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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, 2023

 

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 YorkNY

  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 7, 2024, the registrant had 16,801,574 shares of common stock, par value $0.001 per share, outstanding.

 

 

 

 
 

 

THE GLIMPSE GROUP, INC.

TABLE OF CONTENTS

 

    Page No.
PART I FINANCIAL INFORMATION  
ITEM 1. FINANCIAL STATEMENTS (Unaudited) 4
  Condensed Consolidated Balance Sheets 5
  Condensed Consolidated Statements of Operations 6
  Condensed Consolidated Statements of Stockholders’ Equity 7
  Condensed Consolidated Statements of Cash Flows 9
  Notes to Condensed 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 36
ITEM 4. CONTROLS AND PROCEDURES 37
PART II OTHER INFORMATION 37
ITEM 1. LEGAL PROCEEDINGS 37
ITEM 1A. RISK FACTORS 37
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS 38
ITEM 6. EXHIBITS 38
SIGNATURES 39

 

2

 

 

THE GLIMPSE GROUP, INC.

 

CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

(UNAUDITED)

 

FOR THE THREE AND SIX MONTHS ENDED DECEMBER 31, 2023 AND 2022

 

3

 

 

THE GLIMPSE GROUP, INC.

INDEX TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

  Page
Index to Condensed Consolidated Financial Statements (Unaudited) 4
Condensed Consolidated Balance Sheets 5
Condensed Consolidated Statements of Operations 6
Condensed Consolidated Statements of Stockholders’ Equity 7-8
Condensed Consolidated Statements of Cash Flows 9
Notes to Condensed Consolidated Financial Statements 10-28

 

4

 

 

THE GLIMPSE GROUP, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

 

   As of
December 31, 2023
   As of
June 30, 2023
 
   (Unaudited)   (Audited) 
ASSETS          
Cash and cash equivalents  $5,220,653   $5,619,083 
Accounts receivable   1,245,718    1,453,770 
Deferred costs/contract assets   76,992    158,552 
Prepaid expenses and other current assets   661,394    562,163 
Total current assets   7,204,757    7,793,568 
           
Equipment, net   203,624    264,451 
Right-of-use assets, net   624,303    627,832 
Intangible assets, net   3,111,104    4,284,151 
Goodwill   10,857,600    11,236,638 
Other assets   73,273    71,767 
Total assets  $22,074,661   $24,278,407 
           
LIABILITIES AND STOCKHOLDERS’ EQUITY          
Accounts payable  $275,700   $455,777 
Accrued liabilities   292,141    635,616 
Accrued non cash performance bonus   363,216    1,041,596 
Deferred revenue/contract liabilities   136,862    466,393 
Lease liabilities, current portion   450,032    405,948 
Contingent consideration for acquisitions, current portion   4,550,000    5,120,791 
Total current liabilities   6,067,951    8,126,121 
           
Long term liabilities          
Contingent consideration for acquisitions, net of current portion   923,100    4,505,000 
Lease liabilities, net of current portion   286,465    423,454 
Total liabilities   7,277,516    13,054,575 
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; 16,722,146 and 14,701,929 issued and outstanding
   16,723    14,702 
Additional paid-in capital   72,283,210    67,854,108 
Accumulated deficit   (57,502,788)   (56,644,978)
Total stockholders’ equity   14,797,145    11,223,832 
Total liabilities and stockholders’ equity  $22,074,661   $24,278,407 

 

The accompanying notes are an integral part of these condensed consolidated financial statements (unaudited).

 

5

 

 

THE GLIMPSE GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

 

   2023   2022   2023   2022 
   For the Three Months Ended   For the Six Months Ended 
   December 31,   December 31, 
   2023   2022   2023   2022 
Revenue                
Software services  $2,032,272   $2,886,458   $5,044,343   $6,748,972 
Software license/software as a service   44,153    64,089    136,962    152,599 
Total Revenue   2,076,425    2,950,547    5,181,305    6,901,571 
Cost of goods sold   655,509    875,281    1,837,018    2,089,878 
Gross Profit   1,420,916    2,075,266    3,344,287    4,811,693 
Operating expenses:                    
Research and development expenses   1,391,883    2,532,646    3,072,670    4,535,025 
General and administrative expenses   1,045,194    1,260,675    2,141,236    2,636,000 
Sales and marketing expenses   765,116    1,737,091    1,578,858    3,481,330 
Amortization of acquisition intangible assets   291,036    541,714    659,156    985,681 
Intangible asset impairment (inclusive of $379,038 goodwill impairment)   8,275    -    901,204    - 
Change in fair value of acquisition contingent consideration   (1,268,014)   (5,228,500)   (4,025,544)   (2,625,102)
Total operating expenses   2,233,490    843,626    4,327,580    9,012,934 
Income (Loss) from operations before other income   (812,574)   1,231,640    (983,293)   (4,201,241)
                     
