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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

 

FORM 10-Q

 

 

 

(Mark One)

 

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

 

For the quarterly period ended December 31, 2021

 

OR

 

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

 

For the transition period from to

Commission File Number: 001-40556

 

 

 

THE GLIMPSE GROUP, INC.

(Exact name of registrant as specified in its charter)

 

 

 

Nevada   81-2958271

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification Number)

     

15 West 38th St., 9th Fl

New York, NY

  10018
(Address of principal executive offices)   (Zip Code)

 

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

 

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

 

Title of each class

 

Trading Symbol

 

Name of each exchange on which registered

Common Stock, par value $0.001 per share   VRAR   NASDAQ Stock Market LLC

 

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

 

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

 

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

 

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

 

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

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

 

As of February 10, 2022, the registrant had 12,609,083 shares of common stock, par value $0.001 per share, outstanding.

 

 

 

 

 

 

THE GLIMPSE GROUP, INC.

TABLE OF CONTENTS

 

      Page No.
PART I   FINANCIAL INFORMATION  
ITEM 1.   FINANCIAL STATEMENTS (Unaudited) 3
    Consolidated Balance Sheets 4
    Consolidated Statements of Operations 5
    Consolidated Statements of Stockholders’ Equity (Deficit) 6
    Consolidated Statements of Cash Flows 8
    Notes to Consolidated Financial Statements 9
ITEM 2.   MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 22
ITEM 3.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 29
ITEM 4.   CONTROLS AND PROCEDURES 29
PART II   OTHER INFORMATION 31
ITEM 1.   LEGAL PROCEEDINGS 31
ITEM 1A.   RISK FACTORS 31
ITEM 2.   UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS 31
ITEM 6.   EXHIBITS 31
SIGNATURES     33

 

2

 

 

THE GLIMPSE GROUP, INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

  Page
Index to Consolidated Financial Statements (Unaudited) 3
Consolidated Balance Sheets 4
Consolidated Statements of Operations 5
Consolidated Statements of Stockholders’ Equity (Deficit) 6
Consolidated Statements of Cash Flows 8
Notes to Consolidated Financial Statements 9-21

 

3

 

 

THE GLIMPSE GROUP, INC.

CONSOLIDATED BALANCE SHEETS

 

  As of
December 31, 2021
(Unaudited) 		    As of
June 30, 2021
(Audited) 		 
ASSETS                
Cash and cash equivalents   $ 24,828,043     $ 1,771,929  
Investments     247,430       -  
Accounts receivable     1,287,735       626,244  
Deferred costs     21,030       29,512  
Pre-offering costs     -       470,136  
Acquisition escrow     4,000,000       -  
Prepaid expenses and other current assets     479,512       281,047  
Total current assets     30,863,750       3,178,868  
                 
Equipment, net     76,899       42,172  
Other assets     64,000       -  
Intangible assets, net     712,501       -  
Goodwill     550,000       -  
Total assets   $ 32,267,150     $ 3,221,040  
                 
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)                
Accounts payable   $ 142,774     $ 381,510  
Accrued liabilities     105,655       168,745  
Accrued bonuses     406,505       440,357  
Accrued legacy acquisition expense     460,000       1,250,000  
Deferred revenue     98,736       98,425  
Total current liabilities     1,213,670       2,339,037  
                 
Long term liabilities                
Paycheck Protection Program loan     623,828       623,828  
Convertible promissory notes, net     -       1,429,953  
Total liabilities     1,837,498       4,392,818  
Commitments and contingencies     -       -  
Stockholders’ Equity (Deficit)                
Preferred Stock, par value $0.001 per share, 20 million shares
authorized;0 shares issued and outstanding 		    -       -  
Common Stock, par value $0.001 per share, 300 million shares
authorized; 12,480,416 and 7,579,285 issued and outstanding 		    12,480       7,580  
Additional paid-in capital     55,764,735       20,936,050  
Accumulated deficit     (25,347,563 )     (22,115,408 )
Total stockholders’ equity (deficit)     30,429,652       (1,171,778 )
Total liabilities and stockholders’ equity (deficit)   $ 32,267,150     $ 3,221,040  

 

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

 

4

 

 

THE GLIMPSE GROUP, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

 

    2021     2020     2021     2020  
    For the Three Months Ended     For the Six Months Ended  
    December 31     December 31  
    2021     2020     2021     2020  
Revenue                        
Software services   $ 1,613,195     $ 1,191,222     $ 2,417,913     $ 1,378,874  
Software license/software as a service     76,807       68,623       294,622       140,898  
Total Revenue     1,690,002       1,259,845       2,712,535       1,519,772  
Cost of goods sold     212,254       546,192       357,641       683,316  
Gross Profit     1,477,748       713,653       2,354,894       836,456  
Operating expenses:                                
Research and development expenses     1,190,490       588,766       2,179,874       1,325,516  
General and administrative expenses     1,197,109       372,990       1,976,838       708,988  
Sales and marketing expenses     665,677       445,279       1,170,364       734,755  
Total operating expenses     3,053,276       1,407,035       5,327,076       2,769,259  
Net loss from operations before other income (expense)     (1,575,528 )     (693,382 )     (2,972,182 )     (1,932,803 )
                                 
Other income (expense)                                
Other income     -       -       -       10,000  
Interest income     134       730       19,757       1,264  
Interest expense     -       (48,437 )     -       (96,874 )
Loss on conversion of convertible notes     -       -       (279,730 )     -  
Total other income (expense), net     134       (47,707 )     (259,973 )     (85,610 )
Net Loss   $ (1,575,394 )   $ (741,088 )   $ (3,232,155 )   $ (2,018,412 )
                                 
Basic and diluted net loss per share   $ (0.14 )   $ (0.11 )   $ (0.30 )   $ (0.29 )
Weighted-average shares used to compute basic and diluted net loss per share     11,637,318       7,053,986       10,802,570       7,046,510  

 

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 DECEMBER 31, 2021

(Unaudited)

 

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

 

THE GLIMPSE GROUP, INC.

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (DEFICIT)

FOR THE SIX MONTHS ENDED DECEMBER 31, 2021

(Unaudited)

 

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

 

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

 

6

 

 

THE GLIMPSE GROUP, INC.

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ DEFICIT

FOR THE THREE MONTHS ENDED DECEMBER 31, 2020

(Unaudited)

 

    Common Stock     Additional Paid-In     Accumulated        
    Shares     Amount      Capital     Deficit     Total  
Balance as of October 1, 2020     7,044,861     $ 7,045     $      16,565,974     $ (17,301,045 )   $ (728,026 )
Sale of common stock to investors     50,572       51       227,604       -       227,655  
Common stock issued for convertible note conversion     14,444       14       64,986       -       65,000  
Common stock issued to vendors for compensation     4,666       4       20,996       -       21,000  
Stock option-based compensation expense     -       -       659,180       -       659,180  
Stock option-based board of directors expense     -       -       41,532       -       41,532  
Net loss     -       -       -       (741,088 )     (741,088 )
Balance as of December 31, 2020     7,114,543     $ 7,114     $ 17,580,272     $ (18,042,133 )   $ (454,747 )

 

THE GLIMPSE GROUP, INC.

