employee directors, Mr. Marks and Mr. Leiner, do not receive any compensation for serving as directors. Our three independent directors receive $1,500 per quarter for their services.

On March 21, 2016, we granted Dr. Rutherford options to purchase 26,075 shares of common stock at $24.96 per share which was equivalent to the price of our most recent private offering of common stock prior to the option grant. The options were valued at $552,741 using the Black-Scholes Model. Under the terms of Mr. Rutherford’s option agreement, 1,563 shares vested immediately upon grant, the remaining 4,688 shares vested at the rate of 1,304 shares per month, commencing July 1, 2016.

Upon his appointment as a director on June 1, 2018, Mr. Stevens was issued 7,813 shares of the Company’s restricted common stock valued at $14.40 per share or $112,500, of which 2,188 shares vested immediately with 235 shares vesting in 24 equal monthly installments commencing on July 1, 2018.

Upon his appointment as director on June 1, 2018, Mr. Rosenthal was issued 4,688 shares of the Company’s restricted common stock valued at $14.40 per share or $67,500, of which 1,313 shares vested immediately and 141 shares will vest in 24 equal monthly installments commencing on the one-month anniversary of the grant date.

Securities Authorized for Issuance Under Equity Compensation Plan

The following table provides information regarding our equity compensation plans as of December 31, 2020, and reflects a reverse stock split of our shares of common stock at a ratio of 1-for-32, which was effective on May 13, 2021:

Equity Compensation Plan Information

______________

⁽¹⁾ Represents (i) options to purchase an aggregate of 312,019 shares of common stock issued to officers and employees for services provided to the Company at exercise prices between $7.68 and $24.96 and (ii) options to purchase an aggregate of 74,930 shares of common stock issued to consultants and contractors for services provided to the Company at exercise prices between $7.68 and $24.96.

PRINCIPAL STOCKHOLDERS

The following table lists, as of November 8, 2021, the number of shares of common stock beneficially owned by (i) each person, entity or group (as that term is used in Section 13(d)(3) of the Securities Exchange Act of 1934) known to the Company to be the beneficial owner of more than 5% of the outstanding common stock; (ii) each of our directors (iii) each of our Named Executive Officers and (iv) all executive officers and directors as a group. Information relating to beneficial ownership of common stock by our principal stockholders and management is based upon information furnished by each person using "beneficial ownership" concepts under the rules of the SEC. Under these rules, a person is deemed to be a beneficial owner of a security if that person directly or indirectly has or shares voting power, which includes the power to vote or direct the voting of the security, or investment power, which includes the power to dispose or direct the disposition of the security. The person is also deemed to be a beneficial owner of any security of which that person has a right to acquire beneficial ownership within 60 days. Under the SEC rules, more than one person may be deemed to be a beneficial owner of the same securities, and a person may be deemed to be a beneficial owner of securities as to which he or she may not have any pecuniary interest. Except as noted below, each person has sole voting and investment power with respect to the shares beneficially owned and each stockholder's address is c/o Grom Social Enterprises, Inc., 2060 NW Boca Raton Blvd., #6, Boca Raton, Florida, 33431.

The percentages below are calculated based on 12,598,979 shares of common stock (which reflects a reverse stock split of our shares of common stock at a ratio of 1-for-32, which was effective on May 13, 2021) and 9,400,309 shares of Series C Stock issued and outstanding as of November 8, 2021.

______________

*Less than 1% 

**Less than 5%

(1) Represents 711,611 shares of common stock held by Family Tys, LLC (“Family Tys”), of which Mr. Marks is the managing member and over which Mr. Marks has voting and dispositive power. Does not include an aggregate of (i) 9,325,309 shares of Series C Stock (with 1.5625 votes per share, or 14,570,795 votes in the aggregate) and (ii) 1,638,722 shares of common stock, for which Mr. Marks has a voting proxy until May 20, 2023.

(2) Represents 342,495 shares of common stock held by 4 Life LLC (“4 Life”), of which Mr. Leiner is the managing member and over which Mr. Leiner has voting and dispositive power. Does not include an aggregate of (i) 9,325,309 shares of Series C Stock (with 1.5625 votes per share, or 14,570,795 votes in the aggregate), or (ii) 1,638,722 shares of common stock, for which Mr. Leiner has a voting proxy until May 20, 2023.

(3) Represents shares of common stock held by Thistle Investments, LLC, of which Mr. Stevens is managing member and over which Mr. Stevens has sole voting and dispositive power.

(4) Represents shares of common stock held by Tempest Systems, Inc., of which Mr. Rosenthal is chief executive officer and over which Mr. Rosenthal has sole voting and dispositive power.

(5) Does not include an aggregate of (i) 9,325,309 shares of Series C Stock (with 1,5625 votes per share, or 14,570,795 votes in the aggregate), and (ii) 1,638,722 shares of common stock, for which Messrs. Marks and Leiner have a voting proxy until May 20, 2023.

