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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended December 31, 2022

OR

☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 001-40556

THE GLIMPSE GROUP, INC.

(Exact name of registrant as specified in its charter)

Nevada |  | 81-2958271
(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification Number)
15 West 38th St., 12th Fl New York, NY |  | 10018
(Address of principal executive offices) |  | (Zip Code)

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

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

Title of each class |  | Trading Symbol |  | Name of each exchange on which registered
Common Stock, par value $0.001 per share |  | VRAR |  | The NASDAQ Stock Market LLC

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.☒ Yes ☐ No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes ☐ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and ‘‘emerging growth company’’ in Rule 12b-2 of the Exchange Act.

Large accelerated filer | ☐ | Accelerated filer | ☐
Non-accelerated filer | ☒ | Smaller reporting company filer | ☒
Emerging growth company | ☒ |  |

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

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

As of February 13, 2023, the registrant had 14,010,793 shares of common stock, par value $0.001 per share, outstanding.

THE GLIMPSE GROUP, INC.

TABLE OF CONTENTS

|  | Page No.
PART I | FINANCIAL INFORMATION | 3
ITEM 1. | FINANCIAL STATEMENTS (Unaudited) | 3
| Consolidated Balance Sheets | 5
| Consolidated Statements of Operations | 6
| Consolidated Statements of Stockholders’ Equity (Deficit) | 7
| Consolidated Statements of Cash Flows | 9
| Notes to Consolidated Financial Statements | 10
ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS | 29
ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK | 37
ITEM 4. | CONTROLS AND PROCEDURES | 37
PART II | OTHER INFORMATION | 38
ITEM 1. | LEGAL PROCEEDINGS | 38
ITEM 1A. | RISK FACTORS | 38
ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS | 38
ITEM 6. | EXHIBITS | 39
SIGNATURES | 40

2

THE GLIMPSE GROUP, INC.

CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

FOR THE THREE AND SIX MONTHS ENDED DECEMBER 31, 2022 AND 2021

3

THE GLIMPSE GROUP, INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

| Page
Index to Consolidated Financial Statements (Unaudited) |
Consolidated Balance Sheets | 5
Consolidated Statements of Operations | 6
Consolidated Statements of Stockholders’ Equity (Deficit) | 7
Consolidated Statements of Cash Flows | 9
Notes to Consolidated Financial Statements | 10-28

4

THE GLIMPSE GROUP, INC.

CONSOLIDATED BALANCE SHEETS

|  |  | As of December 31, 2022 (Unaudited) |  |  |  | As of June 30, 2022 (Audited) |
ASSETS |  |  |  |  |  |  |  |
Cash and cash equivalents |  | $ | 7,204,722 |  |  | $ | 16,249,666 |
Investments |  |  | 236,576 |  |  |  | 239,314 |
Accounts receivable |  |  | 1,876,070 |  |  |  | 1,332,922 |
Deferred costs/contract assets |  |  | 109,739 |  |  |  | 39,484 |
Prepaid expenses and other current assets |  |  | 681,283 |  |  |  | 479,483 |
Total current assets |  |  | 10,108,390 |  |  |  | 18,340,869 |
Equipment, net |  |  | 350,688 |  |  |  | 245,970 |
Note receivable |  |  | - |  |  |  | 250,000 |
Right-of-use assets |  |  | 965,717 |  |  |  | - |
Intangible assets, net |  |  | 7,594,239 |  |  |  | 4,063,485 |
Goodwill |  |  | 22,556,959 |  |  |  | 13,464,760 |
Other assets |  |  | 101,766 |  |  |  | 32,000 |
Restricted cash |  |  | 2,000,000 |  |  |  | 2,000,000 |
Total assets |  | $ | 43,677,759 |  |  | $ | 38,397,084 |
LIABILITIES AND STOCKHOLDERS’ EQUITY |  |  |  |  |  |  |  |
Accounts payable |  | $ | 435,756 |  |  | $ | 340,139 |
Accrued liabilities |  |  | 207,043 |  |  |  | 188,417 |
Accrued bonuses |  |  | 294,713 |  |  |  | 169,262 |
Deferred revenue/contract liabilities |  |  | 754,779 |  |  |  | 841,389 |
Asset purchase payable |  |  | 44,000 |  |  |  | 734,037 |
Lease liabilities, current portion |  |  | 441,687 |  |  |  | - |
Contingent consideration for acquisitions, current portion |  |  | 1,593,700 |  |  |  | 1,966,171 |
Total current liabilities |  |  | 3,771,678 |  |  |  | 4,239,415 |
Long term liabilities |  |  |  |  |  |  |  |
Contingent consideration for acquisitions, net of current portion |  |  | 8,461,100 |  |  |  | 5,340,800 |
Lease liabilities, net of current portion |  |  | 517,647 |  |  |  | - |
Total liabilities |  |  | 12,750,425 |  |  |  | 9,580,215 |
Commitments and contingencies |  |  | - |  |  |  | - |
Stockholders’ Equity |  |  |  |  |  |  |  |
Preferred Stock, par value $0.001 per share, 20 million shares authorized; 0 shares issued and outstanding |  |  | - |  |  |  | - |
Common Stock, par value $0.001 per share, 300 million shares authorized; 13,966,007 and 12,747,624 issued and outstanding |  |  | 13,968 |  |  |  | 12,749 |
Additional paid-in capital |  |  | 63,069,423 |  |  |  | 56,885,815 |
Accumulated deficit |  |  | (32,156,057 | ) |  |  | (28,081,695 | )
Total stockholders’ equity |  |  | 30,927,334 |  |  |  | 28,816,869 |
Total liabilities and stockholders’ equity |  | $ | 43,677,759 |  |  | $ | 38,397,084 |

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

5

THE GLIMPSE GROUP, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

|  | 2022 |  |  | 2021 |  |  | 2022 |  |  | 2021 |
|  | For the Three Months Ended |  |  | For the Six Months Ended |
|  | December 31, |  |  | December 31, |
|  | 2022 |  |  | 2021 |  |  | 2022 |  |  | 2021 |
Revenue |  |  |  |  |  |  |  |  |  |  |  |
Software services |  | $ | 2,886,458 |  |  | $ | 1,613,195 |  |  | $ | 6,748,972 |  |  | $ | 2,417,913 |
Software license/software as a service |  |  | 64,089 |  |  |  | 76,807 |  |  |  | 152,599 |  |  |  | 294,622 |
Total Revenue |  |  | 2,950,547 |  |  |  | 1,690,002 |  |  |  | 6,901,571 |  |  |  | 2,712,535 |
Cost of goods sold |  |  | 875,281 |  |  |  | 212,254 |  |  |  | 2,089,878 |  |  |  | 357,641 |
Gross Profit |  |  | 2,075,266 |  |  |  | 1,477,748 |  |  |  | 4,811,693 |  |  |  | 2,354,894 |
Operating expenses: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Research and development expenses |  |  | 2,532,646 |  |  |  | 1,190,490 |  |  |  | 4,535,025 |  |  |  | 2,179,874 |
General and administrative expenses |  |  | 1,260,675 |  |  |  | 1,130,446 |  |  |  | 2,636,000 |  |  |  | 1,889,343 |
Sales and marketing expenses |  |  | 1,934,589 |  |  |  | 665,677 |  |  |  | 3,678,828 |  |  |  | 1,170,364 |
Amortization of acquisition intangible assets |  |  | 541,714 |  |  |  | 66,663 |  |  |  | 985,681 |  |  |  | 87,495 |
Change in fair value of acquisition contingent consideration |  |  | (5,425,998 | ) |  |  | - |  |  |  | (2,822,600 | ) |  |  | - |
Total operating expenses |  |  | 843,626 |  |  |  | 3,053,276 |  |  |  | 9,012,934 |  |  |  | 5,327,076 |
Income (loss) from operations before other income (expense) |  |  | 1,231,640 |  |  |  | (1,575,528 | ) |  |  | (4,201,241 | ) |  |  | (2,972,182 | )
Other income (expense) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest income |  |  | 76,725 |  |  |  | 134 |  |  |  | 126,879 |  |  |  | 19,757 |
Loss on conversion of convertible notes |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (279,730 | )
Total other income (expense), net |  |  | 76,725 |  |  |  | 134 |  |  |  | 126,879 |  |  |  | (259,973 | )
Net Income (Loss) |  | $ | 1,308,365 |  |  | $ | (1,575,394 | ) |  | $ | (4,074,362 | ) |  | $ | (3,232,155 | )
Basic net income (loss) per share |  | $ | 0.09 |  |  | $ | (0.14 | ) |  | $ | (0.30 | ) |  | $ | (0.30 | )
Diluted net income (loss) per share |  | $ | 0.07 |  |  | $ | (0.14 | ) |  | $ | (0.30 | ) |  | $ | (0.30 | )
Weighted-average shares used to compute basic net income (loss) per share |  |  | 13,779,958 |  |  |  | 11,637,318 |  |  |  | 13,548,573 |  |  |  | 10,802,570 |
Weighted-average shares used to compute diluted net income (loss) per share |  |  | 19,264,307 |  |  |  | 11,637,318 |  |  |  | 13,548,573 |  |  |  | 10,802,570 |

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

6

THE GLIMPSE GROUP, INC.

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

FOR THE THREE MONTHS ENDED DECEMBER 31, 2022

(Unaudited)

|  | Shares |  |  | Amount |  |  | Capital |  |  | Deficit |  |  | Total |
|  | Common Stock |  |  | Additional Paid-In |  |  | Accumulated |  |  |  |
|  | Shares |  |  | Amount |  |  | Capital |  |  | Deficit |  |  | Total |
Balance as of October 1, 2022 |  |  | 13,593,734 |  |  | $ | 13,594 |  |  | $ | 60,864,978 |  |  | $ | (33,464,422 | ) |  | $ | 27,414,150 |
Common stock issued for satisfaction of prior year acquisition liability |  |  | 214,288 |  |  |  | 214 |  |  |  | 733,822 |  |  |  | - |  |  |  | 734,036 |
Common stock issued for purchase of intangible asset - technology |  |  | 71,430 |  |  |  | 72 |  |  |  | 326,364 |  |  |  | - |  |  |  | 326,436 |
Common stock issued for exercise of options |  |  | 2,000 |  |  |  | 3 |  |  |  | 4,998 |  |  |  | - |  |  |  | 5,001 |
Common stock issued for contingent acquisition obligation |  |  | 35,714 |  |  |  | 36 |  |  |  | 197,463 |  |  |  | - |  |  |  | 197,499 |
Stock based compensation expense |  |  | 48,841 |  |  |  | 49 |  |  |  | 795,015 |  |  |  | - |  |  |  | 795,064 |
Stock option-based board of directors expense |  |  | - |  |  |  | - |  |  |  | 146,783 |  |  |  | - |  |  |  | 146,783 |
Net income |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 1,308,365 |  |  |  | 1,308,365 |
Balance as of December 31, 2022 |  |  | 13,966,007 |  |  | $ | 13,968 |  |  | $ | 63,069,423 |  |  | $ | (32,156,057 | ) |  | $ | 30,927,334 |

THE GLIMPSE GROUP, INC.

