10-Q 1 form10-q.htm
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

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

 

For the quarterly period ended December 31, 2022

 

OR

 

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

 

For the transition period from             to          

 

Commission File Number: 001-40556

 

THE GLIMPSE GROUP, INC.

(Exact name of registrant as specified in its charter)

 

Nevada   81-2958271

(State or other jurisdiction of

incorporation or organization)

  

(I.R.S. Employer

Identification Number)

     

15 West 38th St., 12th Fl

New York, NY

   10018
(Address of principal executive offices)   (Zip Code)

 

Registrant’s telephone number, including area code: (917) 292-2685

 

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

 

Title of each class   Trading Symbol   Name of each exchange on which registered
Common Stock, par value $0.001 per share   VRAR   The NASDAQ Stock Market LLC

 

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

 

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

 

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

 

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

 

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

 

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

 

As of February 13, 2023, the registrant had 14,010,793 shares of common stock, par value $0.001 per share, outstanding.

 

 

 

 
 

 

THE GLIMPSE GROUP, INC.

TABLE OF CONTENTS

 

    Page No.
PART I FINANCIAL INFORMATION 3
ITEM 1. FINANCIAL STATEMENTS (Unaudited) 3
  Consolidated Balance Sheets 5
  Consolidated Statements of Operations 6
  Consolidated Statements of Stockholders’ Equity (Deficit) 7
  Consolidated Statements of Cash Flows 9
  Notes to Consolidated Financial Statements 10
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 29
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 37
ITEM 4. CONTROLS AND PROCEDURES 37
PART II OTHER INFORMATION 38
ITEM 1. LEGAL PROCEEDINGS 38
ITEM 1A. RISK FACTORS 38
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS 38
ITEM 6. EXHIBITS 39
SIGNATURES 40

 

2
 

 

THE GLIMPSE GROUP, INC.

 

CONSOLIDATED FINANCIAL STATEMENTS

 

(UNAUDITED)

 

FOR THE THREE AND SIX MONTHS ENDED DECEMBER 31, 2022 AND 2021

 

3
 

 

THE GLIMPSE GROUP, INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

  Page
Index to Consolidated Financial Statements (Unaudited)  
Consolidated Balance Sheets 5
Consolidated Statements of Operations 6
Consolidated Statements of Stockholders’ Equity (Deficit) 7
Consolidated Statements of Cash Flows 9
Notes to Consolidated Financial Statements 10-28

 

4
 

 

THE GLIMPSE GROUP, INC.

CONSOLIDATED BALANCE SHEETS

 

     As of
December 31, 2022
(Unaudited)		     As of
June 30, 2022
(Audited)		 
ASSETS          
Cash and cash equivalents  $7,204,722   $16,249,666 
Investments   236,576    239,314 
Accounts receivable   1,876,070    1,332,922 
Deferred costs/contract assets   109,739    39,484 
Prepaid expenses and other current assets   681,283    479,483 
Total current assets   10,108,390    18,340,869 
           
Equipment, net   350,688    245,970 
Note receivable   -    250,000 
Right-of-use assets   965,717    - 
Intangible assets, net   7,594,239    4,063,485 
Goodwill   22,556,959    13,464,760 
Other assets   101,766    32,000 
Restricted cash   2,000,000    2,000,000 
Total assets  $43,677,759   $38,397,084 
           
LIABILITIES AND STOCKHOLDERS’ EQUITY          
Accounts payable  $435,756   $340,139 
Accrued liabilities   207,043    188,417 
Accrued bonuses   294,713    169,262 
Deferred revenue/contract liabilities   754,779    841,389 
Asset purchase payable   44,000    734,037 
Lease liabilities, current portion   441,687    - 
Contingent consideration for acquisitions, current portion   1,593,700    1,966,171 
Total current liabilities   3,771,678    4,239,415 
           
Long term liabilities          
Contingent consideration for acquisitions, net of current portion   8,461,100    5,340,800 
Lease liabilities, net of current portion   517,647    - 
Total liabilities   12,750,425    9,580,215 
Commitments and contingencies   -     -  
Stockholders’ Equity          
Preferred Stock, par value $0.001 per share, 20 million shares authorized; 0 shares issued and outstanding   -    - 
Common Stock, par value $0.001 per share, 300 million shares authorized; 13,966,007 and 12,747,624 issued and outstanding   13,968    12,749 
Additional paid-in capital   63,069,423    56,885,815 
Accumulated deficit   (32,156,057)   (28,081,695)
Total stockholders’ equity   30,927,334    28,816,869 
Total liabilities and stockholders’ equity  $43,677,759   $38,397,084 

 

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

 

5
 

 

THE GLIMPSE GROUP, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

 

   2022   2021   2022   2021 
   For the Three Months Ended   For the Six Months Ended 
   December 31,   December 31, 
   2022   2021   2022   2021 
Revenue                
Software services  $2,886,458   $1,613,195   $6,748,972   $2,417,913 
Software license/software as a service   64,089    76,807    152,599    294,622 
Total Revenue   2,950,547    1,690,002    6,901,571    2,712,535 
Cost of goods sold   875,281    212,254    2,089,878    357,641 
Gross Profit   2,075,266    1,477,748    4,811,693    2,354,894 
Operating expenses:                    
Research and development expenses   2,532,646    1,190,490    4,535,025    2,179,874 
General and administrative expenses   1,260,675    1,130,446    2,636,000    1,889,343 
Sales and marketing expenses   1,934,589    665,677    3,678,828    1,170,364 
Amortization of acquisition intangible assets   541,714    66,663    985,681    87,495 
Change in fair value of acquisition contingent consideration   (5,425,998)   -    (2,822,600)   - 
Total operating expenses   843,626    3,053,276    9,012,934    5,327,076 
Income (loss) from operations before other income (expense)   1,231,640    (1,575,528)   (4,201,241)   (2,972,182)
                     
