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. 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. LIQUIDITY AND CAPITAL RESOURCES

In December 2024, the Company completed a Securities Purchase Agreement (“SPA”) with an institutional investor selling 1.99 million shares of common stock and prefunded warrants to purchase up to 0.76 million shares of common stock that resulted in total net cash proceeds to the Company of $6.79 million. See Note 10.

As of the date that this financial statement was issued, the Company’s cash position was approximately $8.6 million, accounts receivable was approximately $0.80 million, contracted revenue backlog to be collected within one year was approximately $4.5 million, and the only non-operational liability is the potential $3.0 million cash payment of contingent consideration related to the Brightline Interactive, LLC (“BLI”) acquisition. As part of its previously announced strategic realignment around Spatial Computing and divestiture of non-core assets, net cash provided by operating activities was approximately $0.17 million for the three months ended December 31, 2024 and is expected to continue to be positive over the next twelve months. As such, the Company believes that it is sufficiently funded to meet its operational plan and future obligations beyond the 12-month period from the date that these financial statements were issued.

Given the above, doubt about the Company’s ability to continue as a going concern was alleviated and the accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern.

**NOTE 3. NASDAQ LISTING NOTIFICATION **

On December 24, 2024, the Company received written notice from the Nasdaq Stock Market LLC (“Nasdaq”) informing the Company that it had regained compliance with Nasdaq Listing Rule 5550(a)(2), which requires listed securities to maintain a minimum bid price of $1.00 per share. This closes the matter that originated on September 3, 2024.

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 December 31, 2024, the results of operations for the three and six months ended December 31, 2024 and 2023, and cash flows for the six months ended December 31, 2024 and 2023. The financial data and other information disclosed in these notes to the interim financial statements related to these periods are unaudited. The results for the three and six months ended December 31, 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 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 consolidated financial statements include the balances of Glimpse and its wholly owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.

Use of Accounting Estimates

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

The principal estimates relate to the valuation of allowance for doubtful accounts, stock options, warrants, revenue recognition, 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 December 31 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 80% (56%,14% and 10%, respectively) of the Company’s total gross revenues during the three months ended December 31, 2024. Two of the same customers accounted for approximately 65% (44% and 21%, respectively) of the Company’s total gross revenues during the six months ended December 31, 2024. One customer accounted for approximately 28% of the Company’s total gross revenues during the three months ended December 31, 2023. No other customer accounted for 10% or greater of gross revenue during the period. The same customer and another customer accounted for approximately 44% (22% and 22%, respectively) of the Company’s total gross revenues during the six months ended December 31, 2023.

Five customers accounted for approximately 89% (30%,25%,12%,11% and 11%, respectively) of the Company’s accounts receivable at December 31, 2024. Two of the same customers and a different customer accounted for approximately 50% (22%,16% and 12%, respectively) of the Company’s accounts receivable at June 30, 2024.

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.

**Goodwill **

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

Fair Value of Financial Instruments

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

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

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

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

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

The Company’s contingent consideration is categorized as Level 3 within the fair value hierarchy. Contingent consideration is recorded within contingent consideration, current, and contingent consideration, non-current, in the Company’s consolidated balance sheets as of December 31 and June 30, 2024. Contingent consideration has been recorded at its fair values using unobservable inputs and have included using the Monte Carlo simulation option pricing framework, incorporating contractual terms and assumptions regarding financial forecasts, discount rates, and volatility of forecasted revenue. The development and determination of the unobservable inputs for Level 3 fair value measurements and fair value calculations are the responsibility of the Company’s management with, 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 fulfills its obligations under each of its agreements:

●identify the contract with a customer;

● identify the performance obligations in the contract;

● determine the transaction price;

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

● recognize revenue as the performance obligation is satisfied;

● determine that collection is reasonably assured.

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

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

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

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

Significant Judgments

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

Disaggregation of Revenue

The Company generated revenue for the three and six months ended December 31, 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 three and six months ended December 31, 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 December 31, 2024 and 2023, the Company had approximately $4.56 million and $1.06 million, respectively, in unfulfilled performance obligations.

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.

Other Significant Accounting Policies

There have been no material changes to other significant accounting policies from those detailed in audited consolidated financial statements and notes thereto for the fiscal year ended June 30, 2024.

Reclassifications

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

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. QREAL AND GLIMPSE TURKEY DIVESTITURE

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 TICARET ANONIM SIRKET (“Glimpse Turkey”) in a management buyout by the General Manager of QReal.

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 assets, as defined, of Qreal/Glimpse Turkey, were sold in return for a $1.56 million senior secured convertible note from the purchasing (“New”) entity and a 10% equity stake in New entity. Principal payback of the note 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. The Company accounts for the investment in New entity at cost ($100) because the Company does not control or have significant influence over the investment.

