Glimpse Group, Inc. - Quarter Report: 2023 September (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

For the quarterly period ended September 30, 2023

OR

For the transition period from                to          

Commission File Number: 001-40556

THE GLIMPSE GROUP, INC.

(Exact name of registrant as specified in its charter)

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

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

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.

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

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

As of November 9, 2023, the registrant had 16,707,075 shares of common stock, par value $0.001 per share, outstanding.

THE GLIMPSE GROUP, INC.

TABLE OF CONTENTS

THE GLIMPSE GROUP, INC.

CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

FOR THE THREE MONTHS ENDED September 30, 2023 and 2022

THE GLIMPSE GROUP, INC.

CONSOLIDATED BALANCE SHEETS

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

THE GLIMPSE GROUP, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

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

THE GLIMPSE GROUP, INC.

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2023

(Unaudited)

THE GLIMPSE GROUP, INC.

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2022

(Unaudited)

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

THE GLIMPSE GROUP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

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

THE GLIMPSE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

SEPTEMBER 30, 2023 AND 2022

NOTE 1. DESCRIPTION OF BUSINESS

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

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

The Company completed an initial public offering (“IPO”) of its common stock on the Nasdaq Capital Market Exchange (“Nasdaq”) on July 1, 2021, under the ticker VRAR.

NOTE 2. GOING CONCERN

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

The Company has incurred recurring losses since its inception, including a net loss of $0.1 million for the three months ended September 30, 2023. In addition, as of September 30, 2023, the Company had an accumulated deficit of $56.8 million. The Company expects to continue to generate negative cash flow for the foreseeable future. The Company expects that its cash and cash equivalents as of September 30, 2023 may not be sufficient to fund operations for at least the next twelve months from the date of issuance of these consolidated financial statements and the Company will need to obtain additional funding. Accordingly, the Company has concluded that substantial doubt exists about the Company’s ability to continue as a going concern for a period of at least 12 months from the date of issuance of these consolidated financial statements.

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

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

THE GLIMPSE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

SEPTEMBER 30, 2023 AND 2022

Potential liquidity resources

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

NOTE 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of presentation

The unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and the rules and regulations of the SEC. In the opinion of management, the unaudited consolidated financial statements have been prepared on the same basis as the annual consolidated financial statements and reflect all adjustments, which include only normal recurring adjustments, necessary to present fairly the financial position as of September 30, 2023, the results of operations for the three months ended September 30, 2023 and 2022, and cash flows for the three months ended September 30, 2023 and 2022. The financial data and other information disclosed in these notes to the interim financial statements related to these periods are unaudited. The results for the three months ended September 30, 2023 are not necessarily indicative of the results to be expected for the entire year ending June 30, 2024 or for any subsequent periods. The consolidated balance sheet at June 30, 2023 has been derived from the audited consolidated financial statements at that date.

Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to the SEC’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, 2023.

Principles of Consolidation

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

Use of Accounting Estimates

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

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

Cash and Cash Equivalents, Restricted Cash

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

THE GLIMPSE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

SEPTEMBER 30, 2023 AND 2022

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

The components of cash, cash equivalents and restricted cash on the consolidated statements of cash flows as of September 30, 2023 and 2022 are as follows:

SCHEDULE OF COMPONENTS OF CASH, CASH EQUIVALENTS AND RESTRICTED CASH 

Accounts Receivable

Accounts receivable consists primarily of amounts due from customers under normal trade terms. Allowances for uncollectible accounts are provided for based upon a variety of factors, including historical amounts written-off, an evaluation of current economic conditions, and assessment of customer collectability. As of September 30, 2023 and 2022 no allowance for doubtful accounts was recorded as all amounts were considered collectible.

Customer Concentration and Credit Risk

Two customers accounted for approximately 50% (33% and 17%, respectively) of the Company’s total gross revenues during the three months ended September 30, 2023. The same two customers accounted for approximately 60% (34% and 26%, respectively) of the Company’s total gross revenues during the three months ended September 30, 2022.

Two customers accounted for approximately 33% (18% and 15%, respectively) of the Company’s accounts receivable at September 30, 2023. Two different customers accounted for approximately 43% (29% and 14%, respectively) of the Company’s accounts receivable at June 30, 2023.

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

Business Combinations

The results of a business acquired in a business combination are included in the Company’s 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.

