Brightline Interactive, Inc 10-Q for FY2022 Q1
Brightline Interactive, Inc. (BTLN)
About this 10-Q
Brightline Interactive, Inc filed this 10-Q on November 15, 2021, covering the quarter ended September 30, 2021 (FY2022 Q1).
Headline figures
Quarter ended September 30, 2021, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $1.02M
- up 293.4% from $259.93K a year earlier
- Net loss
- $1.66M
- compared with a net loss of $1.28M a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
(Mark One)
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For
the quarterly period ended
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:
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification Number) | |
| (Address of principal executive offices) | (Zip Code) |
Registrant’s
telephone number, including area code:
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
Trading Symbol |
Name of each exchange on which registered | ||
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. ☒
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). ☒
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 | ☐ |
| ☒ | 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 ☐
As of November 12, 2021, the registrant had shares of common stock, par value $0.001 per share, outstanding.
THE GLIMPSE GROUP, INC.
TABLE OF CONTENTS
| 2 |
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
THE GLIMPSE GROUP, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
| 3 |
THE GLIMPSE GROUP, INC.
CONSOLIDATED BALANCE SHEETS
| As
of September 30, 2021 (Unaudited) | As
of June 30, 2021 (Audited) | |||||||
| ASSETS | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable | ||||||||
| Deferred costs | ||||||||
| Pre-offering costs | - | |||||||
| Prepaid expenses and other current assets | ||||||||
| Total current assets | ||||||||
| Other assets | - | |||||||
| Equipment, net | ||||||||
| Intangible assets, net | - | |||||||
| Goodwill | - | |||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued liabilities | ||||||||
| Accrued bonuses | ||||||||
| Accrued legacy acquisition expense | ||||||||
| Deferred revenue | ||||||||
| Total current liabilities | ||||||||
| Long term liabilities | ||||||||
| Paycheck Protection Program (PPP 2) loan | ||||||||
| Convertible promissory notes, net | - | |||||||
| Total liabilities | ||||||||
| Commitments and contingencies | ||||||||
| Stockholders’ Equity (Deficit) | ||||||||
| Preferred Stock, par value $ per share, million shares authorized; shares issued and outstanding | - | - | ||||||
| Common Stock, par value $ per share, million shares authorized; and issued and outstanding | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total stockholders’ equity (deficit) | ( | ) | ||||||
| Total liabilities and stockholders’ equity (deficit) | $ | $ | ||||||
The accompanying notes are an integral part of these consolidated financial statements.
| 4 |
THE GLIMPSE GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
| For the Three Months Ended | For the Three Months Ended | |||||||
| September 30, 2021 | September 30, 2020 | |||||||
| Revenue | ||||||||
| Software services | $ | $ | ||||||
| Software license/software as a service | ||||||||
| Total Revenue | ||||||||
| Cost of goods sold | ||||||||
| Gross Profit | ||||||||
| Operating expenses: | ||||||||
| Research and development expenses | ||||||||
| General and administrative expenses | ||||||||
| Sales and marketing expenses | ||||||||
| Total operating expenses | ||||||||
| Net loss from operations before other income (expense) | ( | ) | ( | ) | ||||
| Other income (expense) | ||||||||
| Other income | - | |||||||
| Interest income | ||||||||
| Interest expense | - | ( | ) | |||||
| Loss on conversion of convertible notes | ( | ) | - | |||||
| Total other expense, net | ( | ) | ( | ) | ||||
| Net Loss | $ | ( | ) | $ | ( | ) | ||
| Basic and diluted net loss per share | $ | ( | ) | $ | ( | ) | ||
| Weighted-average shares used to compute basic and diluted net loss per share | ||||||||
The accompanying notes are an integral part of these consolidated financial statements.
| 5 |
THE GLIMPSE GROUP, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (DEFICIT)
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2021
(Unaudited)
| Common Stock | Additional Paid-In | Accumulated | ||||||||||||||||||
| Shares | Amount | Capital | Deficit | Total | ||||||||||||||||
| Balance as of July 1, 2021 | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||
| Sales of common stock to investors | ||||||||||||||||||||
| Sales of common stock to investors, shares | ||||||||||||||||||||
| Common stock issued in Initial Public Offering, net | - | |||||||||||||||||||
| Common stock issued for convertible note conversion | - | |||||||||||||||||||
| Common stock issued for acquisition | - | |||||||||||||||||||
| Common stock issued for legacy acquisition obligation | - | |||||||||||||||||||
| Common stock issued to vendors for compensation | - | |||||||||||||||||||
| Common stock issued for exercise of options | - | |||||||||||||||||||
| Stock option-based compensation expense | - | - | - | |||||||||||||||||
| Stock option-based board of directors expense | - | - | - | |||||||||||||||||
| Net loss | - | - | - | ( | ) | ( | ) | |||||||||||||
| Balance as of September 30, 2021 | $ | $ | $ | ( | ) | $ | ||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
THE GLIMPSE GROUP, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ (DEFICIT)
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2020
(Unaudited)
| Common Stock | Additional Paid-In | Accumulated | ||||||||||||||||||
| Shares | Amount | Capital | Deficit | Total | ||||||||||||||||
| Balance as of July 1, 2020 | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||
| Sales of common stock to investors | - | |||||||||||||||||||
| Common stock issued to vendors for compensation | - | |||||||||||||||||||
| Stock option-based compensation expense | - | - | - | |||||||||||||||||
| Stock option-based board of directors expense | - | - | - | |||||||||||||||||
| Net loss | - | - | - | ( | ) | ( | ) | |||||||||||||
| Balance as of September 30, 2020 | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
| 6 |
THE GLIMPSE GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| For
the Three Months Ended September 30, 2021 | For
the Three Months Ended September 30, 2020 | |||||||
| Cash flows from operating activities: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Amortization and depreciation | ||||||||
| Amortization of paid-in kind common stock interest on convertible notes | ||||||||
| Stock option based compensation for employees and board of directors | ||||||||
| Issuance of common stock to vendors as compensation | ||||||||
| Loss on conversion of convertible notes | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | ||||||||
| Pre-offering costs | ||||||||
| Prepaid expenses and other current assets | ( | ) | ( | ) | ||||
| Deferred costs | ( | ) | ( | ) | ||||
| Other assets | ( | ) | ||||||
| Accounts payable | ( | ) | ( | ) | ||||
| Accrued liabilities | ( | ) | ( | ) | ||||
| Accrued bonus | ( | ) | ( | ) | ||||
| Deferred revenue | ||||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Cash flow from investing activities: | ||||||||
| Purchases of equipment | ( | ) | ( | ) | ||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| Cash flows from financing activities: | ||||||||
| Proceeds from initial public offering, net | ||||||||
| Proceeds from issuance of common equity to investors | ||||||||
| Proceeds from exercise of stock options | ||||||||
| Net cash provided by financing activities | ||||||||
| Net change in cash and cash equivalents | ( | ) | ||||||
| Cash and cash equivalents, beginning of year | ||||||||
| Cash and cash equivalents, end of period | $ | $ | ||||||
| Non-cash Investing and Financing activities: | ||||||||
| Common stock issued for asset acquisition | $ | $ | ||||||
| Conversion of convertible promissory notes into common stock | $ | $ | ||||||
| Issuance of warrants in connection with initial public offering | $ | $ | ||||||
| Issuance of common stock for satisfaction of legacy acquisition liability | $ | $ | ||||||
The accompanying notes are an integral part of these consolidated financial statements.
