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 September 30, 2022

☐	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 38^th St., 9^th 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 November 10, 2022, the registrant had 13,595,734 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)	3
	Consolidated Balance Sheets	4
	Consolidated Statements of Operations	5
	Consolidated Statements of Stockholders’ Equity (Deficit)	6
	Consolidated Statements of Cash Flows	7
	Notes to Consolidated Financial Statements	8
ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	28
ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	35
ITEM 4.	CONTROLS AND PROCEDURES	35
PART II	OTHER INFORMATION	36
ITEM 1.	LEGAL PROCEEDINGS	36
ITEM 1A.	RISK FACTORS	36
ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	36
ITEM 6.	EXHIBITS	37
SIGNATURES		38

THE GLIMPSE GROUP, INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

	Page
Index to Consolidated Financial Statements (Unaudited)
Consolidated Balance Sheets	4
Consolidated Statements of Operations	5
Consolidated Statements of Stockholders’ Equity (Deficit)	6
Consolidated Statements of Cash Flows	7
Notes to Consolidated Financial Statements	8-27

THE GLIMPSE GROUP, INC.

CONSOLIDATED BALANCE SHEETS

	As of September 30, 2022 (Unaudited)			As of June 30, 2022 (Audited)
ASSETS
Cash and cash equivalents	$	10,644,751		$	16,249,666
Investments		242,603			239,314
Accounts receivable		1,228,400			1,332,922
Deferred costs/contract assets		268,552			39,484
Prepaid expenses and other current assets		659,695			479,483
Total current assets		13,044,001			18,340,869

Equipment, net		352,266			245,970
Note receivable		-			250,000
Right-of-use assets		1,066,772			-
Intangible assets, net		7,809,518			4,063,485
Goodwill		22,672,460			13,464,760
Other assets		115,866			32,000
Restricted cash		2,000,000			2,000,000
Total assets	$	47,060,883		$	38,397,084

LIABILITIES AND STOCKHOLDERS’ EQUITY
Accounts payable	$	349,820		$	340,139
Accrued liabilities		365,297			188,417
Accrued bonuses		425,261			169,262
Deferred revenue/contract liabilities		1,224,748			841,389
Asset purchase payable		734,037			734,037
Lease liabilities, current portion		441,687			-
Contingent consideration for acquisitions, current portion		4,080,498			1,966,171
Total current liabilities		7,621,348			4,239,415

Long term liabilities
Contingent consideration for acquisition, net of current portion		11,400,300			5,340,800
Lease liabilities, net of current portion		625,085			-
Total liabilities		19,646,733			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; 13,593,734 and 12,747,624 issued and outstanding		13,594			12,749
Additional paid-in capital		60,864,978			56,885,815
Accumulated deficit		(33,464,422	)		(28,081,695	)
Total stockholders’ equity		27,414,150			28,816,869
Total liabilities and stockholders’ equity	$	47,060,883		$	38,397,084

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

THE GLIMPSE GROUP, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)

	2022			2021
	For the Three Months Ended
	September 30,
	2022			2021
Revenue
Software services	$	3,862,514		$	804,718
Software license/software as a service		88,510			217,815
Total Revenue		3,951,024			1,022,533
Cost of goods sold		1,214,597			145,387
Gross Profit		2,736,427			877,146
Operating expenses:
Research and development expenses		2,002,379			989,384
General and administrative expenses		1,819,292			779,729
Sales and marketing expenses		1,744,239			504,687
Change in fair value of acquisition contingent consideration		2,603,398			-
Total operating expenses		8,169,308			2,273,800
Loss from operations before other income (expense)		(5,432,881	)		(1,396,654	)

Other income (expense)
Interest income		50,154			19,623
Loss on conversion of convertible notes		-			(279,730	)
Total other income (expense), net		50,154			(260,107	)
Net Loss	$	(5,382,727	)	$	(1,656,761	)

Basic and diluted net loss per share	$	(0.40	)	$	(0.17	)
Weighted-average shares used to compute basic and diluted net loss per share		13,317,188			9,967,821

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

THE GLIMPSE GROUP, INC.

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2022

(Unaudited)

	Shares		Amount		Capital		Deficit			Total
	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 acquisitions		714,286		714		2,845,430		-			2,846,144
Common stock issued for exercise of options		24,681		24		39,891					39,915
Common stock issued for contingent acquisition obligation		107,143		107		318,464					318,571
Stock based compensation expense		-		-		628,594					628,594
Stock option-based board of directors expense						146,784					146,784
Net loss		-		-		-		(5,382,727	)		(5,382,727	)
Balance as of September 30, 2022		13,593,734	$	13,594	$	60,864,978	$	(33,464,422	)	$	27,414,150

THE GLIMPSE GROUP, INC.