THE GLIMPSE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

SEPTEMBER 30, 2023 AND 2022

Intangible assets (other than Goodwill)

Intangible assets represent the allocation of a portion of an acquisition’s purchase price. They include acquired customer relationships and developed technology purchased. Intangible assets are stated at allocated cost less accumulated amortization and less impairments. Amortization is computed using the straight-line method over the estimated useful lives of the related assets. The Company reviews intangibles, being amortized, for impairment when current events indicate that the fair value may be less than the carrying value.

Goodwill

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

Impairment of Long-Lived Assets

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

Fair Value of Financial Instruments

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. The fair value hierarchy, which is based on three levels of inputs, the first two of which are considered observable and the last unobservable, that may be used to measure fair value, is as follows:

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

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

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

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 GLIMPSE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

SEPTEMBER 30, 2023 AND 2022

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, 2023. Contingent consideration has been recorded at its fair values using unobservable inputs and have included using the Monte Carlo simulation option pricing framework, incorporating contractual terms and assumptions regarding financial forecasts, discount rates, and volatility of forecasted revenue. The development and determination of the unobservable inputs for Level 3 fair value measurements and fair value calculations are the responsibility of the Company’s management with the assistance of a third-party valuation specialist.

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

Revenue Recognition

Nature of Revenues

The Company reports its revenues in two categories:

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:

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

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

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

THE GLIMPSE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

SEPTEMBER 30, 2023 AND 2022

Significant Judgments

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

Disaggregation of Revenue

The Company generated revenue for the three months ended September 30, 2023 and 2022 by delivering: (i) Software Services, consisting primarily of VR/AR software projects, solutions and consulting services, and (ii) Software Licenses & SaaS, consisting primarily of VR and AR software licenses or SaaS. The Company currently generates its revenues primarily from customers in the United States.

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

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

Revenue for Software Licenses is recognized at the point of time in which the Company delivers the software and customer accepts delivery. Software Licenses often include third party components that are a fully integrated part of the Software License stack and are therefore considered as one deliverable and performance obligation. If there are significant contractually stated ongoing service obligations to be performed during the term of the Software License or SaaS contract, then revenues are recognized ratably over the term of the contract.

Timing of Revenue

The timing of revenue recognition for the three months ended September 30, 2023 and 2022 was as follows:

SCHEDULE OF TIMING REVENUE RECOGNITION 

Remaining Performance Obligations

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

THE GLIMPSE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

SEPTEMBER 30, 2023 AND 2022

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

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

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

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

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

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

Unfulfilled performance obligations represent amounts expected to be earned by the Company on executed contracts. As of September 30, 2023, the Company had approximately $1.07 million in unfulfilled performance obligations.

Employee Stock-Based Compensation

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

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

THE GLIMPSE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

SEPTEMBER 30, 2023 AND 2022

Research and Development Costs

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

Earnings Per Share

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

Reclassifications

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

Significant Accounting Policies

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

Recently Adopted Accounting Pronouncements

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

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

Recent Accounting Pronouncements

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

THE GLIMPSE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

SEPTEMBER 30, 2023 AND 2022

NOTE 4. BUSINESS ACQUISITION

Acquisition - BLI

In August 2022, Glimpse closed on the acquisition of Brightline Interactive, LLC (“BLI”). BLI is an immersive technology company that provides VR and AR based training scenarios and simulations for commercial and government customers. The acquisition significantly expanded 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.

Unaudited Pro Forma Results

The unaudited pro forma financial information in the table below summarizes the combined results of operations for the Company and BLI, as if the companies were combined for the three months ended September 30, 2022. The unaudited pro forma financial information includes the business combination accounting effects resulting from this acquisition, including adjustments to reflect recognition of intangible asset amortization. The unaudited pro forma financial information as presented below is for informational purposes only and is not necessarily indicative of the results of operations that would have been achieved if the acquisitions had taken place at July 1, 2022.

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

SCHEDULE OF PROFORMA FINANCIAL INFORMATION 

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 an expense of approximately $0.17 million for contingent consideration fair value adjustments.

Costs related to the acquisition, which include legal, accounting and valuation fees, in the amount of approximately $0.27 million have been charged directly to operations and are included in general and administrative expenses on the consolidated statement of operations for the three months ended September 30, 2022.

The Company recognized approximately $1.46 million in revenue and $0.97 million (inclusive of contingent consideration fair value adjustment gain of $1.31 million) of net income related to BLI for the three months ended September 30, 2023 in the consolidated statement of operations.