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ DEFICIT

FOR THE SIX MONTHS ENDED DECEMBER 31, 2020

(Unaudited)

 

    Common Stock     Additional Paid-In     Accumulated        
    Shares     Amount      Capital     Deficit     Total  
Balance as of July 1, 2020     7,035,771     $ 7,036     $      15,710,996     $ (16,023,721 )   $ (305,689 )
Sale of common stock to investors     52,995       53       238,422       -       238,475  
Common stock issued for convertible note conversion     14,444       14       64,986       -       65,000  
Common stock issued to vendors for compensation     11,333       11       50,989       -       51,000  
Stock option-based compensation expense     -       -       1,431,815       -       1,431,815  
Stock option-based board of directors expense     -       -       83,064       -       83,064  
Net loss     -       -       -       (2,018,412 )     (2,018,412 )
Balance as of December 31, 2020     7,114,543     $ 7,114     $ 17,580,272     $ (18,042,133 )   $ (454,747 )

 

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

 

7

 

 

THE GLIMPSE GROUP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

(Unaudited)

 

                 
 

For the Six

Months Ended
December 31, 2021

   

For the Six

Months Ended
December 31, 2020

 
Cash flows from operating activities:                
Net loss   $ (3,232,155 )   $ (2,018,412 )
Adjustments to reconcile net loss to net cash used in operating activities:                
Amortization and depreciation     102,851       12,198  
Amortization of paid-in kind common stock interest on convertible notes     -       96,874  
Common stock and stock option based compensation for employees and board of directors     1,289,381       1,534,416  
Issuance of common stock to vendors as compensation     147,895       51,000  
Loss on conversion of convertible notes     279,730       -  
                 
Changes in operating assets and liabilities:                
Accounts receivable     (661,491 )     (188,907 )
Pre-offering costs     470,136       -  
Prepaid expenses and other current assets     (359,921 )     (16,452 )
Deferred costs     3,181       (115,537 )
Other assets     (64,000 )     -  
Accounts payable     (238,736 )     (45,275 )
Accrued liabilities     (63,090 )     (31,733 )
Accrued bonuses     (33,852 )     -  
Deferred revenue     311       (54,416 )
Net cash used in operating activities     (2,359,760 )     (776,244 )
Cash flow from investing activities:                
Purchases of equipment     (50,080 )     (15,036 )
Asset acquisition     (300,000 )     -  
Purchase of investments     (247,430 )     -  
Net cash used in investing activities     (597,510 )     (15,036 )
Cash flows from financing activities:                
Proceeds from initial public offering, net     11,821,364       -  
Proceeds from securities purchase agreement, net     13,578,400       -  
Proceeds from issuance of common equity to investors     -       225,705  
Proceeds from exercise of stock options     613,620       -  
Net cash provided by financing activities     26,013,384       225,705  
                 
Net change in cash and cash equivalents     23,056,114       (565,575 )
Cash and cash equivalents, beginning of year     1,771,929       1,034,846  
Cash and cash equivalents, end of period   $ 24,828,043     $ 469,271  
Non-cash Investing and Financing activities:                
Common stock issued for acquisitions   $ 1,050,000     $ -  
Common stock issued and escrowed for acquisition   $ 4,000,000     $ -  
Conversion of convertible promissory notes into common stock   $ 1,606,176     $ 65,000  
Issuance of warrants in connection with initial public offering   $ 522,360     $ -  
Issuance of warrants in connection with securities purchase agreement   $ 8,797,546     $ -  
Issuance of common stock for satisfaction of legacy acquisition liability   $ 790,000     $ -  
Common stock subscription receivable   $ -     $ 12,770  

 

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

 

8

 

 

THE GLIMPSE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

DECEMBER 31, 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 eleven 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, MotionZone, LLC (which, along with its subsidiary, The Glimpse Group Australia Pty Ltd, are dba AUGGD), XR Terra, LLC (dba XR Terra), and a 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.

 

In December 2021, the Company entered into a definitive agreement to purchase Sector 5 Digital, LLC (“S5D”), an enterprise focused, immersive technology company. The purchase closed in February 2022. See Notes 8 and 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. In addition, pursuant to a Securities Purchase Agreement (“SPA”) the Company sold additional common stock to certain institutional investors in November 2021. See Note 8.

 

NOTE 2. LIQUIDITY AND CAPITAL RESOURCES

 

The Company incurred a loss of $3.23 million during the six months ended December 31, 2021, compared to a loss of $2.02 million during the six months ended December 31, 2020. The loss was incurred as the Company funded operational expenses, primarily research and development, general and administrative, and sales and marketing costs.

 

On July 1, 2021, the Company completed an IPO in which, as a result of the sale of its common shares at $7.00 per share, it raised approximately $11.8 million in net proceeds after fees and expenses. See Note 8. Furthermore, in November 2021 the Company completed a SPA whereby it sold additional common shares that resulted in approximately $13.6 million in net proceeds after fees and expenses. See Note 8.

 

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 $19 million following the purchase of S5D (see Note 11), will be sufficient to meet its anticipated cash requirements for at least twelve months from the date that these financial statements are issued. However, should the Company’s current cash and cash equivalents not be sufficient to support the development of its business to the point at which it has positive cash flows from operations, the Company plans to meet its future needs for additional capital through equity and/or debt financings. Equity financings may include sales of common stock. Such financing may not be available on terms favorable to the Company or at all. If the Company is unable to obtain adequate financing or financing on terms satisfactory to it when required, the Company’s ability to continue to support its business growth, scale its infrastructure, develop product enhancements and to respond to business challenges could be significantly impaired.

 

9

 

 

THE GLIMPSE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

DECEMBER 31, 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 December 31, 2021, the results of operations for the three and six months ended December 31, 2021 and 2020, and cash flows for the six months ended December 31, 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 and six months ended December 31, 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, warrants, 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 December 31, 2021 and June 30, 2021, no allowance for doubtful accounts was recorded as all amounts were considered collectible.

 

Customer Concentration and Credit Risk

 

Two customers accounted for approximately 75% (45% and 30%, respectively) of the Company’s total gross revenues during the three months ended December 31, 2021. The same two customers accounted for approximately 67% (49% and 18%, respectively) of the Company’s total gross revenues during the six months ended December 31, 2021.

 

10

 

 

THE GLIMPSE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

DECEMBER 31, 2021 AND 2020

 

Two customers accounted for approximately 63% (42% and 21%, respectively) of the Company’s total gross revenues during the three months ended December 31, 2020. The same two customers accounted for approximately 53% (35% and 18%, respectively) of the Company’s total gross revenues during the six months ended December 30, 2020.

 

Two customers accounted for approximately 83% (44% and 39%, respectively) of the Company’s accounts receivable at December 31, 2021. One of those customers, and along with a different customer, accounted for approximately 71% (57% and 14%, respectively) of the Company’s accounts receivable at June 30, 2021.

 

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.

 

Intangible assets (other than Goodwill)

 

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. The Company reviews intangibles for impairment when current events indicate that the fair value may be less than the carrying value.

 

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 asset acquisitions, see Note 4.

 

Fair Value of Financial Instruments

 

The carrying amounts of the Company’s financial instruments, such as investments, 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.

 

11

 

 

THE GLIMPSE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

DECEMBER 31, 2021 AND 2020

 

Revenue Recognition

 

Nature of Revenues

 

The Company reports its revenues in two categories:

 

  ● Software Services: Virtual and Augmented Reality projects, solutions and consulting services.
     
  ● Software License and Software-as-a-Service (“SaaS”): Virtual and Augmented Reality software that is sold either as a license or as a SaaS subscription.

 

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

 

  ● identify the contract with a customer;
     
  ● identify the performance obligations in the contract;
     
  ● determine the transaction price;
     
  ● allocate the transaction price to performance obligations in the contract;
     
  ● recognize revenue as the performance obligation is satisfied;
     
  ● determine that collection is reasonably assured.

 

Revenue is recognized when the Company satisfies its performance obligation under the contract by transferring the promised product to its customer or service is performed and collection is reasonably assured. A performance obligation is a promise in a contract to transfer a distinct product or service to a customer. 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 consultants and 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 and six months ended December 31, 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.

 

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 the customer accepts delivery. If there are significant contractually stated ongoing service obligations to be performed during the term of the Software License or SaaS contract, then revenues are recognized ratably over the term of the contract.

 

12

 

 

THE GLIMPSE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

DECEMBER 31, 2021 AND 2020

 

Timing of Revenue

 

The timing of revenue recognition for the three and six months ended December 31, 2021 and 2020 was as follows:

 

    2021     2020     2021     2020  
    For the Three Months Ended     For the Six Months Ended  
    December 31,     December 31,  
    2021     2020     2021     2020  
Products transferred at a point in time   $ 1,634,998     $ 1,099,423     $ 2,590,749     $ 1,292,598  
Products and services transferred over time     55,004       160,422       121,786       227,174  
Total Revenue   $ 1,690,002     $ 1,259,845     $ 2,712,535     $ 1,519,772  

 

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).

 

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 December 31, 2021, the Company had approximately $1.55 million in unfulfilled performance obligations.