| 7 |
THE GLIMPSE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SEPTEMBER 30, 2021 AND 2020
NOTE 1. DESCRIPTION OF BUSINESS
The Glimpse Group, Inc. (“Glimpse”) is a Virtual (VR) and Augmented (AR) Reality company, comprised of a diversified portfolio of VR and AR software and services companies. Glimpse’s ten wholly-owned operating subsidiaries (“Subsidiary Companies” or “Subsidiaries”) are: Adept Reality, LLC (dba Adept XR Learning), Kabaq 3D Technologies, LLC (dba QReal), KreatAR, LLC (dba PostReality), D6 VR, LLC, Immersive Health Group, LLC, Foretell Studios, LLC (dba Foretell Reality), Number 9, LLC (dba Pagoni VR), Early Adopter, LLC, and MotionZone, LLC (dba AUGGD) and one subsidiary in Turkey, Glimpse Group Yazılım ve ARGE Ticaret Anonim Şirketi (“Glimpse Turkey”). In addition, the Company has one inactive subsidiary company, In-It VR, LLC (dba Mezmos), and with the operating Subsidiaries collectively comprise the “Company” or “Glimpse”. Glimpse was incorporated as The Glimpse Group, Inc. in the State of Nevada, on June 15, 2016.
A new subsidiary company was established in October 2021. See Note 11.
Glimpse’s robust VR/AR ecosystem, collaborative environment and business model simplify the many challenges faced by companies in an emerging industry. Glimpse cultivates and manages business operations while providing a strong network of professional relationships, thereby allowing the subsidiary company entrepreneurs to maximize their time and resources in pursuit of mission-critical endeavors, reducing time to market, optimizing costs, improving product quality and leveraging joint go-to-market strategies, while simultaneously providing investors an opportunity to invest directly into the VR/AR industry via a diversified platform.
The Company completed an initial public offering (“IPO”) of its common stock on the Nasdaq Capital Market Exchange (“Nasdaq”) on July 1, 2021, under the ticker VRAR. See Note 7.
On November 2, 2021 the Company completed a securities purchase agreement (“SPA”) for the sale of additional common stock to certain institutional investors. See Note 11.
NOTE 2. LIQUIDITY AND CAPITAL RESOURCES
The
Company incurred a loss of $
On
July 1, 2021 the Company completed an IPO in which, as a result of the sale of its common shares at $ per share, it raised approximately
$
The
Company expects to continue to generate net losses for the foreseeable future as it makes investments to grow its business. Management
believes that the Company’s existing balances of cash and cash equivalents, which are approximately $
| 8 |
THE GLIMPSE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SEPTEMBER 30, 2021 AND 2020
NOTE 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation
The unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and the rules and regulations of the Securities and Exchange Commission. In the opinion of management, the unaudited consolidated financial statements have been prepared on the same basis as the annual consolidated financial statements and reflect all adjustments, which include only normal recurring adjustments, necessary to present fairly the financial position as of September 30, 2021 and the results of operations and cash flows for the three months ended September 30, 2021 and 2020. The financial data and other information disclosed in these notes to the interim financial statements related to these periods are unaudited. The results for the three months ended September 30, 2021 are not necessarily indicative of the results to be expected for the entire year ending June 30, 2022 or for any subsequent periods. The consolidated balance sheet at June 30, 2021 has been derived from the audited consolidated financial statements at that date.
Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) have been condensed or omitted pursuant to the Securities and Exchange Commission’s rules and regulations.
These unaudited consolidated financial statements should be read in conjunction with our audited consolidated financial statements and notes thereto for the year ended June 30, 2021.
Principles of Consolidation
The accompanying consolidated financial statements include the balances of Glimpse and its wholly owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.
Use of Accounting Estimates
The preparation of the accompanying consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the accompanying consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
The principal estimates relate to the valuation of allowance for doubtful accounts, common stock, stock options, cost of goods sold and allocation of the purchase price of assets relating to business combinations.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash and deposits in bank checking accounts with immediate access and cash equivalents that represent highly liquid investments.
Accounts Receivable
Accounts
receivable consists primarily of amounts due from customers under normal trade terms. Allowances for uncollectible accounts are provided
for based upon a variety of factors, including historical amounts written-off, an evaluation of current economic conditions, and assessment
of customer collectability. As of September 30, 2021 and June 30, 2021
| 9 |
THE GLIMPSE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SEPTEMBER 30, 2021 AND 2020
Customer Concentration and Credit Risk
Two
customers accounted for approximately
One
customer accounted for approximately
The Company maintains cash in accounts that, at times, may be in excess of the Federal Deposit Insurance Corporation limit. The Company has not experienced any losses on such accounts.
Equipment, net
Equipment is stated at cost less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the related assets. The costs of improvements and betterments are capitalized and expenditures for repairs and maintenance are expensed in the period incurred.
The Company assesses the recoverability of equipment whenever events or changes in circumstances indicate that their carrying value may not be recoverable. There was no impairment of equipment for the periods presented.
Business Combinations
The results of a business acquired in a business combination are included in the Company’s consolidated financial statements from the date of the acquisition. Purchase accounting results in assets and liabilities of an acquired business generally being recorded at their estimated fair values as of the acquisition date. Any excess consideration over the fair value of assets acquired and liabilities assumed is recognized as goodwill.
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.
Intangibles, net
Intangibles represent the allocation of a portion of an asset acquisition purchase price (see Note 4). 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.