The Company recognized approximately $1.51 million in revenue and $0.25 million (inclusive of contingent consideration fair value adjustment expense of $0.17 million) of net loss related to BLI since the acquisition closing date of August 1, 2022 through September 30, 2022 in the consolidated statement of operations.

THE GLIMPSE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

SEPTEMBER 30, 2023 AND 2022

NOTE 5. IMPAIRMENT OF GOODWILL AND LONG-LIVED ASSETS

PulpoAR, LLC (“Pulpo”)

The assets of Pulpo were acquired by the Company in May 2022. Pulpo has not and is not expected to meet any future revenue performance milestones as defined in the asset acquisition agreement. In addition, Pulpo has generated negative cash flows and is expected to continue doing so for the foreseeable future, and its business has become less strategically aligned with the Company’s current focus. As a result, as of September 30, 2023, a decision was made by the Company to work towards a divestiture of the operations of its wholly owned subsidiary Pulpo.

Accordingly, the fair value of intangible assets, including goodwill, originally recorded at the time of the purchase, were determined to be to be zero as of September 30, 2023. The net assets of $0.89 million (consisting of intangible assets - technology with net book value of $0.51 million and goodwill of $0.38 million) were written-off and were included in intangible asset impairment on the consolidated statement of operations for the three months ended September 30, 2023.

For the three months ended September 30, 2023 and 2022, Pulpo had revenue was $0.08 million and $0.07 million, respectively and net losses of $0.26 million and $0.26 million, respectively (exclusive of the intangible asset impairment write-off), reported in the consolidated statements of operations. The divestiture will not have a material impact on the Company’s operations or financial results.

NOTE 6. GOODWILL AND INTANGIBLE ASSETS

The composition of goodwill at September 30, 2023 is as follows:

SCHEDULE OF COMPOSITION OF GOODWILL 

Intangible assets, their respective amortization period, and accumulated amortization at September 30, 2023 are as follows:

SCHEDULE OF INTANGIBLE ASSETS, AMORTIZATION PERIOD AND ACCUMULATED AMORTIZATION 

Intangible asset amortization expense for the three months ended September 30, 2023 and 2022 was approximately $0.37 million and $0.44 million, respectively. Both periods include $0.08 million of amortization attributable to Pulpo.

THE GLIMPSE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

SEPTEMBER 30, 2023 AND 2022

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

SCHEDULE OF INTANGIBLE ASSET AMORTIZATION EXPENSE 

NOTE 7. FINANCIAL INSTRUMENTS

Cash and Cash Equivalents

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

 SCHEDULE OF CASH AND CASH EQUIVALENTS AND INVESTMENTS

Contingent Consideration

As of September 30 and June 30, 2023, the Company’s contingent consideration liabilities related to acquisitions are categorized as Level 3 within the fair value hierarchy. Contingent consideration was valued at the time of acquisitions and at September 30 and June 30, 2023 using unobservable inputs and have included using the Monte Carlo simulation model. This model incorporates revenue volatility, internal rate of return, and a risk-free rate. The development and determination of the unobservable inputs for Level 3 fair value measurements and fair value calculations are the responsibility of the Company’s management with the assistance of a third-party valuation specialist.

THE GLIMPSE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

SEPTEMBER 30, 2023 AND 2022

As of September 30, 2023, the Company’s contingent consideration liabilities current and non-current balances were as follows:

SCHEDULE OF FAIR VALUE OF CONTINGENT CONSIDERATION 

A summary of the quantitative significant inputs used to value S5D’s contingent consideration as of September 30, 2023 was: $1.84 per share market price of the Company’s common stock, revenue projections, revenue volatility of 63.5%, weighted average cost of capital discount rate of 15.0% and a risk-free rate of 5.3%. The range of potential additional contingent consideration related to S5D at September 30, 2023 is zero to $14.0 million in the form of Company common stock.

A summary of the quantitative significant inputs used to value BLI’s contingent consideration as of September 30, 2023 was: $1.84 per share market price of the Company’s common stock, revenue projections, revenue volatility of 74.4%, weighted average cost of capital discount rate of 15.8% and risk-free rate of 5.1%. The range of potential additional contingent consideration related to BLI at September 30, 2023 is zero to $24.5 million, of which up to $12.0 million is cash and the remainder in the form of Company common stock.