 

Employee Stock-Based Compensation

 

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

 

The Company values the options using the Black-Scholes Merton (“Black Scholes”) method utilizing various inputs such as expected term, expected volatility and the risk-free rate. The expected term reflects the application of the simplified method, which is the weighted average of the contractual term of the grant and the vesting period for each tranche. Expected volatility is derived from a weighted average of volatility inputs for the Company 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.

 

13

 

 

THE GLIMPSE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

DECEMBER 31, 2021 AND 2020

 

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 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 and six months ended December 31, 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.

 

Earnings Per Share

 

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

 

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

 

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.

 

14

 

 

THE GLIMPSE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

DECEMBER 31, 2021 AND 2020

 

NOTE 4. ASSET ACQUISITIONS

 

AUGGD

 

In August 2021, the Company, through its wholly owned subsidiary company, MotionZone, LLC (dba AUGGD), completed an acquisition of certain assets, as defined, from Augmented Reality Investments Pty Ltd, 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.

 

Initial consideration for the purchase was $0.75 million payable in Company common stock. In August 2021, the Company issued 77,264 shares of common stock to satisfy the purchase price. The acquisition agreement provides for additional contingent consideration in the form of Company common stock if certain future revenue targets are achieved through June 2024, which is not expected at this time. No liabilities were assumed as part of the acquisition and the primary assets acquired included employees, customer relationships and technology. The Company recorded the purchase price allocation as follows:

 

         
Intangible Assets   $ 500,000  
Goodwill     250,000  
Total   $ 750,000  

 

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.

 

XR Terra

 

In October 2021, the Company, through its wholly owned subsidiary company, XR Terra, LLC, completed an acquisition of certain assets, as defined in the agreement, from XR Terra, Inc., a developer of teaching platforms utilized in coding software used in VR and AR programming.

 

Initial consideration for the purchase was $0.60 million payable 50% in Company common stock and 50% in cash. In October 2021, the Company paid $0.30 million in cash and issued 33,877 shares of common stock to satisfy the purchase price. The acquisition agreement provides for additional contingent consideration in the form of Company common stock if certain future revenue targets are achieved through September 2024, which is not expected at this time. No liabilities were assumed as part of the acquisition and the primary assets acquired included employees and technology. The Company recorded the purchase price allocation as follows:

 

         
Intangible Assets   $ 300,000  
Goodwill     300,000  
Total   $ 600,000  

 

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 XR Terra 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.

 

15

 

 

THE GLIMPSE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

DECEMBER 31, 2021 AND 2020

 

NOTE 5. INTANGIBLE ASSETS

 

The Company recorded intangible assets in connection with its asset purchases of AUGGD and XR Terra (see Note 4). The intangible assets, their respective amortization period, and accumulated amortization at December 31, 2021 are as follows:

 

    As of December 31, 2021  
    Value ($)     Amortization Period (Years)  
    AUGGD     XR Terra     Total        
Intangible Assets                                    
Customer Relationships   $ 250,000     $ -     $ 250,000       3  
Technology     250,000       300,000       550,000       3  
Less: Accumulated Amortization     (62,500 )     (24,999 )     (87,499 )        
Intangible Assets, net   $ 437,500     $ 275,001     $ 712,501          

 

Intangible asset amortization expense for the three and six months ended December 31, 2021 was $20,834 and $87,499, respectively.

 

Estimated intangible asset amortization expense for the next four years is as follow:

 

         
Remaining FYE June 30, 2022   $ 133,333  
Fiscal Year Ended June 30, 2023     266,667  
Fiscal Year Ended June 30, 2024     266,667  
Fiscal Year Ended June 30, 2025     45,834  

 

NOTE 6. 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 $750,000 of additional acquisition cost. In accordance with GAAP, the cost has been accrued as a legacy acquisition liability on the Company’s balance sheet at June 30, 2021. This obligation was satisfied in August 2021 through the issuance of common stock in settlement of 375,000 stock options at $2.00 per share.

 

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 $500,000 of additional acquisition cost. In accordance with GAAP, the cost has been accrued as a legacy acquisition liability on the Company’s balance sheet at June 30, 2021. This obligation was partially satisfied in December 2021 through the issuance of common stock in settlement of 20,000 stock options at $2.00 per share. Also, see Note 11.

 

NOTE 7. DEBT

 

Convertible Promissory Notes 1

 

In December 2019, the Company raised $1.33 million by the issuance of unsecured Convertible Promissory Notes with a three-year term (the “Note 1” or “Notes 1”), primarily from existing Company investors.

 

16

 

 

THE GLIMPSE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

DECEMBER 31, 2021 AND 2020

 

The Notes 1 bore an interest rate of 10% per annum.

 

The Notes 1 were convertible by a Note 1 holder at any time during the term into common stock of the Company at a fixed price of $4.50/share, or approximately 295,000 shares of common stock upon full conversion. Interest expense on the Notes 1 was approximately $48,500 and $97,000 for the three and six months ended December 31, 2020, respectively, representing amortization of the original issue discount and prepaid interest for the period.

 

In December 2020 and primarily in January 2021, Note 1 holders converted approximately $1.21 million of principal into approximately 0.30 million shares of common stock at a revised (to encourage early conversion) conversion price of $4.00/share.

 

The holders of the remaining unconverted Notes 1, equating to approximately $117,000 (net of original discount of approximately $8,000) of outstanding principal at June 30, 2021, amended their Notes 1 to allow for auto conversion upon the Company’s potential IPO event at a conversion price of $4.25/share. As per the amendment, the residual Notes 1 converted upon the IPO and no further obligations existed. See Note 8.

 

The Company recorded a loss on conversion of the remaining Notes 1 of approximately $18,000 at time of the IPO, representing unamortized original issue discount and prepaid interest.

 

Convertible Promissory Notes 2

 

In March 2021, the Company raised $1.48 million by the issuance of unsecured Convertible Promissory Notes with a two-year term (the “Notes 2”), to several investors.

 

The Notes 2 bore an interest rate of 10% per annum.

 

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 $5.00/share, or 295,000 shares of common stock upon full conversion. Notes 2 had a maturity date of March 5, 2023. All outstanding amounts at the time of the Company’s IPO automatically converted at $5.00/share in the aggregate. Convertible Notes 2 totaled approximately $1.313 million (net of original issue discount of approximately $162,000) at June 30, 2021. The Notes 2 converted upon the IPO and no further obligations existed. See Note 8.

 

The Company recorded a loss on conversion of the Notes 2 of approximately $262,000 at time of the IPO, representing unamortized original issue discount and prepaid interest.

 

NOTE 8. EQUITY

 

Initial Public Offering (“IPO”)

 

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

 

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

 

In connection with the IPO, and for services rendered, the underwriter was issued a warrant to purchase 87,500 shares of common stock at $7.00 per share. The warrant cannot be exercised prior to December 30, 2021 and expires in June 2026. The warrant was valued at approximately $520,000 based on the Black-Scholes options pricing model method with the following assumptions: 5 year expected term, 129% expected volatility, 0.87% risk-free rate and 0% expected dividend yield.

 

As stated in Note 7, in conjunction with the IPO, the outstanding convertible promissory Notes 1 and 2 were satisfied in full through the issuance of 324,150 shares of common stock. A loss of approximately $280,000 was recorded on this conversion at the time of the IPO.

 

17

 

 

THE GLIMPSE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

DECEMBER 31, 2021 AND 2020

 

Securities Purchase Agreement (“SPA”)

 

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

 

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

 

Common Stock Issued

 

Common stock sold to Investors

 

During the six months ended December 31, 2021, the Company sold approximately 1.91 million shares of common stock to investors at the IPO at a price of $7.00 per share, for total net proceeds of approximately $11.82 million. In addition, the Company sold 1.50 million shares of common stock to investors pursuant to a SPA at a price of $10.00 per share (including unexercised warrants), for total net proceeds of approximately $13.58 million.

 

During the six months ended December 31, 2020, the Company sold approximately 53,000 shares of common stock to investors at a price of $4.50 per share, for total net proceeds of approximately $239,000.

 

Common stock issued to Investors

 

During the six months ended December 31, 2021, in connection with the conversion of convertible promissory notes and in conjunction with the IPO, the Company issued 324,150 shares of common stock (see Note 7). During the six months ended December 31, 2020, in connection with the conversion of Notes 1, the Company issued 14,444 shares of common stock (see Note 7).