Goodwill
The Company reviews goodwill for impairment annually or more frequently if current circumstances or events indicate that the fair value may be less than its carrying value. The Company recorded goodwill related to an asset acquisition, see Note 4.
| 10 |
THE GLIMPSE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SEPTEMBER 30, 2021 AND 2020
Fair Value of Financial Instruments
The carrying amounts of the Company’s financial instruments, such as accounts receivable, accounts payable and accrued liabilities approximate fair value due to the short-term nature of these instruments. The Company’s convertible debt approximates fair value due to its short-term nature and market rate of interest.
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 that obtains control of the product or service is performed and collection is reasonably assured. A performance obligation is a promise in a contract to transfer a distinct product or service to a customer. Most of the Company’s contracts have a single performance obligation, as the promise to transfer products or services is not separately identifiable from other promises in the contract and, therefore, not distinct.
Any unrecognized portion of revenue and any corresponding unrecognized expenses are presented as deferred revenue and deferred costs, respectively, in the accompanying consolidated balance sheet. Deferred costs include cash and equity based payroll costs, and may include payments to vendors.
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.
Significant Judgments
The Company’s contracts with customers may include promises to transfer multiple products/services. Determining whether products/services are considered distinct performance obligations that should be accounted for separately versus together may require significant judgment. Further, judgment may be required to determine the standalone selling price for each distinct performance obligation.
Disaggregation of Revenue
The Company generated revenue for the three months ended September 30, 2021 and 2020 by delivering: (i) Software Services, consisting primarily of VR/AR software projects, solutions and consulting services, and (ii) Software Licenses & SaaS, consisting primarily of VR and AR software licenses or SaaS. The Company currently generates its revenues primarily from customers in the United States.
| 11 |
THE GLIMPSE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SEPTEMBER 30, 2021 AND 2020
Revenue for Software Services projects and solutions 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.
Revenue for Software Services consulting services and website maintenance is recognized at the point of time in which the Company performs the services, typically on a monthly retainer basis.
Revenue for Software License and SaaS is recognized at the point of time in which the Company delivers the software and customer accepts delivery. If there are contractually stated ongoing service obligations to be performed during the term of the Software License or SaaS contract, then revenues are recognized ratably over the term of the contract.
Timing of Revenue
The timing of revenue recognition for the three months ended September 30, 2021 and 2020 was as follows:
SCHEDULE OF TIMING REVENUE RECOGNITION
| 2021 | 2020 | |||||||
| For the Three Months Ended | ||||||||
| September 30, | ||||||||
| 2021 | 2020 | |||||||
| Products transferred at a point in time | $ | $ | ||||||
| Products and services transferred over time | ||||||||
| Total Revenue | $ | $ | ||||||
Remaining Performance Obligations
Timing of revenue recognition may differ from the timing of invoicing to customers. The Company records a receivable when revenue is recognized prior to invoicing, or deferred revenue when revenue is recognized subsequent to invoicing.
For Software Services project contracts, the Company generally invoices customers after the project has been delivered and accepted by the customer. Software Service project contracts typically consist of designing and programming software for the customer. In most cases, there is only one performance obligation, and revenue is recognized upon completion, delivery and customer acceptance. In certain instances one contract may include multiple distinct projects that can each be implemented and operated independently of subsequent projects in the contract. In such cases, the Company accounts for these distinct projects as separate performance obligations and recognizes revenue upon the completion of each project or obligation, its delivery and customer acceptance.
For Software Services consulting or retainer contracts, the Company generally invoices customers monthly at the beginning of each month in advance for services to be performed in the following month. The sole performance obligation is satisfied when the services are performed. Software Services consulting or retainer contracts typically consist of ongoing support for a customer’s software or specified business practices.
For Software License or SaaS contracts, the Company generally invoices customers when the software has been delivered to and accepted by the customer, which is also when the performance obligation is satisfied.
For multi-period Software License or SaaS contracts, the Company generally invoices customers annually at the beginning of each annual coverage period. Software License or SaaS contracts consist of providing clients with software designed by the Company. For Software License or SaaS contracts, there are generally no ongoing support obligations unless specified in the contract (becoming a Software Service).
| 12 |
THE GLIMPSE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SEPTEMBER 30, 2021 AND 2020
Deferred revenue is comprised mainly of software project contract performance obligations not completed.
Unfulfilled
performance obligations represent amounts expected to be earned by the Company on executed contracts. As of September 30, 2021, the Company
had approximately $
The Company recognizes stock-based compensation expense related to grants to employees or service providers based on grant date fair values of common stock or the stock options, which are amortized over the requisite period, as well as forfeitures as they occur.
The Company values the options using the Black-Scholes Merton (“Black Scholes”) method utilizing various inputs such as expected term, expected volatility and the risk-free rate. The expected term reflects the application of the simplified method, which is the weighted average of the contractual term of the grant and the vesting period for each tranche. Expected volatility is derived from a weighted average of volatility inputs for the Company since its IPO. Prior to its IPO, expected volatility is derived from a weighted average of volatility inputs for comparable software and technology service companies 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.
Income Taxes
The
Company records income taxes using the asset and liability method. Deferred income tax assets and liabilities are recognized for the
future tax effects attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities
and their respective income tax bases, and operating loss and tax credit carryforwards. The Company establishes a valuation allowance
if it is more likely than not that the deferred tax assets will not be recovered based on an evaluation of objective verifiable evidence.
For tax positions that are more likely than not of being sustained upon audit, the Company recognizes the largest amount of the benefit
that is
The Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 740, Income Taxes, or ASC 740, also clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements and prescribes a recognition threshold and measurement process for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities. ASC 740 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. Based on the Company’s evaluation, it has been concluded that there are no significant uncertain tax positions requiring recognition in the Company’s consolidated financial statements. The Company believes that its income tax positions and deductions would be sustained on audit and does not anticipate any adjustments that would result in material changes to its financial position.
| 13 |
THE GLIMPSE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SEPTEMBER 30, 2021 AND 2020
The Company’s policy for recording interest and penalties associated with audits is to record such expense as a component of income tax expense. There were no amounts accrued for penalties or interest for the three months ended September 30, 2021 and 2020. Management is currently unaware of any issues under review that could result in significant payments, accruals or material deviations from its position.
Basic earnings per share (“EPS”) is computed based on the weighted average number of shares of common stock outstanding during the period. Diluted EPS is computed based on the weighted average number of shares of common stock plus the effect of dilutive potential shares of common stock outstanding during the period using the treasury stock method. Dilutive potential common shares include the issuance of potential shares of common stock for outstanding stock options and convertible debt.