(6) Consists of (i) 270,313 shares of common stock, and (ii) 1,987,555 shares of common stock issuable upon the conversion of 3,816,105 shares of Series C Stock at a conversion price of $1.92 per share.

(7) Includes 782 shares of common stock held by the Denis J. Kerasotes Trust, dated June 13, 2017, of which Mr. Kerasotes as trustee has sole voting and dispositive power.

(8) Dale Nabb, manager of Condor Equities, LLC (“Condor”), has sole voting and dispositive power of the shares held by Condor.

(9) Consists of (i) an aggregate of 100,000 shares of common stock underlying currently exercisable warrants at an average exercise price of $7.36 per share, (ii) 403,842 shares of common stock, (iii) 23,438 shares of common stock held by Dale Nabb, manager of Condor, and (iv) 1,630,885 shares of common stock issuable upon the conversion of 3,131,300 shares of Series C Stock at a conversion price of $1.92 per share.

(10) Michael Tapajna, chief executive officer of Section 3 Developments, Inc. (“Section 3”), has sole voting and dispositive power of the shares held by Section 3.

(11) John G. Kerasotes, as trustee of the Eileen F. Kerasotes Trust, has sole voting and dispositive power over the shares held by such Trust.

(12) Based upon (i) 711,611 shares of common stock held by Family Tys of which Mr. Marks is the managing member and over which Mr. Marks has voting and dispositive power and (ii) the voting rights to an aggregate of (A) 1,638,722 shares of common stock held by certain holders of our Series C Stock, and (B) 9,325,309 shares of Series C Stock, having the right to 1.5625 votes for each share of Series C Stock for which Mr. Marks has a voting proxy until May 20, 2023.

(13) Based upon (i) 342,495 shares of common stock held by 4 Life of which Mr. Leiner is the managing member and over which Mr. Leiner has voting and dispositive power and (ii) and the voting rights to an aggregate of (A) 1,346,139 shares of common stock held by certain holders of our Series C Stock, and (B) 9,325,309 shares of Series C Stock, having the right to 1.5625 votes for each share of Series C Stock for which Mr. Leiner has a voting proxy until May 20, 2023.

(14) Darren Marks, the Company’s Chief Executive Officer, President, and a director and Melvin Leiner, the Company’s Executive Vice President, Chief Financial Officer, Chief Operating Officer, Treasurer, Secretary and a director, have the voting rights to such shares of Series C Stock and common stock until August 6, 2022, pursuant to voting proxies from such shareholders.

(15) Includes 9,325,309 shares of Series C Stock (with 1.5625 votes per share, or 14,570,795 votes in the aggregate).

(16) As of September 26, 2021, Russell Hicks was appointed as President and Chief Content Officer of Curiosity Ink Media, and as President of Top Draw Animation.

(17) As of September 26, 2021, Brent Watts was appointed as Chief Creative Officer of Curiosity Ink Media.

Series C Stock

Darren Marks, the Company’s Chief Executive Officer, President, and a director, and Melvin Leiner, the Company’s Executive Vice President, Chief Operating Officer, and a director, have all of the voting rights of the Series C Stock until May 20, 2023, pursuant to a proxy from the Series C shareholders.

CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

Acquisition of TD Holdings

Wayne Dearing, the Managing Director of TD Holdings, was issued a promissory note in the principal amount of $2,000,000 on July 1, 2016 in connection with the Company’s acquisition of TD Holdings. The note, as amended, was due to mature on April 1, 2020. On March 16, 2020, the Company paid Mr. Dearing $1,500,000 against the principal amount of the note and restructured the remaining $500,000 in unpaid principal. Under the new terms, the note bears interest at a rate of 12% per annum and matures on June 30, 2021. Principal and interest are payable monthly in arrears, amortized over a four-year period. On August 18, 2021, the Company paid Mr. Dearing all remaining amounts due and payable under promissory note. As a result, Mr. Dearing has no further security interest in the assets of the Company or its subsidiaries.

Additionally, Mr. Dearing was entitled to 50% of any earnout payment contingent upon TD Holdings achieving certain financial milestones as defined in the share exchange agreement. The earnout period, as amended, was extended until December 31, 2019. No earnout consideration was achieved, nor payment made, for any measurement period through December 31, 2019.

Mr. Dearing’s wife, Stella Dearing, is the Director of Operations of Top Draw and receives an annual salary of $83,000.

Marks Family

Sarah Marks, the wife of Darren Marks, our President and Chief Executive Officer, Zachary Marks, Luke Marks, Jack Marks, Dawson Marks, Caroline Marks and Victoria Marks, each Darren Marks’s children, are, or have been, employed or independently contracted by the Company.

During the year ended December 31, 2020, the Marks family was paid as follows: Zachary $28,050, Dawson $500, and Victoria $500. During the year ended December 31, 2019, the Marks family was paid as follows: Sarah $12,600, Zachary $40,593, Luke $17,659, Jack $1,800, Victoria $2,250 and Caroline $3,750.

