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, 2021~~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 ~~February~~November 10, 2022, the registrant had ~~12,609,083~~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	87
		Notes to Consolidated Financial Statements	98
ITEM 2.		MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	2228
ITEM 3.		QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	2935
ITEM 4.		CONTROLS AND PROCEDURES	2935
PART II	OTHER INFORMATION	~~OTHER INFORMATION~~	3136
ITEM 1.	LEGAL PROCEEDINGS	~~LEGAL PROCEEDINGS~~	3136
ITEM 1A.	RISK FACTORS	~~RISK FACTORS~~	3136
ITEM 2.		UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	3136
ITEM 6.		EXHIBITS	3137
SIGNATURES				3338

THE GLIMPSE GROUP, INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

	Page
Index to Consolidated 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	87
Notes to Consolidated Financial Statements	~~9-21~~8-27

THE GLIMPSE GROUP, INC.

CONSOLIDATED BALANCE SHEETS

	As of December 31, 2021 (Unaudited)			As of June 30, 2021 (Audited)			As of September 30, 2022 (Unaudited)			As of June 30, 2022 (Audited)
ASSETS
Cash and cash equivalents	$	24,828,043		$	1,771,929		$	10,644,751		$	16,249,666
Investments		247,430			-			242,603			239,314
Accounts receivable		1,287,735			626,244			1,228,400			1,332,922
Deferred costs		21,030			29,512
Pre-offering costs		-			470,136
Acquisition escrow		4,000,000			-
Deferred costs/contract assets								268,552			39,484
Prepaid expenses and other current assets		479,512			281,047			659,695			479,483
Total current assets		30,863,750			3,178,868			13,044,001			18,340,869

Equipment, net		76,899			42,172			352,266			245,970
Other assets		64,000			-
Note receivable								-			250,000
Right-of-use assets								1,066,772			-
Intangible assets, net		712,501			-			7,809,518			4,063,485
Goodwill		550,000			-			22,672,460			13,464,760
Other assets								115,866			32,000
Restricted cash								2,000,000			2,000,000
Total assets	$	32,267,150		$	3,221,040		$	47,060,883		$	38,397,084

LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
LIABILITIES AND STOCKHOLDERS’ EQUITY
Accounts payable	$	142,774		$	381,510		$	349,820		$	340,139
Accrued liabilities		105,655			168,745			365,297			188,417
Accrued bonuses		406,505			440,357			425,261			169,262
Accrued legacy acquisition expense		460,000			1,250,000
Deferred revenue		98,736			98,425
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		1,213,670			2,339,037			7,621,348			4,239,415

Long term liabilities
Paycheck Protection Program loan		623,828			623,828
Convertible promissory notes, net		-			1,429,953
Contingent consideration for acquisition, net of current portion								11,400,300			5,340,800
Lease liabilities, net of current portion								625,085			-
Total liabilities		1,837,498			4,392,818			19,646,733			9,580,215
Commitments and contingencies		-			-			-			-
Stockholders’ Equity (Deficit)
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; 12,480,416 and 7,579,285 issued and outstanding		12,480			7,580
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		55,764,735			20,936,050			60,864,978			56,885,815
Accumulated deficit		(25,347,563	)		(22,115,408	)		(33,464,422	)		(28,081,695	)
Total stockholders’ equity (deficit)		30,429,652			(1,171,778	)
Total liabilities and stockholders’ equity (deficit)	$	32,267,150		$	3,221,040
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)

	2021			2020			2021			2020			2022			2021
	For the Three Months Ended						For the Six Months Ended						For the Three Months Ended
	December 31						December 31						September 30,
	2021			2020			2021			2020			2022			2021
Revenue
Software services	$	1,613,195		$	1,191,222		$	2,417,913		$	1,378,874		$	3,862,514		$	804,718
Software license/software as a service		76,807			68,623			294,622			140,898			88,510			217,815
Total Revenue		1,690,002			1,259,845			2,712,535			1,519,772			3,951,024			1,022,533
Cost of goods sold		212,254			546,192			357,641			683,316			1,214,597			145,387
Gross Profit		1,477,748			713,653			2,354,894			836,456			2,736,427			877,146
Operating expenses:
Research and development expenses		1,190,490			588,766			2,179,874			1,325,516			2,002,379			989,384
General and administrative expenses		1,197,109			372,990			1,976,838			708,988			1,819,292			779,729
Sales and marketing expenses		665,677			445,279			1,170,364			734,755			1,744,239			504,687
Change in fair value of acquisition contingent consideration														2,603,398			-
Total operating expenses		3,053,276			1,407,035			5,327,076			2,769,259			8,169,308			2,273,800
Net loss from operations before other income (expense)		(1,575,528	)		(693,382	)		(2,972,182	)		(1,932,803	)
Loss from operations before other income (expense)														(5,432,881	)		(1,396,654	)

Other income (expense)
Other income		-			-			-			10,000
Interest income		134			730			19,757			1,264			50,154			19,623
Interest expense		-			(48,437	)		-			(96,874	)
Loss on conversion of convertible notes		-			-			(279,730	)		-			-			(279,730	)
Total other income (expense), net		134			(47,707	)		(259,973	)		(85,610	)		50,154			(260,107	)
Net Loss	$	(1,575,394	)	$	(741,088	)	$	(3,232,155	)	$	(2,018,412	)	$	(5,382,727	)	$	(1,656,761	)

Basic and diluted net loss per share	$	(0.14	)	$	(0.11	)	$	(0.30	)	$	(0.29	)	$	(0.40	)	$	(0.17	)
Weighted-average shares used to compute basic and diluted net loss per share		11,637,318			7,053,986			10,802,570			7,046,510			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 ~~(DEFICIT)~~

FOR THE THREE MONTHS ENDED ~~DECEMBER 31, 2021~~SEPTEMBER 30, 2022

(Unaudited)

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

	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 ~~SIX~~THREE MONTHS ENDED ~~DECEMBER 31,~~SEPTEMBER 30, 2021

(Unaudited)

	Common Stock				Additional Paid-In		Accumulated						Common Stock				Additional Paid-In		Accumulated
	Shares		Amount		Capital		Deficit			Total			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	)		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			1,912,500		1,913		11,819,451		-			11,821,364
Common stock issued in Securities Purchase Agreement, net		1,500,000		1,500		13,576,900		-			13,578,400
Common stock issued for convertible note conversion		324,150		324		1,605,852		-			1,606,176			324,150		324		1,605,852		-			1,606,176
Common stock issued for acquisitions		388,342		388		5,049,612		-			5,050,000
Common stock issued for acquisition														77,264		77		749,923		-			750,000
Common stock issued for legacy acquisition obligation		395,000		395		789,605		-			790,000			375,000		375		749,625		-			750,000
Common stock issued to vendors for compensation		13,373		13		147,882		-			147,895			6,045		6		65,389		-			65,395
Common stock issued for exercise of options		356,925		356		613,263		-			613,619			17,394		17		45,683		-			45,700
Stock based compensation expense		10,841		11		1,050,252		-			1,050,263
Stock option-based compensation expense														-		-		536,524		-			536,524
Stock option-based board of directors expense		-		-		175,868		-			175,868			-		-		87,401		-			87,401
Net loss		-		-		-		(3,232,155	)		(3,232,155	)		-		-		-		(1,656,761	)		(1,656,761	)
Balance as of December 31, 2021		12,480,416	$	12,480	$	55,764,735	$	(25,347,563	)	$	30,429,652
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 ~~STATEMENT~~STATEMENTS OF ~~STOCKHOLDERS’ DEFICIT~~

~~FOR THE THREE MONTHS ENDED DECEMBER 31, 2020~~CASH FLOWS

(Unaudited)

Common Stock Additional Paid-In Accumulated
Shares Amount Capital Deficit Total
Balance as of October 1, 2020 7,044,861 $ 7,045 $ 16,565,974 $ (17,301,045 ) $ (728,026 )
Sale of common stock to investors 50,572 51 227,604 - 227,655
Common stock issued for convertible note conversion 14,444 14 64,986 - 65,000
Common stock issued to vendors for compensation 4,666 4 20,996 - 21,000
Stock option-based compensation expense - - 659,180 - 659,180
Stock option-based board of directors expense - - 41,532 - 41,532
Net loss - - - (741,088 ) (741,088 )
Balance as of December 31, 2020 7,114,543 $ 7,114 $ 17,580,272 $ (18,042,133 ) $ (454,747 )

~~THE GLIMPSE GROUP, INC.~~

~~CONSOLIDATED STATEMENT OF STOCKHOLDERS’ DEFICIT~~

~~FOR THE SIX MONTHS ENDED DECEMBER 31, 2020~~

~~(Unaudited)~~

Common Stock Additional Paid-In Accumulated
Shares Amount Capital Deficit Total
Balance as of July 1, 2020 7,035,771 $ 7,036 $ 15,710,996 $ (16,023,721 ) $ (305,689 )
Sale of common stock to investors 52,995 53 238,422 - 238,475
Common stock issued for convertible note conversion 14,444 14 64,986 - 65,000
Common stock issued to vendors for compensation 11,333 11 50,989 - 51,000
Stock option-based compensation expense - - 1,431,815 - 1,431,815
Stock option-based board of directors expense - - 83,064 - 83,064
Net loss - - - (2,018,412 ) (2,018,412 )
Balance as of December 31, 2020 7,114,543 $ 7,114 $ 17,580,272 $ (18,042,133 ) $ (454,747 )

	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.~~

~~CONSOLIDATED STATEMENTS OF CASH FLOWS~~

~~(Unaudited)~~

For the Six
Months Ended
December 31, 2021

For the Six
Months Ended
December 31, 2020

Cash flows from operating activities:
Net loss $ (3,232,155 ) $ (2,018,412 )
Adjustments to reconcile net loss to net cash used in operating activities:
Amortization and depreciation 102,851 12,198
Amortization of paid-in kind common stock interest on convertible notes - 96,874
Common stock and stock option based compensation for employees and board of directors 1,289,381 1,534,416
Issuance of common stock to vendors as compensation 147,895 51,000
Loss on conversion of convertible notes 279,730 -

Changes in operating assets and liabilities:
Accounts receivable (661,491 ) (188,907 )
Pre-offering costs 470,136 -
Prepaid expenses and other current assets (359,921 ) (16,452 )
Deferred costs 3,181 (115,537 )
Other assets (64,000 ) -
Accounts payable (238,736 ) (45,275 )
Accrued liabilities (63,090 ) (31,733 )
Accrued bonuses (33,852 ) -
Deferred revenue 311 (54,416 )
Net cash used in operating activities (2,359,760 ) (776,244 )
Cash flow from investing activities:
Purchases of equipment (50,080 ) (15,036 )
Asset acquisition (300,000 ) -
Purchase of investments (247,430 ) -
Net cash used in investing activities (597,510 ) (15,036 )
Cash flows from financing activities:
Proceeds from initial public offering, net 11,821,364 -
Proceeds from securities purchase agreement, net 13,578,400 -
Proceeds from issuance of common equity to investors - 225,705
Proceeds from exercise of stock options 613,620 -
Net cash provided by financing activities 26,013,384 225,705

Net change in cash and cash equivalents 23,056,114 (565,575 )
Cash and cash equivalents, beginning of year 1,771,929 1,034,846
Cash and cash equivalents, end of period $ 24,828,043 $ 469,271
Non-cash Investing and Financing activities:
Common stock issued for acquisitions $ 1,050,000 $ -
Common stock issued and escrowed for acquisition $ 4,000,000 $ -
Conversion of convertible promissory notes into common stock $ 1,606,176 $ 65,000
Issuance of warrants in connection with initial public offering $ 522,360 $ -
Issuance of warrants in connection with securities purchase agreement $ 8,797,546 $ -
Issuance of common stock for satisfaction of legacy acquisition liability $ 790,000 $ -
Common stock subscription receivable $ - $ 12,770

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

THE GLIMPSE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

~~DECEMBER 31,~~SEPTEMBER 30, 2022 AND 2021 ~~AND 2020~~

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 eleven wholly-owned operating subsidiaries (“Subsidiary Companies” or “Subsidiaries”) are: Adept Reality, LLC (dba Adept XR Learning), Kabaq 3D Technologies, LLC (dba QReal), KreatAR, LLC (dba PostReality), D6 VR, LLC, Immersive Health Group, LLC, Foretell Studios, LLC (dba Foretell Reality), Number 9, LLC (dba Pagoni VR), Early Adopter, LLC, MotionZone, LLC (which, along with its subsidiary companies are located in the United States, Turkey and Australia. The Glimpse Group Australia Pty Ltd, are dba AUGGD), XR Terra, LLC (dba XR Terra), and a subsidiary in Turkey, Glimpse Group Yazılım ve ARGE Ticaret Anonim Şirketi (“Glimpse Turkey”). In addition, the Company ~~has one inactive subsidiary company, In-It VR, LLC (dba Mezmos), and with the operating Subsidiaries collectively comprise the “Company” or “Glimpse”. Glimpse~~ was incorporated ~~as The Glimpse Group, Inc.~~ in the State of Nevada onin June ~~15,~~ 2016.