The change in fair value of contingent consideration for S5D and BLI for the three months ended September 30, 2023 was a non-cash gain of approximately $1.38 million and $1.32 million, respectively, included as change in fair value of acquisition contingent consideration in the consolidated statements of operations. This was primarily driven by the decrease in the Company’s common stock price between the measurement dates.

The change in fair value of contingent consideration for XRT for the three months ended September 30, 2023 reflects the payout to the sellers of XRT for consideration earned in prior periods. This payout was made in September 2023 in the form of Company common stock, fair valued at $0.13 million. In addition, the change reflects a non-cash gain of approximately $0.06 million included as change in fair value of acquisition contingent consideration in the consolidated statements of operations reflecting a decrease in the Company’s common stock price between the measurement dates. The range of potential additional contingent consideration related to XRT at September 30, 2023 is zero to $1.0 million in the form of Company common stock. The Company considers this occurrence as remote, and no provision is made for it.

The range of potential additional contingent consideration related to the previous divestiture of AUGGD assets at September 30, 2023 is zero to $0.65 million in the form of Company common stock. The Company considers this occurrence as remote, and no provision is made for it.

The range of potential additional contingent consideration related to the Pulpo acquisition (see Note 5) at September 30, 2023 is zero to $13.0 million ($12.5 million in Company common stock and $0.5 million cash). The Company considers this occurrence as remote, and no provision is made for it.

THE GLIMPSE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

SEPTEMBER 30, 2023 AND 2022

As of June 30, 2023, the Company’s contingent consideration liabilities current and non-current balances were as follows:

A summary of the quantitative significant inputs used to value S5D’s contingent consideration as of June 30, 2023 was: $3.56 per share market price of the Company’s common stock, revenue projections, revenue volatility of 66.6%, weighted average cost of capital discount rate of 15.7% and a risk-free rate of 5.1%.

A summary of the quantitative significant inputs used to value BLI’s contingent consideration as of June 30, 2023 was: $3.56 per share market price of the Company’s common stock, revenue projections, revenue volatility of 75.6%, weighted average cost of capital discount rate of 16.4% and a risk-free rate of 4.8%.

The change in fair value of contingent consideration for S5D and BLI for the three months ended September 30, 2022 was a non-cash expense of approximately $2.24 million and $0.17 million, respectively, included as change in fair value of acquisition contingent consideration in the consolidated statements of operations. This was primarily driven by the change in the Company’s common stock price between the measurement dates. Also included is the change in fair value of contingent consideration for XRT of $0.20 million reflecting achievement of certain revenue thresholds as defined and not previously accrued.

NOTE 8. DEFERRED COSTS/CONTRACT ASSETS and DEFERRED REVENUE/CONTRACT LIABILITIES

At September 30 and June 30, 2023, deferred costs/contract assets totaling $156,718 and $158,552, respectively, consists of costs deferred under contracts not completed and recognized at a point in time ($92,894 and $158,552, respectively), and costs in excess of billings under contracts not completed and recognized over time ($63,824 and $0, respectively). At September 30 and June 30, 2023, deferred revenue/contract liabilities, totaling $208,514 and $466,393, respectively, consists of revenue deferred under contracts not completed and recognized at a point in time ($205,406 and $459,510, respectively), and billings in excess of costs under contracts not completed and recognized over time ($3,108 and $6,883 respectively).

THE GLIMPSE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

SEPTEMBER 30, 2023 AND 2022

The following table shows the reconciliation of the costs in excess of billings and billings in excess of costs for contracts recognized over time:

SCHEDULE OF RECONCILIATION OF COST IN EXCESS OF BILLING FOR CONTRACT RECOGNIZED OVER TIME 

NOTE 9. EQUITY

Securities Purchase Agreement (“SPA”)

On September 28, 2023, the Company entered into a SPA with certain institutional investors to sell 1,885,715 shares of common stock for approximately $3.30 million (at $1.75 per share). The Company received the subscription receivable on October 3, 2023 and the Company realized net proceeds (after placement agent fees, professional fees and listing expenses) of $2.98 million. See Note 12.

Common Stock Issued

Common stock issued for Business Acquisitions

During the three months ended September 30, 2022, the Company issued approximately 714,000 shares of common stock, valued at $2.85 million, as consideration for the acquisition of BLI (see Note 4).

Common stock issued to satisfy contingent acquisition obligations

During the three months ended September 30, 2023, the Company issued approximately 36,000 shares of common stock, with a fair value of approximately $0.13 million, to satisfy a contingent acquisition obligation for the achievement of a revenue performance milestone by XR Terra.

