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BUSINESS ACQUISITIONS AND ASSET ACQUISTION - TECHNOLGY

12 Months Ended

Jun. 30, 2023

Business Combination and Asset Acquisition [Abstract]

BUSINESS ACQUISITIONS AND ASSET ACQUISTION - TECHNOLGY

NOTE 4. BUSINESS ACQUISITIONS AND ASSET ACQUISTION - TECHNOLGY

Acquisition - 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 Merger Agreement consisted of: (a) $568,046 cash paid (net of working capital adjustments, as defined, of $505,787) at the August 1, 2022 closing (the “Closing”); (b) $1,926,167 of cash paid at the Closing to extinguish BLI’s outstanding debt and pay down other obligations; (c) 714,286 shares of the Company’s common stock fair valued at the Closing (which was the day’s closing price discounted for one year sales restriction from Closing); and (d) future purchase price considerations payable to the Members, up to a residual of $24,500,000. The $24,500,000 is based and payable on BLI’s achievement of certain revenue growth milestones at points in time and cumulatively during the three years post-Closing Date, the payment of which shall be made up to $12,000,000 in cash and the remainder in common shares of the Company, priced at the dates of the future potential share issuance subject to a common stock price floor of $7.00 per share, all as defined.

THE GLIMPSE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2023 AND 2022

The BLI acquisition’s fair value at Closing was $12,665,357.

The fair value allocation for the purchase price consideration paid at Closing was recorded as follows:

Purchase price consideration:
Cash paid to members at Closing	$	2,494,213
Company common stock fair value at Closing		2,846,144
Fair value of contingent consideration to be achieved		7,325,000
Total purchase price	$	12,665,357

Fair value allocation of purchase price:
Cash and cash equivalents	$	15,560
Accounts receivable		253,041
Deferred costs/contract assets		552,625
Other assets		10,000
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		10,473,700
Total fair value allocation of purchase price	$	12,665,357

The Company’s fair value estimate of the contingent consideration for the BLI acquisition was determined using a Monte Carlo simulation and other methods which account for the probabilities of various outcomes. The Company’s fair value estimate related to the identified intangible asset of customer relationships was determined using the Multi-Period Excess Earnings Method. This valuation method requires management to project revenues, customer attrition and cash flows for the reporting unit over a multiyear period, as well as determine the weighted average cost of capital to be used as a discount rate. The Company’s fair value estimate related to the identified intangible asset of technology was determined using the Relief from Royalty Method. This valuation method requires management to estimate the royalty rate based on market data for royalty arrangements involving similar technology, the obsolesce rate, and the weighted average cost of capital to be used as a discount rate.

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

In accordance with GAAP, the fair value of the contingent consideration was remeasured at June 30, 2023, based on market conditions as of that date. The remeasurement resulted in a fair value amount at June 30, 2023 of $6.21 million, a decrease of approximately $1.11 million since Closing. The decrease in fair value of the contingent consideration is driven by revisions to BLI’s revenue projections and a decrease in the Company’s common stock price between the measurement dates. This decrease is recorded as a gain in operating expenses on the consolidated statement of operations (see Note 7).

THE GLIMPSE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2023 AND 2022

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 years ended June 30, 2023 and 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, 2021 would be:

	2023			2022
	For the Years Ended June 30,
	2023			2022

Revenue	$	13,485,000		$	14,180,000
Net Loss	$	(28,702,000	)	$	(6,698,000	)

The pro forma net loss was adjusted to exclude approximately $0.28 million of acquisition-related costs incurred in 2023. The 2023 pro forma net loss includes a gain of approximately $1.11 million for contingent consideration fair value adjustments.

Costs related to the acquisition, which include legal, accounting and valuation fees, in the amount of approximately $0.28 million have been charged directly to operations and are included in general and administrative expenses on the consolidated statement of operations for the year ended June 30, 2023.

The Company recognized approximately $4.85 million in revenue and $1.03 million (inclusive of contingent consideration fair value adjustment gain of $1.11 million) of net loss related to BLI since the acquisition Closing date of August 1, 2022 through June 30, 2023 in the consolidated statement of operations.