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

FOR THE SIX MONTHS ENDED DECEMBER 31, 2022

(Unaudited)

|  | Common Stock |  |  | Additional Paid-In |  |  | Accumulated |  |  |  |
|  | Shares |  |  | Amount |  |  | Capital |  |  | Deficit |  |  | Total |
Balance as of July 1, 2022 |  |  | 12,747,624 |  |  | $ | 12,749 |  |  | $ | 56,885,815 |  |  | $ | (28,081,695 | ) |  | $ | 28,816,869 |
Common stock issued for acquisition |  |  | 714,286 |  |  |  | 714 |  |  |  | 2,845,430 |  |  |  | - |  |  |  | 2,846,144 |
Common stock issued for satisfaction of prior year acquisition liability |  |  | 214,288 |  |  |  | 214 |  |  |  | 733,822 |  |  |  | - |  |  |  | 734,036 |
Common stock issued for purchase of intangible asset - technology |  |  | 71,430 |  |  |  | 72 |  |  |  | 326,364 |  |  |  | - |  |  |  | 326,436 |
Common stock issued for exercise of options |  |  | 26,681 |  |  |  | 27 |  |  |  | 44,889 |  |  |  | - |  |  |  | 44,916 |
Common stock issued for contingent acquisition obligation |  |  | 142,857 |  |  |  | 143 |  |  |  | 515,927 |  |  |  | - |  |  |  | 516,070 |
Stock based compensation expense |  |  | 48,841 |  |  |  | 49 |  |  |  | 1,423,609 |  |  |  | - |  |  |  | 1,423,658 |
Stock option-based board of directors expense |  |  | - |  |  |  |  |  |  |  | 293,567 |  |  |  | - |  |  |  | 293,567 |
Net loss |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (4,074,362 | ) |  |  | (4,074,362 | )
Balance as of December 31, 2022 |  |  | 13,966,007 |  |  | $ | 13,968 |  |  | $ | 63,069,423 |  |  | $ | (32,156,057 | ) |  | $ | 30,927,334 |

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

7

THE GLIMPSE GROUP, INC.

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

FOR THE THREE MONTHS ENDED DECEMBER 31, 2021

(Unaudited)

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

THE GLIMPSE GROUP, INC.

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (DEFICIT)

FOR THE SIX MONTHS ENDED DECEMBER 31, 2021

(Unaudited)

|  | Common Stock |  |  | Additional Paid-In |  |  | Accumulated |  |  |  |
|  | Shares |  |  | Amount |  |  | Capital |  |  | Deficit |  |  | Total |
Balance as of July 1, 2021 |  |  | 7,579,285 |  |  | $ | 7,580 |  |  | $ | 20,936,050 |  |  | $ | (22,115,408 | ) |  | $ | (1,171,778 | )
Common stock issued in Initial Public Offering, net |  |  | 1,912,500 |  |  |  | 1,913 |  |  |  | 11,819,451 |  |  |  | - |  |  |  | 11,821,364 |
Common stock issued in Securities Purchase Agreement, net |  |  | 1,500,000 |  |  |  | 1,500 |  |  |  | 13,576,900 |  |  |  | - |  |  |  | 13,578,400 |
Common stock issued for convertible note conversion |  |  | 324,150 |  |  |  | 324 |  |  |  | 1,605,852 |  |  |  | - |  |  |  | 1,606,176 |
Common stock issued for acquisition |  |  | 388,342 |  |  |  | 388 |  |  |  | 5,049,612 |  |  |  | - |  |  |  | 5,050,000 |
Common stock issued for legacy acquisition obligation |  |  | 395,000 |  |  |  | 395 |  |  |  | 789,605 |  |  |  | - |  |  |  | 790,000 |
Common stock issued to vendors for compensation |  |  | 13,373 |  |  |  | 13 |  |  |  | 147,882 |  |  |  | - |  |  |  | 147,895 |
Common stock issued for exercise of options |  |  | 356,925 |  |  |  | 356 |  |  |  | 613,263 |  |  |  | - |  |  |  | 613,619 |
Stock based compensation expense |  |  | 10,841 |  |  |  | 11 |  |  |  | 1,050,252 |  |  |  | - |  |  |  | 1,050,263 |
Stock option-based board of directors expense |  |  | - |  |  |  | - |  |  |  | 175,868 |  |  |  | - |  |  |  | 175,868 |
Net loss |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (3,232,155 | ) |  |  | (3,232,155 | )
Net income (loss) |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (3,232,155 | ) |  |  | (3,232,155 | )
Balance as of December 31, 2021 |  |  | 12,480,416 |  |  | $ | 12,480 |  |  | $ | 55,764,735 |  |  | $ | (25,347,563 | ) |  | $ | 30,429,652 |

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

8

THE GLIMPSE GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

|  | 2022 |  |  | 2021 |
|  | For the Six Months Ended December 31, |
|  | 2022 |  |  | 2021 |
Cash flows from operating activities: |  |  |  |  |  |  |  |
Net loss |  | $ | (4,074,362 | ) |  | $ | (3,232,155 | )
Adjustments to reconcile net loss to net cash used in operating activities: |  |  |  |  |  |  |  |
Amortization and depreciation |  |  | 1,056,131 |  |  |  | 102,851 |
Common stock and stock option based compensation for employees and board of directors |  |  | 1,717,462 |  |  |  | 1,289,381 |
Acquisition contingent consideration fair value adjustment |  |  | (2,822,600 | ) |  |  | - |
Common stock issuance for additional asset acquisition consideration |  |  | 197,498 |  |  |  |  |
Issuance of common stock to vendors as compensation |  |  | - |  |  |  | 147,895 |
Amortization of right-to-use-assets |  |  | 190,052 |  |  |  |  |
Loss on conversion of convertible notes |  |  | - |  |  |  | 279,730 |
Changes in operating assets and liabilities: |  |  |  |  |  |  |  |
Accounts receivable |  |  | (373,055 | ) |  |  | (661,491 | )
Pre-offering costs |  |  | - |  |  |  | 470,136 |
Deferred costs/contract assets |  |  | 482,133 |  |  |  | 3,181 |
Prepaid expenses and other current assets |  |  | (130,336 | ) |  |  | (359,921 | )
Other assets |  |  | 30,100 |  |  |  | (64,000 | )
Accounts payable |  |  | (439,737 | ) |  |  | (238,736 | )
Accrued liabilities |  |  | (132,876 | ) |  |  | (63,090 | )
Accrued bonuses |  |  | 125,451 |  |  |  | (33,852 | )
Deferred revenue/contract liabilities |  |  | (2,123,680 | ) |  |  | 311 |
Lease liabilities |  |  | (196,435 | ) |  |  | - |
Net cash used in operating activities |  |  | (6,494,254 | ) |  |  | (2,359,760 | )
Cash flow from investing activities: |  |  |  |  |  |  |  |
Purchases of equipment |  |  | (119,588 | ) |  |  | (50,080 | )
Acquisitions, net of cash acquired |  |  | (2,478,756 | ) |  |  | (300,000 | )
Sale (purchase) of investments |  |  | 2,738 |  |  |  | (247,430 | )
Net cash used in investing activities |  |  | (2,595,606 | ) |  |  | (597,510 | )
Cash flows from financing activities: |  |  |  |  |  |  |  |
Proceeds from initial public offering, net |  |  | - |  |  |  | 11,821,364 |
Proceeds from securities purchase agreement, net |  |  | - |  |  |  | 13,578,400 |
Proceeds from exercise of stock options |  |  | 44,916 |  |  |  | 613,620 |
Net cash provided by financing activities |  |  | 44,916 |  |  |  | 26,013,384 |
Net change in cash, cash equivalents and restricted cash |  |  | (9,044,944 | ) |  |  | 23,056,114 |
Cash, cash equivalents and restricted cash, beginning of period |  |  | 18,249,666 |  |  |  | 1,771,929 |
Cash, cash equivalents and restricted cash, end of period |  | $ | 9,204,722 |  |  | $ | 24,828,043 |
Non-cash Investing and Financing activities: |  |  |  |  |  |  |  |
Common stock issued for acquisitions |  | $ | 2,846,144 |  |  | $ | 1,050,000 |
Common stock issued for satisfaction of prior year acquisition lability |  | $ | 734,036 |  |  | $ | - |
Common stock issued for purchase of intangible asset - technology |  | $ | 326,436 |  |  | $ | - |
Issuance of common stock for satisfaction of contingent liability, net of note extinguishment |  | $ | 318,571 |  |  | $ | - |
Extinguishment of note receivable for satisfaction of contingent liability |  | $ | 250,000 |  |  | $ | - |
Contingent acquisition consideration liability |  | $ | 6,139,000 |  |  | $ | - |
Lease liabilities arising from right-of-use assets |  | $ | 1,155,769 |  |  | $ | - |
Common stock issued and escrowed for acquisition |  | $ | - |  |  | $ | 4,000,000 |
Issuance of common stock for satisfaction of legacy acquisition liability |  | $ | - |  |  | $ | 790,000 |
Conversion of convertible promissory notes into common stock |  | $ | - |  |  | $ | 1,606,176 |
Issuance of warrants in connection with initial public offering |  | $ | - |  |  | $ | 522,360 |
Issuance of warrants in connection with securities purchase agreement |  | $ | - |  |  | $ | 8,797,546 |

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

9

THE GLIMPSE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

DECEMBER 31, 2022 AND 2021

NOTE 1. DESCRIPTION OF BUSINESS

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

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

The Company completed an initial public offering (“IPO”) of its common stock on the Nasdaq Capital Market Exchange (“Nasdaq”) on July 1, 2021, under the ticker VRAR. In addition, pursuant to a Securities Purchase Agreement (“SPA”) the Company sold additional common stock to certain institutional investors in November 2021. See Note 8.

NOTE 2. LIQUIDITY AND CAPITAL RESOURCES

The Company incurred losses of $4.07 million and $3.23 million during the six months ended December 31, 2022 and 2021, respectively. These losses were incurred as the Company funded operational expenses, primarily research and development, general and administrative, and sales and marketing costs.

