Glimpse Group Inc

**NOTE 1. DESCRIPTION OF BUSINESS **

The Glimpse Group, Inc. (“Glimpse”, the “Company”) is an Immersive technology company, providing Virtual Reality (“VR”), Augmented Reality(“AR”) and Spatial Computing software and services. Glimpse’s operating entities are located in the United States and Turkey. The Company was incorporated in the State of Nevada in June 2016.

Glimpse’s unique business model builds scale and a robust ecosystem, while simultaneously providing investors an opportunity to invest directly into this emerging industry via a diversified platform.

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

**NOTE 2. GOING CONCERN **

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

The Company has incurred recurring losses since its inception, including a net loss of approximately $1.01 million for the three months ended September 30, 2024. In addition, as of September 30, 2024, the Company had an accumulated deficit of $64.05 million. While the Company’s cash flow has improved in recent months, its cash and cash equivalents as of September 30, 2024 may not be sufficient to fund operations and other commitments for at least the next twelve months from the date of issuance of these condensed consolidated financial statements. Accordingly, the Company has concluded that substantial doubt exists about the Company’s ability to continue as a going concern for a period of at least 12 months from the date of issuance of these condensed consolidated financial statements.

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

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

Potential liquidity resources

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

**NOTE 3. NASDAQ LISTING NOTIFICATION **

On September 3, 2024, the Company received a notification letter from the Listing Qualifications Department of The Nasdaq Stock Market LLC (“Nasdaq”) notifying the Company that, because the closing bid price for the Company’s common stock listed on Nasdaq was below $1.00 for the prior 30 consecutive business days, the Company no longer meets the minimum bid price requirement for continued listing on the Nasdaq Capital Market. In accordance with Nasdaq Marketplace rules, the Company has a period of 180 calendar days from September 3, 2024, or until March 3, 2025, to regain compliance with the Minimum Bid Price Requirement. If at any time before March 3, 2025, the bid price of the Company’s common stock closes at or above $1.00 per share for a minimum of 10 consecutive business days, Nasdaq will provide written notification that the Company has achieved compliance with the Minimum Bid Price Requirement.

The Company’s receipt of the notification letter has no immediate effect on the listing of the Company’s shares, which will continue to trade uninterrupted on Nasdaq under the ticker “VRAR”. In addition, it does not affect the Company’s business, operations or reporting requirements with the Securities and Exchange Commission. In order to regain compliance with the Minimum Bid Price Requirements, the Company and its Board of Directors are reviewing various potential measures. The Company is not considering a reverse stock split at this time.

NOTE 4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of presentation

The unaudited condensed 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 condensed 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, 2024, the results of operations for the three months ended September 30, 2024 and 2023, and cash flows for the three months ended September 30, 2024 and 2023. The financial data and other information disclosed in these notes to the interim condensed financial statements related to these periods are unaudited. The results for the three months ended September 30, 2024 are not necessarily indicative of the results to be expected for the entire year ending June 30, 2025 or for any subsequent periods. The condensed consolidated balance sheet at June 30, 2024 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 condensed consolidated financial statements should be read in conjunction with our audited consolidated financial statements and notes thereto for the year ended June 30, 2024.

Principles of Consolidation

The accompanying condensed 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 condensed 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 condensed 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, allocation of the purchase price of assets relating to business combinations, calculation of contingent consideration for acquisitions, fair value of intangible assets and goodwill impairment.

Cash and Cash Equivalents

Cash and equivalents represent cash and short-term, highly liquid investments, that are both readily convertible to known amounts of cash and so near their maturity they present insignificant risk of changes in value because of changes in interest rates, with maturities three months or less at the date of purchase.

**Accounts Receivable **

Accounts receivable consists primarily of amounts due from customers under normal trade terms. We recognize accounts receivable at the amount we expect to collect from our customers. We provide an allowance for credit losses to reflect the estimated amount of accounts receivable that may not be collectible. We determine the allowance for credit losses through a combination of specific identification of troubled accounts, historical loss experience, industry trends, current market conditions, and customer creditworthiness. The allowance for credit losses is adjusted periodically to reflect changes in these factors. As of September 30 and June 30, 2024 no allowance for doubtful accounts was recorded as all amounts were considered collectible.