Other income                    
Interest income   74,207    76,725    125,483    126,879 
Net Income (Loss)  $(738,367)  $1,308,365   $(857,810)  $(4,074,362)
                     
Basic net income (loss) per share  $(0.04)  $0.09   $(0.05)  $(0.30)
Diluted net income (loss) per share  $(0.04)  $0.07   $(0.05)  $(0.30)
                     
Weighted-average shares used to compute basic net income (loss) per share   16,668,740    13,779,958    15,699,563    13,548,573 
Weighted-average shares used to compute diluted net income (loss) per share   16,668,740    19,264,307    15,699,563    13,548,573 

 

The accompanying notes are an integral part of these condensed consolidated financial statements (unaudited).

 

6

 

 

THE GLIMPSE GROUP, INC.

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

FOR THE THREE MONTHS ENDED DECEMBER 31, 2023

(Unaudited)

 

   Shares   Amount   Paid-In Capital   Deficit   Total 
   Common Stock   Additional   Accumulated     
   Shares   Amount   Paid-In Capital   Deficit   Total 
Balance as of October 1, 2023   14,812,518   $14,813   $68,801,845   $(56,764,421)  $12,052,237 
Common stock issued in Securities Purchase Agreement, net   1,885,715    1,886    2,966,615    -    2,968,501 
Common stock issued to vendors for compensation   17,671    18    46,328    -    46,346 
Stock based compensation expense   6,242    6    399,248    -    399,254 
Stock option-based board of directors expense   -    -    69,174    -    69,174 
Net loss   -    -    -    (738,367)   (738,367)
Balance as of December 31, 2023   16,722,146   $16,723   $72,283,210   $(57,502,788)  $14,797,145 

 

THE GLIMPSE GROUP, INC.

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

FOR THE SIX MONTHS ENDED DECEMBER 31, 2023

(Unaudited)

 

   Common Stock   Additional   Accumulated     
   Shares   Amount   Paid-In Capital   Deficit   Total 
Balance as of July 1, 2023   14,701,929   $14,702   $67,854,108   $(56,644,978)  $11,223,832 
Common stock issued in Securities Purchase Agreement, net   1,885,715    1,886    2,966,615    -    2,968,501 
Common stock issued to vendors for compensation   28,571    29    73,253    -    73,282 
Common stock issued for exercise of options   8,819    9    (9)   -    - 
Common stock issued to satisfy contingent acquisition obligations   35,714    36    127,109    -    127,145 
Stock based compensation expense   61,398    61    1,118,859    -    1,118,920 
Stock option-based board of directors expense   -    -    143,275    -    143,275 
Net loss   -    -    -    (857,810)   (857,810)
Balance as of December 31, 2023   16,722,146   $16,723   $72,283,210   $(57,502,788)  $14,797,145 

 

The accompanying notes are an integral part of these condensed consolidated financial statements (unaudited).

 

7

 

 

THE GLIMPSE GROUP, INC.

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

FOR THE THREE MONTHS ENDED DECEMBER 31, 2022

(Unaudited)

 

   Common Stock   Additional   Accumulated     
   Shares   Amount   Paid-In 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 purchase of intangible asset - technology   71,430    72    326,364    -    326,436 
Common stock issued for satisfaction of prior year acquisition liability   214,288    214    733,822    -    734,036 
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.

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

FOR THE SIX MONTHS ENDED DECEMBER 31, 2022

(Unaudited)

 

   Common Stock   Additional   Accumulated     
   Shares   Amount   Paid-In 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 condensed consolidated financial statements (unaudited).