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.
NOTE 4. ASSET ACQUISTION
In August 2021, the Company, through its wholly owned subsidiary company, MotionZone, LLC (dba AUGGD), completed an acquisition of certain assets, as defined, from Augmented Reality Investments Pty Ltd, an Australia based company providing augmented reality software and services. Over time, the acquisition may facilitate the Company’s endeavors in the Architecture, Engineering and Construction (“AEC”) market segments.
| 14 |
THE GLIMPSE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SEPTEMBER 30, 2021 AND 2020
Initial
consideration for the purchase was $
SCHEDULE OF ASSET ACQUISITION
| As of September 30, 2021 | ||||||
| Value ($) | Useful
Life (Years) | |||||
| Intangible Assets | ||||||
| Customer Relationships | $ | |||||
| Technology | ||||||
| Less: Accumulated Amortization | ( | ) | ||||
| Intangible Assets, net | $ | |||||
| Goodwill | $ | N/A | ||||
The goodwill recognized in connection with the acquisition is primarily attributable to new markets access and is expected to be deductible for tax purposes.
The results of operations of AUGGD have been included in the Company’s consolidated financial statements from the date of acquisition and did not have a material impact on the Company’s consolidated financial statements.
NOTE 5. CONTINGENT ACQUISITION LIABILITY
Kabaq 3D Technologies, LLC
The
Company’s November 2016 acquisition of assets relating to the acquisition of Kabaq 3D Technologies, LLC contained a provision for
additional acquisition consideration triggered by a potential listing of the Company’s common stock on a national securities exchange
and certain stock trading volume thresholds. In August 2021, the milestones triggering the additional consideration were met and the
Company incurred $
KreatAR, LLC
The
Company’s October 2016 acquisition of assets relating to the acquisitions of KreatAR, LLC contained a provision for additional
acquisition consideration triggered by a potential listing of the Company’s common stock on a national securities exchange and
certain stock trading volume thresholds. In August 2021, the milestones triggering the additional consideration were met. In connection
therewith, the Company incurred $
NOTE 6. DEBT
Convertible Promissory Notes 1
In
December 2019 the Company raised $
The
Notes 1 bore an interest rate of
The
Notes 1 were convertible by a Note 1 holder at any time
| 15 |
THE GLIMPSE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SEPTEMBER 30, 2021 AND 2020
Interest
expense on the Notes 1 was approximately $
Primarily
in January 2021, Note 1 holders converted approximately $
The
holders of the remaining unconverted Notes 1, equating to approximately $
The
Company recorded a loss on conversion of the remaining Notes 1 of approximately $
Convertible Promissory Notes 2
In
March 2021, the Company raised $
The
Notes 2 bore an interest rate of
The
Notes 2 were convertible by a note holder at any time during the term into common stock of the Company at a fixed price of $
The
Company recorded a loss on conversion of the Notes 2 of approximately $
NOTE 7. EQUITY
Initial Public Offering (“IPO”)
On July 1 ,2021, the Company completed an IPO of common stock on the Nasdaq under the symbol “VRAR”, at a price of $ per share.
The
Company sold approximately million shares of common stock and realized net proceeds (after underwriting, professional fees and listing
expenses) of $
In
connection with the IPO, and for services rendered, the underwriter was issued a warrant to purchase shares of common stock at
$ per share. The warrant cannot be exercised prior to December 30, 2021, and expires in June 2026.
As
stated in Note 6, in conjunction with the IPO, the outstanding convertible promissory Notes 1 and 2 were satisfied in full through the
issuance of shares of common stock. A loss of approximately $
| 16 |
THE GLIMPSE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SEPTEMBER 30, 2021 AND 2020
Common Stock Issued
Common stock sold to Investors
During
the three months ended September 30, 2021, the Company sold approximately million shares of common stock to investors at the IPO
at a price of $ per share, for total net proceeds of approximately $
During
the three months ended September 30, 2020, the Company sold approximately shares of common stock to investors at a price of $
per share, for total net proceeds of approximately $
Common stock issued to Investors
During the three months ended September 30, 2021, in connection with the conversion of convertible promissory notes and in conjunction with the IPO, the Company issued shares of common stock (see Note 6).
Common stock issued for Acquisition
During
the three months ended September 30, 2021 the Company issued approximately shares of common stock, valued at $
Common stock issued for Legacy Acquisition Obligation
During
the three months ended September 30, 2021 the Company issued shares of common stock to satisfy a legacy acquisition
obligation of $
Common stock issued to Vendors
During the three months ended September 30, 2021 and 2020, the Company issued approximately and shares of common stock, respectively, to various vendors for services performed and recorded share-based compensation of approximately $ and $, respectively (of which approximately $ and $ was unrecognized in the periods, respectively).
Common stock issued for Exercise of options
During
the three months ended September 30, 2021, the Company issued approximately shares of common stock upon exercise of the respective
option grants, and realized cash proceeds of approximately $
Employee Stock-Based Compensation
The Company’s 2016 Equity Incentive Plan (the “Plan”), as amended, has million common shares reserved for issuance. As of September 30, 2021, there were 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.
| 17 |
THE GLIMPSE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SEPTEMBER 30, 2021 AND 2020
SCHEDULE OF BLACK-SCHOLES OPTION-PRICING MODEL ASSUMPTIONS
| Three
Months Ended September 30, 2021 | Three
Months Ended September 30, 2020 | |||||||
| Weighted average expected terms (in years) | ||||||||
| Weighted average expected volatility | % | % | ||||||
| Weighted average risk-free interest rate | % | % | ||||||
| Expected dividend yield | % | % | ||||||
The grant date fair value, for options granted during the three months ended September 30, 2021 and 2020 was approximately $ million and $ million, respectively.