Other income (expense)                    
Interest income   76,725    134    126,879    19,757 
Loss on conversion of convertible notes   -    -    -    (279,730)
Total other income (expense), net   76,725    134    126,879    (259,973)
Net Income (Loss)  $1,308,365   $(1,575,394)  $(4,074,362)  $(3,232,155)
                     
Basic net income (loss) per share  $0.09   $(0.14)  $(0.30)  $(0.30)
Diluted net income (loss) per share  $0.07   $(0.14)  $(0.30)  $(0.30)
                     
Weighted-average shares used to compute basic net income (loss) per share   13,779,958    11,637,318    13,548,573    10,802,570 
Weighted-average shares used to compute diluted net income (loss) per share   19,264,307    11,637,318    13,548,573    10,802,570 

 

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

 

6
 

 

THE GLIMPSE GROUP, INC.

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

FOR THE THREE MONTHS ENDED DECEMBER 31, 2022

(Unaudited)

 

   Shares   Amount   Capital   Deficit   Total 
   Common Stock  

Additional

Paid-In

   Accumulated     
   Shares   Amount   Capital   Deficit   Total 
Balance as of October 1, 2022   13,593,734   $13,594   $60,864,978   $(33,464,422)  $27,414,150 
Common stock issued for satisfaction of prior year acquisition liability   214,288    214    733,822    -    734,036 
Common stock issued for purchase of intangible asset - technology   71,430    72    326,364    -    326,436 
Common stock issued for exercise of options   2,000    3    4,998    -    5,001 
Common stock issued for contingent acquisition obligation   35,714    36    197,463    -    197,499 
Stock based compensation expense   48,841    49    795,015    -    795,064 
Stock option-based board of directors expense   -    -    146,783    -    146,783 
Net income   -    -    -    1,308,365    1,308,365 
Balance as of December 31, 2022   13,966,007   $13,968   $63,069,423   $(32,156,057)  $30,927,334 

 

THE GLIMPSE GROUP, INC.

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

FOR THE SIX MONTHS ENDED DECEMBER 31, 2022

(Unaudited)

 

   Common Stock  

Additional

Paid-In

   Accumulated     
   Shares   Amount   Capital   Deficit   Total 
Balance as of July 1, 2022   12,747,624   $12,749   $56,885,815   $(28,081,695)  $28,816,869 
Common stock issued for acquisition   714,286    714    2,845,430    -    2,846,144 
Common stock issued for satisfaction of prior year acquisition liability   214,288    214    733,822    -    734,036 
Common stock issued for purchase of intangible asset - technology   71,430    72    326,364    -    326,436 
Common stock issued for exercise of options   26,681    27    44,889    -    44,916 
Common stock issued for contingent acquisition obligation   142,857    143    515,927    -    516,070 
Stock based compensation expense   48,841    49    1,423,609    -    1,423,658 
Stock option-based board of directors expense   -         293,567    -    293,567 
Net loss   -    -    -    (4,074,362)   (4,074,362)
Balance as of December 31, 2022   13,966,007   $13,968   $63,069,423   $(32,156,057)  $30,927,334 

 

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

 

7
 

 

THE GLIMPSE GROUP, INC.

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

FOR THE THREE MONTHS ENDED DECEMBER 31, 2021

(Unaudited)

 

   Common Stock  

Additional

Paid-In

   Accumulated     
   Shares   Amount   Capital   Deficit   Total 
Balance as of October 1, 2021   10,291,638   $10,292   $36,595,898   $(23,772,169)  $12,834,021 
Common stock issued in Securities Purchase Agreement, net   1,500,000    1,500    13,576,900    -    13,578,400 
Common stock issued for acquisition   311,078    311    4,299,689    -    4,300,000 
Common stock issued for legacy acquisition obligation   20,000    20    39,980    -    40,000 
Common stock issued to vendors for compensation   7,328    7    82,493    -    82,500 
Common stock issued for exercise of options   339,531    339    567,580    -    567,919 
Stock based compensation expense   10,841    11    513,728    -    513,739 
Stock option-based board of directors expense   -    -    88,467    -    88,467 
Net loss   -    -    -    (1,575,394)   (1,575,394)
Balance as of December 31, 2021   12,480,416   $12,480   $55,764,735   $(25,347,563)  $30,429,652 

 

THE GLIMPSE GROUP, INC.

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (DEFICIT)

FOR THE SIX MONTHS ENDED DECEMBER 31, 2021

(Unaudited)

 

   Common Stock  

Additional

Paid-In

   Accumulated     
   Shares   Amount   Capital   Deficit   Total 
Balance as of July 1, 2021   7,579,285   $7,580   $20,936,050   $(22,115,408)  $(1,171,778)
Common stock issued in Initial Public Offering, net   1,912,500    1,913    11,819,451    -    11,821,364 
Common stock issued in Securities Purchase Agreement, net   1,500,000    1,500    13,576,900    -    13,578,400 
Common stock issued for convertible note conversion   324,150    324    1,605,852    -    1,606,176 
Common stock issued for acquisition   388,342    388    5,049,612    -    5,050,000 
Common stock issued for legacy acquisition obligation   395,000    395    789,605    -    790,000 
Common stock issued to vendors for compensation   13,373    13    147,882    -    147,895 
Common stock issued for exercise of options   356,925    356    613,263    -    613,619 
Stock based compensation expense   10,841    11    1,050,252    -    1,050,263 
Stock option-based board of directors expense   -    -    175,868    -    175,868 
Net loss   -    -    -    (3,232,155)   (3,232,155)
Balance as of December 31, 2021   12,480,416   $12,480   $55,764,735   $(25,347,563)  $30,429,652 