In December 2021, the Company entered into a definitive agreement to purchase Sector 5 Digital, LLC (“S5D”), an enterprise focused, immersive technology company. The purchase closed in February 2022. See Notes 8 and 11.

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 ~~entrepreneurs~~ 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 ~~a loss~~losses of $~~3.23~~5.38 million and $1.66 million during the ~~six~~three months ended ~~December 31,~~September 30, 2022 and 2021, ~~compared to a loss of $2.02~~ ~~million during the six months ended December 31, 2020. The loss was~~respectively. These losses were incurred as the Company funded operational expenses, primarily research and development, general and administrative, and sales and marketing costs.

~~On July 1, 2021, the Company completed an IPO in which, as a result of the sale of its common shares at $7.00~~ ~~per share, it raised approximately $11.8~~ ~~million in net proceeds after fees and expenses. See Note 8. Furthermore, in November 2021 the Company completed a SPA whereby it sold additional common shares that resulted in approximately $13.6~~ ~~million in net proceeds after fees and expenses. See Note 8.~~

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 $19 10.0million ~~following the purchase of S5D (see Note 11)~~(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.~~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.

~~THE GLIMPSE GROUP, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(UNAUDITED)~~

~~DECEMBER 31, 2021 AND 2020~~

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 ~~Securities and Exchange Commission.~~SEC. In the opinion of management, the unaudited consolidated financial statements have been prepared on the same basis as the annual consolidated financial statements and reflect all adjustments, which include only normal recurring adjustments, necessary to present fairly the financial position as of ~~December 31, 2021,~~September 30, 2022, the results of operations for the three ~~and six~~ months ended ~~December 31,~~September 30, 2022 and 2021, ~~and 2020,~~ and cash flows for the ~~six~~three months ended ~~December 31, 2021~~September 30, 2022 and ~~2020.~~2021. The financial data and other information disclosed in these notes to the interim financial statements related to these periods are unaudited. The results for the three ~~and six~~ months ended ~~December 31, 2021~~September 30, 2022 are not necessarily indicative of the results to be expected for the entire year ending June 30, ~~2022~~2023 or for any subsequent periods. The consolidated balance sheet at June 30, ~~2021~~2022 has been derived from the audited consolidated financial statements atas 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, ~~2021.~~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, ~~common stock,~~ stock options, warrants, revenue recognition, cost of goods sold, ~~and~~ allocation of the purchase price of assets relating to business ~~combinations.~~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:

SCHEDULE OF COMPONENTS OF CASH, CASH EQUIVALENTS AND RESTRICTED CASH

	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 ~~December 31, 2021~~September 30, 2022 and June 30, ~~2021,~~ 02022 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 7555%% (4529%% and 3026%%, respectively) of the Company’s total gross revenues during the three months ended ~~December 31, 2021. The~~September 30, 2022. One of the same ~~two~~ customers and a different customer accounted for approximately 6770%% (4956%% and 1814%~~%, respectively) of the Company’s total gross revenues during the six months ended December 31, 2021.~~

~~THE GLIMPSE GROUP, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(UNAUDITED)~~

~~DECEMBER 31, 2021 AND 2020~~

~~Two customers accounted for approximately~~ 63~~% (~~42~~% and~~ 21%, respectively) of the Company’s total gross revenues during the three months ended ~~December 31, 2020. The same two customers accounted for approximately~~ ~~53%~~ (~~35%~~ ~~and~~ ~~18%, respectively) of the Company’s total gross revenues during the six months ended December~~September 30, ~~2020.~~2021.

~~Two customers~~One customer accounted for approximately 8334%~~% (~~44~~% and~~ 39~~%, respectively)~~ of the Company’s accounts receivable at ~~December 31, 2021. One of those customers,~~September 30, 2022. The same customer and ~~along with~~ a different customer accounted for approximately ~~71%~~59% (~~57%~~37% and ~~14%~~22%, respectively) of the Company’s accounts receivable atas of June 30, ~~2021.~~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.

~~Equipment, net~~

Equipment is stated at cost less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the related assets. The costs of improvements and betterments are capitalized and expenditures for repairs and maintenance are expensed in the period incurred.

The Company assesses the recoverability of equipment whenever events or changes in circumstances indicate that their carrying value may not be recoverable. There was no impairment of equipment for the periods presented.

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 ~~an asset acquisition~~the acquisition’s purchase price (see Note 4)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

~~The Company reviews 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, ~~annually~~ or more frequently ~~if current~~when events or changes in circumstances ~~or events~~ indicate that ~~the fair value may~~goodwill might be ~~less than its carrying value. The Company recorded goodwill related to asset acquisitions, see Note 4.~~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 ~~carrying amounts~~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 ~~such as investments,~~consist primarily of accounts receivable, note receivable, accounts payable, accrued liabilities and ~~accrued~~other liabilities approximate fair value due to the short-term nature of these instruments. ~~The Company’s convertible debt approximates fair value due to its short-term nature and market rate of interest.~~

THE GLIMPSE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

~~DECEMBER 31,~~SEPTEMBER 30, 2022 AND 2021 ~~AND 2020~~

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. ~~Most~~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.

~~Any unrecognized portion~~ Other contracts can include various services and products which are at times capable of ~~revenue~~being distinct, and ~~any corresponding unrecognized expenses are presented~~therefore may be accounted for as deferred revenue and deferred costs, respectively, in the accompanying consolidated balance sheet. Deferred costs include cash and equity based payroll costs, and may include payments to consultants and vendors.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 ~~and six~~ months ended ~~December 31,~~September 30, 2022 and 2021 ~~and 2020~~ 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 ~~at the point of time in which~~when the Company performs the services, typically on a monthly retainer basis.

Revenue for Software License ~~and SaaS~~ is recognized at the point of time in which the Company delivers the software and ~~the~~ 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.

~~THE GLIMPSE GROUP, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(UNAUDITED)~~

~~DECEMBER 31, 2021 AND 2020~~

Timing of Revenue

The timing of revenue recognition for the three ~~and six~~ months ended ~~December 31,~~September 30, 2022 and 2021 ~~and 2020~~ was as follows:

SCHEDULE OF TIMING REVENUE RECOGNITION

2021 2020 2021 2020
For the Three Months Ended For the Six Months Ended
December 31, December 31,
2021 2020 2021 2020
Products transferred at a point in time $ 1,634,998 $ 1,099,423 $ 2,590,749 $ 1,292,598
Products and services transferred over time 55,004 160,422 121,786 227,174
Total Revenue $ 1,690,002 $ 1,259,845 $ 2,712,535 $ 1,519,772

	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~~receivable/contract asset when revenue is recognized prior to invoicing, or deferred ~~revenue~~revenue/contract liability when revenue is recognized subsequent to invoicing.

For certain Software Services project contracts the Company ~~generally~~ 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. ~~In certain instances, one contract~~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 ~~distinct~~ 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 ~~or SaaS~~ 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 ~~or SaaS~~ contracts, the Company generally invoices customers annually at the beginning of each annual coverage period. Software License ~~or SaaS~~ contracts consist of providing clients with software designed by the Company. For Software License ~~or SaaS~~ contracts, there are generally no ongoing support obligations unless specified in the contract (becoming a Software Service).

~~Deferred revenue is comprised mainly of software project contract performance obligations not completed.~~

Unfulfilled performance obligations represent amounts expected to be earned by the Company on executed contracts. As of ~~December 31, 2021,~~September 30, 2022, the Company had approximately $~~1.55~~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 since its IPO. Prior to its IPO, expected volatility is derived from a weighted average of volatility inputs for comparable software and technology service companies~~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.

~~THE GLIMPSE GROUP, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(UNAUDITED)~~

~~DECEMBER 31, 2021 AND 2020~~

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.

~~Income Taxes~~

The Company records income taxes using the asset and liability method. Deferred income tax assets and liabilities are recognized for the future tax effects attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective income tax bases, and operating loss and tax credit carryforwards. The Company establishes a valuation allowance if it is more likely than not that the deferred tax assets will not be recovered based on an evaluation of objective verifiable evidence. For tax positions that are more likely than not of being sustained upon audit, the Company recognizes the largest amount of the benefit that is ~~greater than 50%~~ ~~likely of being realized. For tax positions that are not more likely than not of being sustained upon audit, the Company does not recognize any portion of the benefit.~~

~~The Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 740,~~ ~~Income Taxes~~, or ASC 740, also clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements and prescribes a recognition threshold and measurement process for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities. ASC 740 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. Based on the Company’s evaluation, it has been concluded that there are no significant uncertain tax positions requiring recognition in the Company’s consolidated financial statements. The Company believes that its income tax positions and deductions would be sustained on audit and does not anticipate any adjustments that would result in material changes to its financial position.

~~The Company’s policy for recording interest and penalties associated with audits is to record such expense as a component of income tax expense. There were~~ 0 amounts accrued for penalties or interest for the three and six months ended December 31, 2021 and 2020. Management is currently unaware of any issues under review that could result in significant payments, accruals or material deviations from its position.

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.~~statements.

1415

THE GLIMPSE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

~~DECEMBER 31,~~SEPTEMBER 30, 2022 AND 2021 ~~AND 2020~~

NOTE 4. ~~ASSET ACQUISITIONS~~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:

SCHEDULE OF BUSINESS ACQUISITION PURCHASE PRICE CONSIDERATION

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

~~AUGGD~~

~~In August~~THE GLIMPSE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

SEPTEMBER 30, 2022 AND 2021

The Company’s fair value estimate of the Company, through its wholly owned subsidiary company, MotionZone, LLC (dba AUGGD), completed an acquisition of certain assets, as defined, from Augmented Reality Investments Pty Ltd, an Australia based company providing augmented reality software and services. Over time, the acquisition may facilitate the Company’s endeavors in the Architecture, Engineering and Construction (“AEC”) market segments.

~~Initial~~contingent consideration for the ~~purchase~~BLI acquisition was $~~0.75~~ ~~million payable in Company common stock. In August 2021,~~determined using a Monte Carlo simulation and other methods which account for the ~~Company issued~~ ~~77,264~~ ~~shares~~probabilities of ~~common stock~~various outcomes. The Company’s fair value estimate related to ~~satisfy~~ the ~~purchase price.~~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 ~~acquisition agreement provides~~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 ~~additional contingent consideration in~~royalty arrangements involving similar technology, the ~~form of Company common stock if certain future revenue targets are achieved through June 2024, which is not expected at this time. No liabilities were assumed as part of the acquisition~~obsolesce rate, and the ~~primary assets acquired included employees, customer relationships and technology. The Company recorded the purchase price allocation~~weighted average cost of capital to be used as ~~follows:~~a discount rate.

~~SCHEDULE OF ASSET ACQUISITION~~

Intangible Assets $ 500,000
Goodwill 250,000
Total $ 750,000

The goodwill recognized in connection with the acquisition is primarily attributable to new markets access and ~~is expected to~~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 ~~AUGGD~~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:

SCHEDULE OF PROFORMA FINANCIAL INFORMATION

	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 ~~the Company’s consolidated financial statements from the date of acquisition~~general and ~~did not have a material impact~~administrative expenses on the ~~Company’s~~ consolidated ~~financial statements.~~

~~XR Terra~~

~~In October 2021, the Company, through its wholly owned subsidiary company, XR Terra, LLC, completed an acquisition~~statement of ~~certain assets, as defined in the agreement, from XR Terra, Inc., a developer of teaching platforms utilized in coding software used in VR and AR programming.~~

~~Initial consideration~~operations for the ~~purchase was~~three months ended September 30, 2022.