SUMMARY OF STOCK OPTION ACTIVITY
| Weighted Average | ||||||||||||||||
| Remaining | ||||||||||||||||
| Exercise | Contractual | Intrinsic | ||||||||||||||
| Options | Price | Term (Yrs) | Value | |||||||||||||
| Outstanding at July 1, 2021 | $ | $ | ||||||||||||||
| Options Granted | ||||||||||||||||
| Options Exercised | ( | ) | ( | ) | ||||||||||||
| Options Forfeited / Cancelled | ( | ) | ( | ) | ||||||||||||
| Outstanding at September 30, 2021 | $ | $ | ||||||||||||||
| Exercisable at September 30, 2021 | $ | $ | ||||||||||||||
| Weighted Average | ||||||||||||||||
| Remaining | ||||||||||||||||
| Exercise | Contractual | Intrinsic | ||||||||||||||
| Options | Price | Term (Yrs) | Value | |||||||||||||
| Outstanding at July 1, 2020 | $ | $ | ||||||||||||||
| Options Granted | - | |||||||||||||||
| Options Exercised | - | - | ||||||||||||||
| Options Forfeited / Cancelled | ( | ) | ( | ) | ||||||||||||
| Outstanding at September 30, 2020 | $ | $ | ||||||||||||||
| Exercisable at September 30, 2020 | $ | $ | ||||||||||||||
| 18 |
THE GLIMPSE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SEPTEMBER 30, 2021 AND 2020
SCHEDULE OF STOCK OPTION-BASED EXPENSE
| Three
Months Ended September 30, 2021 | Three
Months Ended September 30, 2020 | |||||||
| Stock option-based expense : | ||||||||
| Research and development expenses | $ | $ | ||||||
| General and administrative expenses | ||||||||
| Sales and marketing expenses | ||||||||
| Cost of goods sold | ||||||||
| Board option expense | ||||||||
| Total | $ | $ | ||||||
During
the year ended June 30, 2019, certain Company advisors received approximately $ worth of Company stock options with an exercise
price of $/share and a period. Of the $, $
At September 30, 2021, total unrecognized compensation expense to employees, board members and vendors related to stock options was approximately $ million and is expected to be recognized over a weighted average period of years. At September 30, 2020, total unrecognized compensation expense related to stock options was approximately $ million and was recognized over a weighted average period of years.
The intrinsic value of stock options at September 30, 2021 was computed using a fair market value of the common stock of $/share, as compared to $/share at September 30, 2020.
SCHEDULE OF COMPUTATION OF BASIC AND DILUTED NET LOSS PER SHARE
| Three Months Ended September 30, 2021 | Three Months Ended September 30, 2020 | |||||||
| Numerator: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Denominator: | ||||||||
| Weighted-average
common shares outstanding for basic and diluted net loss per share | ||||||||
| Basic and diluted net loss per share | $ | ( | ) | $ | ( | ) | ||
| 19 |
THE GLIMPSE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SEPTEMBER 30, 2021 AND 2020
SCHEDULE OF POTENTIALLY DILUTIVE SECURITIES
| At September 30, 2021 | At September 30, 2020 | |||||||
| Stock Options | ||||||||
| Warrants | - | |||||||
| Convertible Notes | - | |||||||
| Total | ||||||||
NOTE 9. PROVISION FOR INCOME TAXES
There was no current or deferred income tax provision for the three months ended September 30, 2021 and 2020.
The Company’s deferred tax assets as of September 30 2021 and 2020 consist of the following:
SCHEDULE OF DEFERRED TAX ASSETS
| As of September 30, | As of September 30, | |||||||
| 2021 | 2020 | |||||||
| Deferred tax assets: | ||||||||
| Net-operating loss carryforward | $ | $ | ||||||
| Stock-based compensation | ||||||||
| Total Deferred Tax Assets | ||||||||
| Valuation allowance | ( | ) | ( | ) | ||||
| Deferred Tax Asset, Net | $ | $ | ||||||
The
Company maintains a valuation allowance on deferred tax assets due to the uncertainty regarding the ability to utilize these deferred
tax assets in the future. At September 30, 2021, the Company had potential utilizable aggregate gross net operating loss carryforwards
(“NOLs”) of approximately $
Section 382 of the U.S. Internal Revenue Code generally imposes an annual limitation on the amount of net operating loss carryforwards that might be used to offset taxable income when a corporation has undergone significant changes in stock ownership. The Company has not completed a Section 382 analysis of the NOL carryforwards. Consequently, the Company’s NOL carryforwards may be subject to annual limitations under Section 382.
In assessing the realization of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and taxing strategies in making this assessment. As a result of the uncertainly in the realization of the Company’s deferred tax assets, the Company has provided a valuation allowance for the full amount of the deferred tax assets at September 30, 2021 and September 30, 2020.
The
Company’s valuation allowance during the three months ended September 30, 2021 and 2020 increased by approximately $
| 20 |
THE GLIMPSE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SEPTEMBER 30, 2021 AND 2020
The expected tax expense (benefit) based on the U.S. federal statutory rate is reconciled with actual tax expense (benefit) as follows:
SCHEDULE OF EXPECTED TAX EXPENSE (BENEFIT) BASED ON US FEDERAL STATUTORY RATE
| For the Three Months Ended September 30, | For the Three Months Ended September 30, | |||||||
| 2021 | 2020 | |||||||
| Statutory Federal Income Tax Rate | % | % | ||||||
| State and Local Taxes, Net of Federal Tax Benefit | ( | )% | ( | )% | ||||
| Stock Based Compensation Expense (ISO) | % | % | ||||||
| Change in Valuation Allowance | ( | )% | ( | )% | ||||
| Income Taxes Provision (Benefit) | ||||||||
Upon completion of its 2021 U.S. income tax return in 2022, the Company may identify additional remeasurement adjustments. The Company will continue to assess its provision for income taxes as future guidance is issued, but does not currently anticipate significant revisions will be necessary.
NOTE 10. COMMITMENTS AND CONTINGENCIES
Operating Lease
The
Company has an office space lease expiring, as amended, on
Rent
expense was approximately $
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
COVID-19
The COVID-19 pandemic has caused and continues to cause significant business and financial markets disruption worldwide and there is significant uncertainty around the duration of this disruption and its ongoing effects on our business. This has primarily manifested itself in prolonged sales cycles.
From March 2020 through June 2021, the Company had required substantially all of its employees to work remotely to minimize the risk of the virus. While working remotely has proven to be effective to this point, it may eventually inhibit the Company’s ability to operate its business effectively. Commencing July 2021, the Company has tentatively required employees to return to the office several days a week.
We continue to closely monitor the situation and the effects on our business and operations. While 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 on our business and operations to worsen going forward.
| 21 |
THE GLIMPSE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SEPTEMBER 30, 2021 AND 2020
NOTE 11. SUBSEQUENT EVENTS
ASSET ACQUISTION
In October 2021, the Company, through its newly formed and wholly owned subsidiary company, XR Terra, LLC, completed an acquisition of certain assets, as defined, from XR Terra, Inc., a developer of teaching platforms utilized in coding software used in VR and AR programming.