Liabilities Due to Executive and Other Officers

Pursuant to verbal agreements, Messrs. Marks and Leiner have made loans to the Company to help fund operations. These loans are non-interest bearing and callable on demand. During the years ended December 31, 2020 and 2019, Mr. Marks loaned $0 and $22,000, respectively, and Mr. Leiner loaned $47,707 and $81,500, respectively, to the Company.

Messrs. Marks and Leiner converted the following portion of their loans to equity:

The outstanding amounts as of December 31, 2020 and 2019, due to Mr. Marks were $43,429 and $215,122 and the outstanding amounts due to Mr. Leiner were $50,312 and $210,929, respectively.

On July 13, 2018, our director Dr. Thomas Rutherford loaned the Company $50,000. The loan is non-interest bearing and callable on demand.

During the first quarter of 2018, Wayne and Stella Dearing loaned an aggregate of $435,085 to Top Draw to help to finance working capital needs, capital expenditures, and leasehold improvements at its production facilities in Manila, Philippines. These loans bear interest at a rate of 5% per annum and are callable on demand. As of December 31, 2019, all amounts owed to Mr. and Mrs. Dearing as a result of these loans had been fully repaid.

All of the above information reflects a reverse stock split of our shares of common stock at a ratio of 1-for-32, which was effective on May 13, 2021.

Common Stock and Stock Options Issued to Directors

On March 21, 2016, we granted Dr. Rutherford options to purchase 26,075 shares of common stock at $24.96 per share. The options were valued at $552,741 using the Black-Scholes Model. Under the terms of Mr. Rutherford’s option agreement, 1,563 shares vested immediately upon grant, the remaining 4,688 shares vested at the rate of 1,304 shares per month, commencing July 1, 2016.

On June 1, 2018, upon his appointment as a director, Mr. Stevens was issued 7,813 shares of the Company’s restricted common stock valued at $14.40 per share or $112,500, of which 2,188 shares vested immediately with 235 shares vesting in 24 equal monthly installments commencing on July 1, 2018.

On June 1, 2018, upon his appointment as director, Mr. Rosenthal was issued 4,688 shares of the Company’s restricted common stock valued at $14.40 per share or $67,500, of which 1,313 shares vested immediately and 141 shares will vest in 24 equal monthly installments commencing on the one-month anniversary of the grant date.

Voting Proxies

On May 20, 2021, the Company entered into exchange agreements (each, an “Exchange Agreement”) with the holders of the Company’s Series B 8% Convertible Preferred Stock (“Series B Stock”), pursuant to which the holders agreed to exchange all of their shares of the Series B Stock for shares of the Company’s Series C 8% Convertible Preferred Stock (the “Series C Stock”), on a one for one basis (the “Exchange”). As a result of the Exchange, all 9,215,059 issued and outstanding shares of the Company’s Series B Stock were exchanged for 9,215,059 shares of the Company’s newly-designated Series C Stock and all of the exchanged Series B Stock was cancelled.

In connection with their entry into the Exchange Agreements, the holders delivered proxies to Darren Marks and Melvin Leiner, who are both officers and directors of the Company, granting each of them the power to vote all the holder’s shares of Series C Stock, and all other securities they hold of the Company, for a period of two years. As a result, Mr. Marks and Mr. Leiner have 63.3% of the Company’s combined voting power.

SELLING SHAREHOLDERS

We issued all of the Notes and the Warrants in connection with the following transaction:

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 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 received a fee of $316,800.

The Original Note is convertible into common stock at a rate 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, 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. Neither the Company, nor L1 Capital, may convert any portion of the Original Note to the extent that, after giving effect to such conversion, L1 Capital (together with any affiliated parties) would beneficially own in excess of 4.99% of the Company’s outstanding common stock.

The 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. L1 Capital shall not have the right to exercise any portion of the Original Warrant to the extent that, after giving effect to such exercise, L1 Capital (together with any affiliated parties), would beneficially own in excess of 4.99% of the Company’s outstanding common stock.

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.

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.

The table below sets forth, as of November 8, 2021, the following information regarding the Selling Stockholder:

Except as described above, the number of shares of common stock beneficially owned by the Selling Stockholders has been determined in accordance with Rule 13d-3 under the Exchange Act and includes, for such purpose, shares of common stock that the Selling Stockholders have the right to acquire within 60 days of November 8, 2021.

The shares of common stock that may be offered by the Selling Stockholder hereunder will be acquired by such Selling Stockholder upon the conversion or exercise by such Selling Stockholder of the Notes or Warrants that are held by such Selling Stockholder and that were previously issued in private transactions by our company. Descriptions of the private transactions in which we issued the Notes and the Warrants are set forth above. Except as otherwise indicated, we believe the Selling Stockholder has sole voting and investment power with respect to such shares of common stock.