Customer Concentration and Credit Risk

Three customers accounted for approximately 65% (28%,19% and 17%, respectively) of the Company’s accounts receivable at September 30, 2024. Two of the same customers and a different customer accounted for approximately 49% (21%,16% and 12%, respectively) of the Company’s accounts receivable at June 30, 2024.

Two customers accounted for approximately 57% (29% and 28%, respectively) of the Company’s total gross revenues during the three months ended September 30, 2024. One of the same customers and a different customer accounted for approximately 50% (33% and 17%, respectively) of the Company’s total gross revenues during the three months ended September 30, 2023.

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

Business Combinations

The results of a business acquired in a business combination are included in the Company’s consolidated financial statements from the date of the acquisition. Acquisition 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 determining fair values of assets acquired and liabilities assumed in a business combination.

Intangible assets (other than Goodwill)

Intangible assets include developed technology purchased. Intangible assets are stated at allocated cost less accumulated amortization and less impairments. Amortization is computed using the straight-line method over the estimated useful lives of the related assets. The Company reviews intangibles, being amortized, for impairment when current events indicate that the fair value may be less than the carrying value.

**Goodwill **

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

**Impairment of Long-Lived Assets **

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

Fair Value of Financial Instruments

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

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

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

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

The Company classifies its cash equivalents 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 condensed consolidated balance sheets as of September 30 and June 30, 2024. Contingent consideration has been recorded at its fair values using unobservable inputs and have included, at the time of acquisition, 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, at times, the assistance of a third-party valuation specialist.

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

Revenue Recognition

Nature of Revenues

The Company reports its revenues in two categories:

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

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

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

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

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

Significant Judgments

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

Disaggregation of Revenue

The Company generated revenue for the three months ended September 30, 2024 and 2023 by delivering: (i) Software Services, consisting primarily of VR/AR/Spatial Computing software projects, solutions and consulting services, and (ii) Software Licenses & SaaS, consisting primarily of VR, AR and Spatial Computing software licenses or SaaS. The Company currently generates its revenues primarily from customers in the United States.

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

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

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

Timing of Revenue

The timing of revenue recognition for the years ended June 30, 2024 and 2023 was as follows:

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.

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

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

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

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

Unfulfilled performance obligations represent amounts expected to be earned by the Company on executed contracts. As of September 30, 2024 and 2023, the Company had approximately $5.56 million and $1.07 million, respectively, in unfulfilled performance obligations.

Employee Stock-Based Compensation

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

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

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.

Foreign Currency

Assets and liabilities recorded in foreign currency are translated at the exchange rate on the balance sheet date. Revenue and expenses are translated at average rates of exchange prevailing during the year. Translation adjustments resulting from this process, which are deminimis, are recorded in general and administrative expenses on the consolidated statement of operations.

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 greater than 50% likely of being realized. For tax positions that are not more likely than not of being sustained upon audit, the Company does not recognize any portion of the benefit.

The Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 740,Income Taxes, or ASC 740, also clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements and prescribes a recognition threshold and measurement process for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities. ASC 740 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. Based on the Company’s evaluation, it has been concluded that there are no significant uncertain tax positions requiring recognition in the Company’s consolidated financial statements. The Company believes that its income tax positions and deductions would be sustained on audit and does not anticipate any adjustments that would result in material changes to its financial position.

The Company’s policy for recording interest and penalties associated with audits is to record such expense as a component of income tax expense. There were no amounts accrued for penalties or interest for the three months ended September 30, 2024 and 2023. Management is currently unaware of any issues under review that could result in significant payments, accruals or material deviations from its position.

Earnings Per Share

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

Recent Accounting Pronouncements

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which includes amendments that further enhance income tax disclosures, primarily through standardization and disaggregation of rate reconciliation categories and income taxes paid by jurisdiction. The amendments are effective for the Company’s annual periods beginning July 1, 2025. The Company is currently evaluating the ASU to determine its impact on the Company’s disclosures.