 

Common stock issued for Acquisitions

 

During the six months ended December 31, 2021, the Company issued approximately 111,000 shares of common stock, valued at $1.05 million, as consideration for the acquisition of AUGGD and XR Terra (see Note 4). In addition, the Company issued approximately 277,000 shares of common stock, valued at $4.0 million, as consideration for the acquisition of S5D, which were escrowed until closing on the S5D acquisition in February 2022 (see Note 11). The escrowed shares are recorded as Acquisition escrow assets on the December 31, 2021 balance sheet.

 

Common stock issued for Legacy Acquisition Obligation

 

During the six months ended December 31, 2021, the Company issued 395,000 shares of common stock to satisfy legacy acquisition obligations of $790,000 (see Note 6).

 

Common stock issued to Vendors

 

During the six months ended December 31, 2021 and 2020, the Company issued approximately 13,400 and 11,300 shares of common stock, respectively, to various vendors for services performed and recorded share-based compensation of approximately $148,000 and $51,000, respectively.

 

18

 

 

THE GLIMPSE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

DECEMBER 31, 2021 AND 2020

 

Common stock issued for Exercise of Stock Options

 

During the six months ended December 31, 2021, the Company issued approximately 357,000 shares of common stock upon exercise of the respective option grants, and realized cash proceeds of approximately $614,000.

 

Common stock-based Compensation expense

 

During the six months ended December 31, 2021, the Company issued approximately 11,000 shares of common stock, to an employee and recorded share-based compensation of approximately $96,000.

 

Employee Stock-Based Compensation

The Company’s 2016 Equity Incentive Plan (the “Plan”), as amended, has 10 million common shares reserved for issuance. As of December 31, 2021, there were approximately 5.26 million shares available for issuance under the Plan.

 

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

 

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

 

                               
    For the Three Months Ended December 31,     For the Six Months Ended December 31,  
    2021     2020     2021     2020  
Weighted average expected terms (in years)     5.6       5.0       5.5       5.1  
Weighted average expected volatility     229.3 %     117.25 %     171.4 %     117.25 %
Weighted average risk-free interest rate     1.2 %     0.4 %     1.0 %     0.3 %
Expected dividend yield     0.0 %     0.0 %     0.0 %     0.0 %

 

The grant date fair value, for options granted during the six months ended December 31, 2021 and 2020 was approximately $1.29 million and $0.50 million, respectively.

 

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

 

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

 

19

 

 

THE GLIMPSE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

DECEMBER 31, 2021 AND 2020

 

The Company’s stock option-based expense for the three and six months ended December 31, 2021 and 2020 consisted of the following:

 

                               
    For the Three Months Ended     For the Six Months Ended  
    December 31     December 31  
    2021     2020     2021     2020  
Stock option-based expense :                                
Research and development expenses   $ 257,911     $ 199,169     $ 605,508     $ 603,081  
General and administrative expenses     57,929       197,851       124,572       296,014  
Sales and marketing expenses     112,847       146,108       240,839       245,408  
Cost of goods sold     21,394       258,725       44,158       304,412  
Board option expense     89,686       42,750       178,305       85,501  
Total   $ 539,767     $ 844,603     $ 1,193,382     $ 1,534,416  

 

At December 31, 2021, total unrecognized compensation expense to employees, board members and vendors related to stock options was approximately $1.29 million and is expected to be recognized over a weighted average period of 2.22 years.

 

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

 

NOTE 9. EARNINGS PER SHARE

 

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

 

                                 
    For the Three Months Ended     For the Six Months Ended  
    December 31     December 31  
  2021     2020     2021     2020  
Numerator:                                
Net loss   $ (1,575,394 )   $ (741,088 )   $ (3,232,155 )   $ (2,018,412 )
Denominator:                                
Weighted-average common shares outstanding for basic and diluted net loss per share     11,637,318       7,053,986       10,802,570       7,046,510  
Basic and diluted net loss per share   $ (0.14 )   $ (0.11 )   $ (0.30 )   $ (0.29 )

 

Potentially dilutive securities 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):

 

    At December 31, 2021     At December 31, 2020  
Stock Options     3,974,702       4,168,162  
Warrants     837,500       -  
Convertible Notes     -       281,667  
Total     4,812,202       4,449,829  

 

NOTE 10. COMMITMENTS AND CONTINGENCIES

 

Operating Leases

 

New York

 

The Company has an office space lease expiring, as amended, on December 31, 2022. To secure the initial lease, the Company paid a $75,000 security deposit.

 

There is approximately $300,000 due on the lease for the January-December 2022 period, the remaining lease term.

 

20

 

 

THE GLIMPSE GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

DECEMBER 31, 2021 AND 2020

 

Turkey

 

The Company entered into office leases for two locations in Turkey effective December 1, 2021 and expiring on November 30, 2022. To secure the leases, the Company paid approximately $2,400 in security deposits.

 

Monthly rent expense for the two locations will be approximately $2,400 per month.

 

Companywide rent expense for the three and six months ended December 31, 2021 was approximately $90,000 and $176,000, respectively. Rent expense for the three and six months ended December 31, 2020 was approximately $74,000 and $146,000, respectively.

 

Potential Future Distributions Upon Divestiture or Sale

 

Upon a divestiture or sale of a subsidiary company, the Company is contractually obligated to distribute up to 10% of the net proceeds from such divestiture or sale to the senior management team of the divested subsidiary company. Currently, there were no active discussions pertaining to a potential divestiture or sale of any of the Company’s subsidiaries.

 

COVID-19

 

The COVID-19 pandemic 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.

 

NOTE 11. SUBSEQUENT EVENTS

 

Purchase of Sector 5 Digital, LLC (“S5D”)

 

In December 2021, the Company entered into a Membership Interest Sale Agreement (the “S5D Agreement”) to purchase all of the membership interests of Sector 5 Digital, LLC (“S5D”), an enterprise focused, immersive technology company that combines innovative storytelling with emerging technologies for industry leading organizations. The transaction’s total potential purchase price is $27.0 million, with an initial payment of $8.0 million upon closing, consisting of $4.0 million in cash and $4.0 million of Company common stock (approximately 0.28 million shares). Future potential purchase price considerations, up to $19.0 million, are based on S5D’s achievement of revenue growth milestones in the three years post-Closing, the payment of which shall be made up to $2 million in cash and the remainder in common shares of the Company, priced at the date of the future potential share issuance.

 

In February 2022, the S5D transaction closed and S5D became a wholly-owned subsidiary of the Company. $4 million in cash was paid, $4 million in Company stock (in escrow at December 31, 2021 and recorded as Acquisition escrow on the balance sheet) was released and $2 million in cash was escrowed to be released if and when revenue growth milestones in the three years post-Closing are met. In addition, the former S5D Chief Executive Officer was appointed to the Company’s Board of Directors and was named Chief Revenue Officer of the Company.

 

S5D had revenue for calendar year 2021 of approximately $4 million.

 

The Company is currently determining its potential contingent liability for the purchase, as well as allocation of the purchase price amongst the assets purchased, intangible assets, goodwill and liabilities assumed.

 

Contingent Acquisition Liability

 

In January 2022, the Company settled its remaining obligations relating to the acquisition of KreatAR, LLC (see Note 6) through the issuance of 42,978 shares of common stock valued at $430,000 and through the issuance of common stock in settlement of 15,000 stock options at $2.00 per share.

 

21

 

 

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 twelve, wholly-owned subsidiary companies (“Subsidiary Companies”, “Subsidiaries”) as represented in the below organizational charts:

 

 

22

 

 

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 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 was $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, pursuant to a securities purchase agreement, the Company 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 $14.63 per share. The purchase price for one share of common stock and half a corresponding warrant was $10.00. The net proceeds to the Company from the private placement offering were approximately $13.6 million after deducting the placement agent’s fees and other offering expenses.

 

On January 13, 2022, Mr. Ian Charles was appointed to the Company’s Board of Directors and chair of the audit committee. Mr. Charles, age 53, has approximately 25 years of executive leadership experience in technology, public markets, mergers and acquisitions, and multinational operations.