All information with respect to the common stock ownership of the Selling Stockholder has been furnished by or on behalf of the Selling Stockholder. We believe, based on information supplied by the Selling Stockholder, that except as may otherwise be indicated in the footnotes to the table below, each Selling Stockholder has sole voting and dispositive power with respect to the shares of common stock reported as beneficially owned by it. Because the Selling Stockholder may sell some or all of the shares of common stock beneficially owned by them and covered by this prospectus, and because there are currently no agreements, arrangements or understandings with respect to the sale of any of the shares of common stock, no estimate can be given as to the number of shares of common stock available for resale hereby that will be held by the Selling Stockholder upon termination of this offering. In addition, the Selling Stockholder may have sold, transferred or otherwise disposed of, or may sell, transfer or otherwise dispose of, at any time and from time to time, the shares of common stock it beneficially owns in transactions exempt from the registration requirements of the Securities Act after the date on which it provided the information set forth in the table below. We have, therefore, assumed for the purposes of the following table, that the Selling Stockholder will sell all of the shares of common stock owned beneficially by it that are covered by this prospectus, but will not sell any other shares of common stock, if any, that it presently owns. The Selling Stockholder has not held any position or office, or has otherwise had a material relationship, with us or any of our subsidiaries within the past three years other than as a result of the ownership of our shares of common stock or other securities.

Material Relationships with Selling Stockholder

Other than in connection with the transactions described above, we have not had any material relationships with the Selling Stockholder in the last three (3) years.

PLAN OF DISTRIBUTION

The Selling Stockholder and any of their pledgees, donees, assignees and successors-in-interest may, from time to time, sell any or all of its shares of common stock being offered under this prospectus on any stock exchange, market or trading facility on which our common stock is traded or in private transactions. These sales may be at fixed or negotiated prices. The Selling Stockholder may use any one or more of the following methods when disposing of the shares of common stock:

The shares may also be sold under Rule 144 under the Securities Act, or any other exemption from registration under the Securities Act, if available for a Selling Stockholder, rather than under this prospectus. The Selling Stockholder has the sole and absolute discretion not to accept any purchase offer or make any sale of shares if it deems the purchase price to be unsatisfactory at any particular time.

The Selling Stockholder may pledge its shares of common stock to their brokers under the margin provisions of customer agreements. If the Selling Stockholder defaults on a margin loan, the broker may, from time to time, offer and sell the pledged shares.

Broker-dealers engaged by the Selling Stockholder may arrange for other broker-dealers to participate in sales. Broker-dealers may receive commissions or discounts from a Selling Stockholder (or, if any broker-dealer acts as agent for the purchaser of shares, from the purchaser) in amounts to be negotiated, which commissions as to a particular broker or dealer may be in excess of customary commissions to the extent permitted by applicable law.

If sales of shares offered under this prospectus are made to broker-dealers as principals, we would be required to file a post-effective amendment to the registration statement of which this prospectus is a part. In the post-effective amendment, we would be required to disclose the names of any participating broker-dealers and the compensation arrangements relating to such sales.

The Selling Stockholder and any broker-dealers or agents that are involved in selling the shares offered under this prospectus may be deemed to be “underwriters” within the meaning of the Securities Act in connection with these sales. Commissions received by these broker-dealers or agents and any profit on the resale of the shares purchased by them may be deemed to be underwriting commissions or discounts under the Securities Act. Any broker-dealers or agents that are deemed to be underwriters may not sell common shares offered under this prospectus unless and until we set forth the names of the underwriters and the material details of their underwriting arrangements in a supplement to this prospectus or, if required, in a replacement prospectus included in a post-effective amendment to the registration statement of which this prospectus is a part.

The Selling Stockholder and any other persons participating in the sale or distribution of the shares offered under this prospectus will be subject to applicable provisions of the Exchange Act, and the rules and regulations under that act, including Regulation M. These provisions may restrict activities of, and limit the timing of purchases and sales of any of the shares by, the Selling Stockholder or any other person. Furthermore, under Regulation M, persons engaged in a distribution of securities are prohibited from simultaneously engaging in market making and other activities with respect to those securities for a specified period of time prior to the commencement of such distributions, subject to specified exceptions or exemptions. All of these limitations may affect the marketability of the shares.

If any of the shares offered for sale pursuant to this prospectus are transferred other than pursuant to a sale under this prospectus, then subsequent holders could not use this prospectus until a post-effective amendment or prospectus supplement is filed, naming such holders. We offer no assurance as to whether the Selling Stockholder will sell all or any portion of the shares offered under this prospectus.

We agreed to use commercially reasonable efforts to keep the registration statement of which this prospectus is a part effective at all times until the Selling Stockholder no longer own any Warrants or shares of common stock issuable upon the exercise thereof. The shares will be sold only through registered or licensed brokers or dealers if required under applicable state securities laws. In addition, in certain states, the shares of common stock covered hereby may not be sold unless they have been registered or qualified for sale in the applicable state or an exemption from the registration or qualification requirement is available and is complied with.

DESCRIPTION OF SECURITIES

The following description of our capital stock is only a summary and is qualified in its entirety by the provisions of our articles of incorporation, as amended and bylaws, which have been filed as exhibits to the registration statement of which this prospectus forms a part.