The Company recognized approximately $~~0.60~~ ~~million payable~~ ~~50% in Company common stock and 50% in cash.~~ ~~In October 2021, the Company paid $0.30~~1.51 million in ~~cash~~revenue and ~~issued~~ $~~33,877~~ 0.25~~shares~~ million (inclusive of ~~common stock to satisfy the purchase price. The acquisition agreement provides for additional~~ 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 ~~form~~consolidated statement of ~~Company common stock if certain future revenue targets are achieved through September 2024, which is not expected at this time. No liabilities were assumed as part of the~~operations.

The BLI acquisition ~~and the primary assets acquired included employees and technology. The Company recorded the purchase price allocation as follows:~~above was considered a business combination in accordance with GAAP.

~~SCHEDULE OF ASSET ACQUISITION~~

Intangible Assets $ 300,000
Goodwill 300,000
Total $ 600,000

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

The results of operations of XR Terra have been included in the Company’s consolidated financial statements from the date of acquisition and did not have a material impact on the Company’s consolidated financial statements.

THE GLIMPSE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

~~DECEMBER 31,~~SEPTEMBER 30, 2022 AND 2021 ~~AND 2020~~

NOTE 5. INTANGIBLE ASSETS

~~The Company recorded intangible assets in connection with its asset purchases of AUGGD and XR Terra (see Note 4). The intangible~~Intangible assets, their respective amortization period, and accumulated amortization ~~at December 31, 2021~~as of September 30, 2022 are as follows:

SCHEDULE OF INTANGIBLE ~~ASSET~~ASSETS, AMORTIZATION PERIOD AND ACCUMULATED AMORTIZATION

	As of December 31, 2021											As of September 30, 2022
	Value ($)									Amortization Period (Years)		Value ($)																		Amortization Period (Years)
	AUGGD			XR Terra			Total					AUGGD			XR Terra			S5D			PulpoAR			BLI			Total
Intangible Assets
Customer Relationships	$	250,000		$	-		$	250,000			3	$	250,000		$	-		$	2,820,000			-		$	3,310,000		$	6,380,000			5 (S5D & BLI) / 3 (AUGGD)
Technology		250,000			300,000			550,000			3		250,000			300,000			-			925,000			880,000		$	2,355,000			3
Less: Accumulated Amortization		(62,500	)		(24,999	)		(87,499	)				(187,488	)		(99,996	)		(376,000	)		(102,776	)		(159,222	)	$	(925,482	)
Intangible Assets, net	$	437,500		$	275,001		$	712,501				$	312,512		$	200,004		$	2,444,000		$	822,224		$	4,030,778		$	7,809,518

Intangible asset amortization expense for the three ~~and six~~ months ended ~~December 31, 2021~~September 30, 2022 was approximately $~~20,834~~0.44 ~~and $87,499, respectively.~~million.

Estimated intangible asset amortization expense for the ~~next four years is~~remaining lives are as ~~follow:~~follows:

SCHEDULE OF INTANGIBLE ASSET AMORTIZATION EXPENSE


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

Remaining FYE June 30, 2022 $ 133,333
Fiscal Year Ended June 30, 2023 266,667
Fiscal Year Ended June 30, 2024 266,667
Fiscal Year Ended June 30, 2025 45,834

NOTE 6. ~~CONTINGENT ACQUISITION LIABILITY~~FINANCIAL INSTRUMENTS

~~Kabaq 3D Technologies, LLC~~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:

SCHEDULE OF CASH AND CASH EQUIVALENTS AND INVESTMENTS

	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~~

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		Cash and Cash Equivalents		Investments
Cash	$	1,233,608	$	-				$	1,233,608
Level 1:
Money market funds		15,016,058		-			15,016,058		15,016,058
Total cash and cash equivalents	$	16,249,666	$	-		$	15,016,058	$	16,249,666

Level 1:
Investments	$	245,187	$	(5,873	)	$	239,314			$	239,314

Contingent Consideration

As of September 30 and June 30, 2022, the Company’s ~~November 2016 acquisition of assets relating~~contingent consideration liabilities related to the ~~acquisition~~acquisitions are categorized as Level 3 within the fair value hierarchy. Contingent consideration was valued at the time of ~~Kabaq 3D Technologies, LLC contained~~acquisitions and at September 30 and June 30, 2022 using unobservable inputs and have included using the Monte Carlo simulation model. This model incorporates revenue volatility, internal rate of return, and risk-free rate. The development and determination of the unobservable inputs for Level 3 fair value measurements and fair value calculations are the responsibility of the Company’s management with the assistance of a ~~provision for additional acquisition~~third-party valuation specialist.

A summary of the quantitative significant inputs used to value S5D’s contingent consideration ~~triggered by a potential listing~~as of September 30, 2022 was: revenue volatility of 61.5%, weighted average cost of capital discount rate of 16.4% and risk-free rate of 4.2%. The market price of the Company’s common stock ~~on a national securities exchange~~as of September 30, 2022 was also used.

A summary of the quantitative significant inputs used to value BLI’s contingent consideration as of September 30, 2022 was: revenue volatility of 70.2%, weighted average cost of capital discount rate of 14.3% and ~~certain stock trading volume thresholds. In August 2021, the milestones triggering the additional consideration were met and the Company incurred $750,000~~risk-free rate of additional acquisition cost. In accordance with GAAP, the cost has been accrued as a legacy acquisition liability on the Company’s balance sheet at June 30, 2021. This obligation was satisfied in August 2021 through the issuance of common stock in settlement of ~~375,000~~4.2% ~~stock options at $2.00~~ ~~per share.~~

~~KreatAR, LLC~~

. The ~~Company’s October 2016 acquisition of assets relating to the acquisitions of KreatAR, LLC contained a provision for additional acquisition consideration triggered by a potential listing~~market price of the Company’s common stock on a national securities exchange and certain stock trading volume thresholds. In August 2021, the milestones triggering the additional consideration were met. In connection therewith, the Company incurred $~~500,000~~as of ~~additional acquisition cost. In accordance with GAAP, the cost has been accrued as a legacy acquisition liability on~~September 30, 2022 was also used.

As of September 30, 2022, the Company’s ~~balance sheet at June 30, 2021. This obligation was partially satisfied in December 2021 through~~contingent consideration liability related to XR Terra, LLC (“XRT”) is categorized as Level 3 within the ~~issuance~~fair value hierarchy as it is based on contractual amounts pursuant to the acquisition agreement, of ~~common stock in settlement of~~ ~~20,000~~ ~~stock options at $2.00~~ ~~per share. Also, see Note 11.~~which certain inputs are unobservable.

~~NOTE 7.~~ ~~DEBT~~

~~Convertible Promissory Notes 1~~

~~In December 2019, the Company raised $1.33~~ ~~million by the issuance of unsecured Convertible Promissory Notes with a~~ ~~three-year~~ ~~term (the “Note 1” or “Notes 1”), primarily from existing Company investors.~~

THE GLIMPSE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

SEPTEMBER 30, 2022 AND 2021

As of September 30, 2022, the Company’s contingent consideration liabilities current and non-current balances were as follows:

~~(UNAUDITED)~~SCHEDULE OF FAIR VALUE OF CONTINGENT CONSIDERATION

	Contingent Consideration at Purchase Date		Changes in Fair Value			Fair Value		Contingent Consideration
	As of September 30, 2022
	Contingent Consideration at Purchase Date		Changes in Fair Value			Fair Value		Contingent Consideration
Level 3:
Contingent consideration, current - S5D	$	2,060,300	$	(136,300	)	$	1,924,000	$	1,924,000
Contingent consideration, current - BLI		1,841,100		117,900			1,959,000		1,959,000
Contingent consideration, current - XRT		-		197,498			197,498		197,498
Total contingent consideration, current portion	$	3,901,400	$	179,098		$	4,080,498	$	4,080,498

Level 3:
Contingent consideration, non-current - S5D	$	7,108,900	$	(55,000	)	$	7,053,900	$	7,053,900
Contingent consideration, non-current - BLI		4,297,900		48,500			4,346,400		4,346,400
Total contingent consideration, net of current portion	$	11,406,800	$	(6,500	)	$	11,400,300	$	11,400,300

The change in fair value of contingent consideration for the three months ended September 30, 2022 was approximately $~~DECEMBER 31, 2021 AND 2020~~2.60 million of expense, included as change in fair value of acquisition contingent consideration in the consolidated statement of operations.

A summary of the quantitative significant inputs used to value S5D’s contingent consideration as of June 30, 2022 was: revenue volatility of 60.1%, weighted average cost of capital discount rate of 15.1% and risk-free rate of 3.0%. The market price of the Company’s common stock as of June 30, 2022 was also used.

As of June 30, 2022, the Company’s contingent consideration liability related to MotionZone, LLC (“AUGGD”) is categorized as Level 3 within the fair value hierarchy as it is based on contractual amounts pursuant to the acquisition agreement, of which certain inputs are unobservable.

As of June 30, 2022, the Company’s contingent consideration liabilities current and non-current balances were as follows:

~~The Notes 1 bore an interest rate of~~ 10~~% per annum.~~

	Contingent Consideration at Purchase Date		Changes in Fair Value			Fair Value		Contingent Consideration
	As of June 30, 2022
	Contingent Consideration at Purchase Date		Changes in Fair Value			Fair Value		Contingent Consideration
Level 3:
Contingent consideration, current - S5D	$	2,060,300	$	(662,700	)	$	1,397,600	$	1,397,600
Contingent consideration, current - AUGGD		-		568,571			568,571		568,571
Total contingent consideration, current	$	2,060,300	$	(94,129	)	$	1,966,171	$	1,966,171

Level 3:
Contingent consideration, non-current - S5D	$	7,108,900	$	(1,768,100	)	$	5,340,800	$	5,340,800
Contingent consideration, non-current - S5D	$	7,108,900	$	(1,768,100	)	$	5,340,800	$	5,340,800

There was ~~The Notes 1 were convertible by a Note 1 holder at any time~~ ~~during~~no change in fair value of contingent consideration for the ~~term into common stock of the Company at a fixed price of~~three months ended September 30, 2021.

THE GLIMPSE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

SEPTEMBER 30, 2022 AND 2021

NOTE 7. DEFERRED COSTS/CONTRACT ASSETS and DEFERRED REVENUE/CONTRACT LIABILITIES

At September 30 and June 30, 2022, deferred costs/contract assets totaling $~~4.50/share, or approximately~~ ~~295,000~~ ~~shares of common stock upon full conversion. Interest expense on the Notes 1 was approximately $48,500~~268,552 and $~~97,000~~39,484, respectively, consists of costs deferred under contracts not completed and recognized at a point in time ($161,557 ~~for~~and $35,469, respectively), and costs in excess of billings under contracts not completed and recognized over time ($106,995 and $4,015, respectively). At September 30 and June 30, 2022, deferred revenue/contract liabilities, totaling $1,224,748 and $841,389, respectively, consists of revenue deferred under contracts not completed and recognized at a point in time ($1,088,589 and $533,214, respectively), and costs in excess of billings under contracts not completed and recognized over time ($136,159 and $308,175 respectively).

The following table shows the ~~three and six months ended December 31, 2020, respectively, representing amortization~~reconciliation of the ~~original issue discount~~costs in excess of billings and ~~prepaid interest~~billings in excess of costs for ~~the period.~~

~~In December 2020 and primarily in January 2021, Note 1 holders converted approximately $1.21~~ ~~million of principal into approximately~~ ~~0.30~~ ~~million shares of common stock at a revised (to encourage early conversion) conversion price of $4.00/share.~~

~~The holders of the remaining unconverted Notes 1, equating to approximately $117,000~~ ~~(net of original discount of approximately $8,000) of outstanding principal at June 30, 2021, amended their Notes 1 to allow for auto conversion upon the Company’s potential IPO event at a conversion price of $4.25/share. As per the amendment, the residual Notes 1 converted upon the IPO and no further obligations existed. See Note 8.~~

~~The Company recorded a loss on conversion of the remaining Notes 1 of approximately $18,000~~ ~~at time of the IPO, representing unamortized original issue discount and prepaid interest.~~

contracts recognized over time:

~~Convertible Promissory Notes 2~~SCHEDULE OF RECONCILIATION OF COST IN EXCESS OF BILLING FOR CONTRACT RECOGNIZED OVER TIME

	As of September 30, 2022

Cost incurred on uncompleted contracts	$	328,070
Estimated earnings		480,887
Earned revenue		808,957
Less: billings to date		838,121
Billings in excess of costs, net	$	(29,164	)

Balance Sheet Classification
Contract assets includes, costs and estimated earnings in excess of billings on uncompleted contracts	$	106,995
Contract liabilities includes, billings in excess of costs and estimated earnings on uncompleted contracts		(136,159	)
Billings in excess of costs, net	$	(29,164	)

~~In March 2021, the Company raised $1.48~~ ~~million by the issuance of unsecured Convertible Promissory Notes with a~~ ~~two-year~~ ~~term (the “Notes 2”), to several investors.~~

~~The Notes 2 bore an interest rate of~~ 10~~% per annum.~~

~~The Notes 2 were convertible by a note holder at any time during the term into common stock of the Company at a fixed price of $5.00/share, or~~ ~~295,000~~ ~~shares of common stock upon full conversion. Notes 2 had a maturity date of~~ ~~March 5, 2023. All outstanding amounts at the time of the Company’s IPO automatically converted at $5.00/share in the aggregate. Convertible Notes 2 totaled approximately $1.313~~ ~~million (net of original issue discount of approximately $162,000) at June 30, 2021. The Notes 2 converted upon the IPO and no further obligations existed. See Note 8.~~

~~The Company recorded a loss on conversion of the Notes 2 of approximately $262,000~~ ~~at time of the IPO, representing unamortized original issue discount and prepaid interest.~~

NOTE 8. EQUITY

Initial Public Offering (“IPO”)

On July 1, 2021, the Company completed an IPO of common stock on the Nasdaq under the symbol “VRAR”, at a price of $7.00 per share.