 

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

 

8
 

 


THE GLIMPSE GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

   2022   2021 
   For the Six Months Ended December 31, 
   2022   2021 
Cash flows from operating activities:          
Net loss  $(4,074,362)  $(3,232,155)
Adjustments to reconcile net loss to net cash used in operating activities:          
Amortization and depreciation   1,056,131    102,851 
Common stock and stock option based compensation for employees and board of directors   1,717,462    1,289,381 
Acquisition contingent consideration fair value adjustment   (2,822,600)   - 
Common stock issuance for additional asset acquisition consideration   197,498      
Issuance of common stock to vendors as compensation   -    147,895 
Amortization of right-to-use-assets   190,052      
Loss on conversion of convertible notes   -    279,730 
           
Changes in operating assets and liabilities:          
Accounts receivable   (373,055)   (661,491)
Pre-offering costs   -    470,136 
Deferred costs/contract assets   482,133    3,181 
Prepaid expenses and other current assets   (130,336)   (359,921)
Other assets   30,100    (64,000)
Accounts payable   (439,737)   (238,736)
Accrued liabilities   (132,876)   (63,090)
Accrued bonuses   125,451    (33,852)
Deferred revenue/contract liabilities   (2,123,680)   311 
Lease liabilities   (196,435)   - 
Net cash used in operating activities   (6,494,254)   (2,359,760)
Cash flow from investing activities:          
Purchases of equipment   (119,588)   (50,080)
Acquisitions, net of cash acquired   (2,478,756)   (300,000)
Sale (purchase) of investments   2,738    (247,430)
Net cash used in investing activities   (2,595,606)   (597,510)
Cash flows from financing activities:          
Proceeds from initial public offering, net   -    11,821,364 
Proceeds from securities purchase agreement, net   -    13,578,400 
Proceeds from exercise of stock options   44,916    613,620 
Net cash provided by financing activities   44,916    26,013,384 
           
Net change in cash, cash equivalents and restricted cash   (9,044,944)   23,056,114 
Cash, cash equivalents and restricted cash, beginning of period   18,249,666    1,771,929 
Cash, cash equivalents and restricted cash, end of period  $9,204,722   $24,828,043 
Non-cash Investing and Financing activities:          
Common stock issued for acquisitions  $2,846,144   $1,050,000 
Common stock issued for satisfaction of prior year acquisition lability  $734,036   $- 
Common stock issued for purchase of intangible asset - technology  $326,436   $- 
Issuance of common stock for satisfaction of contingent liability, net of note extinguishment  $318,571   $- 
Extinguishment of note receivable for satisfaction of contingent liability  $250,000   $- 
Contingent acquisition consideration liability  $6,139,000   $- 
Lease liabilities arising from right-of-use assets  $1,155,769   $- 
Common stock issued and escrowed for acquisition  $-   $4,000,000 
Issuance of common stock for satisfaction of legacy acquisition liability  $-   $790,000 
Conversion of convertible promissory notes into common stock  $-   $1,606,176 
Issuance of warrants in connection with initial public offering  $-   $522,360 
Issuance of warrants in connection with securities purchase agreement  $-   $8,797,546 

 

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

 

9
 

 

THE GLIMPSE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

DECEMBER 31, 2022 AND 2021

 

NOTE 1. DESCRIPTION OF BUSINESS

 

The Glimpse Group, Inc. (“Glimpse” and together with its wholly owned subsidiaries, collectively, the “Company”) is a Virtual (VR) and Augmented (AR) Reality company, comprised of a diversified portfolio of wholly owned VR and AR software and services companies. Glimpse’s subsidiary companies are located in the United States, Turkey and Australia. The Company was incorporated in the State of Nevada in June 2016.

 

Glimpse’s robust VR/AR ecosystem, collaborative environment and business model strive to simplify the many challenges faced by companies in an emerging industry. Glimpse cultivates, optimizes and manages business operations while providing a strong network of professional relationships, thereby allowing the subsidiary company to maximize their time and resources in pursuit of mission-critical endeavors, reducing time to market, optimizing costs, improving product quality and leveraging joint go-to-market strategies, while simultaneously providing investors an opportunity to invest directly into the VR/AR industry via a diversified platform.

 

The Company completed an initial public offering (“IPO”) of its common stock on the Nasdaq Capital Market Exchange (“Nasdaq”) on July 1, 2021, under the ticker VRAR. In addition, pursuant to a Securities Purchase Agreement (“SPA”) the Company sold additional common stock to certain institutional investors in November 2021. See Note 8.

 

NOTE 2. LIQUIDITY AND CAPITAL RESOURCES

 

The Company incurred losses of $4.07 million and $3.23 million during the six months ended December 31, 2022 and 2021, respectively. These losses were incurred as the Company funded operational expenses, primarily research and development, general and administrative, and sales and marketing costs.