We have authorized capital stock consisting of 500,000,000 shares of common stock, par value $0.001 per share, and 25,000,000 shares of preferred stock, par value $0.001 per share, of which 2,000,000 shares have been designated as Series A 10% Convertible Preferred Stock (the “Series A Stock”), 10,000,000 shares have been designated as Series B 8% Convertible Preferred Stock (the “Series B Stock”), and 10,000,000 shares have been designated as Series C 8% Convertible Preferred Stock (the “Series C Stock”).

As of the date of this prospectus, we had 12,598,979 shares of common stock (after giving effect to our 1-for-32 reverse stock split, which was effective on May 13, 2021) and 9,400,309 shares of Series C Stock, issued and outstanding and no shares of Series A Stock or Series B Stock were issued and outstanding.

Common Stock

The holders of outstanding shares of common stock are entitled to receive dividends out of assets or funds legally available for the payment of dividends of such times and in such amounts as the board from time to time may determine. Holders of common stock are entitled to one vote for each share held on all matters submitted to a vote of stockholders. There is no cumulative voting of the election of directors then standing for election. The common stock is not entitled to pre-emptive rights and is not subject to conversion or redemption. Upon liquidation, dissolution or winding up of our company, the assets legally available for distribution to stockholders are distributable ratably among the holders of the common stock after payment of liquidation preferences, if any, on any outstanding payment of other claims of creditors.

Preferred Stock

Series A Stock

Voting. The holders of the Company’s Series A Stock have the right to vote together with the holders of the Company’s common stock on an as-converted basis, with five votes for each share of Series A Stock, except that so long as any shares of Series A Stock are outstanding, the Company may not take any actions that would amend the rights, preferences or privileges of the Series A Stock without the approval of the holders of a majority of the issued and outstanding Series A Stock, voting separately as a single class. Fractional votes by the holders of Series A Stock are not permitted and any fractional voting rights will be rounded to the nearest whole number, with one-half being rounded upward.

Maturity. The Series A Stock has no maturity and is not subject to any sinking fund or redemption and will remain outstanding indefinitely unless and until converted by the holder or the Company redeems or otherwise repurchases the Series A Stock.

Ranking. The Series A Stock ranks, with respect to the payment of dividends and/or the distribution of assets in the event of any liquidation, dissolution or winding up of the Company, (i) senior to all classes or series of common stock, (ii) on parity with all equity securities issued by the Company with terms specifically providing that those equity securities rank on parity with the Series A Stock; (iii) junior to all equity securities issued by the Company with terms specifically providing that those equity securities rank senior to the Series A Stock; and (iv) effectively junior to all existing and future indebtedness (including indebtedness convertible into our common stock or preferred stock) of the Company.

Dividends. Cumulative dividends accrue on each share of Series A Stock at the rate of 10% (the “Dividend Rate”) of the Stated Value of $1.00, commencing on the date of issuance.

Dividends are payable monthly in arrears, beginning on March 31, 2019 and thereafter on the last calendar day of each month, and, at the discretion of the Company, may be paid in cash or in stock (the “PIK Dividend”) with such shares being valued at $0.25 per share (as may be adjusted as a result of stock splits, reverse splits, combinations, or similar transactions from time to time). Any fractional shares of a PIK Dividend may, at the discretion of the Corporation, be paid in cash or rounded up to the nearest share. All shares of common stock issued in payment of a PIK Dividend will upon issuance thereof, be duly authorized, validly issued, fully paid and non-assessable. Dividends will accumulate whether or not the Corporation has earnings.

Liquidation Preference.   In the event of a merger, sale of substantially all assets or stock, voluntary or involuntary liquidation, dissolution or winding up of the Company, the holders of shares of Series A Stock will be entitled to be paid out of the assets the Company has legally available for distribution to its shareholders, subject to the preferential rights of the holders of any class or series of capital stock of the Company it may issue ranking senior to the Series A Stock with respect to the distribution of assets upon liquidation, dissolution or winding up, a liquidation preference equal to the (i) aggregate number of shares of Series A Stock outstanding multiplied by its Stated Value per share; and (ii) any accrued but unpaid dividends before any distribution of assets is made to holders of common stock or any other class or series of capital stock of the Company that it may issue that ranks junior to the Series A Stock as to liquidation rights. If the assets of the Company are not sufficient to pay in full the liquidation preference, then the holders of Series A Stock will share ratably in any distribution.

The liquidation preference shall be proportionately adjusted in the event of a stock split, stock combination or similar event so that the aggregate liquidation preference allocable to all outstanding shares of Series A Stock immediately prior to such event is the same immediately after giving effect to such event.

In the event of a sale of less than all or substantially all of the assets (by merger, asset sale, change of control, capital lease or long term license/lease spin off or otherwise of the Company or any subsidiary) with gross proceeds to the Company in excess of $1,500,000 whereby the assets sold exceeds the cost of assets acquired for GAAP purposes, then the holder of the Series A Stock will receive a “special dividend” from the Company equal to 25% of the value of such holder’s Series A Stock, payable in same form of consideration, as received by the Company.