The Company sold approximately 1.91 million shares of common stock and realized net proceeds (after underwriting, professional fees and listing expenses) of $11.82 million.

In connection with the IPO, and for services rendered, the underwriter was issued a warrant to purchase 87,500 shares of common stock at $7.00 per share. The warrant ~~cannot~~could not be exercised prior to December 30, 2021 and expires in June 2026. The warrant was valued at approximately ~~$520,000~~$0.52 million based on the Black-Scholes options pricing model method with the following assumptions: 5 year expected term, 129% expected volatility, 0.87% risk-free rate and 0% expected dividend ~~yield~~.yield.

~~As stated in Note 7, in~~In conjunction with the IPO, ~~the~~ outstanding convertible promissory ~~Notes 1 and 2~~notes totaling approximately $1.43 million were satisfied in full through the issuance of 324,150shares of common stock. A loss of approximately $~~280,000~~ 0.28 million was recorded on this conversion at the time of the IPO.

1721

THE GLIMPSE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

~~DECEMBER 31,~~SEPTEMBER 30, 2022 AND 2021 ~~AND 2020~~

Securities Purchase Agreement (“SPA”)

In November 2021, the Company sold $15.0 million worth of its common stock and warrants to certain institutional investors in a private placement pursuant to a SPA. The Company realized net proceeds (after underwriting, professional fees and listing expenses) of ~~$13.58~~$13.58 million.

Under the terms of the SPA, the Company sold 1.50 million shares of its common stock and warrants to purchase 0.75 million shares of common stock. The purchase price for one share of common stock and half a corresponding warrant was ~~$10.00~~$10.00. The warrants have an exercise price of $14.63 per share. Warrants to purchase 0.56 million shares ~~can~~could be exercised immediately and expire five years from the date of the SPA. Warrants to purchase 0.19 million shares ~~cannot be exercised~~were not exercisable prior to May 2, 2022 and expire five years after. The warrants are valued at approximately $8.80million based on the Black-Scholes options pricing model method with the following assumptions: 5year expected term, 146% expected volatility, 1.22% risk-free rate and 0% expected dividend yield.

Common Stock Issued

Common stock sold to Investors

During the ~~six~~three months ended ~~December 31,~~September 30, 2021, the Company sold approximately 1.91 million shares of common stock to investors at the IPO at a price of $7.00 per share, for total net proceeds of approximately $11.82 million. ~~In addition, the Company sold~~ ~~1.50~~ ~~million shares of common stock to investors pursuant to a SPA at a price of $10.00~~ ~~per share (including unexercised warrants), for total net proceeds of approximately $13.58~~ ~~million.~~

~~During the six months ended December 31, 2020, the Company sold approximately~~ ~~53,000~~ ~~shares of common stock to investors at a price of $4.50~~ ~~per share, for total net proceeds of approximately $239,000~~.

Common stock issued to Investors

During the ~~six~~three months ended ~~December 31,~~September 30, 2021, in connection with the conversion of convertible promissory notes and in conjunction with the IPO, the Company issued approximately ~~324,150~~324,000 shares of ~~common stock (see Note 7). During the six months ended December 31, 2020, in connection with the conversion of Notes 1, the Company issued~~ ~~14,444~~ ~~shares of common stock (see Note 7).~~common.

Common stock issued for Acquisitions

During the ~~six~~three months ended ~~December 31, 2021,~~September 30, 2022, the Company issued approximately ~~111,000~~714,000 shares of common stock, valued at $~~1.05~~2.85 million, as consideration for the acquisition of ~~AUGGD and XR Terra~~BLI (see Note 4). ~~In addition,~~During the three months ended September 30, 2021, the Company issued approximately ~~277,000~~77,000 shares of common stock, valued at $~~4.0~~0.75 million, as consideration for the acquisition of ~~S5D, which were escrowed until closing on the S5D acquisition in February 2022 (see Note 11). The escrowed shares are recorded as Acquisition escrow assets on the December 31, 2021 balance sheet.~~AUGGD.

Common stock issued for ~~Legacy Acquisition Obligation~~satisfaction of contingent consideration

During the ~~six~~three months ended ~~December 31, 2021,~~September 30, 2022 the Company issued approximately ~~395,000~~107,000 shares of common stock, with a fair value of approximately $0.32 million, to satisfy a contingent acquisition obligation of approximately $0.57 million less the repayment of a secured promissory note of $0.25 million (see Note 10), related to the acquisition of AUGGD (see Note 11). During the three months ended September 30, 2021, Company issued 375,000 shares of common stock to satisfy legacy acquisition obligations of $~~790,000~~0.75 ~~(see Note 6).~~million.

Common stock issued to Vendors

During the ~~six~~three months ended ~~December 31,~~September 30, 2021, ~~and 2020,~~ the Company issued approximately ~~13,400~~ ~~and~~ ~~11,300~~6,000 shares of common stock, ~~respectively,~~ to various vendors for services performed and recorded share-based compensation of approximately $~~148,000~~0.07 ~~and $51,000, respectively.~~million.

THE GLIMPSE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

~~DECEMBER 31,~~SEPTEMBER 30, 2022 AND 2021 ~~AND 2020~~

Common stock issued for Exercise of Stock Options

During the ~~six~~three months ended ~~December 31,~~September 30, 2022 and 2021, the Company issued approximately ~~357,000~~25,000 and 17,000 shares of common stock in cash and cashless transactions, respectively, upon exercise of the respective option grants and realized cash proceeds of approximately $~~614,000~~0.04. million and $0.05 million, respectively.

~~Common stock-based Compensation expense~~

~~During the six months ended December 31, 2021, the Company issued approximately~~ ~~11,000~~ ~~shares of common stock, to an employee and recorded share-based compensation of approximately $96,000~~.

Employee Stock-Based Compensation

The Company’s 2016 Equity Incentive Plan (the “Plan”), as amended, has approximately 1010.6 million common shares reserved for issuance. As of ~~December 31, 2021,~~September 30, 2022, there were approximately ~~5.26~~5.0 million shares available for issuance under the Plan.

The Company recognizes compensation expense relating to awards ratably over the requisite period, which is generally the vesting period.

Stock options have been recorded at their fair value. The Black-Scholes option-pricing model assumptions used to value the issuance of stock options under the Plan, are noted in the following table:

SCHEDULE OF ~~BLACK-SCHOLES OPTION-PRICING MODEL~~STOCK OPTION FAIR VALUE ASSUMPTIONS

													2022			2021
	For the Three Months Ended December 31,						For the Six Months Ended December 31,						For the Three Months Ended September 30,
	2021			2020			2021			2020			2022			2021
Weighted average expected terms (in years)		5.6			5.0			5.5			5.1			6.5			5.4
Weighted average expected volatility		229.3	%		117.25	%		171.4	%		117.25	%		101.4	%		146.1	%
Weighted average risk-free interest rate		1.2	%		0.4	%		1.0	%		0.3	%		2.9	%		0.9	%
Expected dividend yield		0.0	%		0.0	%		0.0	%		0.0	%		0.0	%		0.0	%

The grant date fair value, for options granted during the ~~six~~three months ended ~~December 31,~~September 30, 2022 and 2021 ~~and 2020~~ was approximately $~~1.29~~1.25 million and $~~0.50~~0.61 million, respectively.

THE GLIMPSE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

SEPTEMBER 30, 2022 AND 2021

The following is a summary of the Company’s stock option activity for the ~~six~~three months ended ~~December 31,~~September 30, 2022 and 2021:

SUMMARY OF STOCK OPTION ACTIVITY

Weighted Average
Remaining
Exercise Contractual Intrinsic
Options Price Term (Yrs) Value
Outstanding at July 1, 2021 4,740,910 $ 3.40 8.5 $ 7,893,467
Options Granted 158,907 8.59 9.8 714,854
Options Exercised (751,925 ) 2.62 7.8 (7,775,919 )
Options Forfeited / Cancelled (173,190 ) 4.42 8.9 (1,479,671 )
Outstanding at December 31, 2021 3,974,702 $ 3.71 8.6 $ 24,522,730
Exercisable at December 31, 2021 3,784,856 $ 3.52 8.5 $ 23,983,666

				Weighted Average
						Remaining
				Exercise		Contractual		Intrinsic
	Options			Price		Term (Yrs)		Value
Outstanding at July 1, 2022		4,484,616		$	4.68		7.0	$	2,404,249
Options Granted		321,787			7.00		9.9		-
Options Exercised		(66,853	)		4.13		7.1		93,945
Options Forfeited / Cancelled		(72,099	)		8.86		9.0		13,273
Outstanding at September 30, 2022		4,667,451		$	4.77		6.9	$	6,429,851
Exercisable at September 30, 2022		3,509,358		$	3.59		6.0	$	6,382,458

				Weighted Average
						Remaining
				Exercise		Contractual		Intrinsic
	Options			Price		Term (Yrs)		Value
Outstanding at July 1, 2021		4,740,910		$	3.40		8.5	$	7,893,467
Options Granted		94,666			7.11		9.9		423,923
Options Exercised		(392,394	)		2.14		7.2		(3,720,795	)
Options Forfeited / Cancelled		(82,838	)		4.61		9.5		(563,393	)
Outstanding at September 30, 2021		4,360,344		$	3.58		8.6	$	16,283,017
Exercisable at September 30, 2021		4,143,324		$	3.47		8.5	$	15,852,955

~~THE GLIMPSE GROUP, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(UNAUDITED)~~

~~DECEMBER 31, 2021 AND 2020~~

The Company’s stock option-based expense for the three ~~and six~~ months ended ~~December 31,~~September 30, 2022 and 2021 ~~and 2020~~ consisted of the following:

SCHEDULE OF STOCK OPTION-BASED EXPENSE

For the Three Months Ended For the Six Months Ended
December 31 December 31
2021 2020 2021 2020
Stock option-based expense :
Research and development expenses $ 257,911 $ 199,169 $ 605,508 $ 603,081
General and administrative expenses 57,929 197,851 124,572 296,014
Sales and marketing expenses 112,847 146,108 240,839 245,408
Cost of goods sold 21,394 258,725 44,158 304,412
Board option expense 89,686 42,750 178,305 85,501
Total $ 539,767 $ 844,603 $ 1,193,382 $ 1,534,416


	Three Months Ended September 30, 2022		Three Months Ended September 30, 2021
Stock option-based expense :
Research and development expenses	$	387,440	$	347,597
General and administrative expenses		54,274		66,643
Sales and marketing expenses		186,660		127,992
Cost of goods sold		694		22,764
Board option expense		146,784		88,619
Total	$	775,852	$	653,615

At ~~December 31, 2021,~~September 30, 2022 total unrecognized compensation expense to employees, board members and vendors related to stock options was approximately $~~1.29~~6.82 million, and is expected to be recognized over a weighted average period of ~~2.22~~2.29 years.

The intrinsic value of stock options at ~~December 31,~~September 30, 2022 and 2021 was computed using a fair market value of the common stock of $~~9.86~~5.29/~~share.~~share and $7.29/share, respectively.