Asset Acquisition - Technology

In November 2022, the Company entered into a technology assignment agreement with inciteVR (“IVR”), whereby the Company purchased the entire right, title and interest to certain VR/AR technology, as defined, to expand product offerings.

The Company issued 71,430 shares (calculated as defined) of the Company’s common stock, with a fair value (based on the Company’s common stock price at the close of business on the date of the assignment agreement) of approximately $327,000 in full payment of the assignment, with no further consideration obligations thereto. The $327,000 was recorded as intangible assets- technology on the Company’s consolidated balance sheet as of June 30, 2023.

Certain IVR owners became employees of Glimpse after the assignment.

Acquisition - S5D

In December 2021, Glimpse entered into a Membership Interest Sale Agreement (the “S5D Agreement”), with Sector 5 Digital, LLC (“S5D”) and each of the equity holders of S5D named therein (collectively, the “S5D Members”). S5D is an enterprise focused, immersive technology company that combines innovative storytelling with emerging technologies for industry leading organizations. At the time, the acquisition significantly expanded the Company’s operating and financial scale and introduced new tier 1 customers specifically in the defense contractor and industrial segments.

THE GLIMPSE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2023 AND 2022

In February 2022, S5D became a wholly-owned subsidiary of Glimpse.

The aggregate consideration consisted of: (a) $4.0 million cash paid at the February 1, 2022 closing (the “S5D Closing”); (b) 277,201 shares of the Company’s common stock valued at the date of acquisition (which was the day’s closing price discounted for one year sales restriction from S5D Closing) and released from escrow to the S5D Members at S5D Closing; and (c) future purchase price considerations (“contingent consideration”) payable to the S5D Members, up to $19.0 million ($2.0 million of which was escrowed at S5D Closing and was recorded as restricted cash on the June 30, 2022 consolidated balance sheet). The $19.0 million is based and payable on S5D’s and the Company’s achievement of certain revenue growth milestones during the three years post-S5D Closing, as defined, the payment of which shall be made up to $2.0 million in cash and the remainder in common stock of the Company, priced at the dates of the future potential share issuance and subject to a common stock floor price of $7.00/share. See Note 5 and 7.

The S5D acquisition’s fair value at S5D Closing was $15,466,503.

The fair value allocation for the purchase price consideration paid at close was recorded as follows:

Purchase price consideration:
Cash paid to members at closing	$	4,000,000
Company common stock fair value when released from escrow at S5D Closing		2,297,303
Fair value of contingent consideration to be achieved		9,169,200
Total purchase price	$	15,466,503

Fair value allocation of purchase price:
Cash and cash equivalents	$	184,106
Accounts receivable		411,602
Other current assets		10,259
Equipment, net		60,479
Other assets		9,246
Accounts payable and accrued expenses		(183,806	)
Contract liability (billings in excess of cost)		(451,106	)
Intangible assets - customer relationships		2,820,000
Goodwill		12,605,723
Total fair value allocation of purchase price	$	15,466,503

The Company’s fair value estimate of the contingent consideration for the S5D acquisition was determined using a Monte Carlo simulation method which accounts for the probabilities of various outcomes. The Company’s fair value estimate related to the identified intangible asset of customer relationships was determined using the Multi-Period Excess Earnings Method. This valuation method requires management to project revenues, customer attrition and cash flows for the reporting unit over a multiyear period, as well as determine the weighted average cost of capital to be used as a discount rate.

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

In accordance with GAAP, the fair value of the contingent consideration was remeasured at June 30, 2022, based on market conditions as of that date. The remeasurement resulted in a fair value amount at June 30, 2022 of $6.74 million, a reduction of approximately $2.43 million since Closing. The reduction in fair value of the contingent consideration is driven by a reduction in the Company’s common stock price between the measurement dates. This reduction is recorded in operating expenses on the consolidated statement of operations.