The Company recorded a non cash gain on the divestiture of approximately $1.40 million which is included in general and administrative expenses on the condensed consolidated statement of operations for the three and six months ended December 31, 2024. The Company has also fully reserved against the note as collectability is considered remote and recorded a loan loss reserve of $1.50 million in general and administrative expenses on the condensed statement of operations for the three and six months ended December 31, 2024. The note reserve fully offsets the gain on divestiture detailed above.

Revenue from the divested business that is not being retained going forward was approximately $0.07 million and $0.13 million for the three and six months ended December 31, 2024, and approximately $0.07 million and $0.16 million for the three and six months ended December 31, 2023. The Company anticipates operational cost savings from the divestiture after only retaining direct expenses related to the retained QReal largest customer.

Pursuant to the original acquisition of QReal by the Company in 2016, upon sale of the entity the original sellers are due 8% (“economic interest”) of the Milestone proceeds. As the achievement of the Milestone is uncertain, liability for these payments will be recorded as actual Milestone proceeds occur. The Company recorded an expense of approximately $0.01 million related to the economic interest in general and administrative expense on the condensed consolidated statement of operations for the three and six months ended December 31, 2024.

NOTE 6. IMPAIRMENT OF GOODWILL AND LONG-LIVED ASSETS

PulpoAR, LLC (“Pulpo”)

During the six months ended December 31, 2023 the Company divested 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 $0.90 million (consisting of intangible assets - technology with net book value of $0.52 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 six months year ended December 31, 2023.

The assets, as defined, of Pulpo, were sold to an independent entity in return for a 10% interest in said entity and a $1.0 million note. The Company recorded a non cash $1.0 million gain on divestiture, which is included in general and administrative expenses on the condensed consolidated statement of operations for the three and six months ended December 31, 2023. The Company has fully reserved against the Note as collectability is considered remote and recorded a loan loss reserve against the note in general and administrative expenses on the condensed statement of operations for the three and six months ended December 31, 2023. This fully offsets the gain on divestiture detailed above.

For the three and six months ended December 31, 2023, Pulpo had revenue of $0 and $0.07 million, respectively, and net losses of $0.17 million and $0.43 million, respectively (exclusive of the goodwill and intangible asset impairment write-off), reported in the condensed consolidated statements of operations.

NOTE 7. GOODWILL AND INTANGIBLE ASSETS

The composition of goodwill at December 31 and June 30, 2024 is as follows:

Intangible assets, their respective amortization period, and accumulated amortization at December 31 and June 30, 2024 are as follows:

Intangible asset amortization expense for the three and six months ended December 31, 2024 was approximately $0.10 million and $0.23 million, respectively. Intangible asset amortization expense for the three and six months ended December 31, 2023 was approximately $0.29 million and $0.66 million, respectively.

Estimated intangible asset amortization expense as of December 31, 2024 for the remaining lives are as follows:

NOTE 8. FINANCIAL INSTRUMENTS

Cash and Cash Equivalents

The Company’s money market funds are categorized as Level 1 within the fair value hierarchy. As of December 31, and June 30, 2024, the Company’s cash and cash equivalents were as follows:

Contingent Consideration

As of December 31, 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 December 31, 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 December 31, 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 on July 31, 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 December 31, 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 December 31, 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 and six months ended December 31, 2024 was a non-cash expense of approximately $0.03 million and $0.10 million, respectively, 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 dates.

The change in fair value of contingent consideration for XR Terra, LLC (“XRT”) for the six months ended December 31, 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 31, 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 and six months ended December, 2023 was a non-cash gain of approximately $1.27 million and $4.03 million, respectively, 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 9. DEFERRED COSTS/CONTRACT ASSETS AND DEFERRED REVENUE/CONTRACT LIABILITIES

As of December 31 and June 30, 2024, deferred costs/contract assets totaling $222,784 and $170,781, respectively, consists of costs deferred under contracts not completed and recognized at a point in time ($222,784 and $135,057, respectively), and costs in excess of billings under contracts not completed and recognized over time ($0 and $35,724, respectively). As of December 31 and June 30, 2024, deferred revenue/contract liabilities, totaling $263,347 and $72,788, respectively, consists of revenue deferred under contracts not completed and recognized at a point in time ($263,347 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 10. EQUITY

Securities Purchase Agreements (“SPA”)

SPA 2024

On December 23, 2024, the Company completed a SPA with an institutional investor selling 1,990,000 shares of common stock at $2.65 per share and prefunded warrants to purchase up to 760,000 shares of common stock at $2.649 per warrant (which is convertible to one share of common stock on a one for one basis). The prefunded warrants have an exercise price of $0.001 per share of common stock, are immediately exercisable and may be exercised at any time until exercised in full (see Note 13).