During the three months ended September 30, 2022, the Company issued approximately 107,000 shares of common stock, with a fair value of approximately $0.32 million, to satisfy a contingent acquisition obligation of approximately $0.57 million less the repayment of a secured promissory note of $0.25 million, related to the acquisition of AUGGD.

THE GLIMPSE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

SEPTEMBER 30, 2023 AND 2022

Common stock issued for Exercise of Stock Options

During the three months ended September 30, 2023 and 2022, the Company issued approximately 9,000 and 25,000 shares of common stock in cash and cashless transactions, respectively, upon exercise of the respective option grants and realized cash proceeds of approximately $0.0 million and $0.04 million, respectively.

Common stock issued to Vendors

During the three months ended September 30, 2023, the Company issued approximately 11,000 shares of common stock to various vendors for services performed and recorded share-based compensation of approximately $0.03 million.

Common stock issued to Employees as Compensation

During the three months ended September 30, 2023, the Company issued approximately 55,000 shares of common stock to various employees as compensation and recorded share-based compensation of approximately $0.20 million.

Employee Stock-Based Compensation

Stock Option issuance to Executives

In February 2023, pursuant to the Equity Incentive Plan, the Company granted certain executive officers 2.32 million stock options as a long-term incentive. The options have an exercise price of $7.00 per share. 0.22 million of these options vest ratably over four years (“Initial Options”). The remainder (“Target Options”) vest in fixed amounts based on achieving various revenue or common stock prices within seven years of grant date. Given the Company’s current stock price and revenue, the Company views the achievement of the milestones that would trigger vesting of the Target Options as remote.

Equity Incentive Plan

The Company’s 2016 Equity Incentive Plan (the “Plan”), as amended, has approximately 11.3 million common shares reserved for issuance. As of September 30, 2023, there were approximately 2.4 million shares available for issuance under the Plan. The shares available are after the granting of 2.1 million shares of executive Target Options.

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

THE GLIMPSE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

SEPTEMBER 30, 2023 AND 2022

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

SCHEDULE OF STOCK OPTION FAIR VALUE ASSUMPTIONS 

The weighted average expected term (in years) excludes the executive Target Options.

The grant date fair value for options granted during the three months ended September 30, 2023 and 2022 was approximately $0.40 million and $1.25 million, respectively.

The following is a summary of the Company’s stock option activity for the three months ended September 30, 2023 and 2022, excluding the executive Target Options:

 SUMMARY OF STOCK OPTION ACTIVITY

The above table excludes executive Target Options: 2,100,000 granted, $7.00 exercise price, 9.7 remaining term in years, no intrinsic value. Vesting of these is considered remote.

The intrinsic value of stock options at September 30, 2023 and 2022 was computed using a fair market value of the common stock of $1.84/share and $5.29/share, respectively.

THE GLIMPSE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

SEPTEMBER 30, 2023 AND 2022

The Company’s stock option-based expense for the three months ended September 30, 2023 and 2022 consisted of the following:

SCHEDULE OF STOCK OPTION-BASED EXPENSE 

There is no expense included for the executive officers’ Target Options.

At September 30, 2023 total unrecognized compensation expense to employees, board members and vendors related to stock options was approximately $6.15 million (excluding executive Target Options of $8.53 million), and is expected to be recognized over a weighted average period of 2.71 years (which excludes the executive Target Options).

NOTE 10. EARNINGS PER SHARE

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

SCHEDULE OF COMPUTATION OF BASIC AND DILUTED NET LOSS PER SHARE 

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

 SCHEDULE OF POTENTIALLY DILUTIVE SECURITIES

September 30, 2023 Stock Options include 2,100,000 executive Target Options.

THE GLIMPSE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

SEPTEMBER 30, 2023 AND 2022

NOTE 11. COMMITMENTS AND CONTINGENCIES

Lease Costs

The Company made cash payments for all operating leases for the three months ended September 30, 2023 and 2022, of approximately $0.20 million and $0.14 million, respectively, which were included in cash flows from operating activities within the consolidated statements of cash flows. As of September 30, 2023, the Company’s operating leases have a weighted average remaining lease term of 1.5 years and weighted average discount rate of 8.3%.

The total rent expense for all operating leases for the three months ended September 30, 2023 and 2022, was approximately $0.11 million and $0.13 million, respectively, with short-term leases making up an immaterial portion of such expenses.