 

The Company expects to be cash flow neutral in the upcoming calendar year 2023. Management believes that the Company’s existing balances of cash and cash equivalents and accounts receivable as of the issuance date of these financial statements, which are approximately $6.0 million (excluding an additional $2 million held in escrow for potential future Sector 5 Digital, LLC (“S5D”) acquisition performance payment obligations) and $1.50 million, respectively, will be sufficient to meet its anticipated cash requirements for at least twelve months from the date that these financial statements are issued. However, should the Company’s current cash and cash equivalents not be sufficient to support the development of its business to the point at which it has positive cash flows from operations, the Company plans to meet its future needs for additional capital through equity and/or debt financings. Equity financings may include sales of common stock, including the utilization of a $100 million S3 registration statement filed with the United State Securities and Exchange Commission (“SEC”) on October 28, 2022. Such financing may not be available on terms favorable to the Company, or at all. If the Company is unable to obtain adequate financing or financing on terms satisfactory to it when required, the Company’s ability to continue to support its business growth, scale its infrastructure, develop product enhancements and to respond to business challenges could be significantly impaired.

 

NOTE 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Basis of presentation

 

The unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and the rules and regulations of the SEC. In the opinion of management, the unaudited consolidated financial statements have been prepared on the same basis as the annual consolidated financial statements and reflect all adjustments, which include only normal recurring adjustments, necessary to present fairly the financial position as of December 31, 2022, the results of operations for the three and six months ended December 31, 2022 and 2021, and cash flows for the six months ended December 31, 2022 and 2021. The financial data and other information disclosed in these notes to the interim financial statements related to these periods are unaudited. The results for the three and six months ended December 31, 2022 are not necessarily indicative of the results to be expected for the entire year ending June 30, 2023 or for any subsequent periods. The consolidated balance sheet at June 30, 2022 has been derived from the audited consolidated financial statements at that date.

 

10
 

 

THE GLIMPSE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

DECEMBER 31, 2022 AND 2021

 

Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) have been condensed or omitted pursuant to the Securities and Exchange Commission’s rules and regulations.

 

These unaudited consolidated financial statements should be read in conjunction with our audited consolidated financial statements and notes thereto for the year ended June 30, 2022.

 

Principles of Consolidation

 

The accompanying consolidated financial statements include the balances of Glimpse and its wholly owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.

 

Use of Accounting Estimates

 

The preparation of the accompanying consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the accompanying consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

 

The principal estimates relate to the valuation of allowance for doubtful accounts, stock options, warrants, revenue recognition, cost of goods sold, allocation of the purchase price of assets relating to business combinations and calculation of contingent consideration for acquisitions.

 

Cash and Cash Equivalents, Restricted Cash

 

Cash and cash equivalents consist of cash and deposits in bank checking accounts with immediate access and cash equivalents that represent highly liquid investments.

 

Restricted cash represents escrowed cash related to the Sector 5 Digital, LLC acquisition.

 

The components of cash, cash equivalents and restricted cash on the consolidated statements of cash flows as of December 31, 2022 and 2021 are as follows:

 

           
   As of December 31, 2022   As of December 31, 2021 
Cash and cash equivalents  $7,204,722   $24,828,043 
Restricted cash   2,000,000    - 
Total  $9,204,722   $24,828,043 

 

Accounts Receivable

 

Accounts receivable consists primarily of amounts due from customers under normal trade terms. Allowances for uncollectible accounts are provided for based upon a variety of factors, including historical amounts written-off, an evaluation of current economic conditions, and assessment of customer collectability. As of December 31, 2022 and June 30, 2022 no allowance for doubtful accounts was recorded as all amounts were considered collectible.

 

11
 

 

THE GLIMPSE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

DECEMBER 31, 2022 AND 2021

 

Customer Concentration and Credit Risk

 

Two customers accounted for approximately 55% (29% and 26%, respectively) of the Company’s total gross revenues during the three months ended December 31, 2022. One of the same customers and a different customer accounted for approximately 75% (45% and 30%, respectively) of the Company’s total gross revenues during the three months ended December 31, 2021. Two customers accounted for approximately 56% (29% and 27%, respectively) of the Company’s total gross revenues during the six months ended December 31, 2022. One of the same customers and a different customer accounted for approximately 67% (49% and 18%, respectively) of the Company’s total gross revenues during the six months ended December 31, 2021.

 

Two customers accounted for approximately 45% (24% and 21%, respectively) of the Company’s accounts receivable at December 31, 2022. One of these customers and a different customer accounted for approximately 59% (37% and 22%, respectively) of the Company’s accounts receivable at June 30, 2022.

 

The Company maintains cash in accounts that, at times, may be in excess of the Federal Deposit Insurance Corporation limit. The Company has not experienced any losses on such accounts.

 

Business Combinations

 

The results of a business acquired in a business combination are included in the Company’s consolidated financial statements from the date of the acquisition. Purchase accounting results in assets and liabilities of an acquired business generally being recorded at their estimated fair values as of the acquisition date. Any excess consideration over the fair value of assets acquired and liabilities assumed is recognized as goodwill. Acquisition-related expenses are recognized separately from the business combination and are expensed as incurred.

 

The Company performs valuations of assets acquired and liabilities assumed and allocates the purchase price to its respective assets and liabilities. Determining the fair value of assets acquired and liabilities assumed may require management to use significant judgment and estimates, including the selection of valuation methodologies, estimates of future revenues, costs and cash flows. Estimates of fair value are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates. During the measurement period, which is typically one year from the acquisition date, if new information is obtained about facts and circumstances that existed as of the acquisition date, changes in the estimated values of the net assets recorded may change the amount of the purchase price allocated to goodwill. Upon the conclusion of the measurement period, any subsequent adjustments are recorded in the consolidated statement of operations. At times, the Company engages the assistance of valuation specialists in concluding on fair value measurements in connection with determining fair values of assets acquired and liabilities assumed in a business combination.