Conversion. Each share of Series A Stock is convertible, at any time, into five shares of common stock.

If at any time, shares of common stock is changed into the same or a different number of shares of any class or classes of stock, by recapitalization, reclassification, reorganization, merger, exchange, consolidation, sale of assets or otherwise (each a “Corporate Change”), (i) each holder of Series A Stock shall may convert such stock into the kind and amount of stock and other securities and property receivable upon such Corporate Change by a holder of the number of shares of common stock into which such shares of Series A Stock could have been converted immediately prior to such Corporate Change, or with respect to such other securities or property by the terms thereof and (ii) the PIK Dividend will be paid in shares of such kind and amount of stock and other securities and property receivable upon such Corporate Change as would have been received as such PIK Dividend immediately prior to such Corporate Change, or with respect to such other securities or property by the terms thereof.

In the event that any of the following occurs (a) a declaration or payment of any dividend or other distribution on the common stock, without consideration, in additional shares of common stock or other securities or rights convertible into, or entitling the holder thereof to receive, directly or indirectly, additional shares of common stock; (b) a subdivision (by stock split, reclassification or otherwise) of the outstanding shares of common stock into a greater number of shares of common stock; or (c) a combination or consolidation (by reverse stock split) of the outstanding shares of common stock into a smaller number of shares of common stock (each, a “Common Stock Event”), the (i) aggregate number of shares of common stock into which the Series A Stock may be converted (the “Conversion Shares”) in effect immediately prior to such Common Stock Event, and (ii) the common stock PIK Dividend Rate shall, simultaneously with the occurrence of such Common Stock Event, be proportionately decreased or increased, as appropriate. The Conversion Shares shall be readjusted in the same manner upon the happening of each subsequent Common Stock Event.

Share Reservation. The Company is obligated to at all times reserve and keep available out of its authorized but unissued shares of common stock, a sufficient number of its shares of common stock as shall from time to time be available to effect the conversion of all outstanding shares of the Series A Stock.

Redemption. The Series A Stock is not redeemable.

Transfer. The sale, offer to sell, contract to sell, assignment, pledge, hypothecation, encumbrance or other transfer of the Series A Stock or common stock issuable upon the conversion of the Series A Stock is restricted as provided in a subscription agreement for the shares between the Corporation and the purchaser or its successors and assigns.

Protective Provisions. So long as any shares of Series A Stock are outstanding, the Company may not take any actions (whether by merger, consolidation or otherwise) without the approval of the holders of a majority of the issued and outstanding Series A Stock, voting separately as a single class, that would amend the rights, preferences or privileges of the Series A Stock.

While we do not currently have any plans for the issuance of additional preferred stock, the issuance of such preferred stock could adversely affect the rights of the holders of common stock and, therefore, reduce the value of the common stock. It is not possible to state the actual effect of the issuance of any shares of preferred stock on the rights of holders of the common stock until the board of directors determines the specific rights of the holders of the preferred stock; however, these effects may include:

As of the date of this prospectus, we have no shares of our Series A Stock issued and outstanding.

Series B Stock

Ranking. The Series B Stock ranks senior and prior to all other classes or series of the Company’s preferred stock and common stock.

Conversion. 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.

Voting. The holders of our Series B 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. 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.

Dividends. 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.

Liquidation. 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.

As of the date of this prospectus, we have no shares of Series B Stock issued and outstanding.

Series C Stock

Designation and Amount. The number of shares constituting the Series C Preferred Stock shall be 10,000,000, with a stated value of $1.00 per share.

Ranking. The Series C Preferred Stock ranks senior and prior to all other classes or series of the Company’s preferred stock and common stock.

Dividends. Cumulative dividends accrue on each share of Series C Preferred 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 three months from the date of issuance.

Liquidation. Upon a liquidation, dissolution or winding up of the Company, the holders of the Series C Preferred Stock are entitled to $1.00 per share, plus all accrued and unpaid dividends. No distribution may be made to holders of shares of capital stock ranking junior to the Series C Preferred Stock upon a liquidation until the holders of Series C Preferred Stock receive their liquidation preference. The holders of 66 2/3% of the then outstanding shares of Series C Preferred Stock, may elect to deem a merger, reorganization or consolidation of the Company, 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, as a liquidation.

Voting. The holders of the Company’s Series C Preferred Stock vote together as a single class with the holders of the Company’s common stock, with each share entitling the holder to 1.5625 votes per share. The consent of the holders of at least 66 2/3% of the shares of Series C Preferred Stock is required for the amendment to any of the terms of the Series C Preferred Stock, to create any additional class of stock unless the stock ranks junior to the Series C Preferred Stock, to make any distribution or dividend on any securities ranking junior to the Series C Preferred Stock, or 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.