The Company expects to be cash flow neutral in the upcoming calendar year 2023. Management believes that the Company’s existing balances of cash and cash equivalents and accounts receivable as of the issuance date of these financial statements, which are approximately $6.0 million (excluding an additional $2 million held in escrow for potential future Sector 5 Digital, LLC (“S5D”) acquisition performance payment obligations) and $1.50 million, respectively, will be sufficient to meet its anticipated cash requirements for at least twelve months from the date that these financial statements are issued. However, should the Company’s current cash and cash equivalents not be sufficient to support the development of its business to the point at which it has positive cash flows from operations, the Company plans to meet its future needs for additional capital through equity and/or debt financings. Equity financings may include sales of common stock, including the utilization of a $100 million S3 registration statement filed with the United State Securities and Exchange Commission (“SEC”) on October 28, 2022. Such financing may not be available on terms favorable to the Company, or at all. If the Company is unable to obtain adequate financing or financing on terms satisfactory to it when required, the Company’s ability to continue to support its business growth, scale its infrastructure, develop product enhancements and to respond to business challenges could be significantly impaired.

NOTE 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of presentation

The unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and the rules and regulations of the SEC. In the opinion of management, the unaudited consolidated financial statements have been prepared on the same basis as the annual consolidated financial statements and reflect all adjustments, which include only normal recurring adjustments, necessary to present fairly the financial position as of December 31, 2022, the results of operations for the three and six months ended December 31, 2022 and 2021, and cash flows for the six months ended December 31, 2022 and 2021. The financial data and other information disclosed in these notes to the interim financial statements related to these periods are unaudited. The results for the three and six months ended December 31, 2022 are not necessarily indicative of the results to be expected for the entire year ending June 30, 2023 or for any subsequent periods. The consolidated balance sheet at June 30, 2022 has been derived from the audited consolidated financial statements at that date.

10

THE GLIMPSE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

DECEMBER 31, 2022 AND 2021

Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) have been condensed or omitted pursuant to the Securities and Exchange Commission’s rules and regulations.

These unaudited consolidated financial statements should be read in conjunction with our audited consolidated financial statements and notes thereto for the year ended June 30, 2022.

Principles of Consolidation

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

Use of Accounting Estimates

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

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

Cash and Cash Equivalents, Restricted Cash

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

Restricted cash represents escrowed cash related to the Sector 5 Digital, LLC acquisition.

The components of cash, cash equivalents and restricted cash on the consolidated statements of cash flows as of December 31, 2022 and 2021 are as follows:

SCHEDULE OF COMPONENTS OF CASH, CASH EQUIVALENTS AND RESTRICTED CASH

|  | As of December 31, 2022 |  |  | As of December 31, 2021 |
Cash and cash equivalents |  | $ | 7,204,722 |  |  | $ | 24,828,043 |
Restricted cash |  |  | 2,000,000 |  |  |  | - |
Total |  | $ | 9,204,722 |  |  | $ | 24,828,043 |

Accounts Receivable

Accounts receivable consists primarily of amounts due from customers under normal trade terms. Allowances for uncollectible accounts are provided for based upon a variety of factors, including historical amounts written-off, an evaluation of current economic conditions, and assessment of customer collectability. As of December 31, 2022 and June 30, 2022 no allowance for doubtful accounts was recorded as all amounts were considered collectible.

11

THE GLIMPSE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

DECEMBER 31, 2022 AND 2021

Customer Concentration and Credit Risk

Two customers accounted for approximately 55% (29% and 26%, respectively) of the Company’s total gross revenues during the three months ended December 31, 2022. One of the same customers and a different customer accounted for approximately 75% (45% and 30%, respectively) of the Company’s total gross revenues during the three months ended December 31, 2021. Two customers accounted for approximately 56% (29% and 27%, respectively) of the Company’s total gross revenues during the six months ended December 31, 2022. One of the same customers and a different customer accounted for approximately 67% (49% and 18%, respectively) of the Company’s total gross revenues during the six months ended December 31, 2021.

Two customers accounted for approximately 45% (24% and 21%, respectively) of the Company’s accounts receivable at December 31, 2022. One of these customers and a different customer accounted for approximately 59% (37% and 22%, respectively) of the Company’s accounts receivable at June 30, 2022.

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

Business Combinations

The results of a business acquired in a business combination are included in the Company’s consolidated financial statements from the date of the acquisition. Purchase accounting results in assets and liabilities of an acquired business generally being recorded at their estimated fair values as of the acquisition date. Any excess consideration over the fair value of assets acquired and liabilities assumed is recognized as goodwill. Acquisition-related expenses are recognized separately from the business combination and are expensed as incurred.

The Company performs valuations of assets acquired and liabilities assumed and allocates the purchase price to its respective assets and liabilities. Determining the fair value of assets acquired and liabilities assumed may require management to use significant judgment and estimates, including the selection of valuation methodologies, estimates of future revenues, costs and cash flows. Estimates of fair value are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates. During the measurement period, which is typically one year from the acquisition date, if new information is obtained about facts and circumstances that existed as of the acquisition date, changes in the estimated values of the net assets recorded may change the amount of the purchase price allocated to goodwill. Upon the conclusion of the measurement period, any subsequent adjustments are recorded in the consolidated statement of operations. At times, the Company engages the assistance of valuation specialists in concluding on fair value measurements in connection with determining fair values of assets acquired and liabilities assumed in a business combination.

Further, during the year ended June 30, 2022, the Company early adopted ASU No. 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, which requires an acquirer to account for the related revenue contracts, acquired in the business acquisition, in accordance with ASC Topic 606 Revenue from Contracts with a Customer as if the Company had originated the contracts.

12

THE GLIMPSE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

DECEMBER 31, 2022 AND 2021

Intangible assets (other than Goodwill)

Intangibles represent the allocation of a portion of the acquisition’s purchase price (see Note 5). Intangibles are stated at allocated cost less accumulated amortization. Amortization is computed using the straight-line method over the estimated useful lives of the related assets. The Company reviews intangibles, being amortized, for impairment when current events indicate that the fair value may be less than the carrying value.

Goodwill

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

Fair Value of Financial Instruments

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

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

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

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

The Company classifies its cash equivalents and investments within Level 1 of the fair value hierarchy on the basis of valuations based on quoted prices for the specific securities in an active market.

The Company’s contingent consideration is categorized as Level 3 within the fair value hierarchy. Contingent consideration is recorded within contingent consideration, current, and contingent consideration, non-current, in the Company’s consolidated balance sheets as of December 31, and June 30, 2022. Contingent consideration has been recorded at its fair values using unobservable inputs and have included using the Monte Carlo simulation option pricing framework, incorporating contractual terms and assumptions regarding financial forecasts, discount rates, and volatility of forecasted revenue. The development and determination of the unobservable inputs for Level 3 fair value measurements and fair value calculations are the responsibility of the Company’s management with the assistance of a third-party valuation specialist.

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

13

THE GLIMPSE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

DECEMBER 31, 2022 AND 2021

Revenue Recognition

Nature of Revenues

The Company reports its revenues in two categories:

| ● | Software Services: Virtual and Augmented Reality projects, solutions and consulting services.

| ● | Software License and Software-as-a-Service (“SaaS”): Virtual and Augmented Reality software that is sold either as a license or as a SaaS subscription.

The Company applies the following steps in order to determine the appropriate amount of revenue to be recognized as it fulfills its obligations under each of its agreements:

| ● | identify the contract with a customer;

| ● | identify the performance obligations in the contract;

| ● | determine the transaction price;

| ● | allocate the transaction price to performance obligations in the contract;

| ● | recognize revenue as the performance obligation is satisfied;

| ● | determine that collection is reasonably assured.

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

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

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

For distinct performance obligations recognized over time, the Company records a contract asset (costs in excess of billings) when revenue is recognized prior to invoicing, or a contract liability (billings in excess of costs) when revenue is recognized subsequent to invoicing.

Significant Judgments

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

Disaggregation of Revenue

The Company generated revenue for the six months ended December 31, 2022 and 2021 by delivering: (i) Software Services, consisting primarily of VR/AR software projects, solutions and consulting services, and (ii) Software Licenses & SaaS, consisting primarily of VR and AR software licenses or SaaS. The Company currently generates its revenues primarily from customers in the United States.

14

THE GLIMPSE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

DECEMBER 31, 2022 AND 2021

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

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

Revenue for Software License is recognized at the point of time in which the Company delivers the software and customer accepts delivery. If there are significant contractually stated ongoing service obligations to be performed during the term of the Software License or SaaS contract, then revenues are recognized ratably over the term of the contract.

Timing of Revenue

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

SCHEDULE OF TIMING REVENUE RECOGNITION

|  | For the Three Months Ended |  |  | For the Six Months Ended |
|  | December 31, |  |  | December 31, |
|  | 2022 |  |  | 2021 |  |  | 2022 |  |  | 2021 |
Products and services transferred at a point in time |  | $ | 2,193,055 |  |  | $ | 1,634,998 |  |  | $ | 5,190,003 |  |  | $ | 2,590,749 |
Products and services transferred/recognized over time |  |  | 757,492 |  |  |  | 55,004 |  |  |  | 1,711,568 |  |  |  | 121,786 |
Total Revenue |  | $ | 2,950,547 |  |  | $ | 1,690,002 |  |  | $ | 6,901,571 |  |  | $ | 2,712,535 |

Remaining Performance Obligations

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

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

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

15

THE GLIMPSE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

DECEMBER 31, 2022 AND 2021

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 December 31, 2022, the Company had approximately $2.83 million in unfulfilled performance obligations.

Employee Stock-Based Compensation

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

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

Research and Development Costs

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

Earnings Per Share

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

16

THE GLIMPSE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

DECEMBER 31, 2022 AND 2021

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.

Recently Adopted Accounting Pronouncements

Leases

Adoption of the New Lease Accounting Standard

On July 1, 2022, the Company adopted ASU No. 2016-02, Leases (Topic 842), using the modified retrospective transition method applied at the adoption date of the standard. Results for reporting periods beginning after July 1, 2022 are presented under the new leasing standard, while prior period amounts are not adjusted and continue to be reported in accordance with the Company’s historic accounting. The Company has elected to utilize the package of practical expedients at the time of adoption, which allows the Company to (1) not reassess whether any expired or existing contracts are or contain leases, (2) not reassess the lease classification of any expired or existing leases, and (3) not reassess initial direct costs for any existing leases. The Company also has elected to utilize the short-term lease recognition exemption and, for those leases that qualified, the Company did not recognize right-of-use (“ROU”) assets or lease liabilities. As a result of adoption, the Company recorded ROU assets related to office facility leases which are recognized on the consolidated balance sheet and the associated lease liabilities are recognized on the consolidated balance sheet. The present value of the Company’s remaining lease payments, which comprise the lease liabilities, was estimated using an estimated incremental borrowing rate as of the adoption date.