The Company realized total net proceeds (after underwriting and professional fees) of $6.79 million from the SPA 2024.

SPA 2023

On October 2023, the Company completed a SPA with certain institutional investors selling 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 $2.97 million.

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

Exercise of Warrants

On December 19, 2024, an institutional investor exercised warrants (issued in connection with a November 2021 SPA) convertible into 100,000 shares of common stock. The Company realized proceeds of $0.18 million ($1.75 per share).

Common stock issued to Employees as Compensation

During the six months ended December 31, 2024, the Company issued 16,000 unrestricted 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 six months ended December 31, 2023, the Company issued approximately 61,000 unrestricted shares of common stock to various employees as compensation and recorded share-based compensation of approximately $0.21 million in general and administrative and sales and marketing expenses on the condensed consolidated statement of operations.

Common stock issued to Vendors

During the six months ended December 31, 2023, the Company issued approximately 29,000 unrestricted shares of common stock to various vendors for services performed and recorded share-based compensation of approximately $0.07 million, primarily in sales and marketing expenses on the condensed consolidated statement of operations.

Common stock issued for Exercise of Stock Options

During the six months ended December 31, 2024, the Company issued approximately 8,000 shares of common stock in cashless transactions upon exercise of the respective option grants and realized cash proceeds ofzero.

During the six months ended December 31, 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 six months ended December 31, 2024, the Company issued approximately 36,000 unrestricted shares of common stock, with a fair value of approximately $0.13 million, to satisfy a contingent acquisition obligation for the achievement of a revenue performance milestone by XR Terra.

Warrants

In connection with the July 2021 IPO, the November 2021 SPA and the December 2024 SPA, the Company issued warrants, which are exercisable into Company common shares on a one-for-one basis, as detailed below. The warrants are not publicly traded.

The only warrants exercised since issuance are 100,000 warrants from the November 2021 SPA exercised in December 2024.

The remaining outstanding warrants as of December 31, 2024 are (see Note 13):

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 December 31, 2024, there were approximately 6.1 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 six months ended December 31, 2024 and 2023 was approximately $0.11 million and $0.41 million, respectively.

The following is a summary of the Company’s stock option activity for the six months ended December 31, 2024 and 2023, excluding the executive Target Options:

The above table excludes executive Target Options:1,980,000 granted, $7.00 exercise price,8.12 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,9.1 remaining term in years, no intrinsic value. Vesting of these is considered remote.

The intrinsic value of stock options at December 31, 2024 and 2023 was computed using a fair market value of the common stock of $2.47 per share and $1.13 per share, respectively.

The Company’s stock option-based expense for the three months ended December 31, 2024 and 2023 consisted of the following:

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

At December 31, 2024 total unrecognized compensation expense to employees, board members and vendors related to stock options was approximately $1.39 million (excluding executive Target Options vested value of $8.53 million, which vesting is considered remote) and is expected to be recognized over a weighted average period of 1.70 years (which excludes the executive Target Options).

NOTE 11. 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 for the six months ended December 31, 2024 and for the three and six months ended December 31, 2023 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 at December 31, 2024 and 2023, respectively. Vesting of these is considered remote.

NOTE 12. COMMITMENTS AND CONTINGENCIES

Lease Costs

The Company made cash payments for all operating leases for the six months ended December 31, 2024 and 2023, of approximately $0.11 million and $0.19 million, respectively, which were included in cash flows from operating activities within the consolidated statements of cash flows. As of December 31, 2024, the Company’s operating leases have a weighted average remaining lease term of 0.89 years and weighted average discount rate of 8.10%.

The total rent expense for all operating leases for the three months ended December 31, 2024 and 2023, was approximately $0.09 million and $0.12 million, respectively, with short-term leases making up an immaterial portion of such expenses.

The total rent expense for all operating leases for the six months ended December 31, 2024 and 2023, was approximately $0.20 million and $0.14 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 December 31, 2024 are as follows:

Contingent Consideration for Acquisitions

Contingent consideration for acquisitions consists of the following as of December 31 and June 30, 2024, respectively (see Note 8):

In addition, 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 December 31 and June 30, 2024. The range of potential additional contingent consideration related to S5D in excess of the amounts reflected on the balance sheet as of December 31, 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 31, 2025.

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. No material distribution payments are currently owed. See Note 5.

NOTE 13. SUBSEQUENT EVENTS

In January 2025, the warrants issued in connection with the SPA 2024 were exercised in full, resulting in the issuance of 760,000 shares of common stock. The Company realized proceeds of $760 ($0.001 per share). See Note 10.