THE GLIMPSE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

SEPTEMBER 30, 2022 AND 2021

NOTE 9. EARNINGS PER SHARE

The following table presents the computation of basic and diluted net loss per common share:

SCHEDULE OF COMPUTATION OF BASIC AND DILUTED NET LOSS PER SHARE

For the Three Months Ended For the Six Months Ended
December 31 December 31
2021 2020 2021 2020
Numerator:
Net loss $ (1,575,394 ) $ (741,088 ) $ (3,232,155 ) $ (2,018,412 )
Denominator:
Weighted-average common shares outstanding for basic and diluted net loss per share 11,637,318 7,053,986 10,802,570 7,046,510
Basic and diluted net loss per share $ (0.14 ) $ (0.11 ) $ (0.30 ) $ (0.29 )


	For the Three Months Ended
	September 30,
Numerator:	2022			2021
Net loss	$	(5,382,727	)	$	(1,656,761	)
Denominator:
Weighted-average common shares outstanding for basic and diluted net loss per share		13,317,188			9,967,821
Basic and diluted net loss per share	$	(0.40	)	$	(0.17	)

Potentially dilutive securities that were not included in the calculation of diluted net loss per share attributable to common stockholders because their effect would be anti-dilutive are as follows (in common equivalent shares):

SCHEDULE OF POTENTIALLY DILUTIVE SECURITIES

	At September 30, 2022		At September 30, 2021
Stock Options		4,667,451		4,360,344
Warrants		837,500		87,500
Convertible Notes		-		-
Total		5,504,951		4,447,844

NOTE 10. RELATED PARTY TRANSACTIONS

At December 31, 2021 At December 31, 2020
Stock Options 3,974,702 4,168,162
Warrants 837,500 -
Convertible Notes - 281,667
Total 4,812,202 4,449,829

Augmented Reality Investments Pty Ltd (“ARI”)

In March 2022, the Company lent to ARI, the entity from which the assets of AUGGD (see Note 11) were bought, $0.25 million pursuant to a secured promissory note due March 31, 2024. The two owners of ARI are currently an employee and a non-employee advisor to the Company.

The note bore interest at the rate of 1% per annum and was secured by the borrower’s common shares of the Company. Any sales of said shares shall be used to prepay the note, unless otherwise agreed to by the Company.

The note and any accrued interest were extinguished in July, 2022. See Note 11.

NOTE ~~10.~~11. COMMITMENTS AND CONTINGENCIES

~~Operating Leases~~Lease Costs

The Company made cash payments for all operating leases for the three months ended September 30, 2022 and 2021, of approximately $~~New York~~0.13 million and $0.09 million, respectively, all of which were included in cash flows from operating activities within the consolidated statements of cash flows. The Company’s operating leases have a weighted average remaining lease term of 1.9 years and weighted average discount rate of 7.9%.

The total rent expense for all operating leases for the three months ended September 30, 2022 and 2021, was approximately $0.13 million and $0.09 million, respectively, with short-term leases making up an immaterial portion of such expenses.

Lease Commitments

The Company has ~~an office space~~various operating leases for its offices. These existing leases have remaining lease ~~expiring, as amended, on~~ ~~December 31, 2022. To secure the initial~~terms ranging from 1 to 4 years. Certain lease ~~the Company paid a $75,000~~ ~~security deposit.~~

~~There is approximately $300,000~~ ~~due on~~agreements contain options to renew, with renewal terms that generally extend the lease terms by 1 to 3 years for ~~the January-December 2022 period, the remaining lease term.~~each option. The Company determined that none of its current leases are reasonably certain to renew.

THE GLIMPSE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

SEPTEMBER 30, 2022 AND 2021

Future approximate undiscounted lease payments for the Company’s operating lease liabilities and a reconciliation of these payments to its operating lease liabilities at September 30, 2022 are as follows:

~~(UNAUDITED)~~SCHEDULE OF UNDISCOUNTED LEASE PAYMENTS


Years Ended June 30,
2023 (nine months)	$	364,000
2024		447,000
2025		319,000
2026		96,000
Total future minimum lease commitments, including short-term leases		1,226,000
Less: future minimum lease payments of short -term leases		(10,000	)
Less: imputed interest		(149,000	)
Present value of future minimum lease payments, excluding short term leases	$	1,067,000

Current portion of operating lease liabilities	$	442,000
Non-current portion of operating lease liabilities		625,000
Total operating lease liability	$	1,067,000

Contingent Consideration for Acquisitions

Contingent consideration for acquisitions, consists of the following as of September and June 30, 2022 respectively:

~~DECEMBER 31, 2021 AND 2020~~SCHEDULE OF CONTINGENT CONSIDERATION FOR ACQUISITIONS

	September 30, 2022		June 30, 2022
	As of		As of
	September 30, 2022		June 30, 2022
S5D, current portion	$	1,924,000	$	1,397,600
BLI, current portion (see Note 4)		1,959,000		-
XRT		197,498		-
AUGGD		-		568,571
Subtotal current portion		4,080,498		1,966,171
S5D, net of current portion		7,053,900		5,340,800
BLI, net of current portion (see Note 4)		4,346,400		-
Total contingent consideration for acquisitions	$	15,480,798	$	7,306,971

XRT

~~Turkey~~

~~The Company entered into office leases for two locations in Turkey effective December 1,~~In October 2021, ~~and expiring on November 30, 2022. To secure the leases,~~ the Company, ~~paid~~through its wholly owned subsidiary company, XRT, completed an acquisition of certain assets, as defined, from XR Terra, Inc.

In September 2022, XRT achieved a revenue performance milestone as defined in the asset acquisition agreement, and is due approximately $~~2,400~~0.2 million (at fair value) of Company common stock. This additional consideration is included as change in ~~security deposits.~~

~~Monthly rent expense for~~fair value of contingent consideration in the ~~two locations will be approximately $2,400~~ ~~per month.~~

~~Companywide rent expense~~consolidated statement of operations for the three ~~and six~~ months ended ~~December 31,~~September 30, 2022 and included in contingent consideration for acquisitions, current portion in the consolidated balance sheet as of September 30, 2022. As of September 30, 2022, it is not anticipated that XRT will meet any future consideration thresholds as defined in the asset acquisition agreement.

THE GLIMPSE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

SEPTEMBER 30, 2022 AND 2021

AUGGD

In August 2021, the Company, through its wholly owned subsidiary company, AUGGD, completed an acquisition of certain assets, as defined, from ARI.

In June 2022, AUGGD achieved its initial revenue threshold as defined in the asset acquisition agreement, and was issued shares of Company stock in July 2022 reflecting the payment of additional asset acquisition consideration. The share issuance was done inclusive of netting the outstanding balance of a $0.25 million note receivable due the Company by ARI (see Note 10). This additional consideration of approximately $~~90,000~~0.57 ~~and $176,000, respectively. Rent expense~~million was included contingent consideration for acquisitions, current portion in the ~~three and six months ended December 31, 2020 was approximately $74,000~~ ~~and $146,000, respectively.~~consolidated balance sheet at June 30, 2022. As of September 30, 2022, it is not anticipated that AUGGD will meet any future consideration thresholds as defined in the asset acquisition agreement.

Potential Future Distributions Upon Divestiture or Sale

Upon a divestiture or sale of a subsidiary company, the Company is contractually obligated to distribute up to 1010%% of the net proceeds from such divestiture or sale to the senior management team of the divested subsidiary company. Currently, there were no active discussions pertaining to a potential divestiture or sale of any of the Company’s subsidiaries.

COVID-19

The COVID-19 pandemic ~~has~~ caused ~~and continues to cause~~ significant business and financial markets disruption worldwide and there iswas significant uncertainty around the duration of this disruption and its ongoing effects on our business. This has primarily manifested itself in prolonged sales cycles.

From March 2020 through June 2021, the Company had required substantially all of its employees to work remotely to minimize the risk of the virus. While working remotely has proven to be effective to this point, it may eventually inhibit the Company’s ability to operate its business effectively. Commencing July 2021, the Company has tentatively required employees to return to the office several days a week.

We continue to ~~closely~~ monitor the situation and the effects on our business and operations. While some level of potential uncertainty remains, given the current state of the pandemic, our expected revenue growth and current cash balance, we do not expect the impact of COVID-19 onto be material to our business and ~~operations to worsen going forward.~~operations.

~~NOTE 11.~~ ~~SUBSEQUENT EVENTS~~

~~Purchase of Sector 5 Digital, LLC (“S5D”)~~

In December 2021, the Company entered into a Membership Interest Sale Agreement (the “S5D Agreement”) to purchase all of the membership interests of Sector 5 Digital, LLC (“S5D”), an enterprise focused, immersive technology company that combines innovative storytelling with emerging technologies for industry leading organizations. The transaction’s total potential purchase price is $~~27.0~~ ~~million, with an initial payment of $8.0~~ ~~million upon closing, consisting of $4.0~~ ~~million in cash and $4.0~~ ~~million of Company common stock (approximately~~ ~~0.28~~ ~~million shares). Future potential purchase price considerations, up to $19.0~~ ~~million, are based on S5D’s achievement of revenue growth milestones in the three years post-Closing, the payment of which shall be made up to $~~2 ~~million in cash and the remainder in common shares of the Company, priced at the date of the future potential share issuance.~~

~~In February 2022, the S5D transaction closed and S5D became a wholly-owned subsidiary of the Company. $~~4 ~~million in cash was paid, $~~4 ~~million in Company stock (in escrow at December 31, 2021 and recorded as Acquisition escrow on the balance sheet) was released and $~~2 million in cash was escrowed to be released if and when revenue growth milestones in the three years post-Closing are met. In addition, the former S5D Chief Executive Officer was appointed to the Company’s Board of Directors and was named Chief Revenue Officer of the Company.

~~S5D had revenue for calendar year 2021 of approximately $~~4 ~~million.~~

The Company is currently determining its potential contingent liability for the purchase, as well as allocation of the purchase price amongst the assets purchased, intangible assets, goodwill and liabilities assumed.

~~Contingent Acquisition Liability~~

~~In January 2022, the Company settled its remaining obligations relating to the acquisition of KreatAR, LLC (see Note 6) through the issuance of~~ ~~42,978~~ ~~shares of common stock valued at $430,000~~ ~~and through the issuance of common stock in settlement of~~ ~~15,000~~ ~~stock options at $2.00~~ ~~per share.~~

2127

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis summarizes the significant factors affecting the consolidated operating results, financial condition, liquidity and cash flows of our Company as of and for the periods presented below. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements and related notes included in this Quarterly Report on Form 10-Q and the audited financial statements and notes thereto, and related disclosures, as of and for the year ended June 30, ~~2021,~~2022, which are included in the Form 10-K filed with the Securities and Exchange Commission (the “SEC”) on September 28, ~~2021.~~2022. Unless the context requires otherwise, references in this Quarterly Report on Form 10-Q to “we,” “us,” ~~and~~ “our” or “the Company,” refer to The Glimpse Group, Inc., a Nevada corporation and its subsidiaries.

Forward-Looking Statements

The information in this discussion contains forward-looking statements and information within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, (the “Exchange Act”), which are subject to the “safe harbor” created by those sections. These forward-looking statements include, but are not limited to, statements concerning our strategy, future operations, future financial position, future revenues, projected costs, prospects and plans and objectives of management. The words “anticipates,” “believes,” “estimates,” “expects,” “intends,” “may,” “plans,” “projects,” “will,” “would” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. We may not actually achieve the plans, intentions, or expectations disclosed in our forward-looking statements and you should not place undue reliance on our forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements that we make. These forward-looking statements involve risks and uncertainties that could cause our actual results to differ materially from those in the forward-looking statements, including, without limitation, the risks set forth in Part II, Item 1A, “Risk Factors” in this Quarterly Report on Form 10-Q and in our other filings with the SEC. The forward-looking statements are applicable only as of the date on which they are made, and we do not assume any obligation to update any forward-looking statements.

Overview

We are a Virtual (“VR”) and Augmented (“AR”) Reality platform company, comprised of a diversified group of wholly-owned and operated VR and AR companies, providing enterprise-focused software, services and solutions. We believe that we offer significant exposure to the rapidly growing and potentially transformative VR and AR markets, while mitigating downside risk via our diversified model and ecosystem.