The adoption resulted in no adjustment to July 1, 2022 accumulated deficit on the consolidated balance sheet.

As of July 1, 2022, the Company recorded right-of-use assets of $0.75 million, lease liabilities, current portion of $0.32 million and lease liabilities, net of current portion of $0.43 million. With the purchase of Brightline Interactive, LLC (“BLI”), on August 1, 2022, the Company added right-of-use assets of $0.41 million, lease liabilities, current portion of $0.12 million and lease liabilities, net of current portion of $0.29 million.

New Lease Accounting Policies

The Company determines if an arrangement is a lease at inception and determines the classification of the lease, as either operating or finance, at commencement.

For short-term leases with expected terms of less than 1 year, the Company does not recognize ROU assets or lease liabilities. The Company does not have any finance leases. ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As the rate implicit in the Company’s leases is not readily determinable, the Company uses an estimated incremental borrowing rate based on the information available at the lease commencement date in determining the present value of lease payments. The Company estimates the incremental borrowing rate to reflect the profile of secured borrowing over the expected term of the leases based on the information available at the later of the initial date of adoption or the lease commencement date.

Recent Accounting Pronouncements

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

17

THE GLIMPSE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

DECEMBER 31, 2022 AND 2021

NOTE 4. ACQUISITION AND TECHNOLGY PURCHASE

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

The fair value allocation for the purchase price consideration paid at Closing (including subsequent post-closing adjustment) was recorded as follows:

SCHEDULE OF BUSINESS ACQUISITION PURCHASE PRICE CONSIDERATION

Purchase price consideration: |  |  |  |
Cash paid to members at Closing |  | $ | 2,494,213 |
Post-closing working capital adjustment |  |  | (185,501 | )
Company common stock fair value at Closing |  |  | 2,846,144 |
Fair value of contingent consideration to be achieved |  |  | 6,139,000 |
Total purchase price |  | $ | 11,293,856 |
Fair value allocation of purchase price: |  |  |  |
Cash and cash equivalents |  | $ | 15,560 |
Accounts receivable |  |  | 253,041 |
Deferred costs/contract assets |  |  | 552,625 |
Other assets |  |  | 90,000 |
Equipment, net |  |  | 55,580 |
Accounts payable and accrued expenses |  |  | (848,079 | )
Deferred revenue/contract liabilities |  |  | (2,037,070 | )
Intangible assets - customer relationships |  |  | 3,310,000 |
Intangible assets - technology |  |  | 880,000 |
Goodwill |  |  | 9,022,199 |
Total fair value allocation of purchase price |  | $ | 11,293,856 |

18

THE GLIMPSE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

DECEMBER 31, 2022 AND 2021

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

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

In accordance with GAAP, the fair value of the contingent consideration was remeasured at December 31, 2022, based on market conditions as of that date. The remeasurement resulted in a fair value amount at December 31, 2022 of $4.56 million, a decrease of approximately $1.58 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 6).

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 six months ended December 31, 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

|  | For the Six Months Ended |
|  | December 31, 2022 |
Revenue |  | $ | 6,904,000 |
Net Loss |  | $ | (4,225,000 | )

The pro forma net loss was adjusted to exclude approximately $0.27 million of acquisition-related costs incurred in 2022. The 2022 pro forma net loss includes a gain of approximately $1.58 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 six months ended December 31, 2022.

19

THE GLIMPSE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

DECEMBER 31, 2022 AND 2021

The Company recognized approximately $2.55 million in revenue and $0.50 million (inclusive of contingent consideration fair value adjustment gain of $1.58 million) of net income related to BLI since the acquisition Closing date of August 1, 2022 through December 31, 2022 in the consolidated statement of operations.

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

Technology Purchase

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

The Company issued 71,430 shares of the Company’s common stock valued at approximately $325,000 in full payment of the assignment, with no further consideration obligations thereto. The $325,000 was recorded as intangible assets - technology on the Company’s consolidated balance sheet as of December 31, 2022.

Certain IVR owners became employees of Glimpse after the assignment.

NOTE 5. INTANGIBLE ASSETS

Intangible assets, their respective amortization period, and accumulated amortization at December 31, 2022 are as follows:

SCHEDULE OF INTANGIBLE ASSETS, AMORTIZATION PERIOD AND ACCUMULATED AMORTIZATION

|  | As of December 31, 2022 |
|  | Value ($) |  |  | Amortization Period (Years) |
|  | AUGGD |  |  | XR Terra |  |  | S5D |  |  | PulpoAR |  |  | BLI |  |  | inciteVR |  |  | Total |  |  |  |
Intangible Assets |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Customer Relationships |  | $ | 250,000 |  |  | $ | - |  |  | $ | 2,820,000 |  |  | $ | - |  |  | $ | 3,310,000 |  |  | $ | - |  |  | $ | 6,380,000 |  |  |  | 3 -5 |
Technology |  |  | 250,000 |  |  |  | 300,000 |  |  |  | - |  |  |  | 925,000 |  |  |  | 880,000 |  |  |  | 326,435 |  |  |  | 2,681,435 |  |  |  | 3 |
Less: Accumulated Amortization |  |  | (229,152 | ) |  |  | (124,995 | ) |  |  | (517,000 | ) |  |  | (179,858 | ) |  |  | (398,055 | ) |  |  | (18,136 | ) |  |  | (1,467,196 | ) |  |  |  |
Intangible Assets, net |  | $ | 270,848 |  |  | $ | 175,005 |  |  | $ | 2,303,000 |  |  | $ | 745,142 |  |  | $ | 3,791,945 |  |  | $ | 308,299 |  |  | $ | 7,594,239 |  |  |  |  |

Intangible asset amortization expense for the three and six months ended December 31, 2022 was approximately $0.54 and $ 0.99 million, respectively.

Intangible asset amortization expense for the three and six months ended December 31, 2021 was approximately $0.07 and $ 0.09 million, respectively.

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

SCHEDULE OF INTANGIBLE ASSET AMORTIZATION EXPENSE

Remaining Fiscal Year Ended June 30, 2023 |  | $ | 1,102,000 |
Fiscal Year Ended June 30, 2024 |  | $ | 2,203,000 |
Fiscal Year Ended June 30, 2025 |  | $ | 1,957,000 |
Fiscal Year Ended June 30, 2026 |  | $ | 1,287,000 |
Fiscal Year Ended June 30, 2027 |  | $ | 991,000 |
Fiscal Year Ended June 30, 2028 |  | $ | 55,000 |

20

THE GLIMPSE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

DECEMBER 31, 2022 AND 2021

NOTE 6. FINANCIAL INSTRUMENTS

Cash and Cash Equivalents and Investments

The Company’s money market funds and investments (short term, investment grade corporate bonds) are categorized as Level 1 within the fair value hierarchy. As of December 31 and June 30, 2022, the Company’s cash and cash equivalents and investments were as follows:

SCHEDULE OF CASH AND CASH EQUIVALENTS AND INVESTMENTS

|  | As of December 31, 2022 |
|  | Cost |  |  | Unrealized Gain (Loss) |  |  | Fair Value |  |  | Cash and Cash Equivalents |  |  | Investments |
Cash |  | $ | 611,626 |  |  | $ | - |  |  |  |  |  |  | $ | 611,626 |  |  |  |  |
Level 1: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Money market funds |  |  | 6,593,096 |  |  |  | - |  |  |  | 6,593,096 |  |  |  | 6,593,096 |  |  |  |  |
Total cash and cash equivalents |  | $ | 7,204,722 |  |  | $ | - |  |  | $ | 6,593,096 |  |  | $ | 7,204,722 |  |  |  |  |
Level 1: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Investments |  | $ | 241,595 |  |  | $ | (5,019 | ) |  | $ | 236,576 |  |  |  |  |  |  | $ | 236,576 |

|  | As of June 30, 2022 |
|  | Cost |  |  | Unrealized Gain (Loss) |  |  | Fair Value |  |  | Cash and Cash Equivalents |  |  | Investments |
Cash |  | $ | 1,233,608 |  |  | $ | - |  |  |  |  |  |  | $ | 1,233,608 |  |  |  |  |
Level 1: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Money market funds |  |  | 15,016,058 |  |  |  | - |  |  |  | 15,016,058 |  |  |  | 15,016,058 |  |  |  |  |
Total cash and cash equivalents |  | $ | 16,249,666 |  |  | $ | - |  |  | $ | 15,016,058 |  |  | $ | 16,249,666 |  |  |  |  |
Level 1: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Investments |  | $ | 245,187 |  |  | $ | (5,873 | ) |  | $ | 239,314 |  |  |  |  |  |  | $ | 239,314 |

Contingent Consideration

As of December 31 and June 30, 2022, 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 December 31 and June 30, 2022 using unobservable inputs and have included using the Monte Carlo simulation model. This model incorporates revenue volatility, internal rate of return, and risk-free rate. The development and determination of the unobservable inputs for Level 3 fair value measurements and fair value calculations are the responsibility of the Company’s management with the assistance of a third-party valuation specialist.

As of December 31, 2022, the Company’s contingent consideration liabilities current and non-current balances were as follows:

SCHEDULE OF FAIR VALUE OF CONTINGENT CONSIDERATION

|  | As of December 31, 2022 |
|  | Contingent Consideration at Purchase Date |  |  | Changes in Fair Value |  |  | Fair Value |  |  | Contingent Consideration |
Level 3: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Contingent consideration, current - S5D |  | $ | 2,060,300 |  |  | $ | (1,437,000 | ) |  | $ | 623,300 |  |  | $ | 623,300 |
Contingent consideration, current - BLI |  |  | 1,841,100 |  |  |  | (870,700 | ) |  |  | 970,400 |  |  |  | 970,400 |
Total contingent consideration, current portion |  | $ | 3,901,400 |  |  | $ | (2,307,700 | ) |  | $ | 1,593,700 |  |  | $ | 1,593,700 |
Level 3: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Contingent consideration, non-current - S5D |  | $ | 7,108,900 |  |  | $ | (2,238,400 | ) |  | $ | 4,870,500 |  |  | $ | 4,870,500 |
Contingent consideration, non-current - BLI |  |  | 4,297,900 |  |  |  | (707,300 | ) |  |  | 3,590,600 |  |  |  | 3,590,600 |
Total contingent consideration, net of current portion |  | $ | 11,406,800 |  |  | $ | (2,945,700 | ) |  | $ | 8,461,100 |  |  | $ | 8,461,100 |

21

THE GLIMPSE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

DECEMBER 31, 2022 AND 2021

A summary of the quantitative significant inputs used to value S5D’s contingent consideration as of December 31, 2022 was: revenue volatility of 61.4%, weighted average cost of capital discount rate of 15.8% and risk-free rate of 4.4%. The market price of the Company’s common stock as of December 31, 2022 and revenue projections were also used.