Initial
consideration for the purchase is $
SECURITIES PURCHASE AGREEMENT (“SPA”)
In
November 2021, the Company entered into a SPA to sell $
Under
the terms of the SPA, the Company sold million shares of its common stock and warrants to purchase
| 22 |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis summarizes the significant factors affecting the consolidated operating results, financial condition, liquidity and cash flows of our Company as of and for the periods presented below. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements and related notes included in this Quarterly Report on Form 10-Q and the audited financial statements and notes thereto, and related disclosures, as of and for the year ended June 30, 2021 , which are included in the Form 10-K filed with the Securities and Exchange Commission (the “SEC”) on September 28, 2021. Unless the context requires otherwise, references in this Quarterly Report on Form 10-Q to “we,” “us,” and “our” refer to The Glimpse Group, Inc.
Forward-Looking Statements
The information in this discussion contains forward-looking statements and information within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, (the “Exchange Act”), which are subject to the “safe harbor” created by those sections. These forward-looking statements include, but are not limited to, statements concerning our strategy, future operations, future financial position, future revenues, projected costs, prospects and plans and objectives of management. The words “anticipates,” “believes,” “estimates,” “expects,” “intends,” “may,” “plans,” “projects,” “will,” “would” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. We may not actually achieve the plans, intentions, or expectations disclosed in our forward-looking statements and you should not place undue reliance on our forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements that we make. These forward-looking statements involve risks and uncertainties that could cause our actual results to differ materially from those in the forward-looking statements, including, without limitation, the risks set forth in Part II, Item 1A, “Risk Factors” in this Quarterly Report on Form 10-Q and in our other filings with the SEC. The forward-looking statements are applicable only as of the date on which they are made, and we do not assume any obligation to update any forward-looking statements.
Overview
We are a Virtual (“VR”) and Augmented (“AR”) Reality platform company, comprised of a diversified group of wholly-owned and operated VR and AR companies, providing enterprise-focused software, services and solutions. We believe that we offer significant exposure to the rapidly growing and potentially transformative VR and AR markets, while mitigating downside risk via our diversified model and ecosystem.
We were incorporated as The Glimpse Group, Inc. in the State of Nevada, on June 15, 2016 and are headquartered in New York, New York. We currently own and actively operate eleven, wholly-owned subsidiary companies (“Subsidiary Companies”, “Subsidiaries”) as represented in the below organizational charts:
| 23 |
Significant Transactions
On July 1 ,2021, we completed an initial public offering (“IPO”) of common stock and initial listing on the Nasdaq Capital Market under the symbol “VRAR”, at an initial public offering price of $7.00 per share. In conjunction with the IPO and the underwriter’s exercise of its over-allotment option, we sold 1,912,500 shares of common stock and realized net proceeds (after underwriting, professional fees and listing expenses) of $11.82 million.
In August 2021, we completed an acquisition of certain assets from Augmented Reality Investments Pty Ltd, an Australia based company providing augmented reality software and services to the Architecture, Engineering and Construction market segments. Initial consideration for the purchase was $0.75 million payable by the issuance of 77,264 shares of our common stock. Additional consideration in the form of our common stock shall be issued if certain future revenue growth targets are achieved.
In October 2021, we completed an acquisition of certain assets from XR Terra, Inc., a developer of teaching platforms utilized in coding software used in VR and AR programming. Initial consideration for the purchase is $0.60 million payable 50% in our common stock and 50% in cash. In October 2021, the Company paid $0.30 million cash and issued 33,877 shares of common stock to satisfy the purchase price. Additional consideration in the form of our common stock shall be issued if certain future revenue growth targets are achieved.
On November 2, 2021, we, pursuant to a securities purchase agreement, sold 1.50 million shares of common stock and warrants to purchase 0.75 million shares of common stock to certain institutional investors in a private placement. The warrants have an exercise price of $14.68 per share. The purchase price for one share of common stock and half a corresponding warrant was $10.00. The gross proceeds to us from the private placement offering was approximately $13.6 million after deducting the placement agent’s fees and other offering expenses.
Financial Highlights for the three months ended September 30, 2021 compared to the three months ended September 30, 2020
Results of Operations
The following table sets forth our results of operations for the three months ended September 30, 2021 and 2020:
| For the Three Months Ended | ||||||||||||||||
| September 30, | Change | |||||||||||||||
| 2021 | 2020 | $ | % | |||||||||||||
| (in millions) | ||||||||||||||||
| Revenue | $ | 1.02 | $ | 0.26 | $ | 0.76 | 292 | % | ||||||||
| Cost of Goods Sold | 0.15 | 0.14 | 0.01 | 7 | % | |||||||||||
| Gross Profit | 0.87 | 0.12 | 0.75 | 625 | % | |||||||||||
| Total Operating Expenses | 2.27 | 1.36 | 0.91 | 67 | % | |||||||||||
| Loss from Operations before Other Income and Expense | (1.40 | ) | (1.24 | ) | (0.16 | ) | 13 | % | ||||||||
| Other Income and Expense, net | (0.26 | ) | (0.04 | ) | (0.22 | ) | 550 | % | ||||||||
| Net Loss | $ | (1.66 | ) | $ | (1.28 | ) | $ | (0.38 | ) | 30 | % | |||||
Revenues
| For the Three Months Ended | ||||||||||||||||
| September 30, | Change | |||||||||||||||
| 2021 | 2020 | $ | % | |||||||||||||
| (in millions) | ||||||||||||||||
| Software Services | $ | 0.80 | $ | 0.19 | $ | 0.61 | 321 | % | ||||||||
| Software License/Software as a Service | 0.22 | 0.07 | 0.15 | 214 | % | |||||||||||
| Total Revenue | $ | 1.02 | $ | 0.26 | $ | 0.76 | 292 | % | ||||||||
| 24 |
Total revenue for the three months ended September 30, 2021 was approximately $1.02 million compared to approximately $0.26 million for the three months ended September 30, 2020, an increase of 292%. This growth was primarily due to the addition of new customers.
We break out our revenues into two main categories – Software Services and Software License.
| ● | Software Services revenues are primarily comprised of VR/AR projects, services related to our software licenses and consulting retainers. | |
| ● | Software License revenues are comprised of the sale of our internally developed VR/AR software as licenses or as software-as-a-service (“SaaS”). |
For the three months ended September 30, 2021, Software Services revenue was approximately $0.80 million compared to approximately $0.19 million for the three months ended September 30, 2020, an increase of approximately 321%. This growth was primarily due to the addition of new customers.