Lease Commitments

The Company has various operating leases for its offices. These existing leases have remaining lease terms ranging from 1 to 3 years. Certain lease agreements contain options to renew, with renewal terms that generally extend the lease terms by 1 to 3 years for each option. The Company determined that none of its current leases are reasonably certain to renew.

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, 2023 are as follows:

SCHEDULE OF UNDISCOUNTED LEASE PAYMENTS 

THE GLIMPSE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

SEPTEMBER 30, 2023 AND 2022

Contingent Consideration for Acquisitions

Contingent consideration for acquisitions, consists of the following as of September 30, 2023 and June 30, 2023, respectively (see Note 7):

 SCHEDULE OF CONTINGENT CONSIDERATION FOR ACQUISITIONS 

Employee Bonus

It is anticipated that a certain employee will meet the revenue threshold to earn a bonus payout of approximately $0.53 million during this fiscal year. This is included in accrued non cash performance bonus in the consolidated balance sheet at September 30, 2023. If the revenue milestone is achieved, this bonus will be paid entirely in the form of Company common stock at a share conversion price of $7.00/share. For the three months ended September 30, 2023, the fair value of this potential bonus decreased approximately $0.39 million due to a decrease in the Company’s common stock price between the measurement dates. This gain is included in sales and marketing expenses on the consolidated statement of operations.

Potential Future Distributions Upon Divestiture or Sale

In some instances, upon a divestiture or sale of a subsidiary company, the Company is contractually obligated to distribute up to 10% 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 that would trigger such distribution.

NOTE 12. SUBSEQUENT EVENTS

Securities Purchase Agreement (“SPA”)

On September 28, 2023, the Company entered into a SPA with certain institutional investors to sell 1,885,715 shares of common stock for approximately $3.30 million (at $1.75 per share). The Company received the subscription receivable on October 3, 2023 and the Company realized net proceeds (after placement agent fees, professional fees and listing expenses) of $2.98 million. See Note 9.

The SPA shares were issued on October 3, 2023. Simultaneously, the exercise price on warrants to purchase 750,000 shares of common stock originally issued pursuant to a SPA entered into in November 2021 were repriced from $14.63 per share to $1.75 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, 2023, which are included in the Form 10-K filed with the Securities and Exchange Commission (the “SEC”) on September 28, 2023. Unless the context requires otherwise, references in this Quarterly Report on Form 10-Q to “we,” “us,” “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 an Immersive technology company (Virtual Reality (“VR”), Augmented Reality (“AR”) and Spatial Computing), comprised of a diversified group of wholly-owned and operated Immersive technology companies, providing enterprise-focused software, services and solutions. We believe that we offer significant exposure to the rapidly growing and potentially transformative Immersive technology markets via our diversified model and ecosystem.

Our platform of Immersive technology subsidiary companies, collaborative environment and diversified business model aims to simplify the challenges faced by companies in the emerging Immersive technology industry, potentially improving each subsidiary company’s ability to succeed, while simultaneously providing investors an opportunity to invest directly via a diversified infrastructure.

By leveraging our platform, we strive to cultivate and manage the business operations of our Immersive technology subsidiary companies, with the goal of allowing each underlying company to better focus on mission-critical endeavors, collaborate with the other subsidiary companies, reduce time to market, optimize costs, improve product quality and leverage joint go-to-market strategies. Subject to operational, market and financial developments and conditions, we may carefully add to our current portfolio of subsidiary companies via a combination of organic expansion and/or outside acquisitions.

The Immersive technology industry is an early-stage technology industry with nascent markets. We believe that this industry has significant growth potential across verticals, may be transformative and that our diversified platform and ecosystem create important competitive advantages. We focus primarily on the business-to-business (“B2B”) and business-to-business-to-consumer (“B2B2C”) segments industry and we are hardware agnostic.

At the time of this filing, we have approximately 150 full time employees, primarily software developers, engineers and 3D artists. Of these, approximately 70 are based in the US and 80 internationally in Turkey.

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 operate numerous subsidiary companies (“Subsidiary Companies”, “Subsidiaries”) operating under the following business names as represented in the organizational chart below:

Significant Transactions

Securities Purchase Agreement (“SPA”)

On September 28, 2023, the Company entered into a SPA with certain institutional investors to sell 1,885,715 shares of common stock for approximately $3.30 million (at $1.75 per share). The Company received the subscription receivable on October 3, 2023 which resulted in net proceeds (after placement agent fees, professional fees and listing expenses) of $2.98 million.