A summary of the quantitative significant inputs used to value BLI’s contingent consideration as of December 31, 2022 was: revenue volatility of 70.8%, weighted average cost of capital discount rate of 15.5% and risk-free rate of 4.3%. The market price of the Company’s common stock as of December 31, 2022 and revenue projections were also used.

The change in fair value of contingent consideration for the three and six months ended December 31, 2022 was a gain of approximately $5.43 and $2.82 million, respectively, included as change in fair value of acquisition contingent consideration in the consolidated statements of operations. This was driven by a decrease in the Company’s common stock price between the measurement dates and revisions to revenue projections.

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

|  | As of June 30, 2022 |
|  | Contingent Consideration at Purchase Date |  |  | Changes in Fair Value |  |  | Fair Value |  |  | Contingent Consideration |
Level 3: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Contingent consideration, current - S5D |  | $ | 2,060,300 |  |  | $ | (662,700 | ) |  | $ | 1,397,600 |  |  | $ | 1,397,600 |
Contingent consideration, current - AUGGD |  |  | - |  |  |  | 568,571 |  |  |  | 568,571 |  |  |  | 568,571 |
Total contingent consideration, current |  | $ | 2,060,300 |  |  | $ | (94,129 | ) |  | $ | 1,966,171 |  |  | $ | 1,966,171 |
Level 3: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Contingent consideration, non-current - S5D |  | $ | 7,108,900 |  |  | $ | (1,768,100 | ) |  | $ | 5,340,800 |  |  | $ | 5,340,800 |

22

THE GLIMPSE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

DECEMBER 31, 2022 AND 2021

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

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

The was no change in fair value of contingent consideration for the three and six months ended December 31, 2021.

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

At December 31 and June 30, 2022, deferred costs/contract assets totaling $109,739 and $39,484, respectively, consists of costs deferred under contracts not completed and recognized at a point in time ($109,739 and $35,469, respectively), and costs in excess of billings under contracts not completed and recognized over time ($0 and $4,015, respectively). At December 31 and June 30, 2022, deferred revenue/contract liabilities, totaling $754,779 and $841,389, respectively, consists of revenue deferred under contracts not completed and recognized at a point in time ($452,864 and $533,214, respectively), and costs in excess of billings under contracts not completed and recognized over time ($301,915 and $308,175 respectively).

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

|  | As of December 31, 2022 |
Cost incurred on uncompleted contracts |  | $ | 129,043 |
Estimated earnings |  |  | 277,942 |
Earned revenue |  |  | 406,985 |
Less: billings to date |  |  | 708,900 |
Billings in excess of costs, net |  | $ | (301,915 | )
Balance Sheet Classification |  |  |  |
Contract assets includes, costs and estimated earnings in excess of billings on uncompleted contracts |  | $ | - |
Contract liabilities includes, billings in excess of costs and estimated earnings on uncompleted contracts |  |  | (301,915 | )
Billings in excess of costs, net |  | $ | (301,915 | )

23

THE GLIMPSE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

DECEMBER 31, 2022 AND 2021

NOTE 8. EQUITY

Initial Public Offering (“IPO”)

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

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

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

In conjunction with the IPO, outstanding convertible promissory notes totaling approximately $1.43 million were satisfied in full through the issuance of 324,150 shares of common stock. A loss of approximately $0.28 million was recorded on this conversion at the time of the IPO.

Securities Purchase Agreement (“SPA”)

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

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

Common Stock Issued

Common stock issued for Acquisitions and Technology Purchase

During the six months ended December 31, 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); 214,000 shares of common stock, valued at $0.73 million as consideration for the acquisition of PulpoAR; and 71,000 shares of common stock, valued at $0.33 million, per the assignment agreement with inciteVR.

During the six months ended December 31, 2021 the Company issued approximately 111,000 shares of common stock, valued at $1.05 million, as consideration for the acquisition of AUGGD and XR Terra. In addition, the Company issued approximately 277,000 shares of common stock, valued at $4.0 million, as consideration for the acquisition of S5D.

24

THE GLIMPSE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

DECEMBER 31, 2022 AND 2021

Common stock issued for contingent acquisition obligations

During the six months ended December 31, 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 (see Note 10), related to the acquisition of AUGGD (see Note 11). In addition, the Company issued approximately 36,000 shares of common stock, valued at $0.20 million, for the achievement of a revenue performance milestone by XR Terra.

During the six months ended December 31, 2021 the Company issued 395,000 shares of common stock to satisfy pre-IPO legacy acquisition obligations of $0.79 million.

Common stock issued for Exercise of Stock Options

During the six months ended December 31, 2022 and 2021, the Company issued approximately 27,000 and 357,000 shares of common stock in cash and cashless transactions, respectively, upon exercise of the respective option grants and realized cash proceeds of approximately $0.04 million and $0.61 million, respectively.

Common stock issued to Vendors

During the six months ended December 31, 2021, the Company issued approximately 13,000 shares of common stock, to various vendors for services performed and recorded share-based compensation of approximately $0.15 million.

Employee Stock-Based Compensation

The Company’s 2016 Equity Incentive Plan (the “Plan”), as amended, has approximately 10.6 million common shares reserved for issuance. As of December 31, 2022, there were approximately 5.0 million shares available for issuance under the Plan.

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

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

SCHEDULE OF STOCK OPTION FAIR VALUE ASSUMPTIONS

|  | 2022 |  |  | 2021 |  |  | 2022 |  |  | 2021 |
|  | For the Three Months Ended December 31, |  |  | For the Six Months Ended December 31, |
|  | 2022 |  |  | 2021 |  |  | 2022 |  |  | 2021 |
Weighted average expected terms (in years) |  |  | 6.0 |  |  |  | 5.6 |  |  |  | 6.0 |  |  |  | 5.5 |
Weighted average expected volatility |  |  | 100.7 | % |  |  | 229.3 | % |  |  | 101.2 | % |  |  | 171.4 | %
Weighted average risk-free interest rate |  |  | 3.8 | % |  |  | 1.2 | % |  |  | 3.1 | % |  |  | 1.0 | %
Expected dividend yield |  |  | 0.0 | % |  |  | 0.0 | % |  |  | 0.0 | % |  |  | 0.0 | %

The grant date fair value, for options granted during the six months ended December 31, 2022 and 2021 was approximately $1.57 million and $1.29 million, respectively.

25

THE GLIMPSE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

DECEMBER 31, 2022 AND 2021

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

SUMMARY OF STOCK OPTION ACTIVITY

|  |  |  |  | Weighted Average |  |  |  |
|  |  |  |  |  |  |  | Remaining |  |  |  |
|  |  |  |  | Exercise |  |  | Contractual |  |  | Intrinsic |
|  | Options |  |  | Price |  |  | Term (Yrs) |  |  | Value |
Outstanding at July 1, 2022 |  |  | 4,484,616 |  |  | $ | 4.68 |  |  |  | 7.0 |  |  | $ | 2,404,249 |
Options Granted |  |  | 414,077 |  |  |  | 7.00 |  |  |  | 9.7 |  |  |  | - |
Options Exercised |  |  | (77,853 | ) |  |  | 3.87 |  |  |  | 6.5 |  |  |  | 94,715 |
Options Forfeited / Cancelled |  |  | (194,594 | ) |  |  | 7.95 |  |  |  | 8.8 |  |  |  | 20,074 |
Outstanding at December 31, 2022 |  |  | 4,626,246 |  |  | $ | 4.75 |  |  |  | 6.6 |  |  | $ | 912,271 |
Exercisable at December 31, 2022 |  |  | 3,507,922 |  |  | $ | 3.64 |  |  |  | 5.8 |  |  | $ | 912,271 |

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

The intrinsic value of stock options at December 31, 2022 and 2021 was computed using a fair market value of the common stock of $3.03/share and $9.86/share, respectively.

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

SCHEDULE OF STOCK OPTION-BASED EXPENSE

|  | 2022 |  |  | 2021 |  |  | 2022 |  |  | 2021 |
|  | For the Three Months Ended |  |  | For the Six Months Ended |
|  | December 31, |  |  | December 31, |
|  | 2022 |  |  | 2021 |  |  | 2022 |  |  | 2021 |
Stock option-based expense : |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Research and development expenses |  | $ | 383,617 |  |  | $ | 257,911 |  |  | $ | 771,057 |  |  | $ | 605,508 |
General and administrative expenses |  |  | 34,774 |  |  |  | 57,929 |  |  |  | 89,048 |  |  |  | 124,572 |
Sales and marketing expenses |  |  | 133,621 |  |  |  | 112,847 |  |  |  | 320,281 |  |  |  | 240,839 |
Cost of goods sold |  |  | 61 |  |  |  | 21,394 |  |  |  | 755 |  |  |  | 44,158 |
Board option expense |  |  | 146,783 |  |  |  | 89,686 |  |  |  | 293,567 |  |  |  | 178,305 |
Total |  | $ | 698,856 |  |  | $ | 539,767 |  |  | $ | 1,474,708 |  |  | $ | 1,193,382 |

At December 31, 2022 total unrecognized compensation expense to employees, board members and vendors related to stock options was approximately $7.44 million, and is expected to be recognized over a weighted average period of 2.18 years.