THE GLIMPSE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2023 AND 2022

Unaudited Pro Forma Results

The unaudited pro forma financial information in the table below summarizes the combined results of operations for Glimpse and S5D, as if the companies were combined for the year ended June 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, 2021.

The approximate unaudited pro forma financial information if S5D was included since July 1, 2021 would be:

	For the Year Ended
	June 30, 2022

Revenue	$	9,768,000
Net loss	$	(5,841,000	)

The pro forma net loss was adjusted to exclude approximately $182,000 of acquisition-related costs incurred in 2022. The 2022 pro forma net loss includes a gain of approximately $2.43 million for contingent consideration fair value adjustments.

Costs related to the acquisition, which include legal, accounting and valuation fees, in the amount of approximately $182,000 have been charged directly to operations and are included in general and administrative expenses on the consolidated statement of operations for the year ended June 30, 2022.

The results of operations of S5D have been included in the Company’s consolidated financial statements from the date of acquisition. For the years ended June 30, 2023 and 2022, S5D had revenue of $2.73 million and $1.40 million, respectively and net losses of $1.26 million and $0.73 million, respectively (exclusive of the intangible asset impairment write off, see Note 5, and change in fair value of contingent consideration) reported in the consolidated statements of operations.

Acquisition - AUGGD

In August 2021, 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 (“ARI”), an Australia based company providing augmented reality software and services. At the time, the acquisition was made to facilitate the Company’s endeavors in the Architecture, Engineering and Construction market segments.

Initial consideration for the purchase was $0.75 million payable in Company common stock. In August 2021, the Company issued 77,264 shares of common stock (calculated as defined in the asset acquisition agreement) to satisfy the purchase price. The acquisition agreement provides for additional contingent consideration in the form of Company common stock if certain future revenue targets are achieved through June 2024, with a maximum additional consideration of $5.25 million. At time of purchase, future revenue targets were not anticipated to be met and therefore no additional consideration beyond the initial consideration was expected. Potential future common stock issuance shall be priced at the dates of the future potential share issuance and subject to a common stock floor price of $7.00/share. If this subsidiary were sold within three years from the acquisition date, certain performance related consideration will be accelerated and become due even if not earned.

THE GLIMPSE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2023 AND 2022

The AUGGD acquisition’s fair value at its closing was $750,000.

No liabilities were assumed as part of the acquisition and the primary assets acquired included employees, customer relationships and technology. The Company recorded the purchase price allocation as follows:


Intangible assets:
Customer relationships	$	250,000
Technology		250,000
Goodwill		250,000
Total	$	750,000

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

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. This additional consideration of approximately $0.57 million is included in operating expense on the consolidated statement of operations. See Notes 5, 13 and 14.

The results of operations of AUGGD have been included in the Company’s consolidated financial statements from the date of acquisition. For the years ended June 30, 2023 and 2022, AUGGD had revenue was $0.01 million and $0.29 million, respectively, and net losses of $0.33 million and $0.22 million, respectively (exclusive of the intangible asset impairment write off, see Note 5, and change in fair value of contingent consideration), reported in the consolidated statements of operations.

Pre-acquisition AUGGD financial data is not considered reliable and therefore no proforma results as if the acquisition had occurred on July 1, 2021 are included.

Acquisition - XR Terra

In October 2021, the Company, through its wholly owned subsidiary company, XR Terra, LLC (“XRT”), completed an acquisition of certain assets, as defined, from XR Terra, Inc., a developer of teaching platforms utilized in coding software used in VR and AR programming, a potential strategic growth segment for the Company as the immersive technology industry expands.

Initial consideration for the purchase was $0.60 million payable 50% in Company common stock and 50% in cash. In October 2021, the Company paid $0.30 million cash and issued 33,877 shares of common stock (calculated as defined in the asset acquisition agreement) to satisfy the purchase price. The acquisition agreement provides for additional contingent consideration in the form of Company common stock if certain future revenue targets are achieved through September 2024, with a maximum additional consideration of $2.0 million. At time of purchase, future revenue targets were not anticipated to be met and therefore no additional consideration beyond the initial consideration was expected. Potential future common stock issuance shall be priced at the dates of the future potential share issuance and subject to a common stock floor price of $7.00/share. If this subsidiary is sold within three years from the acquisition date, certain performance related consideration will be accelerated and become due even if not earned.