 

8

 

 


THE GLIMPSE GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

   2023   2022 
   For the Six Months Ended December 31, 
   2023   2022 
Cash flows from operating activities:          
Net loss  $(857,810)  $(4,074,362)
Adjustments to reconcile net loss to net cash used in operating activities:          
Amortization and depreciation   720,458    1,056,131 
Common stock and stock option based compensation for employees and board of directors   1,135,048    1,717,462 
Accrued non cash performance bonus fair value adjustment   (551,234)   - 
Acquisition contingent consideration fair value adjustment   (4,025,544)   (2,625,102)
Impairment of intangible assets   901,204    - 
Issuance of common stock to vendors as compensation   73,282    - 
Adjustment to operating lease right-of-use assets and liabilities   (89,376)   (6,383)
           
Changes in operating assets and liabilities:          
Accounts receivable   208,052    (373,055)
Deferred costs/contract assets   81,560    482,133 
Prepaid expenses and other current assets   (99,231)   (130,336)
Other assets   (1,507)   30,100 
Accounts payable   (180,077)   (439,737)
Accrued liabilities   (343,474)   (7,425)
Deferred revenue/contract liabilities   (329,531)   (2,123,680)
Net cash used in operating activities   (3,358,180)   (6,494,254)
Cash flow from investing activities:          
Purchases of equipment   (8,751)   (119,588)
Acquisitions, net of cash acquired   -    (2,478,756)
Proceeds from maturity of investments   -    2,738 
Net cash used in investing activities   (8,751)   (2,595,606)
Cash flows provided by financing activities:          
Proceeds from securities purchase agreement, net   2,968,501    - 
Proceeds from exercise of stock options   -    44,916 
Cash provided by financing activities   2,968,501    44,916 
           
Net change in cash, cash equivalents and restricted cash   (398,430)   (9,044,944)
Cash, cash equivalents and restricted cash, beginning of year   5,619,083    18,249,666 
Cash, cash equivalents and restricted cash, end of period  $5,220,653   $9,204,722 
Non-cash Investing and Financing activities:          
           
Issuance of common stock for satisfaction of contingent liability  $127,145   $734,036 
Issuance of common stock for non cash performance bonus  $127,145   $- 
Lease liabilities arising from right-of-use assets  $113,182   $1,155,769 
Note receivable for sale of subsidiary assets  $1,000,000   $- 
Allowance against note receivable  $(1,000,000)  $- 
Common stock issued for acquisition  $-   $2,846,144 
Contingent acquisition consideration liability recorded at closing  $-   $6,139,000 
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 

 

The accompanying notes are an integral part of these condensed consolidated financial statements (unaudited).

 

9

 

 

THE GLIMPSE GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

DECEMBER 31, 2023 AND 2022

 

NOTE 1. DESCRIPTION OF BUSINESS

 

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

 

Glimpse’s unique business model builds scale and a robust ecosystem, while simultaneously providing investors an opportunity to invest directly into this emerging 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.

 

NOTE 2. GOING CONCERN

 

At each reporting period, the Company evaluates whether there are conditions or events that raise doubt about the Company’s ability to continue as a going concern within one year after the date that the financial statements are issued. The Company’s evaluation entails analyzing expectations for the Company’s cash needs and comparing those needs to the current cash and cash equivalent balances. The Company is required to make certain additional disclosures if it concludes substantial doubt exists and it is not alleviated by the Company’s plans or when its plans alleviate substantial doubt about the Company’s ability to continue as a going concern.

 

The Company has incurred recurring losses since its inception, including a net loss of approximately $0.7 million for the three months ended December 31, 2023. In addition, as of December 31, 2023, the Company had an accumulated deficit of $57.5 million. The Company expects to continue to generate negative cash flow for the foreseeable future. The Company expects that its cash and cash equivalents as of December 31, 2023 may not be sufficient to fund operations for at least the next twelve months from the date of issuance of these condensed consolidated financial statements and the Company will need to obtain additional funding. Accordingly, the Company has concluded that substantial doubt exists about the Company’s ability to continue as a going concern for a period of at least 12 months from the date of issuance of these condensed consolidated financial statements.

 

Outside of potential revenue growth generated by the Company, in order to alleviate the going concern the Company may take actions which could include, but are not limited to: further cost reductions, equity or debt financings and restructuring of potential future cash contingent acquisition liabilities. There is no assurance that these actions will be taken or be successful if pursued.

 

The financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the ordinary course of business. The financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might result from the outcome of the uncertainties described.

 

10

 

 

THE GLIMPSE GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

DECEMBER 31, 2023 AND 2022

 

Potential liquidity resources

 

Potential liquidity resources may include the further sale of common stock pursuant to the unused portion of the $100 million S-3 registration statement filed with the SEC on October 28, 2022. Such financing may not be available on terms favorable to the Company, or at all.