The SPA shares were issued on October 3, 2023. Simultaneously, the exercise price on warrants to purchase 750,000 shares of common stock originally issued pursuant to a SPA entered into in November 2021 were repriced from $14.63 per share to $1.75 per share.

Financial Highlights for the three months ended September 30, 2023 compared to the three months ended September 30, 2022.

Results of Operations

The following table sets forth our results of operations for the three months ended September 30, 2023 and 2022:

Summary P&L

Revenue

Total revenue for the three months ended September 30, 2023 was approximately $3.10 million compared to approximately $3.95 million for the three months ended September 30, 2022, a decrease of 22%. The decrease reflects a general slowdown in the Immersive technology industry.

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

For the three months ended September 30, 2023, Software Services revenue was approximately $3.01 million compared to approximately $3.86 million for the three months ended September 30, 2022, a decrease of approximately 22%. The decrease reflects a general slowdown in the Immersive technology industry.

For the three months ended September 30, 2023, Software License revenue was approximately $0.09 million compared to approximately $0.09 million for the three months ended September 30, 2022, consistent period over period. As the Immersive technology industries continue to mature, we expect our Software License revenue to grow on an absolute basis and as an overall percentage of total revenue.

Customer Concentration

Two customers accounted for approximately 50% (33% and 17%, respectively) of the Company’s total gross revenues during the three months ended September 30, 2023. The same two customers accounted for approximately 60% (34% and 26%, respectively) of the Company’s total gross revenues during the three months ended September 30, 2022.

Gross Profit

Gross profit was approximately 62% for the three months ended September 30, 2023 compared to approximately 69% for the three months ended September 30, 2022. The decrease was driven by lower margin project revenue being a greater percentage of total revenue in 2023.

For the three months ended September 30, 2023 and 2022, internal staffing was approximately $0.65 million (55% of total cost of goods sold) and approximately $0.75 million (62% of total cost of goods sold), respectively. The decrease in internal staffing as a percentage of total cost of goods sold was due to Brightline Interactive (“BLI”) and Sector 5 Digital (“S5D”) subsidiaries representing a greater percentage of revenue in 2023, which have a higher utilization of external sources.

Operating Expenses

Operating expenses for the three months ended September 30, 2023 were approximately $2.09 million compared to $8.17 million for the three months ended September 30, 2022, a decrease of approximately 74%. The decrease is driven by a gain in the change in fair value of contingent consideration for the S5D and BLI acquisitions in 2023 (as opposed to an expense in 2022); and reductions in research and development, general and administrative and sales and marketing expenses in 2023. These are offset by an intangible asset impairment charge.

Research and Development

Research and development expenses for the three months ended September 30, 2023 were approximately $1.68 million compared to $2.00 million for the three months ended September 30, 2022, a decrease of approximately 16%. This decrease represents a reduction in headcount reflective of the Company initiative in 2023 to focus on certain core businesses and more efficient use in 2023 of headcount in revenue production.

General and Administrative

General and administrative expenses for the three months ended September 30, 2023 were approximately $1.10 million compared to $1.38 million for the three months ended September 30, 2022, a decrease of approximately 20%. The decrease is driven by the absence in 2023 of professional fees related to acquisitions.

Sales and Marketing

Sales and marketing expenses for the three months ended September 30, 2023 were approximately $0.81 million compared to $1.74 million for the three months ended September 30, 2022, a decrease of approximately 53%. The decrease represents a reduction in headcount and outside marketing firm expenses reflective of the Company initiative in 2023 to focus on certain core businesses and streamline operations. In addition, there was a 2023 gain (i.e., reducing expense) in previously accrued, but not yet paid, stock based incentive expense due to a decrease in the fair value of the Company’s common stock between measurement periods.

Amortization of Acquisition Intangible Assets

Amortization of acquisition intangible assets expense for the three months ended September 30, 2023 was approximately $0.37 million compared to $0.44 million for the three months ended September 30, 2022, a decrease of approximately 16%. The decrease is attributable to the write-off in June 2023 of intangible assets related to the S5D acquisition.

Intangible Asset Impairment

This 2023 $0.89 million expense represents the write-off of goodwill and the net intangible asset – technology attributable to the 2023 decision to divest the operations of PulpoAR, LLC.

