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, 2021September 30, 2022
OR
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number: 001-40556
THE GLIMPSE GROUP, INC.
(Exact name of registrant as specified in its charter)
Nevada | 81-2958271 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification Number) | |
15 West 38th St., 9th 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 FebruaryNovember 10, 2022, the registrant had shares of common stock, par value $0.001 per share, outstanding.
THE GLIMPSE GROUP, INC.
TABLE OF CONTENTS
2 |
THE GLIMPSE GROUP, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
3 |
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 $ authorized; shares issued and outstanding | per share, million shares- | - | - | - | ||||||||||||
Common Stock, par value $ authorized; and issued and outstanding | per share, million shares12,480 | 7,580 | ||||||||||||||
Common Stock, par value $ | per share, million shares authorized; and issued and outstanding13,594 | 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.
4 |
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.
5 |
THE GLIMPSE GROUP, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (DEFICIT)
FOR THE THREE MONTHS ENDED DECEMBER 31, 2021SEPTEMBER 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 SIXTHREE 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.
6 |
THE GLIMPSE GROUP, INC.
CONSOLIDATED STATEMENTSTATEMENTS OF STOCKHOLDERS’ DEFICIT
FOR THE THREE MONTHS ENDED DECEMBER 31, 2020CASH 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.
7 |
THE GLIMPSE GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the Six Months Ended | For the Six Months Ended | |||||||
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 losslosses of $3.235.38 million and $1.66 million during the sixthree 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 wasrespectively. 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 $ 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 sixthree months ended December 31, 2021September 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, 2021September 30, 2022 are not necessarily indicative of the results to be expected for the entire year ending June 30, 20222023 or for any subsequent periods. The consolidated balance sheet at June 30, 20212022 has been derived from the audited consolidated financial statements atas of that date.
8 |
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, 2021September 30, 2022 and June 30, 2021, 02022 no allowance for doubtful accounts was recorded as all amounts were considered collectible.
9 |
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. TheSeptember 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 DecemberSeptember 30, 2020.2021.
Two customersOne 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 acquisitionthe 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.
10 |
THE GLIMPSE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SEPTEMBER 30, 2022 AND 2021
Goodwill
The Company reviews goodwillGoodwill 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 currentwhen events or changes in circumstances or events indicate that the fair value maygoodwill 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 amountsfair 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 accruedother 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.
11 |
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. MostA 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 revenuebeing distinct, and any corresponding unrecognized expenses are presentedtherefore 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.
12 |
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 whichwhen 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 receivablereceivable/contract asset when revenue is recognized prior to invoicing, or deferred revenuerevenue/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 contractContracts 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).
13 |
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 $1.553.21 million in unfulfilled performance obligations.
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 companiesCompany. 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.
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.
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.
14 |
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.
THE GLIMPSE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
DECEMBER 31,SEPTEMBER 30, 2022 AND 2021 AND 2020
NOTE 4. ASSET ACQUISITIONSACQUISITION
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) 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 $ 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
16 |
In AugustTHE 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.
Initialcontingent consideration for the purchaseBLI 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 sharesprobabilities of common stockvarious 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 providesCompany’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 inroyalty 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 acquisitionobsolesce rate, and the primary assets acquired included employees, customer relationships and technology. The Company recorded the purchase price allocationweighted 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 towill 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 AUGGDintangible 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 acquisitiongeneral and did not have a material impactadministrative 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 acquisitionstatement 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 considerationoperations for the purchase wasthree 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 $0.301.51 million in cashrevenue and issued $33,877 0.25shares 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 formconsolidated 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 theoperations.
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 intangibleIntangible assets, their respective amortization period, and accumulated amortization at December 31, 2021as of September 30, 2022 are as follows:
SCHEDULE OF INTANGIBLE ASSETASSETS, 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, 2021September 30, 2022 was approximately $20,8340.44 and $87,499, respectively.million.
Estimated intangible asset amortization expense for the next four years isremaining 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 LIABILITYFINANCIAL INSTRUMENTS
Kabaq 3D Technologies, LLCCash 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 relatingcontingent consideration liabilities related to the acquisitionacquisitions are categorized as Level 3 within the fair value hierarchy. Contingent consideration was valued at the time of Kabaq 3D Technologies, LLC containedacquisitions 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 acquisitionthird-party valuation specialist.
A summary of the quantitative significant inputs used to value S5D’s contingent consideration triggered by a potential listingas 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 exchangeas 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 $750,000risk-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 375,0004.2% stock options at $ 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 listingmarket 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 $500,000as of additional acquisition cost. In accordance with GAAP, the cost has been accrued as a legacy acquisition liability onSeptember 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 throughcontingent consideration liability related to XR Terra, LLC (“XRT”) is categorized as Level 3 within the issuancefair value hierarchy as it is based on contractual amounts pursuant to the acquisition agreement, of common stock in settlement of stock options at $ 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 20202.60 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 duringno change in fair value of contingent consideration for the term into common stock of the Company at a fixed price ofthree 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 shares of common stock upon full conversion. Interest expense on the Notes 1 was approximately $48,500268,552 and $97,00039,484, respectively, consists of costs deferred under contracts not completed and recognized at a point in time ($161,557 forand $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 amortizationreconciliation of the original issue discountcosts in excess of billings and prepaid interestbillings 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 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 2SCHEDULE 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 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 $ per share.