 

NOTE 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Basis of presentation

 

The unaudited condensed 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 condensed 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, 2023, the results of operations for the three and six months ended December 31, 2023 and 2022, and cash flows for the six months ended December 31, 2023 and 2022. 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, 2023 are not necessarily indicative of the results to be expected for the entire year ending June 30, 2024 or for any subsequent periods. The consolidated balance sheet at June 30, 2023 has been derived from the audited consolidated financial statements at that date.

 

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 condensed consolidated financial statements should be read in conjunction with our audited consolidated financial statements and notes thereto for the year ended June 30, 2023.

 

Principles of Consolidation

 

The accompanying condensed 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 condensed 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 condensed 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, calculation of contingent consideration for acquisitions and fair value of intangible assets.

 

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.

 

11

 

 

THE GLIMPSE GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

DECEMBER 31, 2023 AND 2022

 

Restricted cash represented escrowed cash related to the Sector 5 Digital, LLC (“S5D”) acquisition and was fully disbursed during the year ended June 30, 2023 (see Note 6).

 

The components of cash, cash equivalents and restricted cash on the condensed consolidated statements of cash flows as of December 31, 2023 and 2022 are as follows:

 

   As of December 31,   As of December 31, 
   2023   2022 
Cash and cash equivalents  $5,220,653   $7,204,722 
Restricted cash   -    2,000,000 
Total  $5,220,653   $9,204,722 

 

Accounts Receivable

 

Accounts receivable consist 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, 2023 and 2022 no allowance for doubtful accounts was recorded as all amounts were considered collectible.

 

Customer Concentration and Credit Risk

 

One customer accounted for approximately 28% of the Company’s total gross revenues during the three months ended December 31, 2023. No other customer accounted for 10% or greater of gross revenue during the period. The same customer and another customer accounted for approximately 44% (22% and 22%, respectively) of the Company’s total gross revenues during the six months ended December 31, 2023. 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. The same two customers accounted for approximately 58% (32% and 26%, respectively) of the Company’s total gross revenues during the six months ended December 31, 2022.

 

Three customers accounted for approximately 45% (21%, 13% and 11%, respectively) of the Company’s accounts receivable at December 31, 2023. One of the same customers and a different customer accounted for approximately 43% (29% and 14%, respectively) of the Company’s accounts receivable at June 30, 2023.

 

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 condensed 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.

 

12

 

 

THE GLIMPSE GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

DECEMBER 31, 2023 AND 2022

 

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 condensed 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.

 

Intangible assets (other than Goodwill)

 

Intangible assets represent the allocation of a portion of an acquisition’s purchase price. They include acquired customer relationships and developed technology purchased. Intangible assets are stated at allocated cost less accumulated amortization and less impairments. 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.

 

Impairment of Long-Lived Assets

 

The Company reviews long-lived assets to be held and used, other than goodwill, whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. If an evaluation of recoverability is required, the estimated undiscounted future cashflows directly associated with the asset are compared with the asset’s carrying amount. If the estimated future cash flows from the use of the asset are less than the carrying value, an impairment charge would be recorded to write down the asset to its estimated fair value.

 

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.

 

13

 

 

THE GLIMPSE GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

DECEMBER 31, 2023 AND 2022

 

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 condensed consolidated balance sheets as of December 31 and June 30, 2023. 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, accounts payable, accrued liabilities and other liabilities, and approximate fair value due to the short-term nature of these instruments.

 

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 condensed consolidated balance sheets. Contract assets include cash payroll costs and may include payments to consultants and vendors.

 

14

 

 

THE GLIMPSE GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

DECEMBER 31, 2023 AND 2022

 

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 three and six months ended December 31, 2023 and 2022 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/AR software licenses or SaaS. The Company currently generates its revenues primarily from customers in the United States.

 

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 is recognized when the Company performs the services, typically on a monthly retainer basis.

 

Revenue for Software Licenses is recognized at the point of time in which the Company delivers the software and customer accepts delivery. Software Licenses often include third party components that are a fully integrated part of the Software License stack and are therefore considered as one deliverable and performance obligation. 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, 2023 and 2022 was as follows:

 

   2023   2022   2023   2022 
   For the Three Months Ended   For the Six Months Ended 
   December 31,   December 31, 
   2023   2022   2023   2022 
Products and services transferred at a point in time  $1,601,684   $2,217,581   $4,077,287   $5,214,529 
Products and services transferred/recognized over time   474,741    732,966    1,104,018    1,687,042 
Total Revenue  $2,076,425   $2,950,547   $5,181,305   $6,901,571 

 

15

 

 

THE GLIMPSE GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

DECEMBER 31, 2023 AND 2022

 

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.