 

On December 2, 2021, the Company entered into a Membership Interest Sale Agreement (the “S5D Agreement”) to purchase Sector 5 Digital, LLC (“S5D”), an enterprise focused, immersive technology company that combines innovative storytelling with emerging technologies for industry leading organizations. The transaction’s total potential purchase price is $27.0 million, with an initial payment of $8.0 million upon closing consisting of $4.0 million in cash and $4.0 million of Company common stock (approximately 0.28 million shares). Future potential purchase price considerations, up to $19.0 million, are based on S5D’s achievement of revenue growth milestones in the three years post-Closing, the payment of which shall be made primarily in common shares of the Company, priced at the date of the future potential share issuance. On February 1, 2022, the S5D transaction closed and S5D became a wholly-owned subsidiary of the Company. In addition, Jeff Meisner (former S5D Chief Executive Officer) was appointed to the Company’s Board of Directors and was named Chief Revenue Officer of the Company. This filing does not include the results of S5D.

 

Financial Highlights for the three and six months ended December 31, 2021 compared to the three and six months ended December 31, 2020

 

Results of Operations

 

The following table sets forth our results of operations for the three and six months ended December 31, 2021 and 2020:

 

    For the Three Months Ended           For the Six Months Ended        
    December 31,     Change     December 31,     Change  
    2021     2020     $     %     2021     2020     $     %  
    (in millions)                 (in millions)              
Revenue   $ 1.69     $ 1.26     $ 0.43       34 %   $ 2.71     $ 1.52     $ 1.19       78 %
Cost of Goods Sold     0.21       0.55       (0.34 )     -62 %   0.36       0.68       (0.32 )     -47 %
Gross Profit     1.48       0.71       0.77       108 %     2.35       0.84       1.51       180 %
Total Operating Expenses     3.05       1.41       1.64       116 %     5.33       2.77       2.56       92 %
Loss from Operations before Other Income (Expense)     (1.57 )     (0.70 )     (0.87 )     124 %     (2.98 )     (1.93 )     (1.05 )     54 %
Other Income (Expense), net     -       (0.05 )     0.05       -100 %     (0.26 )     (0.09 )     (0.17 )     189 %
Net Loss   $ (1.57 )   $ (0.75 )   $ (0.82 )     109 %   $ (3.24 )   $ (2.02 )   $ (1.22 )     60 %

 

23

 

 

Revenues

 

    For the Three Months Ended           For the Six Months Ended        
    December 31,     Change     December 31,     Change  
    2021     2020     $     %     2021     2020     $     %  
    (in millions)                 (in millions)              
Software Services   $ 1.61     $ 1.19     $ 0.42       35 %   $ 2.42     $ 1.38     $ 1.04       75 %
Software License/Software as a Service     0.08       0.07       0.01       14 %     0.29       0.14       0.15       107 %
Total Revenue   $ 1.69     $ 1.26     $ 0.43       34 %   $ 2.71     $ 1.52     $ 1.19       78 %

 

Total revenue for the three months ended December 31, 2021 was approximately $1.69 million compared to approximately $1.26 million for the three months ended December 31, 2020, an increase of 34% (the three months ended December 31, 2020 revenue included delayed sales from the previous quarter due to Covid 19). Total revenue for the six months ended December 31, 2021 was approximately $2.71 million compared to approximately $1.52 million for the six months ended December 31, 2020, an increase of 78%. The increase for both periods was due to organic growth and 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 December 31, 2021, Software Services revenue was approximately $1.61 million compared to approximately $1.19 million for the three months ended December 31, 2020, an increase of approximately 35%. For the six months ended December 31, 2021, Software Services revenue was approximately $2.42 million compared to approximately $1.38 million for the six months ended December 31, 2020, an increase of approximately 75%. The increase for both periods was due to organic growth and the addition of new customers.

 

For the three months ended December 31, 2021, Software License revenue was approximately $0.08 million compared to approximately $0.07 for the three months ended December 31, 2020, an increase of approximately 14%. For the six months ended December 31, 2021, Software License revenue was approximately $0.29 million compared to approximately $0.14 for the six months ended December 31, 2020, an increase of approximately 107%. As the VR and AR industries continue to mature, we expect our Software License revenue to continue to grow on an absolute basis and as an overall percentage of total revenue.

 

For the three months ended December 31, 2021, non-project revenue (i.e., VR/AR Software and Services revenue only), was approximately $0.85 million compared to approximately $0.50 million for the three months ended December 31, 2020, an increase of approximately 70%. For the three months ended December 31, 2021, non-project revenue accounted for approximately 50% of total revenues compared to approximately 40% for the three months ended December 31, 2020. For the six months ended December 31, 2021, non-project revenue (i.e., VR/AR Software and Services revenue only), was approximately $1.70 million compared to approximately $0.64 million for the six months ended December 31, 2020, an increase of approximately 166%. For the six months ended December 31, 2021, non-project revenue accounted for approximately 63% of total revenues compared to approximately 42% for the six months ended December 31, 2020.

 

Customer Concentration

 

Two customers accounted for approximately 75% (45% and 30%, respectively) of the Company’s total gross revenues during the three months ended December 31, 2021. One of these customers and a different customer accounted for approximately 63% (42% and 21%, respectively) of the Company’s total gross revenues during the three months ended December 31, 2020. Two customers accounted for approximately 67% (49% and 18%, respectively) of the Company’s total gross revenues during the six months ended December 31, 2021. One of these customers and a different customer accounted for approximately 53% (35% and 18%, respectively) of the Company’s total gross revenues during the six months ended December 31, 2020.

 

24

 

 

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 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 and the addition of S5D’s customer base, we do not view Customer Concentration as a material issue at this time.

 

Gross Profit

 

    For the Three Months Ended           For the Six
Months Ended 		       
    December 31,     Change     December 31,     Change  
    2021     2020     $     %     2021     2020     $     %  
    (in millions)                 (in millions)              
Revenue   $ 1.69     $ 1.26     $ 0.43       34 %   $ 2.71     $ 1.52     $ 1.19       78 %
Cost of Goods Sold     0.21       0.55       (0.34 )     -62 %   0.36       0.68       (0.32 )     -47 %
Gross Profit     1.48       0.71       0.77       108 %     2.35       0.84       1.51       180 %
Gross Profit Margin     88 %     56 %                     87 %     55 %                

 

Gross profit was approximately 88% for the three months ended December 31, 2021 compared to approximately 56% for the three months ended December 31, 2020. Gross profit was approximately 87% for the six months ended December 31, 2021 compared to approximately 55% for the six months ended December 31, 2020. The increase for both periods was driven by the increase in non-project revenue which produces higher margin, improved management of project revenue costs of goods sold and utilization of lower cost Glimpse Turkey staff.

 

Operating Expenses

 

    For the Three Months Ended           For the Six Months Ended        
    December 31,     Change     December 31,     Change  
    2021     2020     $     %     2021     2020     $     %  
    (in millions)                 (in millions)              
Research and development expenses   $ 1.19     $ 0.59     $ 0.60       102 %   $ 2.18     $ 1.33     $ 0.85       64 %
General and administrative expenses     1.19       0.37       0.82       222 %     1.98       0.71       1.27       179 %
Sales and marketing expenses     0.67       0.45       0.22       49 %     1.17       0.73       0.44       60 %
Total operating expenses   $ 3.05     $ 1.41     $ 1.64       116 %   $ 5.33     $ 2.77     $ 2.56       92 %

 

Operating expenses for the three months ended December 31, 2021 were approximately $3.05 million compared to $1.41 million for the three months ended December 31, 2020, an increase of approximately 116%. Operating expenses for the six months ended December 31, 2021 were approximately $5.33 million compared to $2.77 million for the six months ended December 31, 2020, an increase of approximately 92%. The increase for both periods was driven by employee headcount additions to support growth, the incurrence of expenses specific to Glimpse being a publicly traded company and the addition of two new subsidiaries.

 

Research and Development

 

Research and development expenses for the three months ended December 31, 2021 were approximately $1.19 million compared to $0.59 million for the three months ended December 31, 2020, an increase of approximately 102%. Research and development expenses for the six months ended December 31, 2021 were approximately $2.18 million compared to $1.33 million for the six months ended December 31, 2020, an increase of approximately 64%. For both periods, this reflects headcount additions to support growth and the addition of two new subsidiaries. Going forward, we expect research and development costs to continue to increase as we continue to develop and commercialize our software products.