26

THE GLIMPSE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

DECEMBER 31, 2022 AND 2021

NOTE 9. EARNINGS PER SHARE

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

SCHEDULE OF COMPUTATION OF BASIC AND DILUTED NET LOSS PER SHARE

|  | For the Three Months Ended |  |  | For the Six Months Ended |
|  | December 31, |  |  | December 31, |
Numerator: |  |  |  |  |  |  |  | 2022 |  |  | 2021 |
Net income (loss) |  | $ | 1,308,365 |  |  | $ | (1,575,394 | ) |  | $ | (4,074,362 | ) |  | $ | (3,232,155 | )
Denominator: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Weighted-average common shares outstanding for basic net income (loss) per share |  |  | 13,779,958 |  |  |  | 11,637,318 |  |  |  | 13,548,573 |  |  |  | 10,802,570 |
Weighted-average common shares outstanding for diluted net income (loss) per share |  |  | 19,264,307 |  |  |  | 11,637,318 |  |  |  | 13,548,573 |  |  |  | 10,802,570 |
Basic net income (loss) per share |  | $ | 0.09 |  |  | $ | (0.14 | ) |  | $ | (0.30 | ) |  | $ | (0.30 | )
Diluted net income (loss) per share |  | $ | 0.07 |  |  | $ | (0.14 | ) |  | $ | (0.30 | ) |  | $ | (0.30 | )

Potentially dilutive securities that were not included in the calculation of basic net income (loss) per share attributable to common stockholders for the three months ended December 31, 2021 and for the six months ended December 31, 2022 and 2021, because their effect would be anti-dilutive are as follows (in common equivalent shares):

SCHEDULE OF POTENTIALLY DILUTIVE SECURITIES

|  | At December 31, 2022 |  |  | At December 31, 2021 |
Stock Options |  |  | 4,626,246 |  |  |  | 3,974,702 |
Warrants |  |  | 837,500 |  |  |  | 837,500 |
Total |  |  | 5,463,746 |  |  |  | 4,812,202 |

NOTE 10. RELATED PARTY TRANSACTIONS

Augmented Reality Investments Pty Ltd (“ARI”)

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

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

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

27

THE GLIMPSE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

DECEMBER 31, 2022 AND 2021

NOTE 11. COMMITMENTS AND CONTINGENCIES

Lease Costs

The Company made cash payments for all operating leases for the six months ended December 31, 2022, of approximately $0.28 million, which was included in cash flows from operating activities within the consolidated statements of cash flows. As of December 31, 2022, the Company’s operating leases have a weighted average remaining lease term of 1.8 years and weighted average discount rate of 7.9%.

The Company made cash payments for all operating leases for the six months ended December 31, 2021, of approximately $0.18 million, which was included in cash flows from operating activities within the consolidated statements of cash flows.

The total rent expense for all operating leases for the three and six months ended December 31, 2022, was approximately $0.14 million and $0.27 million, respectively, with short-term leases making up an immaterial portion of such expenses.

The total rent expense for all operating leases for the three and six months ended December 31, 2021, was approximately $0.09 million and $0.18 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 4 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 December 31, 2022 are as follows:

SCHEDULE OF UNDISCOUNTED LEASE PAYMENTS

Years Ended June 30, |  |  |
2023 (six months) |  | $ | 223,000 |
2024 |  |  | 447,000 |
2025 |  |  | 319,000 |
2026 |  |  | 96,000 |
Total future minimum lease commitments, including short-term leases |  |  | 1,085,000 |
Less: future minimum lease payments of short -term leases |  |  | (1,000 | )
Less: imputed interest |  |  | (124,000 | )
Present value of future minimum lease payments, excluding short term leases |  | $ | 960,000 |
Current portion of operating lease liabilities |  | $ | 442,000 |
Non-current portion of operating lease liabilities |  |  | 518,000 |
Total operating lease liability |  | $ | 960,000 |

Contingent Consideration for Acquisitions

Contingent consideration for acquisitions, consists of the following as of December 31 and June 30, 2022 respectively:

SCHEDULE OF CONTINGENT CONSIDERATION FOR ACQUISITIONS

|  | As of December 31, |  |  | As of June 30, |
|  | 2022 |  |  | 2022 |
S5D, current portion |  | $ | 623,300 |  |  | $ | 1,397,600 |
BLI, current portion (see Note 4) |  |  | 970,400 |  |  |  | - |
AUGGD |  |  | - |  |  |  | 568,571 |
Subtotal current portion |  |  | 1,593,700 |  |  |  | 1,966,171 |
S5D, net of current portion |  |  | 4,870,500 |  |  |  | 5,340,800 |
BLI, net of current portion (see Note 4) |  |  | 3,590,600 |  |  |  | - |
Total contingent consideration for acquisitions |  | $ | 10,054,800 |  |  | $ | 7,306,971 |

AUGGD

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

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

Potential Future Distributions Upon Divestiture or Sale

Upon a divestiture or sale of a subsidiary company, the Company is contractually obligated to distribute up to 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.

COVID-19

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

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

NOTE 12. SUBSEQUENT EVENT

On February 8, 2023, the Company’s Board of Directors and Compensation Committee authorized the Company to issue an aggregate of 2.2 million stock options, at a strike price of $7.00 per share, to three executive founders of the Company, the vesting of which shall occur over four years from issuance and is primarily based upon the achievement of significant annual revenue and stock price growth targets. These stock options have not been issued as of the date of this report, and will be detailed in an 8K upon issuance.

28

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, 2022, which are included in the Form 10-K filed with the Securities and Exchange Commission (the “SEC”) on September 28, 2022. 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 a Virtual (“VR”) and Augmented (“AR”) Reality platform company, comprised of a diversified group of wholly-owned and operated VR and AR companies, providing enterprise-focused software, services and solutions. We believe that we offer significant exposure to the rapidly growing and potentially transformative VR and AR markets, while mitigating downside risk via our diversified model and ecosystem.

We were incorporated as The Glimpse Group, Inc. in the State of Nevada, on June 15, 2016 and are headquartered in New York, New York. We currently own and operate numerous subsidiary companies (“Subsidiary Companies”, “Subsidiaries”) operating under the following business names as represented in the organizational chart below:

29

Significant Transactions

None since last filed 10Q.

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

Results of Operations

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

Summary P&L

|  | For the Three Months Ended |  |  |  |  |  | For the Six Months Ended |  |  |  |
|  | December 31, |  |  | Change |  |  | December 31, |  |  | Change |
|  | 2022 |  |  | 2021 |  |  | $ |  |  | % |  |  | 2022 |  |  | 2021 |  |  | $ |  |  | % |
|  | (in millions) |  |  |  |  |  | (in millions) |  |  |  |
Revenue |  | $ | 2.95 |  |  | $ | 1.69 |  |  | $ | 1.26 |  |  |  | 75 | % |  | $ | 6.90 |  |  | $ | 2.71 |  |  | $ | 4.19 |  |  |  | 155 | %
Cost of Goods Sold |  |  | 0.88 |  |  |  | 0.21 |  |  |  | 0.67 |  |  |  | 319 | % |  |  | 2.09 |  |  |  | 0.36 |  |  |  | 1.73 |  |  |  | 481 | %
Gross Profit |  |  | 2.07 |  |  |  | 1.48 |  |  |  | 0.59 |  |  |  | 40 | % |  |  | 4.81 |  |  |  | 2.35 |  |  |  | 2.46 |  |  |  | 105 | %
Total Operating Expenses |  |  | 0.84 |  |  |  | 3.05 |  |  |  | (2.21 | ) |  |  | -72 | % |  |  | 9.01 |  |  |  | 5.32 |  |  |  | 3.69 |  |  |  | 69 | %
Income (Loss) from Operations before Other Income (Expense) |  |  | 1.23 |  |  |  | (1.57 | ) |  |  | 2.80 |  |  |  | 178 | % |  |  | (4.20 | ) |  |  | (2.97 | ) |  |  | (1.23 | ) |  |  | 41 | %
Other Income (Expense), net |  |  | 0.08 |  |  |  | - |  |  |  | 0.08 |  |  |  | N/A |  |  |  | 0.13 |  |  |  | (0.26 | ) |  |  | 0.39 |  |  |  | 150 | %
Net Income (Loss) |  | $ | 1.31 |  |  | $ | (1.57 | ) |  | $ | 2.88 |  |  |  | 183 | % |  | $ | (4.07 | ) |  | $ | (3.23 | ) |  | $ | (0.84 | ) |  |  | 26 | %

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Revenue

|  | For the Three Months Ended |  |  |  |  |  | For the Six Months Ended |  |  |  |
|  | December 31, |  |  | Change |  |  | December 31, |  |  | Change |
|  | 2022 |  |  | 2021 |  |  | $ |  |  | % |  |  | 2022 |  |  | 2021 |  |  | $ |  |  | % |
|  | (in millions) |  |  |  |  |  | (in millions) |  |  |  |
Software Services |  | $ | 2.89 |  |  | $ | 1.61 |  |  | $ | 1.28 |  |  |  | 80 | % |  | $ | 6.75 |  |  | $ | 2.42 |  |  | $ | 4.33 |  |  |  | 179 | %
Software License/Software as a Service |  |  | 0.06 |  |  |  | 0.08 |  |  |  | (0.02 | ) |  |  | -25 | % |  |  | 0.15 |  |  |  | 0.29 |  |  |  | (0.14 | ) |  |  | -48 | %
Total Revenue |  | $ | 2.95 |  |  | $ | 1.69 |  |  | $ | 1.26 |  |  |  | 75 | % |  | $ | 6.90 |  |  | $ | 2.71 |  |  | $ | 4.19 |  |  |  | 155 | %

Total revenue for the three months ended December 31, 2022 was approximately $2.95 million compared to approximately $1.69 million for the three months ended December 31, 2021, an increase of 75%. Total revenue for the six months ended December 31, 2022 was approximately $6.90 million compared to approximately $2.71 million for the six months ended December 31, 2021, an increase of 155%. The increase for both periods reflect the addition of several subsidiary companies after December 31, 2021 and new customers.

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

| ● | Software Services revenues are primarily comprised of VR/AR projects, services related to our software licenses and consulting retainers.
| ● | Software License revenues are comprised of the sale of our internally developed VR/AR software as licenses or as software-as-a-service (“SaaS”).

For the three months ended December 31, 2022, Software Services revenue was approximately $2.89 million compared to approximately $1.61 million for the three months ended December 31, 2021, an increase of approximately 80%. For the six months ended December 31, 2022, Software Services revenue was approximately $6.75 million compared to approximately $2.42 million for the six months ended December 31, 2021, an increase of approximately 179%. The increase for both periods reflect the addition of several subsidiary companies after December 31, 2021 and new customers.

For the three months ended December 31, 2022, Software License revenue was approximately $0.06 million compared to approximately $0.08 million for the three months ended December 31, 2021, consistent period over period. For the six months ended December 31, 2022, Software License revenue was approximately $0.15 million compared to approximately $0.29 million for the six months ended December 31, 2021, reflecting a long term license agreement in the 2021 period. As the VR and AR industries continue to mature, we expect our Software License revenue to continue to grow on an absolute basis and as an overall percentage of total revenue.