Conversion. The holder may, at any time after the 6-month anniversary of the issuance of the shares of Series C Preferred Stock, convert such shares into common stock at a conversion rate of $1.92 per share. In addition, the Company may, at any time after the issuance of the shares, convert any or all of the outstanding shares of Series C Preferred Stock at a conversion rate of $1.92 per share.

As of the date of this prospectus, we have 9,400,309 shares of Series C Stock issued and outstanding.

Stock Options

As of December 31, 2020, an aggregate of 386,949 shares of common stock were issuable upon the exercise of outstanding stock options, at a weighted-average exercise price of $15.36 per share.

Warrants

As of December 31, 2020, warrants to purchase an aggregate of 192,649 shares of common stock at a weighted average exercise price of $8.32 are issued and outstanding and terms between 0.5 years and 4.4 years.

Warrants Issued in Underwritten Offering

In connection with our Underwritten Offering, we sold 2,409,639 units, each unit consisting of one shares of our common stock, $0.001 par value per share, and one warrant, each warrant exercisable for one share of common stock. The warrants included within the units were exercisable immediately, have an exercise price of $4.565 per share, and expire five years from the date of issuance.

Form. Pursuant to a warrant agent agreement between us and Equiniti Trust Company (“Equiniti”), as warrant agent, the warrants were issued in book-entry form and represented only by one or more global warrants deposited with the warrant agent, as custodian on behalf of The Depository Trust Company, or DTC, and registered in the name of Cede & Co., a nominee of DTC, or as otherwise directed by DTC.

Exercisability. The warrants are exercisable at any time after issuance, and at any time up to the date that is five years after such date. The warrants are exercisable, at the option of each holder, in whole or in part by delivering to us a duly executed exercise notice and, at any time a registration statement registering the issuance of the shares of common stock underlying the warrants under the Securities Act is effective and available for the issuance of such shares, or an exemption from registration under the Securities Act is available for the issuance of such shares, by payment in full in immediately available funds for the number of shares of common stock purchased upon such exercise. If a registration statement registering the issuance of the shares of common stock underlying the warrants under the Securities Act is not effective or available and an exemption from registration under the Securities Act is not available for the issuance of such shares, the holder may, in its sole discretion, elect to exercise the warrant through a cashless exercise, in which case the holder would receive upon such exercise the net number of shares of common stock determined according to the formula set forth in the warrant agent agreement. No fractional shares of common stock will be issued in connection with the exercise of a warrant. In lieu of fractional shares, we will pay the holder an amount in cash equal to the fractional amount multiplied by the exercise price.

Exercise Price. The warrants have an exercise price of $4.565 per share. The exercise price is subject to appropriate adjustment in the event of certain stock dividends and distributions, stock splits, stock combinations, reclassifications or similar events affecting our common stock and also upon any distributions of assets, including cash, stock or other property to our stockholders.

Transferability. Subject to applicable laws, the warrants may be offered for sale, sold, transferred or assigned without our consent.

Exchange Listing. The warrants have been approved for listing on the Nasdaq Capital Market under the symbol “GROMW,” and are tradeable on such exchange.

Fundamental Transactions. If a fundamental transaction occurs, then the successor entity will succeed to, and be substituted for us, and may exercise every right and power that we may exercise and will assume all of our obligations under the warrants with the same effect as if such successor entity had been named in the warrant itself. If holders of our common stock are given a choice as to the securities, cash or property to be received in a fundamental transaction, then the holder shall be given the same choice as to the consideration it receives upon any exercise of the warrant following such fundamental transaction.

Rights as a Stockholder. Except as otherwise provided in the warrants or by virtue of such holder’s ownership of shares of our common stock, the holder of a warrant does not have the rights or privileges of a holder of our common stock, including any voting rights, until the holder exercises the warrant.

Underwriter’s Warrants

In connection with our Underwritten Offering, we issued Underwriter Warrants. The Underwriter’s Warrants are exercisable for a five-year period, at an exercise price of $4.15.

Other Convertible Securities

Transfer Agent

The transfer agent and registrar for our common stock is Equiniti Trust Company.

Registration Rights

None of the holders of shares of our common stock or their transferees, are entitled to certain rights with respect to the registration of the offer and sale of those shares under the Securities Act (other than the Selling Stockholder). If the offer and sale of these shares is registered, the shares will be freely tradable without restriction under the Securities Act, and a large number of shares may be sold into the public market.

Anti-Takeover Provisions

Certain provisions of Florida law and our bylaws summarized below, may have the effect of delaying, deferring or discouraging another person from acquiring control of us.

It is possible that these provisions could make it more difficult to accomplish or could deter transactions that stockholders may otherwise consider to be in their best interest or in our best interests, including transactions that might result in a premium over the market price for our shares.

These provisions expected to discourage coercive takeover practices and inadequate takeover bids. These provisions are also designed to encourage persons seeking to acquire control of us to first negotiate with our board of directors. We believe that the benefits of increased protection of our potential ability to negotiate with the proponent of an unfriendly or unsolicited proposal to acquire or restructure us outweigh the disadvantages of discouraging these proposals because negotiation of these proposals could result in an improvement of their terms.