As of June 30 2022, no additional acquisition consideration had been earned and it was not anticipated that future additional consideration thresholds would be met. During the year ended June 30, 2023 certain revenue thresholds were met and are expected to be met in the future and the Company recognized additional consideration of $0.59 million. This is recorded as change in fair value of acquisition contingent consideration in the consolidated statements of operations. At June 30, 2023, no further revenue thresholds are anticipated to be met. See Notes 7 and 14.

THE GLIMPSE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2023 AND 2022

The XRT acquisition’s fair value at its closing was $600,000.

No liabilities were assumed as part of the acquisition and the primary assets acquired included employees and technology. The Company recorded the purchase price allocation as follows:

Intangible assets:
Technology	$	300,000
Goodwill		300,000
Total	$	600,000

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

The results of operations of XRT have been included in the Company’s consolidated financial statements from the date of acquisition. For the years ended June 30, 2023 and 2022, XRT had revenue of $0.73 million and $0.18 million, respectively and net losses of $1.49 million and $0.53 million, respectively (exclusive of the change in fair value of contingent consideration), reported in the consolidated statements of operations.

Pre-acquisition XRT financial data is not considered reliable and therefore no proforma results as if the acquisition had occurred on July 1, 2021 are included.

Acquisition - PulpoAR

In May 2022, the Company, through its wholly owned subsidiary companies, Qreal, LLC and PulpoAR, LLC, completed an acquisition of certain assets, as defined, from PulpoAR Pulpoar Bilisim Anonim Sirketi, a Turkey based AR technology e-commerce company providing virtual try-on solutions primarily for the Beauty and Retail markets. Upon integration, PulpoAR’s technology is expected to propel the business development efforts of QReal.

Initial consideration for the purchase was $2.0 million payable 75% in Company common stock (which was fair valued at the closing date’s day’s closing price discounted for one year sales restriction from closing, subject to a common stock floor price as defined) and 25% in cash. In May and June 2022, the Company collectively paid $0.50 million cash and issued in September 2022, 214,286 shares of common stock to satisfy the purchase price. The acquisition agreement provides for additional contingent consideration in the form of Company common stock and cash if certain future revenue targets are achieved through December 2024, with a maximum additional consideration of $12.5 million in common stock and $0.5 million in cash. At time of purchase, future revenue targets were not anticipated to be met and therefore no additional consideration beyond the initial consideration was expected. Potential future common stock issuance shall be priced at the dates of the future potential share issuance and subject to a common stock floor price of $7.00/share. If this subsidiary is sold before December 2024, certain performance related consideration will be accelerated and become due even if not earned. No additional consideration thresholds as defined in the asset acquisition agreement have been met since acquisition date through June 30, 2023, and it is not anticipated that PulpoAR will meet any further additional consideration thresholds, as defined.

THE GLIMPSE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2023 AND 2022

The PulpoAR acquisition’s fair value at closing was $1,234,037.

No liabilities were assumed as part of the acquisition and the primary assets acquired included employees and technology. The Company recorded the purchase price allocation as follows:


Intangible assets:
Technology	$	925,000
Goodwill		309,037
Total	$	1,234,037

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

The results of operations of PulpoAR have been included in the Company’s consolidated financial statements from the date of acquisition. For the years ended June 30, 2023 and 2022, PulpoAR had revenue of $0.49 million and $0.08 million, respectively, and net losses of $0.87 million and $0.05 million, respectively, reported in the consolidated statements of operations.

Pre-acquisition PulpoAR financial data is not considered reliable and therefore no proforma results as if the acquisition had occurred on July 1, 2021 are included.

All acquisitions above were considered business combinations in accordance with GAAP, except the IVR asset acquisition.