For the three months ended December 31, 2022, non-project revenue (i.e., VR/AR Software and Services revenue only), was approximately $0.93 million compared to approximately $0.85 million for the three months ended December 31, 2021, an increase of approximately 9%, reflecting organic growth and the addition of new customers. For the three months ended December 31, 2022, non-project revenue accounted for approximately 32% of total revenues compared to approximately 50% for the three months ended December 31, 2021. For the six months ended December 31, 2022, non-project revenue (i.e., VR/AR Software and Services revenue only), was approximately $2.21 million compared to approximately $1.70 million for the six months ended December 31, 2021, an increase of approximately 30%, reflecting organic growth and the addition of new customers. For the six months ended December 31, 2022, non-project revenue accounted for approximately 32% of total revenues compared to approximately 63% for the six months ended December 31, 2021. The decrease in both periods reflects the additions of Brightline Interactive (“BLI”) and Sector 5 Digital (“S5D”), which primarily generate project revenue, representing an increased portion of total revenue.

Customer Concentration

Two customers accounted for approximately 55% (29% and 26%, respectively) of the Company’s total gross revenues during the three months ended December 31, 2022. One of the same customers and a different customer accounted for approximately 75% (45% and 30%, respectively) of the Company’s total gross revenues during the three months ended December 31, 2021. Two customers accounted for approximately 56% (29% and 27%, respectively) of the Company’s total gross revenues during the six months ended December 31, 2022. One of the same customers and a different customer accounted for approximately 67% (49% and 18%, respectively) of the Company’s total gross revenues during the six months ended December 31, 2021.

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

Gross Profit

|  | For the Three Months Ended |  |  |  |  |  | For the Six Months Ended |  |  |  |
|  | December 31, |  |  | Change |  |  | December 31, |  |  | Change |
|  | 2022 |  |  | 2021 |  |  | $ |  |  | % |  |  | 2022 |  |  | 2021 |  |  | $ |  |  | % |
|  | (in millions) |  |  |  |  |  | (in millions) |  |  |  |
Revenue |  | $ | 2.95 |  |  | $ | 1.69 |  |  | $ | 1.26 |  |  |  | 75 | % |  | $ | 6.90 |  |  | $ | 2.71 |  |  | $ | 4.19 |  |  |  | 155 | %
Cost of Goods Sold |  |  | 0.88 |  |  |  | 0.21 |  |  |  | 0.67 |  |  |  | 319 | % |  | $ | 2.09 |  |  |  | 0.36 |  |  |  | 1.73 |  |  |  | 481 | %
Gross Profit |  |  | 2.07 |  |  |  | 1.48 |  |  |  | 0.59 |  |  |  | 40 | % |  |  | 4.81 |  |  |  | 2.35 |  |  |  | 2.46 |  |  |  | 105 | %
Gross Profit Margin |  |  | 70 | % |  |  | 88 | % |  |  |  |  |  |  |  |  |  |  | 70 | % |  |  | 87 | % |  |  |  |  |  |  |  |

Gross profit was approximately 70% for the three months ended December 31, 2022 compared to approximately 88% for the three months ended December 31, 2021. Gross profit was approximately 70% for the six months ended December 31, 2022 compared to approximately 87% for the six months ended December 31, 2021. The decrease for both periods was driven by the addition of BLI and S5D lower margin project revenue.

For the three months ended December 31, 2022 and 2021, internal staffing was approximately $0.50 million (57% of total cost of goods sold) and approximately $0.18 million (86% of total cost of goods sold), respectively. For the six months ended December 31, 2022 and 2021, internal staffing was approximately $1.25 million (60% of total cost of goods sold) and approximately $0.32 million (89% of total cost of goods sold), respectively. The decrease for both periods in internal staffing as a percentage of total cost of goods sold was due to the addition of BLI and S5D, which have a higher utilization of external sources.

Operating Expenses

|  | For the Three Months Ended |  |  |  |  |  | For the Six Months Ended |  |  |  |
|  | December 31, |  |  | Change |  |  | December 31, |  |  | Change |
|  | 2022 |  |  | 2021 |  |  | $ |  |  | % |  |  | 2022 |  |  | 2021 |  |  | $ |  |  | % |
|  | (in millions) |  |  |  |  |  | (in millions) |  |  |  |
Research and development expenses |  | $ | 2.53 |  |  | $ | 1.19 |  |  | $ | 1.34 |  |  |  | 113 | % |  | $ | 4.53 |  |  | $ | 2.18 |  |  | $ | 2.35 |  |  |  | 108 | %
General and administrative expenses |  |  | 1.26 |  |  |  | 1.13 |  |  |  | 0.13 |  |  |  | 12 | % |  |  | 2.63 |  |  |  | 1.89 |  |  |  | 0.74 |  |  |  | 39 | %
Sales and marketing expenses |  |  | 1.93 |  |  |  | 0.66 |  |  |  | 1.27 |  |  |  | 192 | % |  |  | 3.68 |  |  |  | 1.17 |  |  |  | 2.51 |  |  |  | 215 | %
Amortization of acquisition intangible assets |  |  | 0.54 |  |  |  | 0.07 |  |  |  | 0.47 |  |  |  | 671 | % |  |  | 0.99 |  |  |  | 0.08 |  |  |  | 0.91 |  |  |  | 1138 | %
Change in fair value of acquisition contingent consideration |  |  | (5.42 | ) |  |  | - |  |  |  | (5.42 | ) |  |  | N/A |  |  |  | (2.82 | ) |  |  | - |  |  |  | (2.82 | ) |  |  | N/A |
Total Operating Expenses |  | $ | 0.84 |  |  | $ | 3.05 |  |  | $ | (2.21 | ) |  |  | -72 | % |  | $ | 9.01 |  |  | $ | 5.32 |  |  | $ | 3.69 |  |  |  | 69 | %

Operating expenses for the three months ended December 31, 2022 were approximately $0.84 million compared to $3.05 million for the three months ended December 31, 2021, a decrease of approximately 72%. The decrease is driven by a gain in the change in fair value of contingent consideration for the S5D and BLI acquisitions; offset by expenses related to the addition of several new subsidiaries (which includes headcount, amortization of intangibles and professional fees related to the acquisitions) and employee headcount additions to support growth.

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Operating expenses for the six months ended December 31, 2022 were approximately $9.01 million compared to $5.32 million for the six months ended December 31, 2021, an increase of approximately 69%. The increase is driven by expenses related to the addition of several new subsidiaries (which includes headcount, amortization of intangibles and professional fees related to the acquisitions) and employee headcount additions to support growth; offset by a gain in the change in fair value of contingent consideration for the S5D and BLI acquisitions.

Research and Development

Research and development expenses for the three months ended December 31, 2022 were approximately $2.53 million compared to $1.19 million for the three months ended December 31, 2021, an increase of approximately 113%. Research and development expenses for the six months ended December 31, 2022 were approximately $4.53 million compared to $2.18 million for the six months ended December 31, 2021, an increase of approximately 108%. For both periods, this reflects the addition of several new subsidiaries and headcount additions to support growth. Going forward, we expect research and development costs to continue to increase as we continue to develop and commercialize our software products.

For the three months ended December 31, 2022, non-cash stock option expenses relating to research and development included approximately $0.38 million of employee compensation expenses, comprising approximately 15% of total research and development expenses. For the three months ended December 31, 2021, non-cash stock option expenses relating to research and development included approximately $0.26 million of employee compensation expenses, comprising approximately 22% of total research and development expenses. For the six months ended December 31, 2022, non-cash stock option expenses relating to research and development included approximately $0.77 million of employee compensation expenses, comprising approximately 17% of total research and development expenses. For the six months ended December 31, 2021, non-cash stock option expenses relating to research and development included approximately $0.61 million of employee compensation expenses, comprising approximately 28% of total research and development expenses. Over time, we expect non-cash stock options research and development expenses, as a percentage of the total related expenses, to continue to decrease as we utilize a larger portion of cash for compensation thereby minimizing dilution.

General and Administrative

General and administrative expenses for the three months ended December 31, 2022 were approximately $1.26 million compared to $1.13 million for the three months ended December 31, 2021, an increase of approximately 12%. General and administrative expenses for the six months ended December 31, 2022 were approximately $2.63 million compared to $1.89 million for the six months ended December 31, 2021, an increase of approximately 39%. The increase for both periods primarily reflects expenses related to the addition of several new subsidiaries (which includes headcount, professional fees related to the acquisitions and facility costs) and additional independent board members.

For the three months ended December 31, 2022, non-cash stock option expenses relating to general and administrative expenses included approximately $0.18 million of employee and board of directors expenses, comprising approximately 14% of total general and administrative expenses. For the three months ended December 31, 2021, non-cash stock option and common stock expenses relating to general and administrative expenses included approximately $0.24 million of employee, board of directors and vendor expenses, comprising approximately 21% of total general and administrative expenses. For the six months ended December 31, 2022, non-cash stock option expenses relating to general and administrative expenses included approximately $0.38 million of employee and board of directors expenses, comprising approximately 14% of total general and administrative expenses. For the six months ended December 31, 2021, non-cash stock option and common stock expenses relating to general and administrative expenses included approximately $0.46 million of employee, board of directors and vendor expenses, comprising approximately 24% of total general and administrative expenses. Over time, we expect non-cash stock options and common stock general and administrative expenses, as a percentage of the total related expenses, to continue to decrease as we utilize a larger portion of cash for compensation thereby minimizing dilution.

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Sales and Marketing

Sales and marketing expenses for the three months ended December 31, 2022 were approximately $1.93 million compared to $0.66 million for the three months ended December 31, 2021, an increase of approximately 192%. Sales and marketing expenses for the six months ended December 31, 2022 were approximately $3.68 million compared to $1.17 million for the six months ended December 31, 2021, an increase of approximately 215%. The increase for both periods reflect expenses related to the addition of several new subsidiaries and expansions to headcount and outside marketing firms to drive revenue growth. As our subsidiary companies continue to establish initial market traction and grow their revenue base, we expect to increase our business development and sales expenses.

For the three months ended December 31, 2022, non-cash stock option and common stock expenses relating to sales and marketing expenses included approximately $0.14 million of employee compensation expenses, comprising approximately 7% of total sales and marketing expenses. For the three months ended December 31, 2021, non-cash stock option and common stock expenses relating to sales and marketing expenses included approximately $0.20 million of employee, vendor and fee compensation expenses, comprising approximately 30% of total sales and marketing expenses. For the six months ended December 31, 2022, non-cash stock option and common stock expenses relating to sales and marketing expenses included approximately $0.52 million of employee compensation expenses, comprising approximately 14% of total sales and marketing expenses. For the six months ended December 31, 2021, non-cash stock option and common stock expenses relating to sales and marketing expenses included approximately $0.33 million of employee, vendor and fee compensation expenses, comprising approximately 28% of total sales and marketing expenses. Over time, we expect non-cash stock options and common stock sales and marketing expenses, as a percentage of the total related expenses, to continue to decrease as we utilize a larger portion of cash for compensation thereby minimizing dilution.