We were incorporated as The Glimpse Group, Inc. in the State of Nevada, on June 15, 2016 and are headquartered in New York, New York. We currently own and ~~actively~~ operate ~~twelve, wholly-owned~~numerous subsidiary companies (“Subsidiary Companies”, “Subsidiaries”) as represented in the below organizational ~~charts:~~chart:

Significant Transactions

On July 1, 2021, we completed an initial public offering (“IPO”) of common stock and initial listing on the Nasdaq Capital Market under the symbol “VRAR”, at an initial public offering price of $7.00 per share. In conjunction with the IPO and the underwriter’s exercise of its over-allotment option, we sold 1,912,500 shares of common stock and realized net proceeds (after underwriting, professional fees and listing expenses) of $11.82 million.

In October 2021, we completed an acquisition of certain assets from XR Terra, Inc., a developer of teaching platforms utilized in coding software used in VR and AR programming. Initial consideration for the purchase was $0.60 million payable 50% in our common stock and 50% in cash. In October 2021, the Company paid $0.30 million cash and issued 33,877 shares of common stock to satisfy the purchase price. Additional consideration in the form of our common stock shall be issued if certain future revenue growth targets are achieved.

On November 2, 2021, pursuant to a securities purchase agreement, the Company sold 1.50 million shares of common stock and warrants to purchase 0.75 million shares of common stock to certain institutional investors in a private placement. The warrants have an exercise price of $14.63 per share. The purchase price for one share of common stock and half a corresponding warrant was $10.00. The net proceeds to the Company from the private placement offering were approximately $13.6 million after deducting the placement agent’s fees and other offering expenses.

~~On January 13,~~May 2022, Mr. Ian Charles was appointed to the Company’s Board of Directors and chair of the audit committee. Mr. Charles, age 53, has approximately 25 years of executive leadership experience in technology, public markets, mergers and acquisitions, and multinational operations.

~~On December 2, 2021,~~ the Company entered into ~~a Membership Interest Sale~~an Agreement and Plan of Merger (the ~~“S5D Agreement”~~“Agreement”) to purchase ~~Sector 5 Digital,~~all of the membership interests of Brightline Interactive, LLC (“~~S5D”~~BLI”), an ~~enterprise focused,~~ immersive technology company that ~~combines innovative storytelling with emerging technologies~~provides VR and AR based training scenarios and simulations for ~~industry leading organizations.~~commercial and government customers. The transaction’s total potential purchase price ~~is $27.0~~was $32.5 million, with an initial payment of $8.0 million upon closing, consisting of ~~$4.0~~$3.0 million in cash and ~~$4.0~~approximately 0.71 million shares of ~~Company~~the Company’s common stock ~~(approximately 0.28~~valued at $5.0 million ~~shares)~~at the time the Agreement was entered (and issued at closing based on a common stock floor price of $7.00/share). Future potential purchase price considerations, up to ~~$19.0~~$24.5 million, are based on ~~S5D’s~~BLI’s achievement of revenue growth milestones in the three years ~~post-Closing,~~post-closing, the payment of which shall be made ~~primarily~~up to $12 million in cash and the remainder in common shares of the Company, priced at the date of the future potential share ~~issuance. On February 1,~~issuance subject to a common stock price floor of $7.00/share. In August 2022, the ~~S5D~~BLI transaction closed and ~~S5D~~BLI became a wholly-owned subsidiary of the Company. ~~In addition, Jeff Meisner (former S5D Chief Executive Officer)~~$3 million in cash was ~~appointed~~paid (net of adjustments, as defined) and approximately 0.71 million shares of Company stock were issued to the ~~Company’s Board of Directors and was named Chief Revenue Officer of the Company. This filing does not include the results of S5D.~~sellers.

Financial Highlights for the three ~~and six~~ months ended ~~December 31, 2021~~September 30, 2022 compared to the three ~~and six~~ months ended ~~December 31, 2020~~September 30, 2021

Results of Operations

The following table sets forth our results of operations for the three ~~and six~~ months ended ~~December 31, 2021~~September 30, 2022 and ~~2020:~~2021:

Summary P&L

	For the Three Months Ended
	September 30,						Change
	2022			2021			$			%
				(in millions)
Revenue	$	3.95		$	1.02		$	2.93			287	%
Cost of Goods Sold		1.21			0.15			1.06			707	%
Gross Profit		2.74			0.87			1.87			215	%
Total Operating Expenses		8.17			2.27			5.90			260	%
Loss from Operations before Other Income (Expense)		(5.43	)		(1.40	)		(4.03	)		288	%
Other Income (Expense), net		0.05			(0.26	)		0.31			-119	%
Net Loss	$	(5.38	)	$	(1.66	)	$	(3.72	)		224	%

For the Three Months Ended For the Six Months Ended
December 31, Change December 31, Change
2021 2020 $ % 2021 2020 $ %
(in millions) (in millions)
Revenue $ 1.69 $ 1.26 $ 0.43 34 % $ 2.71 $ 1.52 $ 1.19 78 %
Cost of Goods Sold 0.21 0.55 (0.34 ) -62 % 0.36 0.68 (0.32 ) -47 %
Gross Profit 1.48 0.71 0.77 108 % 2.35 0.84 1.51 180 %
Total Operating Expenses 3.05 1.41 1.64 116 % 5.33 2.77 2.56 92 %
Loss from Operations before Other Income (Expense) (1.57 ) (0.70 ) (0.87 ) 124 % (2.98 ) (1.93 ) (1.05 ) 54 %
Other Income (Expense), net - (0.05 ) 0.05 -100 % (0.26 ) (0.09 ) (0.17 ) 189 %
Net Loss $ (1.57 ) $ (0.75 ) $ (0.82 ) 109 % $ (3.24 ) $ (2.02 ) $ (1.22 ) 60 %

Results of Operations include the results of BLI since its purchase on August 1, 2022

Revenues

	For the Three Months Ended
	September 30,				Change
	2022		2021		$			%
	(in millions)
Software Services	$	3.86	$	0.80	$	3.06			383	%
Software License/Software as a Service		0.09		0.22		(0.13	)		-59	%
Total Revenue	$	3.95	$	1.02	$	2.93			287	%

For the Three Months Ended For the Six Months Ended
December 31, Change December 31, Change
2021 2020 $ % 2021 2020 $ %
(in millions) (in millions)
Software Services $ 1.61 $ 1.19 $ 0.42 35 % $ 2.42 $ 1.38 $ 1.04 75 %
Software License/Software as a Service 0.08 0.07 0.01 14 % 0.29 0.14 0.15 107 %
Total Revenue $ 1.69 $ 1.26 $ 0.43 34 % $ 2.71 $ 1.52 $ 1.19 78 %

Total revenue for the three months ended ~~December 31, 2021~~September 30, 2022 was approximately ~~$1.69~~$3.95 million compared to approximately ~~$1.26~~$1.02 million for the three months ended ~~December 31, 2020,~~September 30, 2021, an increase of 34% (the three months ended December 31, 2020 revenue included delayed sales from the previous quarter due to Covid 19). Total revenue for the six months ended December 31, 2021 was approximately $2.71 million compared to approximately $1.52 million for the six months ended December 31, 2020, an increase of 78%287%. The increase ~~for both periods was due to~~reflects the addition of several subsidiary companies after September 30, 2021, organic growth and ~~the addition of~~ new customers.

We break out our revenues into two main categories – Software Services and Software License.

	●	Software Services revenues are primarily comprised of VR/AR projects, services related to our software licenses and consulting retainers.

	●	Software License revenues are comprised of the sale of our internally developed VR/AR software as licenses or as software-as-a-service (“SaaS”).

For the three months ended ~~December 31, 2021,~~September 30, 2022, Software Services revenue was approximately ~~$1.61~~$3.86 million compared to approximately ~~$1.19~~$0.80 million for the three months ended ~~December 31, 2020,~~September 30, 2021, an increase of approximately 35%. For the six months ended December 31, 2021, Software Services revenue was approximately $2.42 million compared to approximately $1.38 million for the six months ended December 31, 2020, an increase of approximately 75%383%. The increase ~~for both periods was due to~~reflects the addition of several subsidiary companies after September 30, 2021, organic growth and ~~the addition of~~ new customers.

For the three months ended ~~December 31, 2021,~~September 30, 2022, Software License revenue was approximately ~~$0.08~~$0.09 million compared to approximately ~~$0.07~~$0.22 million for the three months ended ~~December 31, 2020, an increase of approximately 14%. For~~September 30, 2021, reflecting a long term license agreement in the ~~six months ended December 31,~~ 2021 ~~Software License revenue was approximately $0.29 million compared to approximately $0.14 for the six months ended December 31, 2020, an increase of approximately 107%.~~period. As the VR and AR industries continue to mature, we expect our Software License revenue to continue to grow on an absolute basis and as an overall percentage of total revenue.

For the three months ended ~~December 31, 2021,~~September 30, 2022, non-project revenue (i.e., VR/AR Software and Services revenue only), was approximately ~~$0.85~~$1.28 million compared to approximately ~~$0.50~~$0.86 million for the three months ended ~~December 31, 2020,~~September 30, 2021, an increase of approximately ~~70%.~~49%, reflecting organic growth and the addition of new customers. For the three months ended ~~December 31, 2021,~~September 30, 2022, non-project revenue accounted for approximately ~~50%~~32% of total revenues compared to approximately ~~40%~~84% for the three months ended ~~December 31, 2020. For~~September 30, 2021. The decrease reflects the ~~six months ended December 31, 2021, non-project~~additions of BLI and Sector 5 Digital (“S5D”), which currently primarily generate project revenue, ~~(i.e., VR/AR Software and Services revenue only), was approximately $1.70 million compared to approximately $0.64 million for the six months ended December 31, 2020,~~representing an ~~increase of approximately 166%. For the six months ended December 31, 2021, non-project revenue accounted for approximately 63%~~increased portion of total ~~revenues compared to approximately 42% for the six months ended December 31, 2020.~~revenue.

Customer Concentration

Two customers accounted for approximately ~~75% (45%~~55% (29% and ~~30%~~26%, respectively) of the Company’s total gross revenues during the three months ended ~~December 31, 2021.~~September 30, 2022. One of ~~these~~the same customers and a different customer accounted for approximately ~~63% (42%~~70% (56% and ~~21%~~14%, respectively) of the Company’s total gross revenues during the three months ended ~~December 31, 2020. Two customers accounted for approximately 67% (49% and 18%, respectively) of the Company’s total gross revenues during the six months ended December 31,~~September 30, 2021. ~~One of these customers and a different customer accounted for approximately 53% (35% and 18%, respectively) of the Company’s total gross revenues during the six months ended December 31, 2020.~~

We operate in an early stage industry, and customers are exploring various options for AR and VR solutions and acting as early ~~adopters of VR and AR solutions.~~adopters. As such, there iscan be a high degree of variance on our source of revenues while customers are on-boarded and our software ~~product~~products and solutions are integrated, measured and digested. A customer that may account for a higher ~~concentration~~percentage of revenue in one period may not account for any revenue in subsequent periods. In some cases, those customers could re-engage after they have evaluated our solutions and may or may not be a source of future revenue. ~~As such,~~Recently, a significant percentage of our revenues have come from two strategic customers. A reduction of revenue from these strategic customers – which we do not currently anticipate – would have a detrimental impact on the Company’s revenues. The addition of BLI and S5D has reduced the reliance on a single customer. In general, a customer that ~~make~~makes up a significant portion of revenues in one period, often dodoes not make up a significant portion in other periods. Given this dynamic we expect this variability in Customer Concentration to continue until such point in time when our revenue has reached larger scale, and with a larger portion of our revenues coming from Software Licenses/SaaS. ~~Due to the consistent oscillation in Customer Concentration from period-to-period and the addition of S5D’s customer base, we do not view Customer Concentration as a material issue at this time.~~

Gross Profit

	For the Three Months Ended												For the Six Months Ended												For the Three Months Ended
	December 31,						Change						December 31,						Change						September 30,						Change
	2021			2020			$			%			2021			2020			$			%			2022			2021			$		%
	(in millions)												(in millions)												(in millions)
Revenue	$	1.69		$	1.26		$	0.43			34	%	$	2.71		$	1.52		$	1.19			78	%	$	3.95		$	1.02		$	2.93		287	%
Cost of Goods Sold		0.21			0.55			(0.34	)		-62	%		0.36			0.68			(0.32	)		-47	%		1.21			0.15			1.06		707	%
Gross Profit		1.48			0.71			0.77			108	%		2.35			0.84			1.51			180	%	$	2.74		$	0.87		$	1.87		215	%
Gross Profit Margin		88	%		56	%								87	%		55	%								69	%		85	%

Gross profit was approximately ~~88%~~69% for the three months ended ~~December 31, 2021~~September 30, 2022 compared to approximately ~~56%~~85% for the three months ended ~~December 31, 2020. Gross profit was approximately 87% for the six months ended December 31, 2021 compared to approximately 55% for the six months ended December 31, 2020.~~September 30, 2021. The ~~increase for both periods~~decrease was driven by the ~~increase~~addition of BLI and S5D lower margin project revenue.