 

Further, during the year ended June 30, 2022, the Company early adopted ASU No. 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, which requires an acquirer to account for the related revenue contracts, acquired in the business acquisition, in accordance with ASC Topic 606 Revenue from Contracts with a Customer as if the Company had originated the contracts.

 

12
 

 

THE GLIMPSE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

DECEMBER 31, 2022 AND 2021

 

Intangible assets (other than Goodwill)

 

Intangibles represent the allocation of a portion of the acquisition’s purchase price (see Note 5). Intangibles are stated at allocated cost less accumulated amortization. Amortization is computed using the straight-line method over the estimated useful lives of the related assets. The Company reviews intangibles, being amortized, for impairment when current events indicate that the fair value may be less than the carrying value.

 

Goodwill

 

Goodwill represents the excess of the purchase price over the fair value of identifiable net assets acquired in business combinations accounted for under the acquisition method. Goodwill is not amortized but instead is tested at least annually for impairment, or more frequently when events or changes in circumstances indicate that goodwill might be impaired.

 

Fair Value of Financial Instruments

 

Fair value is defined 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. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. The fair value hierarchy, which is based on three levels of inputs, the first two of which are considered observable and the last unobservable, that may be used to measure fair value, is as follows:

 

● Level 1 — quoted prices (unadjusted) in active markets for identical assets or liabilities;

 

● Level 2 — inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; or

 

● Level 3 — unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

 

The Company classifies its cash equivalents and investments within Level 1 of the fair value hierarchy on the basis of valuations based on quoted prices for the specific securities in an active market.

 

The Company’s contingent consideration is categorized as Level 3 within the fair value hierarchy. Contingent consideration is recorded within contingent consideration, current, and contingent consideration, non-current, in the Company’s consolidated balance sheets as of December 31, and June 30, 2022. Contingent consideration has been recorded at its fair values using unobservable inputs and have included using the Monte Carlo simulation option pricing framework, incorporating contractual terms and assumptions regarding financial forecasts, discount rates, and volatility of forecasted revenue. The development and determination of the unobservable inputs for Level 3 fair value measurements and fair value calculations are the responsibility of the Company’s management with the assistance of a third-party valuation specialist.

 

The Company’s other financial instruments consist primarily of accounts receivable, note receivable, accounts payable, accrued liabilities and other liabilities, and approximate fair value due to the short-term nature of these instruments.

 

13
 

 

THE GLIMPSE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

DECEMBER 31, 2022 AND 2021

 

Revenue Recognition

 

Nature of Revenues

 

The Company reports its revenues in two categories:

 

●Software Services: Virtual and Augmented Reality projects, solutions and consulting services.

 

●Software License and Software-as-a-Service (“SaaS”): Virtual and Augmented Reality software that is sold either as a license or as a SaaS subscription.

 

The Company applies the following steps in order to determine the appropriate amount of revenue to be recognized as it fulfills its obligations under each of its agreements:

 

●identify the contract with a customer;

 

●identify the performance obligations in the contract;

 

●determine the transaction price;

 

●allocate the transaction price to performance obligations in the contract;

 

●recognize revenue as the performance obligation is satisfied;

 

●determine that collection is reasonably assured.

 

Revenue is recognized when the Company satisfies its performance obligation under the contract by transferring the promised product to its customer or service is performed and collection is reasonably assured. A performance obligation is a promise in a contract to transfer a distinct product or service to a customer. A portion of the Company’s contracts have a single performance obligation, as the promise to transfer products or services is not separately identifiable from other promises in the contract and, therefore, not distinct. Other contracts can include various services and products which are at times capable of being distinct, and therefore may be accounted for as separate performance obligations.

 

Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring products or providing services. As such, revenue is recorded net of returns, allowances, customer discounts, and incentives. Sales taxes and other taxes are excluded from revenues.

 

For distinct performance obligations recognized at a point in time, any unrecognized portion of revenue and any corresponding unrecognized expenses are presented as deferred revenue/contract liability and deferred costs/contract asset, respectively, in the accompanying consolidated balance sheets. Contract assets include cash and equity based payroll costs, and may include payments to consultants and vendors.

 

For distinct performance obligations recognized over time, the Company records a contract asset (costs in excess of billings) when revenue is recognized prior to invoicing, or a contract liability (billings in excess of costs) when revenue is recognized subsequent to invoicing.

 

Significant Judgments

 

The Company’s contracts with customers may include promises to transfer multiple products/services. Determining whether products/services are considered distinct performance obligations that should be accounted for separately versus together may require significant judgment. Further, judgment may be required to determine the standalone selling price for each distinct performance obligation.

 

Disaggregation of Revenue

 

The Company generated revenue for the six months ended December 31, 2022 and 2021 by delivering: (i) Software Services, consisting primarily of VR/AR software projects, solutions and consulting services, and (ii) Software Licenses & SaaS, consisting primarily of VR and AR software licenses or SaaS. The Company currently generates its revenues primarily from customers in the United States.

 

14
 

 

THE GLIMPSE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

DECEMBER 31, 2022 AND 2021

 

Revenue for a significant portion of Software Services projects and solutions (projects whereby, the development of the project leads to an identifiable asset with an alternative use to the Company) is recognized at the point of time in which the customer obtains control of the project, customer accepts delivery and confirms completion of the project. Certain other Software Services revenues are custom project solutions (projects whereby, the development of the custom project leads to an identifiable asset with no alternative use to the Company, and, in which, the Company also has an enforceable right to payment under the contract) and are therefore recognized based on the percentage of completion using an input model with a master budget. The budget is reviewed periodically and percentage of completion adjusted accordingly.

 

Revenue for Software Services consulting services and website maintenance is recognized when the Company performs the services, typically on a monthly retainer basis.