 

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, 2023, the Company had approximately $1.06 million in unfulfilled performance obligations.

 

Employee Stock-Based Compensation

 

The Company recognizes stock-based compensation expense related to grants to employees, directors and 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 based upon historical volatility for a rolling previous year’s trading days of the Company’s common stock. 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.

 

16

 

 

THE GLIMPSE GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

DECEMBER 31, 2023 AND 2022

 

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.

 

Leases

 

We determine if an arrangement is a lease at inception. Operating leases are included in right-of-use (“ROU”) assets and lease liabilities in our condensed consolidated balance sheets.

 

ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our 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 our leases do not provide an implicit rate, we generally use an incremental borrowing rate based on below investment grade corporate debt over a similar term of the lease payments at commencement date. The operating lease ROU asset also includes any lease payments made and excludes lease incentives. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the lease term.

 

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.

 

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.

 

Significant Accounting Policies

 

There have been no material changes in the Company’s significant accounting policies from those disclosed in its Annual Report on Form 10-K for the year ended June 30, 2023, other than those associated with the recently adopted guidance on accounting for expected credit losses and income taxes as further described below.

 

Recently Adopted Accounting Pronouncements

 

In September 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) No. 2016-13, Financial Instruments – Credit Losses (Topic 326) which requires measurement and recognition of expected credit losses for financial assets held. The Company adopted this guidance on July 1, 2023 and the impact of the adoption was not material to our condensed consolidated financial statements as credit losses are not expected to be significant based on historical collection trends, the financial condition of payment partners, and external market factors.

 

In December 2019, the FASB issued ASU No. 2019-12 to simplify the accounting in Accounting Standards Codification (“ASC”) 740, Income Taxes. This standard removes certain exceptions related to the approach for intra-period tax allocation, the methodology for calculating income taxes in an interim period, and the recognition of deferred tax liabilities for outside basis differences. This guidance also clarifies and simplifies other areas of ASC 740. The Company adopted this guidance on July 1, 2023 using the prospective transition method. The adoption of this guidance did not have a material impact on the Company’s condensed consolidated financial statements.

 

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 CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

DECEMBER 31, 2023 AND 2022

 

NOTE 4. IMPAIRMENT OF GOODWILL AND LONG-LIVED ASSETS

 

PulpoAR, LLC (“Pulpo”)

 

The assets of Pulpo were acquired by the Company in May 2022. Pulpo has not and is not expected to meet any future revenue performance milestones as defined in the asset acquisition agreement. In addition, Pulpo has generated negative cash flows and is expected to continue doing so for the foreseeable future, and its business has become less strategically aligned with the Company’s current focus. As a result, a decision was made by the Company to divest the operations of its wholly owned subsidiary Pulpo.

 

Accordingly, the fair value of intangible assets, including goodwill, originally recorded at the time of the purchase, were determined to be zero. The net assets of $0.89 million (consisting of intangible assets - technology with net book value of $0.51 million and goodwill of $0.38 million) were written-off and were included in intangible asset impairment on the condensed consolidated statement of operations for the six months ended December 31, 2023.

 

On December 1, 2023 the Company executed an asset purchase agreement whereby the Pulpo assets, as defined, were transferred to a new independent entity, PulpoAR, Inc., majority owned by the original sellers of Pulpo, in return for a 10% interest in PulpoAR, Inc. and a $1.0 million senior secured note (“Note”).

 

The Note is due November 30, 2026 and accrues interest at 1% per annum payable at maturity. Early repayment, if any, of the Note is due in the form of royalties on PulpoAR, Inc.’s revenue and if the new entity raises capital, as defined. Glimpse has no board members nor any operational involvement in the new entity.

 

The Company has fully reserved against the Note as collectability is considered remote and accounts for this investment at cost ($0) because the Company does not control or have significant influence over the investment.

 

For the three and six months ended December 31, 2023, Pulpo had revenue of zero and $0.07 million, respectively, and net losses of $0.17 million and $0.43 million, respectively (exclusive of the intangible asset impairment write-off), reported in the condensed consolidated statements of operations for the periods.