The Company sold approximately 11.82 million. million shares of common stock and realized net proceeds (after underwriting, professional fees and listing expenses) of $
In connection with the IPO, and for services rendered, the underwriter was issued a warrant to purchase cannotcould 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. shares of common stock at $ per share. The warrant
As stated in Note 7, inIn conjunction with the IPO, the outstanding convertible promissory Notes 1 and 2notes totaling approximately $1.43 million were satisfied in full through the issuance of shares of common stock. A loss of approximately $280,000 0.28 million was recorded on this conversion at the time of the IPO.
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 $$13.58$13.58 million. 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
Under the terms of the SPA, the Company sold 0.75 million shares of common stock. The purchase price for one share of common stock and half a corresponding warrant was $10.00$ . The warrants have an exercise price of $14.63 per share. Warrants to purchase million shares cancould be exercised immediately and expire five years from the date of the SPA. Warrants to purchase million shares cannot be exercisedwere 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. million shares of its common stock and warrants to purchase
Common Stock Issued
Common stock sold to Investors
During the sixthree months ended December 31,September 30, 2021, the Company sold approximately million shares of common stock to investors at the IPO at a price of $ per share, for total net proceeds of approximately $11.82 million. In addition, the Company sold million shares of common stock to investors pursuant to a SPA at a price of $ 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 shares of common stock to investors at a price of $ per share, for total net proceeds of approximately $239,000.
Common stock issued to Investors
During the sixthree 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 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 shares of common stock (see Note 7).common.
Common stock issued for Acquisitions
During the sixthree months ended December 31, 2021,September 30, 2022, the Company issued approximately shares of common stock, valued at $1.052.85 million, as consideration for the acquisition of AUGGD and XR TerraBLI (see Note 4). In addition,During the three months ended September 30, 2021, the Company issued approximately shares of common stock, valued at $4.00.75 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 Obligationsatisfaction of contingent consideration
During the sixthree months ended December 31, 2021,September 30, 2022 the Company issued approximately 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 shares of common stock to satisfy legacy acquisition obligations of $790,0000.75 (see Note 6).million.
Common stock issued to Vendors
During the sixthree months ended December 31,September 30, 2021, and 2020, the Company issued approximately and shares of common stock, respectively, to various vendors for services performed and recorded share-based compensation of approximately $148,0000.07 and $, 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 sixthree months ended December 31,September 30, 2022 and 2021, the Company issued approximately and shares of common stock in cash and cashless transactions, respectively, upon exercise of the respective option grants and realized cash proceeds of approximately $614,0000.04. million and $0.05 million, respectively.
Common stock-based Compensation expense
During the six months ended December 31, 2021, the Company issued approximately 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 December 31, 2021,September 30, 2022, there were approximately 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.
SCHEDULE OF BLACK-SCHOLES OPTION-PRICING MODELSTOCK 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) | ||||||||||||||||||||||||
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 sixthree months ended December 31,September 30, 2022 and 2021 and 2020 was approximately $ million and $ million, respectively.
THE GLIMPSE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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 | $ | 7,893,467 | |||||||||||
Options Granted | 158,907 | 8.59 | 714,854 | |||||||||||||
Options Exercised | (751,925 | ) | 2.62 | (7,775,919 | ) | |||||||||||
Options Forfeited / Cancelled | (173,190 | ) | 4.42 | (1,479,671 | ) | |||||||||||
Outstanding at December 31, 2021 | 3,974,702 | $ | 3.71 | $ | 24,522,730 | |||||||||||
Exercisable at December 31, 2021 | 3,784,856 | $ | 3.52 | $ | 23,983,666 |
Weighted Average | ||||||||||||||||
Remaining | ||||||||||||||||
Exercise | Contractual | Intrinsic | ||||||||||||||
Options | Price | Term (Yrs) | Value | |||||||||||||
Outstanding at July 1, 2022 | 4,484,616 | $ | 4.68 | $ | 2,404,249 | |||||||||||
Options Granted | 321,787 | 7.00 | - | |||||||||||||
Options Exercised | (66,853 | ) | 4.13 | 93,945 | ||||||||||||
Options Forfeited / Cancelled | (72,099 | ) | 8.86 | 13,273 | ||||||||||||
Outstanding at September 30, 2022 | 4,667,451 | $ | 4.77 | $ | 6,429,851 | |||||||||||
Exercisable at September 30, 2022 | 3,509,358 | $ | 3.59 | $ | 6,382,458 |
Weighted Average | ||||||||||||||||
Remaining | ||||||||||||||||
Exercise | Contractual | Intrinsic | ||||||||||||||
Options | Price | Term (Yrs) | Value | |||||||||||||
Outstanding at July 1, 2021 | 4,740,910 | $ | 3.40 | $ | 7,893,467 | |||||||||||
Options Granted | 94,666 | 7.11 | 423,923 | |||||||||||||
Options Exercised | (392,394 | ) | 2.14 | (3,720,795 | ) | |||||||||||
Options Forfeited / Cancelled | (82,838 | ) | 4.61 | (563,393 | ) | |||||||||||
Outstanding at September 30, 2021 | 4,360,344 | $ | 3.58 | $ | 16,283,017 | |||||||||||
Exercisable at September 30, 2021 | 4,143,324 | $ | 3.47 | $ | 15,852,955 |
THE GLIMPSE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
DECEMBER 31, 2021 AND 2020
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 $ million, and is expected to be recognized over a weighted average period of 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 $ /share.share and $ /share, respectively.