NOTE 5. IMPAIRMENT OF GOODWILL AND LONG-LIVED ASSETS

PulpoAR, LLC (“Pulpo”)

During the three months ended September 30, 2023 a decision was made by the Company to divest the operations of its wholly owned subsidiary Pulpo due to poor revenue performance and non-strategic alignment. Accordingly, the fair value of intangible assets, including goodwill, originally recorded at the time of the purchase, were determined to be to be zero. The net assets of $0.89 million (consisting of intangible assets - technology with net book value of $0.51 million and goodwill of $0.38 million) were written-off and were included in goodwill impairment and intangible asset impairment on the condensed consolidated statement of operations for the three months year ended September 30, 2023.

For the three months ended September 30, 2023, Pulpo had revenue of $0.07 million and net loss of $0.25 million (exclusive of the goodwill and intangible asset impairment write-off), reported in the condensed consolidated statements of operations.

The divestiture did not have a material impact on the Company’s operations or financial results.

NOTE 6. GOODWILL AND INTANGIBLE ASSETS

The composition of goodwill as of September 30 and June 30, 2024 is as follows:

Intangible assets, their respective amortization period, and accumulated amortization as of September 30 and June 30, 2024 are as follows:

Intangible asset amortization expense for the three months ended September 30, 2024 and 2023 was approximately $0.13 million and $0.37 million, respectively.

Estimated intangible asset amortization expense for the remaining lives as of September 30, 2024 are as follows:

NOTE 7. FINANCIAL INSTRUMENTS

Cash and Cash Equivalents

The Company’s money market funds are categorized as Level 1 within the fair value hierarchy. As of September 30, and June 30, 2024, the Company’s cash and cash equivalents were as follows:

Contingent Consideration

As of September 30, and June 30, 2024, the Company’s contingent consideration liabilities related to acquisitions are categorized as Level 3 within the fair value hierarchy. Contingent consideration was valued at September 30, and June 30, 2024 using unobservable inputs, primarily internal revenue forecasts. Contingent consideration was valued at the time of acquisitions using unobservable inputs and have included using the Monte Carlo simulation model. This model incorporated revenue volatility, internal rate of return, and a risk-free rate. The development and determination of the unobservable inputs for Level 3 fair value measurements and fair value calculations are the responsibility of the Company’s management with the assistance, at times, of a third-party valuation specialist.

As of September 30, 2024, the Company’s contingent consideration liabilities current and non-current balances were as follows:

Revenue projections for Brightline Interactive, LLC (“BLI”) are expected to trigger potential additional gross consideration of $3.0 million over the remainder of the contingent consideration payout period ending in July 2025, payable in cash. The possibility of achieving any remaining revenue targets to trigger additional consideration is remote. Accordingly, contingent consideration remaining for the BLI acquisition at September 30, 2024 is calculated at the present value of the estimated remaining $3.0 million cash discounted at risk-free interest rates from the estimated payment dates. The range of potential additional contingent consideration related to BLI in excess of the amounts reflected on the balance sheet at September 30, 2024 iszero to $10.0 million (which is considered remote and no provision is made for it), of which up to $7.5 million is in cash and the remainder in the form of Company common stock (with share conversion at a $7.00 per share floor price).

The change in fair value of contingent consideration for BLI for the three months ended September 30, 2024 was a non-cash expense of approximately $0.07 million included as change in fair value of acquisition contingent consideration in the condensed consolidated statements of operations. This reflects the change in the time value of money related to the present value of payment calculation.

The change in fair value of contingent consideration for XR Terra, LLC (“XRT”) for the three months ended September 30, 2024 was a non-cash gain of approximately $0.04 million included as change in fair value of acquisition contingent consideration in the condensed consolidated statements of operations. This reflects the reversal of the estimated final consideration payment related to the acquisition of XRT. The contingent consideration payout period ended September 2024.

As of June 30, 2024, the Company’s contingent consideration liabilities current and non-current balances were as follows:

Revenue projections for BLI are expected to trigger potential additional gross consideration of $3.0 million over the remainder of the contingent consideration payout period ending in July, 2025, payable in cash. The possibility of achieving any remaining revenue targets to trigger additional consideration is remote. Accordingly, contingent consideration remaining for the BLI acquisition at June 30, 204 is calculated at the present value of the estimated remaining $3.0 million cash discounted at risk-free interest rates from the estimated payment dates.

The contingent consideration related to XRT at June 30, 2024 represents an accrual for anticipated achievement of an additional revenue threshold though the end of the contingent consideration period September 2024.