Florida Law

The Florida Business Corporation Act (the “FBCA”) contains a control-share acquisition statute that provides that a person who acquires shares in an “issuing public corporation,” as defined in the statute, in excess of certain specified thresholds generally will not have any voting rights with respect to such shares unless such voting rights are approved by the holders of a majority of the votes of each class of securities entitled to vote separately, excluding shares held or controlled by the acquiring person.

The FBCA also provides that an “affiliated transaction” between a Florida corporation with an “interested shareholder,” as those terms are defined in the statute, generally must be approved by the affirmative vote of the holders of two-thirds of the outstanding voting shares, other than the shares beneficially owned by the interested shareholder. The FBCA defines an “interested shareholder” as any person who is the beneficial owner of 10% or more of the outstanding voting shares of the corporation.

These laws could delay or prevent an acquisition.

Special Stockholder Meetings

Our bylaws provide that a special meeting of stockholders may be called by of our board of directors, our President and by a demand delivered to the Company of at least 10% of all the votes entitled to be cast on any issue proposed to be considered at the proposed special meeting.

Requirements for Advance Notification of Stockholder Nominations and Proposals

Our bylaws establish advance notice procedures with respect to stockholder proposals and the nomination of candidates for election as directors. 

DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES ACT LIABILITIES

In the opinion of the SEC, indemnification for liabilities arising under the Securities Act is against public policy as expressed in the Securities Act and is, therefore, unenforceable. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers or persons controlling the registrant pursuant to the foregoing provisions, the registrant has been informed that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable.

LEGAL MATTERS

The Crone Law Group, P.C. has opined on the validity of the shares being offered hereby.

EXPERTS

The consolidated financial statements included in this prospectus and in the registration statement for the fiscal years ended December 31, 2020 and December 31, 2019 have been audited by BF Borgers CPA PC, an independent registered public accounting firm, and are included in reliance upon such report given upon the authority of said firm as experts in auditing and accounting.

ADDITIONAL INFORMATION

We have filed with the SEC this registration statement on Form S-1 under the Securities Act with respect to the shares of common stock being offered by this prospectus. This prospectus, which constitutes a part of this registration statement, does not contain all of the information in this registration statement and its exhibits. For further information with respect to us and the units, common stock and warrants offered by this prospectus, you should refer to this registration statement and the exhibits filed as part of that document. Statements contained in this prospectus as to the contents of any contract or any other document referred to are not necessarily complete, and in each instance, we refer you to the copy of the contract or other document filed as an exhibit to this registration statement. Each of these statements is qualified in all respects by this reference.

We are subject to the informational requirements of the Exchange Act and file annual, quarterly and current reports, proxy statements and other information with the SEC. You can read our SEC filings, including this registration statement, over the Internet at the SEC’s website at http://www.sec.gov. You may also read and copy any document we file with the SEC at its public reference facilities at 100 F Street, N.E., Washington, D.C. 20549. You may also obtain copies of these documents at prescribed rates by writing to the Public Reference Section of the SEC at 100 F Street, N.E., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the operation of the public reference facilities. You may also request a copy of these filings, at no cost, by writing or telephoning us at: Grom Social Enterprises, Inc., 2060 NW Boca Raton, #6, Boca Raton, Florida 33431 or (561) 287-5776.

INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE

The SEC allows us to “incorporate by reference” information into this prospectus, which means that we can disclose important information to you by referring you to those documents and that the information in this prospectus is not complete and you should read the information incorporated by reference for more detail. We incorporate by reference in two ways. First, we list certain documents that we have already filed with the SEC. The information in these documents is considered part of this prospectus. Second, the information in documents that we file with the SEC in the future will update and supersede the current information in, and incorporated by reference in, this prospectus until we file a post-effective amendment that indicates the termination of the offering of the common stock made by this prospectus.

We incorporate by reference the documents listed below and any future filings we will make with the SEC under Section 13(a), 13(c), 14 or 15(d) of the Exchange Act (other than information furnished in Current Reports on Form 8-K filed under Item 2.02 or 7.01 of such form unless such form expressly provides to the contrary), including those made after the date of the initial filing of the registration statement of which this prospectus is a part and prior to effectiveness of such registration statement:

The documents incorporated by reference into this prospectus are also available on our corporate website at www.gromsocial.com.  We will provide to each person, including any beneficial owner, to whom a prospectus is delivered, a copy of any or all of the information that has been incorporated by reference in this prospectus but not delivered with this prospectus. You may request a copy of this information at no cost, by writing or telephoning us at the following address or telephone number:

Grom Social Enterprises, Inc.

2060 NW Boca Raton Blvd., #6

Boca Raton, Florida 33431

(561) 287-5776

Attention: Corporate Secretary

GROM SOCIAL ENTERPRISES, INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

GROM SOCIAL ENTERPRISES INC.

Consolidated Balance Sheets