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (DEFICIT)

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 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 for convertible note conversion		324,150		324		1,605,852		-			1,606,176
Common stock issued for acquisition		77,264		77		749,923		-			750,000
Common stock issued for legacy acquisition obligation		375,000		375		749,625		-			750,000
Common stock issued to vendors for compensation		6,045		6		65,389		-			65,395
Common stock issued for exercise of options		17,394		17		45,683		-			45,700
Stock option-based compensation expense		-		-		536,524		-			536,524
Stock option-based board of directors expense		-		-		87,401		-			87,401
Net loss		-		-		-		(1,656,761	)		(1,656,761	)
Balance as of September 30, 2021		10,291,638	$	10,292	$	36,595,898	$	(23,772,169	)	$	12,834,021

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

THE GLIMPSE GROUP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	2022			2021
	For the Three Months Ended September 30,
	2022			2021
Cash flows from operating activities:
Net loss	$	(5,382,727	)	$	(1,656,761	)
Adjustments to reconcile net loss to net cash used in operating activities:
Amortization and depreciation		477,016			27,718
Common stock and stock option based compensation for employees and board of directors		775,852			653,615
Acquisition contingent consideration fair value adjustment		2,603,398			-
Issuance of common stock to vendors as compensation		-			62,034
Loss on conversion of convertible notes		-			279,730

Changes in operating assets and liabilities:
Accounts receivable		357,563			26,365
Pre-offering costs		-			470,136
Deferred costs/contract assets		323,083			(17,185	)
Prepaid expenses and other current assets		(180,212	)		(381,856	)
Other assets		6,135			(80,000	)
Accounts payable		(525,673	)		(268,823	)
Accrued liabilities		(135,742	)		(31,770	)
Accrued bonuses		255,999			(151,969	)
Deferred revenue/contract liabilities		(1,653,711	)		15,630
Net cash used in operating activities		(3,079,019	)		(1,053,136	)
Cash flow from investing activities:
Purchases of equipment		(83,765	)		(18,225	)
Acquisitions, net of cash acquired		(2,478,756	)		-
Purchase of investments		(3,290	)		-
Net cash used in investing activities		(2,565,811	)		(18,225	)
Cash flows from financing activities:
Proceeds from initial public offering, net		-			11,821,364
Proceeds from exercise of stock options		39,915			45,700
Net cash provided by financing activities		39,915			11,867,064

Net change in cash, cash equivalents and restricted cash		(5,604,915	)		10,795,703
Cash, cash equivalents and restricted cash, beginning of period		18,249,666			1,771,929
Cash, cash equivalents and restricted cash, end of period	$	12,644,751		$	12,567,632
Non-cash Investing and Financing activities:
Common stock issued for BLI acquisition	$	2,846,144		$	750,000
Issuance of common stock for satisfaction of contingent liability, net of note receivable extinguishment	$	318,571		$	-
Extinguishment of note receivable for satisfaction of contingent liability	$	250,000		$	-
Issuance of common stock for satisfaction of contingent liability	$	-		$	750,000
Contingent acquisition consideration liability	$	6,139,000		$	-
Lease liabilities arising from right-to-use assets	$	1,155,769		$	-
Conversion of convertible promissory notes into common stock	$	-		$	1,606,176
Issuance of warrants in connection with initial public offering	$	-		$	522,360

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

THE GLIMPSE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

SEPTEMBER 30, 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 $5.38 million and $1.66 million during the three months ended September 30, 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 continue to generate net losses for the foreseeable future as it makes investments to grow its business. Management believes that the Company’s existing balances of cash and cash equivalents as of the issuance date of these financial statements, which are approximately $10.0 million (excluding an additional $2 million held in escrow for potential future Sector 5 Digital, LLC (“S5D”) acquisition performance payment obligations), 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 September 30, 2022, the results of operations for the three months ended September 30, 2022 and 2021, and cash flows for the three months ended September 30, 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 months ended September 30, 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 as of that date.

THE GLIMPSE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

SEPTEMBER 30, 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 S5D acquisition.

The components of cash, cash equivalents and restricted cash on the consolidated statement of cash flows as of September 30, 2022 and 2021 are as follows:

	September 30, 2022		September 30, 2021
	As of		As of
	September 30, 2022		September 30, 2021
Cash and cash equivalents	$	10,644,751	$	12,567,632
Restricted cash		2,000,000		-
Total	$	12,644,751	$	12,567,632

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 September 30, 2022 and June 30, 2022 no allowance for doubtful accounts was recorded as all amounts were considered collectible.

THE GLIMPSE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

SEPTEMBER 30, 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 September 30, 2022. One of the same customers and a different customer accounted for approximately 70% (56% and 14%, respectively) of the Company’s total gross revenues during the three months ended September 30, 2021.