For the three months ended September 30, 2022 and 2021, internal staffing was approximately $0.75 million (62% of total cost of revenue) and approximately $0.14 million (93% of total cost of revenue), respectively. The decrease in ~~non-project~~internal staffing as a percentage of total cost of revenue was due to the addition of BLI and S5D, which ~~produces~~have a higher ~~margin, improved management of project revenue costs of goods sold and~~ utilization of ~~lower cost Glimpse Turkey staff.~~external sources.

Operating Expenses

	For the Three Months Ended
	September 30,				Change
	2022		2021		$		%
	(in millions)
Research and development expenses	$	2.00	$	0.99	$	1.01		102	%
General and administrative expenses		1.82		0.78		1.04		133	%
Sales and marketing expenses		1.74		0.50		1.24		248	%
Change in fair value of acquisition contingent consideration		2.61		-		2.61		NA
Total Operating Expenses	$	8.17	$	2.27	$	5.90		260	%

For the Three Months Ended For the Six Months Ended
December 31, Change December 31, Change
2021 2020 $ % 2021 2020 $ %
(in millions) (in millions)
Research and development expenses $ 1.19 $ 0.59 $ 0.60 102 % $ 2.18 $ 1.33 $ 0.85 64 %
General and administrative expenses 1.19 0.37 0.82 222 % 1.98 0.71 1.27 179 %
Sales and marketing expenses 0.67 0.45 0.22 49 % 1.17 0.73 0.44 60 %
Total operating expenses $ 3.05 $ 1.41 $ 1.64 116 % $ 5.33 $ 2.77 $ 2.56 92 %

Operating expenses for the three months ended ~~December 31, 2021~~September 30, 2022 were approximately ~~$3.05~~$8.17 million compared to ~~$1.41~~$2.27 million for the three months ended ~~December 31, 2020,~~September 30, 2021, an increase of approximately 116%. Operating expenses for the six months ended December 31, 2021 were approximately $5.33 million compared to $2.77 million for the six months ended December 31, 2020, an increase of approximately 92%260%. The increase ~~for both periods~~ was driven by employee headcount additions to support growth, the ~~incurrence~~addition of ~~expenses specific~~several new subsidiaries (which includes headcount, amortization of intangibles and professional fees related to ~~Glimpse being a publicly traded company~~the acquisitions) and the ~~addition~~change in fair value of ~~two new subsidiaries.~~acquisition contingent consideration.

Research and Development

Research and development expenses for the three months ended ~~December 31, 2021~~September 30, 2022 were approximately ~~$1.19~~$2.0 million compared to ~~$0.59~~$0.99 million for the three months ended ~~December 31, 2020,~~September 30, 2021, an increase of approximately 102%. Research and development expenses for the six months ended December 31, 2021 were approximately $2.18 million compared to $1.33 million for the six months ended December 31, 2020, an increase of approximately 64%. For both periods, thisThis reflects headcount additions to support growth and the addition of ~~two~~several new subsidiaries. Going forward, we expect research and development costs to continue to increase as we continue to develop and commercialize our software products.

For the three months ended ~~December 31,~~September 30, 2022, non-cash stock option expenses relating to research and development included approximately $0.39 million of employee compensation expenses, comprising approximately 20% of total research and development expenses. For the three months ended September 30, 2021, non-cash stock option expenses relating to research and development included approximately ~~$0.26~~$0.35 million of employee compensation expenses, comprising approximately 22% of total research and development expenses. For the three months ended December 31, 2020, non-cash stock option expenses relating to research and development included approximately $0.20 million of employee compensation expenses, comprising approximately 34% of total research and development expenses. For the six months ended December 31, 2021, non-cash stock option expenses relating to research and development included approximately $0.61 million of employee compensation expenses, comprising approximately 28% of total research and development expenses. For the six months ended December 31, 2020, non-cash stock option expenses relating to research and development included approximately $0.60 million of employee compensation expenses, comprising approximately 45%35% of total research and development expenses. Over time, we expect non-cash stock options and common stock research and development expenses, as a percentage of the total related expenses, to continue to decrease as we utilize a larger portion of cash for compensation thereby minimizing dilution.

General and Administrative

General and administrative expenses for the three months ended ~~December 31, 2021~~September 30, 2022 were approximately ~~$1.19~~$1.82 million compared to ~~$0.37~~$0.78 million for the three months ended ~~December 31, 2020,~~September 30, 2021, an increase of approximately 221%. General and administrative expenses for the six months ended December 31, 2021 were approximately $1.98 million compared to $0.71 million for the six months ended December 31, 2020, an increase of approximately 179%133%. The increase ~~for both periods~~primarily reflects ~~additional~~and the addition of several new subsidiaries (which includes headcount, amortization of intangibles, professional fees related to ~~build infrastructure~~the acquisitions and ~~support the operations of a public company (i.e., public company directors & officers liability insurance, investor relation and public listing fees, additional legal and accounting fees,~~facility costs) and additional independent board ~~members) and the addition of two new subsidiaries.~~members.

For the three months ended ~~December 31, 2021,~~September 30, 2022, non-cash stock option ~~and common stock~~ expenses relating to general and administrative expenses included approximately ~~$0.24~~$0.20 million of employee and board of directors expenses, comprising approximately 11% of total general and administrative expenses. For the three months ended September 30, 2021, non-cash stock option expenses relating to general and administrative expenses included approximately $0.16 million of employee, board of directors and vendor expenses, comprising approximately 20% of total general and administrative expenses. For the three months ended December 31, 2020, non-cash stock option and common stock expenses relating to general and administrative expenses included approximately $0.26 million of employee, board of directors and vendor expenses, comprising approximately 69% of total general and administrative expenses. For the six months ended December 31, 2021, non-cash stock option and common stock expenses relating to general and administrative expenses included approximately $0.46 million of employee, board of directors and vendor expenses, comprising approximately 23% of total general and administrative expenses. For the six months ended December 31, 2020, non-cash stock option and common stock expenses relating to general and administrative expenses included approximately $0.40 million of employee, board of directors and vendor expenses, comprising approximately 56%21% of total general and administrative expenses. Over time, we expect non-cash stock options ~~and common stock~~ general and administrative expenses, as a percentage of the total related expenses, to continue to decrease as we utilize a larger portion of cash for compensation thereby minimizing dilution.

Sales and Marketing

Sales and marketing expenses for the three months ended ~~December 31, 2021~~September 30, 2022 were approximately ~~$0.67~~$1.74 million compared to ~~$0.45~~$0.50 million for the three months ended ~~December 31, 2020,~~September 30, 2021, an increase of approximately ~~49%~~248%. The increase reflects expansions to headcount ~~additions~~and outside marketing firms to drive revenue growth and the addition of two new subsidiaries. Sales and marketing expenses for the six months ended December 31, 2021 were approximately $1.17 million compared to $0.73 million for the six months ended December 31, 2020, an increase of approximately 60%. The increase was driven by an employee bonus related to year-to-date revenue milestones met along with headcount additions to drive revenue growth and the addition of twoseveral new subsidiaries. As our subsidiary companies continue to establish initial market traction and grow their revenue base, we expect to increase our business development and sales expenses.

For the three months ended ~~December 31,~~September 30, 2022, non-cash stock option expenses relating to sales and marketing expenses included approximately $0.19 million of employee, vendor and fee compensation expenses, comprising approximately 11% of total sales and marketing expenses. For the three months ended September 30, 2021, non-cash stock option and common stock expenses relating to sales and marketing expenses included approximately ~~$0.20~~$0.14 million of employee, vendor and fee compensation expenses, comprising approximately 30% of total sales and marketing expenses. For the three months ended December 31, 2020, non-cash stock option and common stock expenses relating to sales and marketing expenses included approximately $0.16 million of employee, vendor and fee compensation expenses, comprising approximately 35% of total sales and marketing expenses. For the six months ended December 31, 2021, non-cash stock option and common stock expenses relating to sales and marketing expenses included approximately $0.33 million of employee, vendor and fee compensation expenses, comprising approximately 28% of total sales and marketing expenses. For the six months ended December 31, 2020, non-cash stock option and common stock expenses relating to sales and marketing expenses included approximately $0.29 million of employee, vendor and fee compensation expenses, comprising approximately 40% of total sales and marketing expenses. Over time, we expect non-cash stock options and common stock sales and marketing expenses, as a percentage of the total related expenses, to continue to decrease as we utilize a larger portion of cash for compensation thereby minimizing dilution.

Change in Fair Value of Acquisition Contingent Consideration

Change in fair value of acquisition contingent consideration expense for the three months ended September 30, 2022 was approximately $2.61 million. This represents an increase in the fair value of contingent consideration liability for the period related primarily to the S5D acquisition. The change is primarily driven by the increase in the common stock price of Glimpse during this period.

Other Income ~~and Expense,~~(Expense), net

	For the Three Months Ended
	September 30,					Change
	2022		2021			$		%
	(in millions)
Interest income	$	0.05	$	0.02		$	0.03		150	%
Loss on conversion of convertible notes		-		(0.28	)		0.28		-100	%
Total Other Income (Expense), net	$	0.05	$	(0.26	)	$	0.31		119	%

Other income and expense, net for the three months ended ~~December 31, 2021,~~September 30, 2022 was ~~consistent~~income of $0.05 million compared to ~~the same 2020 period. Other income and expense, net for the six months ended December 31, 2021, was~~ an expense of $0.26 million ~~as compared to an expense of $0.09 million during~~for the ~~2020 period, an increase in expense of $0.17 million. This increase primarily reflects the $0.28 million non-cash~~three months ended September 30, 2021. The change is driven by a loss incurred on conversion of convertible ~~notes~~debt to common stock ~~as a result of~~that occurred at the ~~July 1, 2021 initial public offering, compared to approximately $0.10 million in non-cash interest expense on the notes~~IPO in the ~~prior~~2021 period.

Net ~~Losses~~Loss

We sustained a net loss of ~~$1.57~~$5.38 million for the three months ended ~~December 31, 2021~~September 30, 2022 as compared to a net loss of ~~$0.75~~$1.66 million for the ~~prior 2020~~comparable 2021 period, a loss increase of ~~$0.82~~$3.72 million or ~~109%~~224%. ~~This reflects a period-over-period~~$2.61 million of this loss increase is driven by the non-cash change in fair value of acquisition contingent consideration. The balance primarily represents operating expense growth outpacing revenue and related gross profit, offset by an increase in operating expenses. Net loss for the six months ended December 31, 2021 was $3.24 million as compared to a net loss of $2.02 million for the prior 2020 period, a loss increase of $1.22 million or 60%.profit. This reflects ~~a period-over-period increase~~current expense outlays in ~~revenue~~all areas of the Company to propel future growth, including the acquisition of several new subsidiaries and related gross profit, offset by an increase in operating expenses and the non-cash loss on conversion of convertible notes to common stock as a result of the July 1, 2021 initial public offering, offset by a decrease in non-cash interest expense.costs.

Non-GAAP Financial Measures

The following discussion and analysis includes both financial measures in accordance with Generally Accepted Accounting Principles, or GAAP, as well as non-GAAP financial measures. Generally, a non-GAAP financial measure is a numerical measure of a company’s performance, financial position or cash flows that either excludes or includes amounts that are not normally included or excluded in the most directly comparable measure calculated and presented in accordance with GAAP. Non-GAAP financial measures should be viewed as supplemental to, and should not be considered as alternatives to, net income (loss), operating income (loss), and cash flow from operating activities, liquidity or any other financial measures. They may not be indicative of the historical operating results of the Company nor are they intended to be predictive of potential future results. Investors should not consider non-GAAP financial measures in isolation or as substitutes for performance measures calculated in accordance with GAAP. Our management uses and relies on EBITDA and Adjusted EBITDA, which are non-GAAP financial measures. We believe that both management and shareholders benefit from referring to the following non-GAAP financial measures in planning, forecasting and analyzing future periods.

Our management uses these non-GAAP financial measures in evaluating its financial and operational decision making and as a means to evaluate period-to-period comparisons. Our management recognizes that the non-GAAP financial measures have inherent limitations because of the described excluded items.