 

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For the three months ended December 31, 2021, non-cash stock option expenses relating to research and development included approximately $0.26 million of employee compensation expenses, comprising approximately 22% of total research and development expenses. For the three months ended December 31, 2020, non-cash stock option expenses relating to research and development included approximately $0.20 million of employee compensation expenses, comprising approximately 34% of total research and development expenses. For the six months ended December 31, 2021, non-cash stock option expenses relating to research and development included approximately $0.61 million of employee compensation expenses, comprising approximately 28% of total research and development expenses. For the six months ended December 31, 2020, non-cash stock option expenses relating to research and development included approximately $0.60 million of employee compensation expenses, comprising approximately 45% 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 thereby minimizing dilution.

 

General and Administrative

 

General and administrative expenses for the three months ended December 31, 2021 were approximately $1.19 million compared to $0.37 million for the three months ended December 31, 2020, an increase of approximately 221%. General and administrative expenses for the six months ended December 31, 2021 were approximately $1.98 million compared to $0.71 million for the six months ended December 31, 2020, an increase of approximately 179%. The increase for both periods reflects additional headcount to build infrastructure and 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) and the addition of two new subsidiaries.

 

For the three months ended December 31, 2021, non-cash stock option and common stock expenses relating to general and administrative expenses included approximately $0.24 million of employee, board of directors and vendor expenses, comprising approximately 20% of total general and administrative expenses. For the three months ended December 31, 2020, non-cash stock option and common stock expenses relating to general and administrative expenses included approximately $0.26 million of employee, board of directors and vendor expenses, comprising approximately 69% of total general and administrative expenses. For the six months ended December 31, 2021, non-cash stock option and common stock expenses relating to general and administrative expenses included approximately $0.46 million of employee, board of directors and vendor expenses, comprising approximately 23% of total general and administrative expenses. For the six months ended December 31, 2020, non-cash stock option and common stock expenses relating to general and administrative expenses included approximately $0.40 million of employee, board of directors and vendor expenses, comprising approximately 56% of total general and administrative expenses. Over time, we expect non-cash stock options and common stock general and administrative expenses, as a percentage of the total related expenses, to continue to decrease as we utilize a larger portion of cash for compensation thereby minimizing dilution.

 

Sales and Marketing

 

Sales and marketing expenses for the three months ended December 31, 2021 were approximately $0.67 million compared to $0.45 million for the three months ended December 31, 2020, an increase of approximately 49%. The increase reflects headcount additions to drive revenue growth and the addition of two new subsidiaries. Sales and marketing expenses for the six months ended December 31, 2021 were approximately $1.17 million compared to $0.73 million for the six months ended December 31, 2020, an increase of approximately 60%. The increase was driven by an employee bonus related to year-to-date revenue milestones met along with headcount additions to drive revenue growth and the addition of two new subsidiaries. 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.

 

26

 

 

For the three months ended December 31, 2021, non-cash stock option and common stock expenses relating to sales and marketing expenses included approximately $0.20 million of employee, vendor and fee compensation expenses, comprising approximately 30% of total sales and marketing expenses. For the three months ended December 31, 2020, non-cash stock option and common stock expenses relating to sales and marketing expenses included approximately $0.16 million of employee, vendor and fee compensation expenses, comprising approximately 35% of total sales and marketing expenses. For the six months ended December 31, 2021, non-cash stock option and common stock expenses relating to sales and marketing expenses included approximately $0.33 million of employee, vendor and fee compensation expenses, comprising approximately 28% of total sales and marketing expenses. For the six months ended December 31, 2020, non-cash stock option and common stock expenses relating to sales and marketing expenses included approximately $0.29 million of employee, vendor and fee compensation expenses, comprising approximately 40% of total sales and marketing expenses. Over time, we expect non-cash stock options and common stock sales and marketing expenses, as a percentage of the total related expenses, to continue to decrease as we utilize a larger portion of cash for compensation thereby minimizing dilution.

 

Other Income and Expense, net

 

Other income and expense, net for the three months ended December 31, 2021, was consistent compared to the same 2020 period. Other income and expense, net for the six months ended December 31, 2021, was an expense of $0.26 million as compared to an expense of $0.09 million during the 2020 period, an increase in expense of $0.17 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, compared to approximately $0.10 million in non-cash interest expense on the notes in the prior period.

 

Net Losses

 

We sustained a net loss of $1.57 million for the three months ended December 31, 2021 as compared to a net loss of $0.75 million for the prior 2020 period, a loss increase of $0.82 million or 109%. This reflects a period-over-period increase in revenue and related gross profit, offset by an increase in operating expenses. Net loss for the six months ended December 31, 2021 was $3.24 million as compared to a net loss of $2.02 million for the prior 2020 period, a loss increase of $1.22 million or 60%. This reflects a period-over-period increase in revenue and related gross profit, offset by an increase in operating expenses and the 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 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 (loss), operating income (loss), and cash flow from operating activities, liquidity or any other financial measures. They may not be indicative of the historical operating results of the Company nor are they intended to be predictive of potential future results. Investors should not consider non-GAAP financial measures in isolation or as substitutes for performance measures calculated in accordance with GAAP. Our management uses and relies on EBITDA and Adjusted EBITDA, which are non-GAAP financial measures. We believe that both management and shareholders benefit from referring to the following non-GAAP financial measures in planning, forecasting and analyzing future periods.

 

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

 

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

 

27

 

 

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.

 

The following table presents a reconciliation of net loss to Adjusted EBITDA for the three and six months ended December 31, 2021 and 2020:

 

    For the Three Months Ended     For the Six Months Ended  
    December 31,     December 31,  
    2021     2020     2021     2020  
    (in millions)     (in millions)  
Net loss   $ (1.58 )   $ (0.74 )   $ (3.23 )   $ (2.02 )
Interest expense, net     -       0.05       -       0.10  
Depreciation and amortization     0.08       0.01       0.10       0.01  
EBITDA (loss)     (1.50 )     (0.68 )     (3.13 )     (1.91 )
Stock based compensation expenses     0.60       0.87       1.31       1.59  
Stock based financing related expenses     -       -       0.28       -  
Public company expenses     0.35       -       0.53       -  
Acquisition related expenses     0.09       -       0.11       -  
Adjusted EBITDA (loss)   $ (0.46 )   $ 0.19     $ (0.90 )   $ (0.32 )

 

Adjusted EBITDA loss of $0.46 million for the three months ended December 31, 2021 increased by $0.65 million as compared to a $0.19 million gain for the three months ended December 31, 2020. Adjusted EBITDA loss of $0.9 million for the six months ended December 31, 2021 increased by $0.58 million as compared to a $0.32 million loss for the six months ended December 31, 2020. These decreases were driven by an increase in Net loss partially offset by increases in public company (the Company was not publicly traded in the previous period) and acquisition expenses.

 

Liquidity and Capital Resources

 

   

For the Six Months Ended

December 31,

    Change  
    2021     2020     $     %  
    (in millions)  
Net cash used in operating activities   $ (2.36 )   $ (0.78 )   $ (1.58 )     -203 %
Net cash used in investing activities     (0.60 )     (0.02 )     (0.58 )     -2,900 %
Net cash provided by financing activities     26.01       0.23       25.78       11,209 %
Net increase (decrease) in cash and cash equivalents     23.05       (0.57 )     23.62       4,144 %
Cash and cash equivalents, beginning of year     1.77       1.03       0.74       72 %
Cash and cash equivalents, end of period   $ 24.82     $ 0.46     $ 24.36       5,296 %

 

Operating Activities

 

Net cash used in operating activities was $2.36 million for the six months ended December 31, 2021, compared to $0.78 million during the prior period, an increase of approximately $1.58 million. This is primarily driven by an increase in net loss of approximately $1.22 million and an increase in accounts receivable reflective of increased revenue period-over-period.

 

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Investing Activities

 

Net cash used in investing activities for the six months ended December 31, 2021 increased approximately $0.58 million compared to the prior period. This represents the cash portion of the asset purchase of XR Terra and investment in corporate fixed income securities.