 

Revenue for Software License is recognized at the point of time in which the Company delivers the software and customer accepts delivery. If there are significant contractually stated ongoing service obligations to be performed during the term of the Software License or SaaS contract, then revenues are recognized ratably over the term of the contract.

 

Timing of Revenue

 

The timing of revenue recognition for the three and six months ended December 31, 2022 and 2021 was as follows:

 

                     
   For the Three Months Ended   For the Six Months Ended 
   December 31,   December 31, 
   2022   2021   2022   2021 
Products and services transferred at a point in time  $2,193,055   $1,634,998   $5,190,003   $2,590,749 
Products and services transferred/recognized over time   757,492    55,004    1,711,568    121,786 
Total Revenue  $2,950,547   $1,690,002   $6,901,571   $2,712,535 

 

Remaining Performance Obligations

 

Timing of revenue recognition may differ from the timing of invoicing to customers. The Company generally records a receivable/contract asset when revenue is recognized prior to invoicing, or deferred revenue/contract liability when revenue is recognized subsequent to invoicing.

 

For certain Software Services project contracts the Company invoices customers after the project has been delivered and accepted by the customer. Software Service project contracts typically consist of designing and programming software for the customer. In most cases, there is only one distinct performance obligation, and revenue is recognized upon completion, delivery and customer acceptance. Contracts may include multiple distinct projects that can each be implemented and operated independently of subsequent projects in the contract. In such cases, the Company accounts for these projects as separate distinct performance obligations and recognizes revenue upon the completion of each project or obligation, its delivery and customer acceptance.

 

For contracts recognized over time, contract liabilities include billings invoiced for software projects for which the contract’s performance obligations are not complete.

 

15
 

 

THE GLIMPSE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

DECEMBER 31, 2022 AND 2021

 

For certain other Software Services project contracts, the Company invoices customers for a substantial portion of the project upon entering into the contract due to their custom nature and revenue is recognized based upon percentage of completion. Revenue recognized subsequent to invoicing is recorded as a deferred revenue/contract liability (billings in excess of cost) and revenue recognized prior to invoicing is recorded as a deferred cost/contract asset (cost in excess of billings).

 

For Software Services consulting or retainer contracts, the Company generally invoices customers monthly at the beginning of each month in advance for services to be performed in the following month. The sole performance obligation is satisfied when the services are performed. Software Services consulting or retainer contracts typically consist of ongoing support for a customer’s software or specified business practices.

 

For Software License contracts, the Company generally invoices customers when the software has been delivered to and accepted by the customer, which is also when the performance obligation is satisfied. For SaaS contracts, the Company generally invoices customers in advance at the beginning of the service term.

 

For multi-period Software License contracts, the Company generally invoices customers annually at the beginning of each annual coverage period. Software License contracts consist of providing clients with software designed by the Company. For Software License contracts, there are generally no ongoing support obligations unless specified in the contract (becoming a Software Service).

 

Unfulfilled performance obligations represent amounts expected to be earned by the Company on executed contracts. As of December 31, 2022, the Company had approximately $2.83 million in unfulfilled performance obligations.

 

Employee Stock-Based Compensation

 

The Company recognizes stock-based compensation expense related to grants to employees or service providers based on grant date fair values of common stock or the stock options, which are amortized over the requisite period, as well as forfeitures as they occur.

 

The Company values the options using the Black-Scholes Merton (“Black Scholes”) method utilizing various inputs such as expected term, expected volatility and the risk-free rate. The expected term reflects the application of the simplified method, which is the weighted average of the contractual term of the grant and the vesting period for each tranche. Expected volatility is derived from a weighted average of volatility inputs for the Company. The risk-free rate is based on the implied yield of U.S. Treasury notes as of the grant date with a remaining term approximately equal to the expected life of the award.

 

Research and Development Costs

 

Research and development expenses are expensed as incurred, and include payroll, employee benefits and stock-based compensation expense. Research and development expenses also include third-party development and programming costs. Given the emerging industry and uncertain market environment the Company operates in, research and development costs are not capitalized.

 

Earnings Per Share

 

Basic earnings per share (“EPS”) is computed based on the weighted average number of shares of common stock outstanding during the period. Diluted EPS is computed based on the weighted average number of shares of common stock plus the effect of dilutive potential shares of common stock outstanding during the period using the treasury stock method. Dilutive potential common shares include the issuance of potential shares of common stock for outstanding stock options and warrants.

 

16
 

 

THE GLIMPSE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

DECEMBER 31, 2022 AND 2021

 

Reclassifications

 

Certain accounts in the prior period financial statements have been reclassified for comparative purposes to conform with the presentation in the current period financial statements.

 

Recently Adopted Accounting Pronouncements

 

Leases

 

Adoption of the New Lease Accounting Standard

 

On July 1, 2022, the Company adopted ASU No. 2016-02, Leases (Topic 842), using the modified retrospective transition method applied at the adoption date of the standard. Results for reporting periods beginning after July 1, 2022 are presented under the new leasing standard, while prior period amounts are not adjusted and continue to be reported in accordance with the Company’s historic accounting. The Company has elected to utilize the package of practical expedients at the time of adoption, which allows the Company to (1) not reassess whether any expired or existing contracts are or contain leases, (2) not reassess the lease classification of any expired or existing leases, and (3) not reassess initial direct costs for any existing leases. The Company also has elected to utilize the short-term lease recognition exemption and, for those leases that qualified, the Company did not recognize right-of-use (“ROU”) assets or lease liabilities. As a result of adoption, the Company recorded ROU assets related to office facility leases which are recognized on the consolidated balance sheet and the associated lease liabilities are recognized on the consolidated balance sheet. The present value of the Company’s remaining lease payments, which comprise the lease liabilities, was estimated using an estimated incremental borrowing rate as of the adoption date.