For the three months ended September 30, 2021, Software License revenue was approximately $0.22 million compared to approximately $0.07 for the three months ended September 30, 2020, an increase of approximately 214%. 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 September 30, 2021, non-project revenue (i.e., VR/AR Software and services revenue only), was approximately $0.86 million compared to approximately $0.14 million for the three months ended September 30, 2020, an increase of approximately 514%. For the three months ended September 30, 2021, non-project revenue accounted for approximately 84% of total revenues compared to approximately 54% for the three months ended September 30, 2020.
Customer Concentration
Two customers accounted for approximately 70% (56% and 14%, respectively) of the Company’s total gross revenues during the three months ended September 30, 2021. Four different customers accounted for approximately 53% (19%, 13%, 11% and 10%, respectively) of the Company’s total gross revenues during the three months ended September 30, 2020.
We operate in an early stage industry, and customers are exploring various options for AR and VR solutions and acting as early adopters of VR and AR solutions. As such, there is a high degree of variance on our source of revenues while customers are on-boarded and our software product and solutions are integrated, measured and digested. A customer that may account for a higher concentration of revenue in one period may not account for any revenue in subsequent periods. In some cases those customers could re-engage after they have evaluated our solutions and may or may not be a source of future revenue. As such, customers that make up a significant portion of revenues in one period, often do not make up a significant portion in other periods. Given this dynamic, which has continued both prior and subsequent to the reported periods, we expect this variability in Customer Concentration to continue until such point in time when our revenue has reached larger scale, and with a larger portion of our revenues coming from Software Licenses/SaaS. Due to the consistent oscillation in Customer Concentration from period-to-period, we do not view Customer Concentration as a material issue at this time.
| 25 |
Gross Profit
| For the Three Months Ended | ||||||||||||||||
| September 30, | Change | |||||||||||||||
| 2021 | 2020 | $ | % | |||||||||||||
| (in millions) | ||||||||||||||||
| Revenue | $ | 1.02 | $ | 0.26 | $ | 0.76 | 292 | % | ||||||||
| Cost of Goods Sold | 0.15 | 0.14 | 0.01 | 7 | % | |||||||||||
| Gross Profit | 0.87 | 0.12 | 0.75 | 625 | % | |||||||||||
| Gross Profit Margin | 85 | % | 46 | % | ||||||||||||
Gross profit was approximately 85% for the three months ended September 30, 2021 compared to approximately 46% for the three months ended September 30, 2020. The increase was driven by the increase in non-project revenue which produces higher margin and improved management of project revenue costs of goods sold.
Operating Expenses
Operating expenses for the three months ended September 30, 2021 were approximately $2.27 million compared to $1.36 million for the three months ended September 30, 2020, an increase of approximately 67%. This increase was driven by increased employee headcount to support growth and the incurrence of expenses specific to Glimpse being a publicly traded company.
Research and Development
Research and development expenses for the three months ended September 30, 2021 were approximately $0.99 million compared to $0.74 million for the three months ended September 30, 2020, an increase of approximately 34%. This reflects increased use of fulltime employee headcount. 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 September 30, 2021, non-cash stock option expenses relating to research and development included approximately $0.35 million of employee compensation expenses, comprising approximately 35% of total research and development expenses. For the three months ended September 30, 2020, non-cash stock option expenses relating to research and development included approximately $0.40 million of employee compensation expenses, comprising approximately 54% of total research and development expenses. Over time, we expect non-cash stock options and common stock research and development expenses, as a percentage of the total related expenses, to continue to decrease as we utilize a larger portion of cash for compensation.
General and Administrative
General and administrative expenses for the three months ended September 30, 2021 were approximately $0.78 million compared to $0.34 million for the three months ended September 30, 2020, an increase of approximately 129%. The increase reflects additional headcount, related cash compensation and other expenses to build infrastructure to support the operations of a public company (i.e., public company directors & officers liability insurance, investor relation and public listing fees, additional legal and accounting fees, and additional independent board members).
For the three months ended September 30, 2021, non-cash stock option and common stock expenses relating to general and administrative expenses included approximately $0.22 million of employee, board of directors and other compensation expenses, comprising approximately 28% of total general and administrative expenses. For the three months ended September 30, 2020, non-cash stock option and common stock expenses relating to general and administrative expenses included approximately $0.14 million of employee, board of directors and other compensation expenses, comprising approximately 41% 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.
Sales and Marketing
Sales and marketing expenses for the three months ended September 30, 2021 were approximately $0.50 million compared to $0.29 million for the three months ended September 30, 2020, an increase of approximately 72%. The increase was driven by an employee bonus related to year-to-date revenue milestones met during the current quarter and internal reallocations between operating functions. 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 September 30, 2021, non-cash stock option and common stock expenses relating to sales and marketing expenses included approximately $0.13 million of employee compensation expense, comprising approximately 26% of total sales and marketing expenses. For the three months ended September 30, 2020, non-cash stock option and common stock expenses relating to sales and marketing expenses included approximately $0.11 million of employee, vendor and fee compensation expenses, comprising approximately 38% of total sales and marketing expenses. This non-cash period-to-period decrease reflects cash bonus compensation representing a greater percentage of total sales and marketing expense.
| 26 |
Other Income and Expense, net
Other income and expense, net for the three months ended September 30, 2021, was an expense of $0.26 million as compared to an expense of $0.04 million during the prior period, an increase in expense of $0.22 million. This increase primarily reflects the $0.28 million non-cash loss on conversion of convertible notes to common stock as a result of the July 1, 2021 initial public offering, offset by a decrease of approximately $0.05 million in non-cash interest expense on the notes in the prior period.
Net Losses
We sustained a net loss of $1.66 million for the three months ended September 30, 2020 as compared to a net loss of $1.28 million for the prior period, a loss increase of $0.38 million or 30%. This reflects a period-over-period increase in revenue and related gross profit, offset by an increase in operating expenses and the incurrence of a non-cash loss on conversion of convertible notes to common stock as a result of the July 1, 2021 initial public offering and a decrease in non-cash interest expense.