 

Financing Activities

 

Cash flow provided from financing activities during the six months ended December 31, 2021 was $26.01 million, reflecting the net proceeds from our IPO and SPA common stock transactions. Financing activities were negligible during the same period of the prior year.

 

Capital Resources

 

As of December 31, 2021, the Company had cash and cash equivalent balances of $24.8 million. As of February 14, 2022, the Company had cash and cash equivalent balances of approximately $19.0 million after the closing of the S5D acquisition. The $19.0 million is in addition to the $2.0 million escrowed as part of the S5D acquisition.

 

As of December 31, 2021, the Company had no outstanding debt obligation except for a $0.62 million Paycheck Protection Program loan, which is expected to be fully forgiven in the coming months.

 

As of December 31, 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.

 

29

 

 

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

 

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

 

Based on our evaluation, our management concluded that our internal control over financial reporting was effective as of December 31, 2021.

 

During the period ended December 31, 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.

 

30

 

 

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 December 31, 2021, the Company issued an aggregate of 18,169 shares of Common Stock for consulting services and employee compensation.

 

Subsequent to December 31, 2021, the Company issued an aggregate of 43,466 shares of Common Stock for legacy acquisition expense and consulting services.

 

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.

 

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.

 

Item 6. Exhibits

 

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

 

Exhibit

Number

  Description of Exhibit
     
10.1   Placement Agent Agreement dated October 28, 2021 (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed on November 3, 2021)
     
10.2   Form of Securities Purchase Agreement (incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K filed on November 3, 2021)
     
10.3   Form of Immediately Exercisable Warrants (incorporated by reference to Exhibit 10.3 to the Current Report on Form 8-K filed on November 3, 2021)
     
10.4   Form of Warrants Exercisable after Six Months (incorporated by reference to Exhibit 10.14 to the Current Report on Form 8-K filed on November 3, 2021)

 

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10.5   Form of Registration Rights Agreement (incorporated by reference to Exhibit 10.5 to the Current Report on Form 8-K filed on November 3, 2021)
     
10.6*   Membership Interest Sale Agreement between the Company and Sector 5 Digital, LLC, dated December 2, 2021
     
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.

 

32

 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized, on this 14th day of February, 2022.

 

  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)

 

33

 

Exhibit 10.6

 

MEMBERSHIP INTEREST SALE AGREEMENT

 

This Membership Interest Sale Agreement (the “Agreement”) is made and entered into this 2nd day of December 2021(the “Effective Date”) by and among The Glimpse Group, Inc., a Nevada corporation (“Buyer”), Sector 5 Digital, LLC, a Texas limited liability company (“S5D” or the “Company”), and Jeff Meisner (“Meisner”), Jeff Meade (“Meade”), Doug Fidler (“Fidler”), and Brandy Cardwell (“Cardwell” and together with Meisner, Meade, and Fidler, “Sellers”). Capitalized terms used herein but not otherwise defined have the meanings ascribed to such terms in Appendix A attached hereto.

 

Whereas, Sellers collectively own all of the membership interests of S5D (the “Membership Interests”); and

 

Whereas, Buyer wishes to purchase all of the Membership Interests and Sellers wish to sell such Membership Interests;

 

Now, therefore, in consideration of the mutual covenants contained herein, together with other good and sufficient consideration, the receipt and sufficiency of which is herewith acknowledged, the Parties, intending to be mutually bound, agree as follows:

 

1. Sale. Each Seller agrees to sell, assign, transfer and deliver to Buyer, and Buyer agrees to purchase from such Seller on the Closing Date, all of the right title and interests of such Seller’s Membership Interest as set forth on Schedule 1 attached hereto, free and clear of all Encumbrances.

 

2. Purchase Price. The purchase price (“Purchase Price”) shall be as follows:

 

a. $4,000,000 cash (the “Cash Payment”) paid to Sellers in accordance with Schedule 1 attached hereto in immediately available funds on the Closing Date.

 

b. $2,000,000 cash placed in escrow by Buyer pursuant to the Escrow Agreement (the “Escrowed Cash”). The Escrowed Cash to be released as follows:

 

i. $1,000,000 shall be released to Sellers when S5D has generated $6,000,000 in Aggregate Recognized Revenue after the Closing Date, subject to such revenue being generated prior to the third anniversary of the Closing Date.

 

ii. $1,000,000 shall be released to Sellers when S5D has generated $8,000,000 in Aggregate Recognized Revenue after the Closing Date, subject to such revenue being generated prior to the third anniversary of the Closing Date.

 

iii. On the third anniversary of the Closing Date, any Escrowed Cash remaining in escrow shall be released to Buyer.

 

iv. In the event of a Liquidation Event prior to the third anniversary of the Closing Date, all Escrowed Cash then in escrow shall immediately be released to Sellers.

 

v. “Aggregate Recognized Revenue” shall mean:

 

1. all revenue of S5D for so long as S5D operates as a direct or indirect wholly-owned subsidiary of Buyer.

 

2. any revenue attributable to the product lines and technologies of S5D as of the Closing Date if the business of S5D is not operated as a direct or indirect wholly-owned subsidiary of Buyer.

 

3. If S5D gains the business but uses resources from other Buyer companies to produce the deliverables, all of the revenue associated with the business shall be counted as Aggregate Recognized Revenue; provided, that, the costs associated with utilizing such resources shall be debited from the internal profit and loss statement of S5D for the applicable period.

 

4. Should Sellers present to Buyer potentially profitable business opportunities to Buyer after the Closing Date, Buyer shall not unreasonably decline to pursue such business opportunities.

 

5. For purposes of this definition, all revenue shall be recognized in accordance with GAAP.

 

Page 1 of 22

 

 

c. 277,201 shares of Common stock of Buyer shall be given to the Escrow Agent pursuant to the Escrow Agreement by Buyers on the Effective Date (the “Closing Buyer Shares”), such Closing Buyer Shares shall be released to Sellers upon the release of the Seller Closing Deliveries in accordance with Section 3 hereof and be subject to a 12-month lockup from the Closing Date pursuant to Lockup Agreements executed by each Seller (the “Lockup Agreements”).

 

d. Common stock of Buyer (“Buyer Shares”) worth $3,000,000 worth shall be issued to Sellers if S5D has generated $4,000,000 in Aggregate Recognized Revenue on or before the first anniversary of the Closing Date; provided, that, if this has not occurred by the first anniversary of the Closing Date, then on that date, provided that S5D has generated at least $3,000,000 in Aggregate Recognized Revenue by such date, then Buyer Shares equal to the percentage that the Aggregate Recognized Revenue as of such date is of $4,000,000 shall be issued to Sellers on that date. For example, should S5D have generated $3,600,000 in Aggregate Recognized Revenue by the first anniversary of the Closing Date, Buyer would issue $2,700,000 (i.e., 90%) worth of Buyer Shares to Sellers. The number of Buyer Shares shall be calculated based upon the weighted average closing price of the Buyer Shares, as quoted on Nasdaq, for the thirty consecutive trading days prior to the anniversary date, such weighting to be based on the trading volume, as reported on Nasdaq, for each such trading day; provided that notwithstanding such calculation, such price shall not be less than the Buyer’s July 1, 2021 Initial Public Offering price of $7.00 per share and all per share amounts shall be adjusted to reflect stock splits and similar events (the “VWAP Calculation”).

 

e. $4,000,000 worth of Buyer Shares shall be issued to Sellers if S5D has generated $10,000,000 in Aggregate Recognized Revenue on or before the second anniversary of the Closing Date; provided, that, if this has not occurred by the second anniversary of the Closing Date, then on that date, provided that S5D has generated at least $7,500,000 in Aggregate Recognized Revenue as of such date, then Buyer Shares equal to the percentage that the Aggregate Recognized Revenue is of $10,000,000 shall be issued to Sellers on that date. For example, should S5D have generated $8,500,000 in Aggregate Recognized Revenue by the second anniversary of the Closing Date, Buyer would issue $3,400,000 (i.e., 85%) worth of Buyer Shares to Sellers.