 

The adoption resulted in no adjustment to July 1, 2022 accumulated deficit on the consolidated balance sheet.

 

As of July 1, 2022, the Company recorded right-of-use assets of $0.75 million, lease liabilities, current portion of $0.32 million and lease liabilities, net of current portion of $0.43 million. With the purchase of Brightline Interactive, LLC (“BLI”), on August 1, 2022, the Company added right-of-use assets of $0.41 million, lease liabilities, current portion of $0.12 million and lease liabilities, net of current portion of $0.29 million.

 

New Lease Accounting Policies

 

The Company determines if an arrangement is a lease at inception and determines the classification of the lease, as either operating or finance, at commencement.

 

For short-term leases with expected terms of less than 1 year, the Company does not recognize ROU assets or lease liabilities. The Company does not have any finance leases. ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As the rate implicit in the Company’s leases is not readily determinable, the Company uses an estimated incremental borrowing rate based on the information available at the lease commencement date in determining the present value of lease payments. The Company estimates the incremental borrowing rate to reflect the profile of secured borrowing over the expected term of the leases based on the information available at the later of the initial date of adoption or the lease commencement date.

 

Recent Accounting Pronouncements

 

Management does not believe that any recently issued, but not yet effective, accounting standards if currently adopted would have a material effect on the Company’s financial statements.

 

17
 

 

THE GLIMPSE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

DECEMBER 31, 2022 AND 2021

 

NOTE 4. ACQUISITION AND TECHNOLGY PURCHASE

 

Acquisition (“BLI”)

 

On May 25, 2022, Glimpse entered into an Agreement and Plan of Merger (the “Merger Agreement”), with BLI and each of the equity holders of BLI named therein (collectively, the “Members”). BLI is an immersive technology company that provides VR and AR based training scenarios and simulations for commercial and government customers. The acquisition significantly expands the Company’s operating and financial scale, introduces new tier 1 customers specifically in the communication, entertainment and government segments, and bolsters the executive management team.

 

In August 2022, BLI became a wholly-owned subsidiary of Glimpse.

 

The aggregate consideration to the Members per the Agreement consisted of: (a) $568,046 cash paid (net of working capital adjustments, as defined, of $505,787) at August 1, 2022 closing (the “Closing”); (b) $1,926,167 of cash paid at the Closing to extinguish BLI’s outstanding debt and pay down other obligations; (c) 714,286 shares of the Company’s common stock fair valued at the Closing; and (d) future purchase price considerations payable to the Members, up to a residual of $24,500,000. The $24,500,000 is based and payable on BLI’s achievement of certain revenue growth milestones at points in time and cumulatively during the three years post-Closing Date, the payment of which shall be made up to $12,000,000 in cash and the remainder in common shares of the Company, priced at the dates of the future potential share issuance subject to a common stock price floor of $7.00 per share.

 

The fair value allocation for the purchase price consideration paid at Closing (including subsequent post-closing adjustment) was recorded as follows:

 

      
Purchase price consideration:     
Cash paid to members at Closing  $2,494,213 
Post-closing working capital adjustment   (185,501)
Company common stock fair value at Closing   2,846,144 
Fair value of contingent consideration to be achieved   6,139,000 
Total purchase price  $11,293,856 
      
Fair value allocation of purchase price:     
Cash and cash equivalents  $15,560 
Accounts receivable   253,041 
Deferred costs/contract assets   552,625 
Other assets   90,000 
Equipment, net   55,580 
Accounts payable and accrued expenses   (848,079)
Deferred revenue/contract liabilities   (2,037,070)
Intangible assets - customer relationships   3,310,000 
Intangible assets - technology   880,000 
Goodwill   9,022,199 
Total fair value allocation of purchase price  $11,293,856 

 

18
 

 

THE GLIMPSE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

DECEMBER 31, 2022 AND 2021

 

The Company’s fair value estimate of the contingent consideration for the BLI acquisition was determined using a Monte Carlo simulation and other methods which account for the probabilities of various outcomes. The Company’s fair value estimate related to the identified intangible asset of customer relationships was determined using the Multi-Period Excess Earnings Method. This valuation method requires management to project revenues, customer attrition and cash flows for the reporting unit over a multiyear period, as well as determine the weighted average cost of capital to be used as a discount rate. The Company’s fair value estimate related to the identified intangible asset of technology was determined using the Relief from Royalty Method. This valuation method requires management to estimate the royalty rate based on market data for royalty arrangements involving similar technology, the obsolesce rate, and the weighted average cost of capital to be used as a discount rate.

 

The goodwill recognized in connection with the acquisition is primarily attributable to new markets access and will be deductible for tax purposes.

 

In accordance with GAAP, the fair value of the contingent consideration was remeasured at December 31, 2022, based on market conditions as of that date. The remeasurement resulted in a fair value amount at December 31, 2022 of $4.56 million, a decrease of approximately $1.58 million since Closing. The decrease in fair value of the contingent consideration is driven by revisions to BLI’s revenue projections and a decrease in the Company’s common stock price between the measurement dates. This decrease is recorded as a gain in operating expenses on the consolidated statement of operations (see Note 6).