Amortization of Acquisition Intangible Assets

Amortization of acquisition intangible assets expense for the three months ended December 31, 2022 was approximately $0.54 million compared to $0.07 million for the three months ended December 31, 2021. Amortization of acquisition intangible assets expense for the six months ended December 31, 2022 were approximately $0.99 million compared to $0.08 million for the six months ended December 31, 2021. For both periods, this primarily reflects the addition of several new subsidiaries.

Change in Fair Value of Acquisition Contingent Consideration

Change in fair value of acquisition contingent consideration expense for the three and six months ended December 31, 2022 was a gain of approximately $5.42 and $2.82 million, respectively. For both periods, this represents a decrease in the fair value of the contingent consideration liability related to the S5D and BLI acquisitions. The change in both periods is driven by a decrease in the common stock price of Glimpse between measurement dates and revisions to revenue projections.

Other Income (Expense), net

|  | For the Three Months Ended |  |  |  |  |  | For the Six Months Ended |  |  |  |
|  | December 31, |  |  | Change |  |  | December 31, |  |  | Change |
|  | 2022 |  |  | 2021 |  |  | $ |  |  | % |  |  | 2022 |  |  | 2021 |  |  | $ |  |  | % |
|  | (in millions) |  |  |  |  |  | (in millions) |  |  |  |
Interest income |  | $ | 0.08 |  |  | $ | - |  |  | $ | 0.08 |  |  |  | N/A |  |  | $ | 0.13 |  |  | $ | 0.02 |  |  | $ | 0.11 |  |  |  | 550 | %
Loss on conversion of convertible notes |  |  | - |  |  |  | - |  |  |  | - |  |  |  | N/A |  |  |  | - |  |  |  | (0.28 | ) |  |  | 0.28 |  |  |  | N/A |
Other Income (Expense), net |  | $ | 0.08 |  |  | $ | - |  |  | $ | 0.08 |  |  |  | N/A |  |  | $ | 0.13 |  |  | $ | (0.26 | ) |  | $ | 0.39 |  |  |  | -150 | %

Other income for the three months ended December 31, 2022 was income of $0.08 million compared to zero for the three months ended December 31, 2021. Other income and expense, net for the six months ended December 31, 2022 was income of $0.13 million compared to an expense of $0.26 million for the six months ended December 31, 2021. The change is driven by a loss incurred on conversion of convertible debt to common stock that occurred at the IPO in the 2021 period. Income for all periods reflects interest income on cash and cash equivalent balances.

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Net Income (Loss)

Net income for the three months ended December 31, 2022 was $1.31 million, as compared to a net loss of $1.57 million for the comparable 2021 period, an absolute change of $2.88 million. This change is driven by the non-cash gain on the change in fair value of acquisition contingent consideration, partially offset by the increase in operating expenses from the acquisition of several subsidiaries. We sustained a net loss of $4.07 million for the six months ended December 31, 2022 as compared to a net loss of $3.23 million for the comparable 2021 period, a loss increase of $0.84 million. This change is driven by the increase in operating expenses from the acquisition of several subsidiaries, partially offset by the non-cash gain on change in fair value of acquisition contingent consideration.

Non-GAAP Financial Measures

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

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

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

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

35

The following table presents a reconciliation of net income (loss) to Adjusted EBITDA for the three and six months ended December 31, 2022 and 2021:

|  | For the Three Months Ended |  |  | For the Six Months Ended |
|  | December 31, |  |  | December 31, |
|  | 2022 |  |  | 2021 |  |  | 2022 |  |  | 2021 |
|  | (in millions) |  |  | (in millions) |
Net income (loss) |  | $ | 1.31 |  |  | $ | (1.57 | ) |  | $ | (4.07 | ) |  | $ | (3.23 | )
Depreciation and amortization |  |  | 0.58 |  |  |  | 0.08 |  |  |  | 1.06 |  |  |  | 0.10 |
EBITDA (loss) |  |  | 1.89 |  |  |  | (1.49 | ) |  |  | (3.01 | ) |  |  | (3.13 | )
Stock based compensation expenses |  |  | 0.74 |  |  |  | 0.59 |  |  |  | 1.72 |  |  |  | 1.31 |
Stock based acquisition expense |  |  | 0.20 |  |  |  | - |  |  |  | 0.20 |  |  |  | - |
Stock based financing related expenses |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 0.28 |
Acquisition related expenses |  |  | 0.01 |  |  |  | 0.09 |  |  |  | 0.28 |  |  |  | 0.10 |
Change in fair value of acquisition contingent consideration |  |  | (5.42 | ) |  |  | - |  |  |  | (2.82 | ) |  |  | - |
Adjusted EBITDA (loss) |  | $ | (2.58 | ) |  | $ | (0.81 | ) |  | $ | (3.63 | ) |  | $ | (1.44 | )

Adjusted EBITDA loss of $2.58 million for the three months ended December 31, 2022 increased by $1.77 million compared to a $0.81 million loss for the three months ended December 31, 2021. Adjusted EBITDA loss of $3.63 million for the six months ended December 31, 2022 increased by $2.19 million compared to a $1.44 million loss for the six months ended December 31, 2021. The increases in EBITDA loss were driven by an increase in operating expense outlays in all areas of the Company to propel future growth, including the acquisition of several new subsidiaries. This is offset primarily by non-cash expenses, both stock based and fair value driven.

Liquidity and Capital Resources

|  | For the Six Months Ended |  |  |  |
|  | December 31, |  |  | Change |
|  | 2022 |  |  | 2021 |  |  | $ |  |  | % |
|  | (in millions) |  |  |  |
Net cash used in operating activities |  | $ | (6.49 | ) |  | $ | (2.36 | ) |  | $ | (4.13 | ) |  |  | -175 | %
Net cash used in investing activities |  |  | (2.60 | ) |  |  | (0.59 | ) |  |  | (2.01 | ) |  |  | -341 | %
Net cash provided by financing activities |  |  | 0.04 |  |  |  | 26.01 |  |  |  | (25.97 | ) |  |  | -100 | %
Net increase (decrease) in cash and cash equivalents |  |  | (9.05 | ) |  |  | 23.06 |  |  |  | (32.11 | ) |  |  | -139 | %
Cash, cash equivalents and restricted cash, beginning of period |  |  | 18.25 |  |  |  | 1.77 |  |  |  | 16.48 |  |  |  | 931 | %
Cash, cash equivalents and restricted cash, end of period |  | $ | 9.20 |  |  | $ | 24.83 |  |  | $ | (15.63 | ) |  |  | -63 | %

Operating Activities

Net cash used in operating activities was $6.49 million for the six months ended December 31, 2022, compared to $2.36 million during the prior period, an increase of approximately $4.13 million. This is primarily driven by an increase in net loss and a decrease in accounts payable and deferred revenue primarily related to the BLI acquisition, offset by increased non-cash expenses (primarily acquisition contingent consideration fair value adjustment, stock based expenses and intangible asset amortization).

Investing Activities

Net cash used in investing activities for the six months ended December 31, 2022 was approximately $2.6 million compared to $0.59 million during the prior period, an increase of approximately $2.01 million. This primarily represents the cash portion of the BLI acquisition.

Financing Activities

Cash flow provided from financing activities during the six months ended December 31, 2022 was negligible, compared to $26.01 million for the prior 2021 period. Cash flow for the 2021 period primarily reflects the net proceeds from our IPO and Securities Purchase Agreement.

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Capital Resources

As of December 31, 2022, the Company had cash, cash equivalents and restricted cash balances of $9.20 million, plus $0.2 million of liquid corporate bond investments. The December 31, 2022 balances include $2.0 million cash escrow for potential future contingent consideration of the S5D acquisition, payable upon achievement of S5D and the Company’s performance targets (refundable to Glimpse if targets not achieved).

As of December 31, 2022, the Company had no outstanding debt obligations.

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

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

Recently Adopted Accounting Pronouncements

Please see Note 3 of the attached December 31, 2022 consolidated financial statements that describe the impact, if any, from the adoption of Recent Accounting Pronouncements.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Not required for smaller reporting companies.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

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

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

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

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

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

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

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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, 2022 contains a discussion of the material risks associated with our business. There have been no material changes to the risks described in such Annual Report on Form 10-K.

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

Recent Sale of Unregistered Equity Securities

During the three months ended December 31, 2022, the Company issued 372,273 shares of Common Stock for:

|  | Number of Shares |  |  | Cash Proceeds |  |  | Value of Shares |
Satisfaction of prior year acquisition liability |  |  | 214,288 |  |  | $ | - |  |  | $ | 734,036 |
Purchase of intangible asset - technology |  |  | 71,430 |  |  |  | - |  |  |  | 326,436 |
Exercise of options |  |  | 2,000 |  |  |  | 5,001 |  |  |  | 5,001 |
Contingent acquisition obligation |  |  | 35,714 |  |  |  | - |  |  |  | 197,499 |
Compensation expense |  |  | 48,841 |  |  |  | - |  |  |  | 243,273 |
Total |  |  | 372,273 |  |  | $ | 5,001 |  |  | $ | 1,506,245 |

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.

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Item 6. Exhibits

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

Exhibit Number |  | Description of Exhibit
31.1* |  | Certification of Principal Executive Officer pursuant to Rules 13a-14(a) and 15d-14(a) of the Securities Exchange Act, as amended.
31.2* |  | Certification of Principal Financial Officer pursuant to Rules 13a-14(a) and 15d-14(a) of the Securities Exchange Act, as amended.
32.1** |  | Certification of Principal Executive Officer and Principal Financial Officer pursuant to Rules 13a-14(b) or 15d-14(b) of the Securities Exchange Act, as amended, and 18 U.S.C. Section 1350.
101.INS |  | Inline XBRL Instance Document.
101.SCH |  | Inline XBRL Taxonomy Extension Schema Document.
101.CAL |  | Inline XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF |  | Inline XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB |  | Inline XBRL Taxonomy Extension Label Linkbase Document.
101.PRE |  | Inline XBRL Taxonomy Extension Presentation Linkbase Document.
104 |  | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

* Filed herewith.

** Furnished herewith.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized, on this 14th day of February, 2023.

| THE GLIMPSE GROUP, INC.
| /s/ Lyron Bentovim
| Lyron Bentovim
| Chief Executive Officer, President
| (Principal Executive Officer)
| /s/ Maydan Rothblum
| Maydan Rothblum
| Chief Financial Officer & Chief Operating Officer
| (Principal Financial Officer)

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