The Company defines Adjusted EBITDA as earnings (or loss) from continuing operations before the items in the table below. Adjusted EBITDA is an important measure of our operating performance because it allows management, investors and analysts to evaluate and assess our core operating results from period-to-period after removing the impact of items of a non-operational nature that affect comparability.

2733

We have included a reconciliation of our financial measures calculated in accordance with GAAP to the most comparable non-GAAP financial measures. We believe that providing the non-GAAP financial measures, together with the reconciliation to GAAP, helps investors make comparisons between the Company and other companies. In making any comparisons to other companies, investors need to be aware that companies use different non-GAAP measures to evaluate their financial performance. Investors should pay close attention to the specific definition being used and to the reconciliation between such measures and the corresponding GAAP measures provided by each company under applicable SEC rules.

The following table presents a reconciliation of net loss to Adjusted EBITDA for the three ~~and six~~ months ended ~~December 31, 2021~~September 30, 2022 and ~~2020:~~2021:

	For the Three Months Ended						For the Six Months Ended						For the Three Months Ended
	December 31,						December 31,						September 30,
	2021			2020			2021			2020			2022			2021
	(in millions)						(in millions)						(in millions)
Net loss	$	(1.58	)	$	(0.74	)	$	(3.23	)	$	(2.02	)	$	(5.38	)	$	(1.66	)
Interest expense, net		-			0.05			-			0.10
Depreciation and amortization		0.08			0.01			0.10			0.01			0.48			0.03
EBITDA (loss)		(1.50	)		(0.68	)		(3.13	)		(1.91	)		(4.90	)		(1.63	)
Stock based compensation expenses		0.60			0.87			1.31			1.59			0.97			0.72
Stock based financing related expenses		-			-			0.28			-			-			0.28
Public company expenses		0.35			-			0.53			-
Acquisition related expenses		0.09			-			0.11			-
Acquisition expenses														0.27			-
Non cash change in fair value of acquisition contingent consideration														2.61			-
Adjusted EBITDA (loss)	$	(0.46	)	$	0.19		$	(0.90	)	$	(0.32	)	$	(1.05	)	$	(0.63	)

Adjusted EBITDA loss of ~~$0.46~~$1.05 million for the three months ended ~~December 31, 2021 increased by $0.65 million as~~September 30, 2022 compared to a ~~$0.19~~$0.63 million ~~gain~~loss for the three months ended December 31, 2020. Adjusted EBITDA loss of $0.9 million for the six months ended December 31, 2021 increased by $0.58 million as compared to a $0.32 million loss for the six months ended December 31, 2020. These decreases wereSeptember 30, 2021. The increase was driven by an increase in ~~Net~~net loss ~~partially~~reflecting current expense outlays in all areas of the Company to propel future growth, including the acquisition of several new subsidiaries. This is offset primarily by ~~increases in public company (the Company was not publicly traded in the previous period)~~non-cash expenses, both stock based and ~~acquisition expenses.~~fair value driven.

Liquidity and Capital Resources

For the Six Months Ended
December 31,
Change
2021 2020 $ %
(in millions)
Net cash used in operating activities $ (2.36 ) $ (0.78 ) $ (1.58 ) -203 %
Net cash used in investing activities (0.60 ) (0.02 ) (0.58 ) -2,900 %
Net cash provided by financing activities 26.01 0.23 25.78 11,209 %
Net increase (decrease) in cash and cash equivalents 23.05 (0.57 ) 23.62 4,144 %
Cash and cash equivalents, beginning of year 1.77 1.03 0.74 72 %
Cash and cash equivalents, end of period $ 24.82 $ 0.46 $ 24.36 5,296 %

	For the Three Months Ended
	September 30,						Change
	2022			2021			$			%
	(in millions)
Net cash used in operating activities	$	(3.08	)	$	(1.05	)	$	(2.03	)		-193	%
Net cash used in investing activities		(2.56	)		(0.02	)		(2.54	)		12700	%
Net cash provided by financing activities		0.04			11.87			(11.83	)		-100	%
Net increase (decrease) in cash, cash equivalents and restricted cash		(5.60	)		10.80			(16.40	)		152	%
Cash, cash equivalents and restricted cash, beginning of period		18.25			1.77			16.48			931	%
Cash, cash equivalents and restricted cash, end of period	$	12.65		$	12.57		$	0.08			1	%

Operating Activities

Net cash used in operating activities was ~~$2.36~~$3.08 million for the ~~six~~three months ended ~~December 31, 2021,~~September 30, 2022, compared to ~~$0.78~~$1.05 million during the prior period, an increase of approximately ~~$1.58~~$2.03 million. This is primarily driven by an increase in net loss ~~of approximately $1.22 million~~ and ~~an increase~~a decrease in accounts ~~receivable reflective of~~payable and deferred revenue primarily related to the BLI acquisition, offset by increased ~~revenue period-over-period.~~non-cash expenses (primarily acquisition contingent consideration fair value adjustment, stock based expenses and intangible asset amortization).

2834

Investing Activities

NetNet cash used in investing activities for the ~~six~~three months ended ~~December 31, 2021 increased~~ September 30, 2022 was approximately ~~$0.58~~$2.56 million compared to a negligible amount in the prior period. This primarily represents the cash portion of the ~~asset purchase of XR Terra and investment in corporate fixed income securities.~~BLI acquisition.

Financing Activities

Cash flow provided from financing activities during the ~~six~~three months ended ~~December 31,~~September 30, 2022 was negligible, compared to $11.87 million for the prior 2021 ~~was $26.01 million, reflecting~~period. 2021 primarily reflects the net proceeds from our ~~IPO and SPA common stock transactions. Financing activities were negligible during the same period of the prior year.~~IPO.

Capital Resources

As of ~~December 31, 2021, the Company had cash and cash equivalent balances of $24.8 million. As of February 14,~~September 30, 2022, the Company had cash, cash equivalents and restricted cash ~~equivalent~~ balances of ~~approximately $19.0~~$12.65 million, ~~after the closing~~plus $0.24 million of liquid corporate bond investments. The September 30, 2022 balances include $2.0 million cash escrow for potential future contingent consideration of the S5D ~~acquisition. The $19.0 million is in addition~~acquisition, payable upon achievement of S5D and the Company’s performance targets (refundable to Glimpse if targets not achieved).

As of September 30, 2022, the ~~$2.0 million escrowed as part of the S5D acquisition.~~Company had no outstanding debt obligations.

As of ~~December 31, 2021, the Company had no outstanding debt obligation except for a $0.62 million Paycheck Protection Program loan, which is expected to be fully forgiven in the coming months.~~

~~As of December 31, 2021,~~September 30, 2022, the Company had no issued and outstanding preferred stock.

The Company believes that it is sufficiently funded to meet its operational plan and future obligations beyond the 12-month period from the date of this filing.

~~Off-Balance Sheet Arrangements~~

~~We do not have any off-balance sheet arrangements as defined in Regulation S-K Item 303(a)(4).~~

Recently Adopted Accounting Pronouncements

Please see Note 3 of ~~our June~~the attached September 30, ~~2021~~2022 consolidated financial statements that describe the impact, if any, from the adoption of Recent Accounting Pronouncements.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Not required for smaller reporting companies.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

We maintain “disclosure controls and procedures,” as such term is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”), that are designed to provide reasonable assurance that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

Our management, with the participation of the Chief Executive Officer and the Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective as of the end of such period.

In designing and evaluating our disclosure controls and procedures, management recognized that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met. Additionally, in designing disclosure controls and procedures, we are required to apply judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. The design of any disclosure controls and procedures also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the 2013 framework set forth in the report entitled Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). The COSO framework summarizes each of the components of a company’s internal control system, including (i) the control environment, (ii) risk assessment, (iii) control activities, (iv) information and communication, and (v) monitoring.

Based on our evaluation, our management concluded that our internal control over financial reporting was effective as of ~~December 31, 2021.~~September 30, 2022.

During the period ended ~~December 31, 2021,~~September 30, 2022, there was no change in our internal control over financial reporting or in other factors that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

None.

Item 1A. Risk Factors

Our Annual Report on Form 10-K for the year ended June 30, ~~2021~~2022 contains a discussion of the material risks associated with our business. There have been no material changes to the risks described in such Annual Report on Form 10-K.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

Recent Sale of Unregistered Equity Securities

During the three months ended ~~December 31, 2021,~~September 30, 2022, the Company issued ~~an aggregate of 18,169 shares~~107,143 of Common Stock ~~for consulting services and employee compensation.~~

related to a contingent acquisition obligation.

~~Subsequent to December 31, 2021, the Company issued an aggregate of 43,466 shares of Common Stock for legacy acquisition expense and consulting services.~~

~~Each of the~~The foregoing transactions ~~was~~were exempt from the registration requirements of the Securities Act of 1933, as amended, pursuant to Section 4(a)(2) thereof. ~~In the alternative, the common stock issued upon the exercise of conversion rights is an exempt security pursuant to Section 3(a) (9) of the Securities Act of 1933, as amended.~~

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures

Not Applicable.

Item 5. Other Information.

~~There have been no material changes to the procedures by which our securityholders may recommend nominees to the board of directors.~~None.

Item 6. Exhibits

The following exhibits are filed as part of this Quarterly Report on Form 10-Q.

Exhibit Number		Description of Exhibit

~~10.1~~31.1*		~~Placement Agent Agreement dated October 28, 2021(incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed on November 3, 2021)~~

~~10.2~~		~~Form of Securities Purchase Agreement(incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K filed on November 3, 2021)~~

~~10.3~~		~~Form of Immediately Exercisable Warrants (incorporated by reference to Exhibit 10.3 to the Current Report on Form 8-K filed on November 3, 2021)~~

~~10.4~~		~~Form of Warrants Exercisable after Six Months(incorporated by reference to Exhibit 10.14 to the Current Report on Form 8-K filed on November 3, 2021)~~

~~10.5~~		~~Form of Registration Rights Agreement(incorporated by reference to Exhibit 10.5 to the Current Report on Form 8-K filed on November 3, 2021)~~

10.6*		~~Membership Interest Sale Agreement between the Company and Sector 5 Digital, LLC, dated December 2, 2021~~

31.1*		Certification of Principal Executive Officer pursuant to Rules 13a-14(a) and 15d-14(a) of the Securities Exchange Act, as ~~amended~~amended..

31.2*		Certification of Principal Financial Officer pursuant to Rules 13a-14(a) and 15d-14(a) of the Securities Exchange Act, as amended.

32.1**		Certification of Principal Executive Officer and Principal Financial Officer pursuant to Rules 13a-14(b) or 15d-14(b) of the Securities Exchange Act, as amended, and 18 U.S.C. Section 1350.

101.INS		Inline XBRL Instance Document.

101.SCH		Inline XBRL Taxonomy Extension Schema Document.

101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase Document.

101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase Document.

101.LAB		Inline XBRL Taxonomy Extension Label Linkbase Document.

101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase Document.

104		Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

* Filed herewith.

** Furnished herewith.

3237

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized, on this 14th day of ~~February,~~November, 2022.

	THE GLIMPSE GROUP, INC.

	/s/ Lyron Bentovim
	Lyron Bentovim
	Chief Executive Officer, President
	(Principal Executive Officer)

	/s/ Maydan Rothblum
	Maydan Rothblum
	Chief Financial Officer
	(Principal Financial Officer)

3338


Remaining FYE June 30, 2022	$	133,333
Fiscal Year Ended June 30, 2023		266,667
Fiscal Year Ended June 30, 2024		266,667
Fiscal Year Ended June 30, 2025		45,834

	At December 31, 2021		At December 31, 2020
Stock Options		3,974,702		4,168,162
Warrants		837,500		-
Convertible Notes		-		281,667
Total		4,812,202		4,449,829

	For the Six Months Ended December 31,						Change
	2021			2020			$			%
	(in millions)
Net cash used in operating activities	$	(2.36	)	$	(0.78	)	$	(1.58	)		-203	%
Net cash used in investing activities		(0.60	)		(0.02	)		(0.58	)		-2,900	%
Net cash provided by financing activities		26.01			0.23			25.78			11,209	%
Net increase (decrease) in cash and cash equivalents		23.05			(0.57	)		23.62			4,144	%
Cash and cash equivalents, beginning of year		1.77			1.03			0.74			72	%
Cash and cash equivalents, end of period	$	24.82		$	0.46		$	24.36			5,296	%