 

Unaudited Pro Forma Results

 

The unaudited pro forma financial information in the table below summarizes the combined results of operations for the Company and BLI, as if the companies were combined for the six months ended December 31, 2022. The unaudited pro forma financial information includes the business combination accounting effects resulting from this acquisition, including adjustments to reflect recognition of intangible asset amortization. The unaudited pro forma financial information as presented below is for informational purposes only and is not necessarily indicative of the results of operations that would have been achieved if the acquisitions had taken place at July 1, 2022.

 

The approximate unaudited pro forma financial information if BLI was included since July 1, 2022 would be:

 

   For the Six Months Ended 
   December 31, 2022 
     
Revenue  $6,904,000 
Net Loss  $(4,225,000)

 

The pro forma net loss was adjusted to exclude approximately $0.27 million of acquisition-related costs incurred in 2022. The 2022 pro forma net loss includes a gain of approximately $1.58 million for contingent consideration fair value adjustments.

 

Costs related to the acquisition, which include legal, accounting and valuation fees, in the amount of approximately $0.27 million have been charged directly to operations and are included in general and administrative expenses on the consolidated statement of operations for the six months ended December 31, 2022.

 

19
 

 

THE GLIMPSE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

DECEMBER 31, 2022 AND 2021

 

The Company recognized approximately $2.55 million in revenue and $0.50 million (inclusive of contingent consideration fair value adjustment gain of $1.58 million) of net income related to BLI since the acquisition Closing date of August 1, 2022 through December 31, 2022 in the consolidated statement of operations.

 

The BLI acquisition above was considered a business combination in accordance with GAAP.

 

Technology Purchase

 

In November 2022, the Company entered into an assignment agreement with inciteVR (“IVR”), whereby the Company purchased the entire right, title and interest to certain VR/AR technology, as defined.

 

The Company issued 71,430 shares of the Company’s common stock valued at approximately $325,000 in full payment of the assignment, with no further consideration obligations thereto. The $325,000 was recorded as intangible assets - technology on the Company’s consolidated balance sheet as of December 31, 2022.

 

Certain IVR owners became employees of Glimpse after the assignment.

 

NOTE 5. INTANGIBLE ASSETS

 

Intangible assets, their respective amortization period, and accumulated amortization at December 31, 2022 are as follows:

 

                                         
   As of December 31, 2022 
   Value ($)   Amortization Period (Years) 
   AUGGD   XR Terra   S5D   PulpoAR   BLI   inciteVR   Total     
Intangible Assets                                        
Customer Relationships  $250,000   $-   $2,820,000   $-   $3,310,000   $-   $6,380,000    3 -5 
Technology   250,000    300,000    -    925,000    880,000    326,435    2,681,435    3 
Less: Accumulated Amortization   (229,152)   (124,995)   (517,000)   (179,858)   (398,055)   (18,136)   (1,467,196)     
Intangible Assets, net  $270,848   $175,005   $2,303,000   $745,142   $3,791,945   $308,299   $7,594,239      

 

Intangible asset amortization expense for the three and six months ended December 31, 2022 was approximately $0.54 and $ 0.99 million, respectively.

 

Intangible asset amortization expense for the three and six months ended December 31, 2021 was approximately $0.07 and $ 0.09 million, respectively.

 

Estimated intangible asset amortization expense for the remaining lives are as follows:

 

      
Remaining Fiscal Year Ended June 30, 2023  $1,102,000 
Fiscal Year Ended June 30, 2024  $2,203,000 
Fiscal Year Ended June 30, 2025  $1,957,000 
Fiscal Year Ended June 30, 2026  $1,287,000 
Fiscal Year Ended June 30, 2027  $991,000 
Fiscal Year Ended June 30, 2028  $55,000 

 

20
 

 

THE GLIMPSE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

DECEMBER 31, 2022 AND 2021

 

NOTE 6. FINANCIAL INSTRUMENTS

 

Cash and Cash Equivalents and Investments

 

The Company’s money market funds and investments (short term, investment grade corporate bonds) are categorized as Level 1 within the fair value hierarchy. As of December 31 and June 30, 2022, the Company’s cash and cash equivalents and investments were as follows:

   As of December 31, 2022 
   Cost   Unrealized Gain (Loss)   Fair Value   Cash and Cash Equivalents   Investments 
Cash  $611,626   $-       $611,626     
Level 1:                         
Money market funds   6,593,096    -    6,593,096    6,593,096     
Total cash and cash equivalents  $7,204,722   $-   $6,593,096   $7,204,722      
                          
Level 1:                         
Investments  $241,595   $(5,019)  $236,576        $236,576 

 

   As of June 30, 2022 
   Cost   Unrealized Gain (Loss)   Fair Value   Cash and Cash Equivalents   Investments 
Cash  $1,233,608   $-       $1,233,608     
Level 1:                         
Money market funds   15,016,058    -    15,016,058    15,016,058     
Total cash and cash equivalents  $16,249,666   $-   $15,016,058   $16,249,666      
                          
Level 1:                         
Investments  $245,187   $(5,873)  $239,314        $239,314 

 

Contingent Consideration

 

As of December 31 and June 30, 2022, the Company’s contingent consideration liabilities related to acquisitions are categorized as Level 3 within the fair value hierarchy. Contingent consideration was valued at the time of acquisitions and at December 31 and June 30, 2022 using unobservable inputs and have included using the Monte Carlo simulation model. This model incorporates revenue volatility, internal rate of return, and risk-free rate. The development and determination of the unobservable inputs for Level 3 fair value measurements and fair value calculations are the responsibility of the Company’s management with the assistance of a third-party valuation specialist.

 

As of December 31, 2022, the Company’s contingent consideration liabilities current and non-current balances were as follows:

 

                     
   As of December 31, 2022 
   Contingent Consideration at Purchase Date   Changes in Fair Value