 

For the three and six months ended December 31, 2022, Pulpo had revenue of 0.04 million and $0.12 million, respectively, and net losses of $0.34 million and $0.59 million, respectively, reported in the condensed consolidated statements of operations for the periods.

 

The divestiture did not have a material impact on the Company’s operations or financial results.

 

18

 

 

THE GLIMPSE GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

DECEMBER 31, 2023 AND 2022

 

NOTE 5. GOODWILL AND INTANGIBLE ASSETS

 

The composition of goodwill at December 31, 2023 is as follows:

 

   XRT   PulpoAR   BLI   Total 
   As of December 31, 2023 
   XRT   PulpoAR   BLI   Total 
Goodwill - beginning of year  $300,000   $379,038   $10,557,600   $11,236,638 
Impairment   -    (379,038)   -    (379,038)
Goodwill - end of period  $300,000   $-   $10,557,600   $10,857,600 

 

Intangible assets, their respective amortization period, and accumulated amortization at December 31, 2023 are as follows:

 

   XR Terra           BLI   inciteVR   Total     
   As of December 31, 2023 
   Value ($)   Amortization Period (Years) 
   XR Terra   Pulpo     BLI   inciteVR   Total     
Intangible Assets                                 
Customer Relationships - beginning of year  $-   $ -     $3,310,000   $-   $3,310,000    5 
Technology - beginning of year   300,000     925,000      880,000    326,435    2,431,435    3 
Technology impairment   -     (925,000 )    -    -    (925,000)     
Customer Relationships - end of period   -     -      3,310,000    -    3,310,000    5 
Technology - end of period   300,000     -      880,000    326,435    1,506,435    3 
Less: Accumulated Amortization   (224,995)    -      (1,353,388)   (126,948)   (1,705,331)     
Intangible Assets, net  $75,005   $ -     $2,836,612   $199,487   $3,111,104      

 

Intangible asset amortization expense for the three and six months ended December 31, 2023 was approximately $0.29 million and $0.66 million, respectively. Amortization attributable to Pulpo was zero and $0.08 million for the three and six months ended December 31, 2023.

 

Intangible asset amortization expense for the three and six months ended December 31, 2022 was approximately $0.54 million and $0.99 million, respectively. Amortization attributable to Pulpo was $0.08 million and $0.15 million for the three and six months ended December 31, 2022.

 

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

 

Years Ended June 30,     
2024 (remaining 6 months)   $582,000 
2025   $1,089,000 
2026   $723,000 
2027   $662,000 
2028   $55,000 

 

19

 

 

THE GLIMPSE GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

DECEMBER 31, 2023 AND 2022

 

NOTE 6. FINANCIAL INSTRUMENTS

 

Cash and Cash Equivalents

 

The Company’s money market funds are categorized as Level 1 within the fair value hierarchy. As of December 31 and June 30, 2023, the Company’s cash and cash equivalents were as follows:

 

   As of December 31, 2023 
   Cost   Unrealized
Gain (Loss)
   Fair Value   Cash and Cash
Equivalents
 
Cash  $491,205   $-        $491,205 
Level 1:                    
Money market funds   4,729,448    -   $4,729,448    4,729,448 
Total cash and cash equivalents  $5,220,653   $-   $4,729,448   $5,220,653 

 

   As of June 30, 2023 
   Cost   Unrealized
Gain (Loss)
   Fair Value   Cash and Cash
Equivalents
 
Cash  $242,271   $-        $242,271 
Level 1:                    
Money market funds   5,376,812    -   $5,376,812    5,376,812 
Total cash and cash equivalents  $5,619,083   $-   $5,376,812   $5,619,083 

 

Contingent Consideration

 

As of December 31 and June 30, 2023, 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, 2023 using unobservable inputs and have included using the Monte Carlo simulation model. This model incorporates revenue volatility, internal rate of return, and a 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, 2023, the Company’s contingent consideration liabilities current and non-current balances were as follows:

 

   Contingent Consideration
at Purchase Date
   Consideration Paid   Changes in Fair Value   Fair Value   Contingent Consideration 
   As of December 31, 2023 
   Contingent Consideration
at Purchase Date
   Consideration Paid   Changes in Fair Value   Fair Value   Contingent Consideration 
Level 3:                         
Contingent consideration, current - S5D  $2,060,300   $(1,359,001)  $105,844   $807,143   $807,143 
Contingent consideration, current - BLI   1,264,200    -    2,438,300