The change in fair value of contingent consideration for the three months ended September 30, 2023 was a non-cash gain of approximately $2.76 million included as change in fair value of acquisition contingent consideration in the condensed consolidated statements of operations. This was primarily driven by changes in the Company’s common stock price between the measurement dates and revisions to revenue projections for BLI and Sector 5 Digital, LLC (“S5D”).

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

As of September and June 30, 2024, deferred costs/contract assets totaling $320,372 and $170,781, respectively, consists of costs deferred under contracts not completed and recognized at a point in time ($288,014 and $135,057, respectively), and costs in excess of billings under contracts not completed and recognized over time ($32,358 and $35,724, respectively). As of September and June 30, 2024, deferred revenue/contract liabilities, totaling $447,858 and $72,788, respectively, consists of revenue deferred under contracts not completed and recognized at a point in time ($447,858 and $72,788, respectively), and billings in excess of costs under contracts not completed and recognized over time ($0 and $0 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:

NOTE 9. EQUITY

Securities Purchase Agreement (“SPA”)

On September 28, 2023, the Company entered into a SPA with certain institutional investors to sell 1,885,715 shares of common stock for approximately $3.30 million (at $1.75 per share). The Company realized net proceeds (after underwriting, professional fees and listing expenses) of $2.98 million on October 3, 2023. The net proceeds are recorded as a subscription receivable on the condensed consolidated statement of stockholders’ equity for the three months ended September 30, 2023.

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

Common Stock Issued

Common stock issued to Employees as Compensation

During the three months ended September 30, 2024, the Company issued 8,000 shares of common stock to an employee as compensation and recorded share-based compensation of approximately $0.01 million in sales and marketing expenses on the condensed consolidated statement of operations.

During the three months ended September 30, 2023, the Company issued approximately 55,000 shares of common stock to various employees as compensation and recorded share-based compensation of approximately $0.20 million in general and administrative and sales and marketing expenses on the condensed consolidated statement of operations.

Common stock issued to Vendors

During the three months ended September 30, 2023, the Company issued approximately 11,000 shares of common stock to various vendors for services performed and recorded share-based compensation of approximately $0.03 million, primarily in sales and marketing expenses on the condensed consolidated statement of operations.

Common stock issued for Exercise of Stock Options

During the three months ended September 30, 2023, the Company issued approximately 9,000 shares of common stock in cashless transactions upon exercise of the respective option grants and realized cash proceeds ofzero.

Common stock issued to satisfy Contingent Acquisition Obligations

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

Warrants

In connection with the July 2021 IPO and the November 2021 SPA, the Company issued warrants, which are exercisable into Company common shares on a one-for-one basis, as detailed below. No warrants have been exercised since issuance. The warrants are not publicly traded.

Employee Stock-Based Compensation

Stock Option issuance to Executives

In February 2023, pursuant to the Equity Incentive Plan, the Company granted certain executive officers 2.20 million stock options as a long-term incentive. The options have an exercise price of $7.00 per share.0.22 million of these options vest ratably over four years (“Initial Options”). The remainder (“Target Options”) vest in fixed amounts based on achieving various revenue or common stock prices within seven years of grant date. Given the Company’s current stock price and revenue, the Company views the achievement of the milestones that would trigger vesting of the Target Options as remote.

Equity Incentive Plan

The Company’s 2016 Equity Incentive Plan (the “Plan”), as amended, has approximately 12.2 million common shares reserved for issuance. As of September 30, 2024, there were approximately 5.6 million shares available for issuance under the Plan. The shares available are after the granting of 1.98 million shares of executive Target Options.

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

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 for the specific periods below are noted in the following table:

The grant date fair value for options granted during the three months ended September 30, 2024 and 2023 was approximately $0.10 million and $0.40 million, respectively.

The following is a summary of the Company’s stock option activity for the three months ended September 30, 2024 and 2023, excluding the executive Target Options:

The above table excludes executive Target Options:1,980,000 granted, $7.00 exercise price,8.4 remaining term in years, no intrinsic value. Vesting of these is considered remote.