Change in Fair Value of Acquisition Contingent Consideration

Change in fair value of acquisition contingent consideration expense for the three months ended September 30, 2023 was a gain of approximately $2.76 million compared to an expense of $2.61million in the prior year. For both periods, this primarily represents the change in the fair value of the contingent consideration liability related to the S5D and BLI acquisitions. The gain in 2023 is driven by a decrease in the common stock price of Glimpse between measurement dates, whereas the expense in 2022 is primarily attributable to an increase in the common stock price of Glimpse between measurement dates.

Net Loss

Net loss for the three months ended September 30, 2023 and 2022 was $0.12 million and $5.38 million, respectively, an improvement of 98%. This reflects a reduction in operating expenses and a gain in change in fair value of acquisition contingent consideration more than offsetting 2023 reduced revenue and gross margin as well as an intangible asset impairment charge.

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 income (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 months ended September 30, 2023 and 2022:

Adjusted EBITDA loss was $1.29 million for the three months ended September 30, 2023 compared to $1.05 million loss for the three months ended September 30, 2022. Reductions in 2023 operating expenses, reduction in fair value of acquisition contingent consideration and reduction in fair value of accrued performance bonus offset the 2023 decrease in revenue and gross margin and increase in intangible asset impairment expense. 2023 also reflects the absence of acquisition related expenses.

Going Concern

The Company evaluated whether there are conditions and events, considered in the aggregate, that raise doubt about its ability to continue as a going concern within one year after the date that these consolidated financial statements are issued. This evaluation initially does not take into consideration the potential mitigating effect of management’s plans that have not been fully implemented as of the date the financial statements are issued.

The Company has incurred recurring losses since its inception, including a net loss of $0.1 million for the three months ended September 30, 2023. In addition, as of September 30, 2023, the Company had an accumulated deficit of $56.8 million. While the Company has been reducing its expense base, it expects to continue to generate negative cash flow for the foreseeable future. The Company expects that its cash and cash equivalents as of September 30, 2023 may not be sufficient to fund operations for at least the next twelve months from the date of issuance of these consolidated financial statements and the Company will need to obtain additional funding. Accordingly, the Company has concluded that substantial doubt exists about the Company’s ability to continue as a going concern for a period of at least 12 months from the date of issuance of these consolidated financial statements.

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

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

Potential liquidity resources

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

Liquidity and Capital Resources

Operating Activities

Net cash used in operating activities was $1.68 million for the three months ended September 30, 2023, compared to $3.08 million during the prior period, an improvement of approximately $1.40 million. This reflects the absence in 2023 of BLI acquisition related payments of accounts payable and reduction in deferred revenue that occurred in 2022.

Investing Activities

Net cash used in investing activities for the three months ended September 30, 2023 was negligible compared to $2.57 million during the 2022 period. 2022 primarily represented the cash portion of the BLI acquisition.

Financing Activities

Cash flow provided from financing activities during the three months ended September 30, 2023 was none, compared to $0.04 million for the prior 2022 period. Cash flow for the 2022 period represents proceeds from exercise of stock options.

Capital Resources

As of September 30, 2023, the Company had cash and cash equivalents of $3.93 million. On October 3, 2023, the Company received the subscription receivable on a SPA that provided net proceeds of $2.98 million, which is in addition to the cash and cash equivalent balances at September 30, 2023.

As of September 30, 2023, the Company had no outstanding debt obligations.

As of September 30, 2023, the Company had no issued and outstanding preferred stock.

As of September 30, 2023, contingent consideration for acquisition liabilities contains cash components ranging up to $4.5 million, potentially payable through July 2025 contingent on BLI achieving certain revenue milestones.

Recently Adopted Accounting Pronouncements

Please see Note 3 of the attached September 30, 2023 consolidated financial statements that describe the impact, if any, from the adoption of Recent Accounting Pronouncements.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Not required for smaller reporting companies.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

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

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

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

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

Based on our evaluation, our management concluded that our internal control over financial reporting was effective as of September 30, 2023.

During the period ended September 30, 2023, 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, 2023 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 September 30, 2023, the Company issued 110,589 shares of Common Stock for:

The foregoing transactions were exempt from the registration requirements of the Securities Act of 1933, as amended, pursuant to Section 4(a)(2) thereof.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures

Not Applicable.

Item 5. Other Information.

None.

Item 6. Exhibits

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