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, operating income, 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.
| 27 |
The following table presents a reconciliation of net loss to Adjusted EBITDA for the three months ended September 30, 2021 and 2020:
| For the Three Months Ended | ||||||||
| September 30, | ||||||||
| 2021 | 2020 | |||||||
| (in millions) | ||||||||
| Net loss | $ | (1.66 | ) | $ | (1.28 | ) | ||
| Interest expense, net | - | 0.05 | ||||||
| Depreciation and amortization | 0.03 | 0.01 | ||||||
| EBITDA (loss) | (1.63 | ) | (1.22 | ) | ||||
| Stock based compensation expenses | 0.72 | 0.70 | ||||||
| Stock based financing related expenses | 0.28 | - | ||||||
| Public company expenses | 0.18 | - | ||||||
| Acquisition related expenses | 0.01 | - | ||||||
| Adjusted EBITDA (loss) | $ | (0.44 | ) | $ | (0.52 | ) | ||
Adjusted EBITDA loss for the three months ended September 30, 2021 improved by $0.08 million, or approximately 15%, as compared to that of the three months ended September 30, 2020.
Liquidity and Capital Resources
| For the Three Months Ended | ||||||||||||||||
| September 30, | Change | |||||||||||||||
| 2021 | 2020 | $ | % | |||||||||||||
| (in millions) | ||||||||||||||||
| Net cash used in operating activities | $ | (1.05 | ) | $ | (0.16 | ) | $ | (0.89 | ) | -556 | % | |||||
| Net cash used in investing activities | (0.02 | ) | (0.02 | ) | - | 0 | % | |||||||||
| Net cash provided by financing activities | 11.87 | 0.01 | 11.86 | 118600 | % | |||||||||||
| Net increase (decrease) in cash and cash equivalents | 10.80 | (0.17 | ) | 10.97 | 6453 | % | ||||||||||
| Cash and cash equivalents, beginning of year | 1.78 | 1.04 | 0.74 | 71 | % | |||||||||||
| Cash and cash equivalents, end of period | $ | 12.58 | $ | 0.87 | $ | 11.71 | 1346 | % | ||||||||
Operating Activities
Net cash used in operating activities was $1.05 million for the three months ended September 30, 2021, compared to $0.16 million during the prior period, an increase of approximately $0.89 million. This primarily reflects an increase in net loss of approximately $0.38 million, a decrease in deferred revenue/deferred costs of approximately $0.38 million and one-time cash payments of approximately $0.49 million related to Glimpse becoming a public company; offset by the non-cash loss on conversion of convertible notes of approximately $0.28 million.
Investing Activities
During the three months ended September 30, 2021, net cash used in investing activities was approximately $0.02 million, consistent to the prior period.
Financing Activities
Cash flow provided from financing activities during the three months ended September 30, 2021 was $11.87 million, primarily reflecting the net proceeds from our IPO. Financing activities were negligible during the same period of the prior year.
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Capital Resources
As of September 30, 2021 the Company had cash and cash equivalent balances of $12.6 million. In addition, on November 2, 2021, $13.6 million in net cash was raised from the sale of 1.50 million shares of common stock and warrants to purchase 0.75 million shares of common stock. As of November 15, 2021, the Company had cash and cash equivalent balances in excess of $25.0 million.
As of September 30, 2021 the Company had no outstanding debt obligation except for a $0.62 million Paycheck Protection Program 2 loan expected to be fully forgiven in the coming months.
As of September 30, 2021 the Company had no issued and outstanding preferred stock.
The Company believes that it is sufficiently funded to meet its operational plan and future obligations beyond the 12-month period from the date of this filing.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements as defined in Regulation S-K Item 303(a)(4).
Recently Adopted Accounting Pronouncements
Please see Note 3 of our June 30, 2021 consolidated financial statements that describe the impact, if any, from the adoption of Recent Accounting Pronouncements.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Not required for smaller reporting companies.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We maintain “disclosure controls and procedures,” as such term is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”), that are designed to provide reasonable assurance that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
Our management, with the participation of the Chief Executive Officer and the Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective as of the end of such period.
In designing and evaluating our disclosure controls and procedures, management recognized that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met. Additionally, in designing disclosure controls and procedures, we are required to apply judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. The design of any disclosure controls and procedures also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the 2013 framework set forth in the report entitled Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). The COSO framework summarizes each of the components of a company’s internal control system, including (i) the control environment, (ii) risk assessment, (iii) control activities, (iv) information and communication, and (v) monitoring.
Based on our evaluation, our management concluded that our internal control over financial reporting was effective as of September 30, 2021.
During the period ended September 30, 2021, 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, 2021 contains a discussion of the material risks associated with our business. There have been no material changes to the risks described in such Annual Report on Form 10-K.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Recent Sale of Unregistered Equity Securities
During the three months ended September 30, 2021, the Company issued 324,150 shares of Common Stock upon full conversions of $1.60 million of outstanding convertible promissory notes.
During the three months ended September 30, 2021, the Company issued an aggregate of 6,045 shares of Common Stock for consulting services.
Subsequent to September 30, 2021, the Company issued an aggregate of 11,847 shares of Common Stock for consulting services and employee compensation.
Each of the foregoing transactions was exempt from the registration requirements of the Securities Act of 1933, as amended, pursuant to Section 4(a)(2) thereof. In the alternative, the common stock issued upon the exercise of conversion rights is an exempt security pursuant to Section 3(a) (9) of the Securities Act of 1933, as amended.
Use of Proceeds
On June 30, 2021, our Registration Statement on Form S-1 (No. 333-255049)(“Registration Statement”) was declared effective by the SEC pursuant to which we issued and sold an aggregate of 1,912,500 shares of common stock, including shares issued pursuant to the exercise of the underwriter’s over-allotment option, at an initial public offering price of $7.00 per share for aggregate net cash proceeds of $11.82 million after deducting underwriting discounts and commissions, and offering costs borne by us. No payments for such expenses were made directly or indirectly to (i) any of our officers or directors or their associates, (ii) any persons owning 10% or more of any class of our equity securities or (iii) any of our affiliates. The sale and issuance of 1,912,500 shares closed on July 6, 2021. EF Hutton, a division of Benchmark Investments, LLC, acted as the sole book-running manager for the offering. There has been no material change in the planned use of proceeds from our initial public offering from that described in our Registration Statement.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures
Not Applicable.
Item 5. Other Information.
There have been no material changes to the procedures by which our securityholders may recommend nominees to the board of directors.
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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 15th day of November, 2021.
| THE GLIMPSE GROUP, INC. | |
| /s/ Lyron Bentovim | |
| Lyron Bentovim | |
| Chief Executive Officer, President | |
| (Principal Executive Officer) | |
| /s/ Maydan Rothblum | |
| Maydan Rothblum | |
| Chief Financial Officer | |
| (Principal Financial Officer) |
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