One customer accounted for approximately 34% of the Company’s accounts receivable at September 30, 2022. The same customer and a different customer accounted for approximately 59% (37% and 22%, respectively) of the Company’s accounts receivable as of 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.

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.

THE GLIMPSE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

SEPTEMBER 30, 2022 AND 2021

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 September 30 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 approximate fair value due to the short-term nature of these instruments.

THE GLIMPSE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

SEPTEMBER 30, 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 three months ended September 30, 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.

THE GLIMPSE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

SEPTEMBER 30, 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 months ended September 30, 2022 and 2021 was as follows:

SCHEDULE OF TIMING REVENUE RECOGNITION

	2022		2021
	For the Three Months Ended
	September 30,
	2022		2021
Products and services transferred at a point in time	$	2,996,948	$	955,751
Products and services transferred/recognized over time		954,076		66,782
Total Revenue	$	3,951,024	$	1,022,533

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).

THE GLIMPSE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

SEPTEMBER 30, 2022 AND 2021

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 September 30, 2022, the Company had approximately $3.21 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, warrants and convertible debt.

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.

THE GLIMPSE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

SEPTEMBER 30, 2022 AND 2021

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.

THE GLIMPSE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

SEPTEMBER 30, 2022 AND 2021

NOTE 4. ACQUISITION

Purchase of 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 was recorded as follows:

Purchase price consideration:
Cash paid to members at Closing	$	2,494,213
Company common stock fair value at Closing		2,846,144
Fair value of contingent consideration to be achieved		6,139,000
Total purchase price	$	11,479,357

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		9,207,700
Total fair value allocation of purchase price	$	11,479,357

THE GLIMPSE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

SEPTEMBER 30, 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 as of September 30, 2022, based on market conditions as of that date. The remeasurement resulted in a fair value amount as of September 30, 2022 of $6.31 million, an increase of approximately $0.17 million since Closing. The increase in fair value of the contingent consideration is driven by an increase in the Company’s common stock price between the measurement dates. This increase is recorded in operating expenses on the consolidated statement of operations.

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 three months ended September 30, 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 Three Months Ended September 30,2022

Revenue	$	3,954,000
Net Loss	$	(5,534,000	)

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 loss of approximately $0.17 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 three months ended September 30, 2022.

The Company recognized approximately $1.51 million in revenue and $0.25 million (inclusive of contingent consideration fair value adjustment expense of $0.2 million) of net loss related to BLI since the acquisition Closing date of August 1, 2022 through September 30, 2022 in the consolidated statement of operations.

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

THE GLIMPSE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

SEPTEMBER 30, 2022 AND 2021

NOTE 5. INTANGIBLE ASSETS

Intangible assets, their respective amortization period, and accumulated amortization as of September 30, 2022 are as follows:

	As of September 30, 2022
	Value ($)																		Amortization Period (Years)
	AUGGD			XR Terra			S5D			PulpoAR			BLI			Total
Intangible Assets
Customer Relationships	$	250,000		$	-		$	2,820,000			-		$	3,310,000		$	6,380,000			5 (S5D & BLI) / 3 (AUGGD)
Technology		250,000			300,000			-			925,000			880,000		$	2,355,000			3
Less: Accumulated Amortization		(187,488	)		(99,996	)		(376,000	)		(102,776	)		(159,222	)	$	(925,482	)
Intangible Assets, net	$	312,512		$	200,004		$	2,444,000		$	822,224		$	4,030,778		$	7,809,518

Intangible asset amortization expense for the three months ended September 30, 2022 was approximately $0.44 million.

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


Remaining Fiscal Year Ended June 30, 2023	$	1,571,000
Fiscal Year Ended June 30, 2024	$	2,094,000
Fiscal Year Ended June 30, 2025	$	1,848,000
Fiscal Year Ended June 30, 2026	$	1,250,000
Fiscal Year Ended June 30, 2027	$	991,000
Fiscal Year Ended June 30, 2028	$	55,000

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 September 30 and June 30, 2022, the Company’s cash and cash equivalents and investments were as follows:

	As of September 30, 2022
	Cost		Unrealized Gain (Loss)			Fair Value		Cash and Cash Equivalents		Investments
Cash	$	1,076,007	$	-				$	1,076,007
Level 1:
Money market funds		9,568,744		-			9,568,744		9,568,744
Total cash and cash equivalents	$	10,644,751	$	-		$	9,568,744	$	10,644,751

Level 1:
Investments	$	249,497	$	(6,894	)	$	242,603			$	242,603

THE GLIMPSE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

SEPTEMBER 30, 2022 AND 2021

As of June 30, 2022

Cost

Unrealized Gain (Loss)

Fair Value

SEC Form 10-Q filed by The Glimpse Group Inc.