24 |
THE GLIMPSE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SEPTEMBER 30, 2022 AND 2021
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 | ) |
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 LeasesLease Costs
The Company made cash payments for all operating leases for the three months ended September 30, 2022 and 2021, of approximately $New York0.13 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 spacevarious operating leases for its offices. These existing leases have remaining lease expiring, as amended, on December 31, 2022. To secure the initialterms ranging from 1 to 4 years. Certain lease the Company paid a $75,000 security deposit.
There is approximately $300,000 due onagreements 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 2020SCHEDULE 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, paidthrough 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 $2,4000.2 million (at fair value) of Company common stock. This additional consideration is included as change in security deposits.
Monthly rent expense forfair value of contingent consideration in the two locations will be approximately $2,400 per month.
Companywide rent expenseconsolidated 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 $90,0000.57 and $176,000, respectively. Rent expensemillion 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 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 shares of common stock valued at $430,000 and through the issuance of common stock in settlement of stock options at $ per share.
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.
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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-ownednumerous 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 Salean 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 technologiesprovides VR and AR based training scenarios and simulations for industry leading organizations.commercial and government customers. The transaction’s total potential purchase price is $27.0was $32.5 million, with an initial payment of $8.0 million upon closing, consisting of $4.0$3.0 million in cash and $4.0approximately 0.71 million shares of Companythe Company’s common stock (approximately 0.28valued 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’sBLI’s achievement of revenue growth milestones in the three years post-Closing,post-closing, the payment of which shall be made primarilyup 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 S5DBLI transaction closed and S5DBLI became a wholly-owned subsidiary of the Company. In addition, Jeff Meisner (former S5D Chief Executive Officer)$3 million in cash was appointedpaid (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.
29 |
Financial Highlights for the three and six months ended December 31, 2021September 30, 2022 compared to the three and six months ended December 31, 2020September 30, 2021
Results of Operations
The following table sets forth our results of operations for the three and six months ended December 31, 2021September 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, 2021September 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 toreflects 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 toreflects 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%. ForSeptember 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. ForSeptember 30, 2021. The decrease reflects the six months ended December 31, 2021, non-projectadditions 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.
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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 thesethe 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 productproducts and solutions are integrated, measured and digested. A customer that may account for a higher concentrationpercentage 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 makemakes 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, 2021September 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 periodsdecrease was driven by the increaseaddition 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-projectinternal staffing as a percentage of total cost of revenue was due to the addition of BLI and S5D, which produceshave 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 | % |
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Operating expenses for the three months ended December 31, 2021September 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 incurrenceaddition of expenses specificseveral new subsidiaries (which includes headcount, amortization of intangibles and professional fees related to Glimpse being a publicly traded companythe acquisitions) and the additionchange in fair value of two new subsidiaries.acquisition contingent consideration.
Research and Development
Research and development expenses for the three months ended December 31, 2021September 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 twoseveral 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, 2021September 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 periodsprimarily reflects additionaland the addition of several new subsidiaries (which includes headcount, amortization of intangibles, professional fees related to build infrastructurethe 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, 2021September 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 additionsand 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.
32 |
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 consistentincome 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 duringfor the 2020 period, an increase in expense of $0.17 million. This increase primarily reflects the $0.28 million non-cashthree months ended September 30, 2021. The change is driven by a loss incurred on conversion of convertible notesdebt to common stock as a result ofthat occurred at the July 1, 2021 initial public offering, compared to approximately $0.10 million in non-cash interest expense on the notesIPO in the prior2021 period.
Net LossesLoss
We sustained a net loss of $1.57$5.38 million for the three months ended December 31, 2021September 30, 2022 as compared to a net loss of $0.75$1.66 million for the prior 2020comparable 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 increasecurrent expense outlays in revenueall 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.
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, 2021September 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 asSeptember 30, 2022 compared to a $0.19$0.63 million gainloss 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 Netnet loss partiallyreflecting 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 sixthree 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 increasea decrease in accounts receivable reflective ofpayable 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).
Investing Activities
NetNet cash used in investing activities for the sixthree 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 sixthree months ended December 31,September 30, 2022 was negligible, compared to $11.87 million for the prior 2021 was $26.01 million, reflectingperiod. 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 closingplus $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 additionacquisition, 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 Junethe attached September 30, 20212022 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.
35 |
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, 20212022 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 shares107,143 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 theThe foregoing transactions waswere 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.
36 |
Item 6. Exhibits
The following exhibits are filed as part of this Quarterly Report on Form 10-Q.
* Filed herewith.
** Furnished herewith.
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) |