The above table excludes executive Target Options:2,100,000 granted (includes 120,000 attributable to an executive who resigned in July 2024), $7.00 exercise price,9.7 remaining term in years, no intrinsic value. Vesting of these is considered remote.

The intrinsic value of stock options at September 30, 2024 and 2023 was computed using a fair market value of the common stock of $0.76 per share and $1.84 per share, respectively.

The Company’s stock option-based expense for the three months ended September 30, 2024 and 2023 consisted of the following:

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

At September 30, 2024 total unrecognized compensation expense to employees, board members and vendors related to stock options was approximately $2.06 million (excluding executive Target Options of $8.53 million) and is expected to be recognized over a weighted average period of 1.88 years (which excludes the executive Target Options).

NOTE 10. EARNINGS PER SHARE

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

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

Stock options include 1,980,000 and 2,100,000 executive Target Options as of June 30, 2024 and 2023, respectively.

NOTE 11. COMMITMENTS AND CONTINGENCIES

Lease Costs

The Company made cash payments for all operating leases for the three months ended September 30, 2024 and 2023, of approximately $0.19 million and $0.20 million, respectively, which were included in cash flows from operating activities within the condensed consolidated statements of cash flows. As of September 30, 2024, the Company’s operating leases have a weighted average remaining lease term of 1.03 years and weighted average discount rate of 8.56%.

The total rent expense for all operating leases for the three months ended September 30, 2024 and 2023, was approximately $0.11 million and $0.11 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 approximately 0 to 2 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 as of September 30, 2024 are as follows:

Contingent Consideration for Acquisitions

Contingent consideration for acquisitions, consists of the following as of September 30 and June 30, 2024, respectively (see Note 7):

S5D has significantly underperformed revenue expectations that were employed to determine fair value at acquisition. The possibility of achieving any remaining revenue targets to trigger additional consideration is remote and all earned consideration has been paid. Accordingly, there is no future contingent consideration recorded related to the S5D acquisition as of September 30 and June 30, 2024. The range of potential additional contingent consideration related to S5D in excess of the amounts reflected on the balance sheet at September 30, 2024 iszero to $10.0 million (which is considered remote and no provision is made for it) in the form of Company common stock (with share conversion at a $7.00 per share floor price). The contingent consideration payout period ends January 2025.

The range of potential contingent consideration related to the previous divestiture of AUGGD assets at September 30, 2024 iszero to $0.20 million (which is considered remote and no provision is made for it) payable in the form of Company common stock (with share conversion at a $7.00 per share floor price). The contingent consideration payout period ends December 2024.

Potential Future Distributions Upon Divestiture or Sale

In some instances, upon a divestiture or sale of a subsidiary company or capital raise into subsidiary company, the Company is contractually obligated to distribute a portion of the net proceeds or capital raise to the senior management team of the divested subsidiary company.

NOTE 12. SUBSEQUENT EVENTS

As part of its previously announced strategic realignment around Spatial Core and divestiture of non-core assets, effective October 1, 2024, the Company divested the business of its wholly owned subsidiary company QReal, LLC (“QReal”) and its related operating entity GLIMPSE GROUP YAZILIM VE ARGE TİCARET ANONİM ŞİRKET (“Glimpse Turkey”) in a management buyout by the current General Manager of QReal (the “Divestiture”).

The Company does not expect material changes to its expected revenues for years ended June 30, 2025 and 2026.

The Company retains the revenues from QReal’s largest customer in full until such time that the Company has collected and retained $1.35 million net cash in the aggregate, after taking into account all related operating expenses and fees (the “Milestone”). After satisfaction of the Milestone, the Company will receive a monthly cash revenue share for a period of 18 months in relation to any revenues generated from this same customer.

The Company was issued a $1.56 million senior secured convertible note by the purchasing (“New”) entity. Principal payback is tied directly to revenue collected by New entity (separate from the Milestone). The note converts to New entity equity upon certain equity capital raising of New entity, as defined. In addition, the Company was issued a 10% equity stake in New entity.

The approximate assets and liabilities to be divested from this transaction included on the condensed consolidated balance sheet as of September 30, 2024 were $0.14 million and $0.10 million, respectively. It is estimated that the Company will record a loss of approximately $0.10 million on the transaction when the accounting is finalized in the quarter ended December 31, 2024.