 

f. $5,000,000 worth of Buyer Shares shall be issued to Sellers if S5D has generated $15,000,000 in Aggregate Recognized Revenue on or before the third anniversary of the Closing Date; provided, that, if this has not occurred by the third anniversary of the Closing Date, then on that date, provided that S5D has generated at least $11,250,000 in Aggregate Recognized Revenue as of such date, then Buyer Shares equal to the percentage that the Aggregate Recognized Revenue is of $15,000,000 shall be issued to Sellers on that date. For example, should S5D have generated $12,000,000 in Aggregate Recognized Revenue by the third anniversary of the Closing Date, Buyer would issue $4,000,000 (i.e., 80%) worth of Buyer Shares to Sellers.

 

g. $5,000,000 worth of Buyer Shares shall be issued to Sellers if the Buyer generates $20,000,000 in Aggregate Recognized Revenue on or before the third anniversary of the Closing Date.

 

h. On the third anniversary of the Closing Date, Buyer Shares in the amounts contemplated pursuant to Sections 2(d) and (e) shall be issued to Sellers if the Sellers have received less than 100% of the allotment of shares on the first or second anniversaries of the Closing Date pursuant to Sections 2(d) and (e), but achieve the Aggregate Recognized revenue targets for those anniversary dates on or before the third anniversary of the Closing Date. Sellers’ opportunities to earn Buyer Shares under this Agreement expire on the day after the third anniversary of the Closing Date.

 

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i. The number of Buyer Shares to be issued in each of the above sections, 2(d) through 2(h), shall be calculated based upon the VWAP Calculation based upon the 30 days prior to the dates referenced above in Sections 2(d)-(h)

 

j. If there is a Liquidation Event on or before the third anniversary of the Closing Date, (i) the $5,000,000 worth of Buyer Shares referenced in Section 2(g) shall become fully accelerated and due and the S5D performance items and associated stock grants (Sections 2(d), (e), (f), and (h)) shall survive and become a binding obligation of the acquirer of Buyer and (ii) any cash remaining in escrow shall be released to Sellers.

 

k. In the event that the PPP Loan is forgiven in whole or in part, cash in an amount equal to such forgiven amount shall be distributed to Sellers, it being understood and agreed that such distribution shall not be a distribution of Escrowed Cash.

 

3. Closing. The Closing Date shall be on January 31, 2022, or such other date based upon the written recommendation of the Auditors preparing the Audited Financial Statement that sufficient progress has been made regarding the preparation of the Audited Financial Statements (the “Closing Date”), it being understood and agreed that the only basis for delaying the Closing Date shall be a delay in the delivery of the Audited Financial Statements. The Parties shall exchange the Sellers’ Closing Deliveries a, c, d and Buyer’s Closing Deliveries a(i) and a(ii) on the Effective Date and Sellers’ Closing Delivery b, e, and f and Buyers Closing Deliveries a(iii) on the Business Day immediately preceding the Closing Date (the “Pre-Closing Date”), such deliveries to be held in escrow pending written instructions from the Parties to release such deliveries. For financial and tax accounting purposes, the closing shall be deemed to be effective as of 12:01 a.m. the Closing Date.

 

4. Sellers’ Closing Deliveries.

 

a. the company records of S5D including the membership agreement pursuant to which the Membership Interests were issued;

 

b. Lockup Agreements executed by each Seller;

 

c. the Escrow Agreement executed by each Seller;

 

d. the Employment Agreements executed by each Seller; and

 

e. a certificate signed by the Sellers (i) stating that the representations of Sellers contained in Sections 8(a), 8(b), and clause b of Section8(j), qualified as to materiality, are true and correct, as of the Closing Date, (ii) certifying that the Company has not breached on or before the Closing Date the consent contained in Section 11; (iii) certifying that the attached Organizational Documents are true, correct and complete and are in full force and effect; and (iv) certifying that the attached resolutions adopted by the members and managers of the Company approving this Agreement and the transactions contemplated hereby are true, correct and complete and are in full force and effect.

 

f. Company share certificates transferring membership to Buyer

 

5. Buyer’s Closing Deliveries.

 

a.

 

i. the Escrow Agreement executed by Buyer;

 

ii. the Meisner Employment Agreement executed by Buyer; and

 

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iii. a certificate signed by Buyer in the form attached as Exhibit A hereto (i) stating that the representations of Buyer, qualified as to materiality, are true and correct as of the Closing Date, and (ii) certifying that the attached resolutions adopted by the majority of its shareholders and of its directors of the Company approving this Agreement and the transactions contemplated hereby are true, correct and complete and are in full force and effect.

 

b. On the Closing Date, subject to release of the Seller Closing Deliveries, Buyer shall deliver:

 

i. the Cash Payment in the amount of $4,000,000 to Sellers; and

 

ii. the $2,000,000 escrow payment to the Escrow Agent pursuant to the Escrow Agreement.

 

6. Announcement. Buyer, at its discretion, may issue or cause the publication of any press release or public announcement with respect to this Agreement or the transactions contemplated hereby without the consent of Sellers.

 

7. Anti-Dilution. Buyer hereby acknowledges that there are currently no anti-dilution agreements in place associated with any of the issued Buyer Shares. Sellers acknowledge and agreed that the Buyer Shares issued to them under this Agreement shall not be protected against possible future dilution.

 

8. Representations of Sellers. Each of the Sellers, jointly and severally, represents and warrants to the Buyer that the statements contained in this Section 8 are materially true and correct as of the Effective Date.

 

a. Authority of the Sellers. Such Sellers have the requisite legal capacity, power and authority to: (i) execute and deliver this Agreement and any Ancillary Document to which Sellers are a party; (ii) perform his, her or its obligations hereunder and thereunder; and (iii) consummate the transactions contemplated hereby and thereby. This Agreement constitutes a legal, valid and binding obligation of Sellers enforceable against Sellers in accordance with its terms. When each other Ancillary Document to which Sellers are or will be a party has been duly executed and delivered by Sellers (assuming due authorization, execution and delivery by each other party thereto), such Ancillary Document will constitute a legal and binding obligation of Sellers enforceable against it in accordance with its terms.

 

b. Ownership of Membership Interests. Sellers have good and valid title to the Membership Interests to be sold by hereunder, free and clear of all Encumbrances, and, upon delivery of the certificates representing such Membership Interests and payment therefor pursuant hereto, good and valid title to the Membership Interests, free and clear of all Encumbrances, will pass to Buyer. The Membership Interests constitute Sellers’ separate property or Sellers have obtained any requisite consent of Sellers’ spouse necessary to sell any Membership Interests that constitute community property of Sellers and Sellers’ spouse.

 

c. Authorization of Agreement by the Company. The Company has all requisite limited liability company power and authority to execute and deliver this Agreement and each other agreement, document, or instrument or certificate provided for by this Agreement or to be executed by the Company in connection with the consummation of the transactions provided for by this Agreement, and to consummate the transactions provided for hereby and thereby, including the sale of the Membership Interests Sellers to Buyer.

 

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d. Capitalization.

 

i. The Membership Interests constitute 100% of the total issued and outstanding membership interests in S5D. The Membership Interests have been duly authorized and are validly issued, fully-paid and non-assessable.

 

ii. The Membership Interests were issued in compliance with applicable Laws. The Membership Interests were not issued in violation of the Organizational Documents of S5D or any other agreement, arrangement, or commitment to which Sellers are a party and are not subject to or in violation of any preemptive or similar rights of any Person.

 

iii. There are no outstanding or authorized options, warrants, convertible securities or other rights, agreements, arrangements or commitments of any character relating to any membership interests in S5D or obligating Seller or S5D to issue or sell any membership interests (including the Membership Interests), or any other interest, in S5D. Other than the Organizational Documents, there are no voting trusts, proxies or other agreements or understandings in effect with respect to the voting or transfer of any of the Membership Interests.

 

e. No Conflicts; Consents. The execution, delivery and performance by S5D and Sellers of this Agreement and the Ancillary Documents to which they are a party, and the consummation of the transactions contemplated hereby and thereby, do not and will not: (a) conflict with or result in a violation or breach of, or default under, any provision of the certificate of incorporation, by-laws or other Organizational Documents of S5D; (b) conflict with or result in a violation or breach of any provision of any Law or Governmental Order applicable to S5D; (c) require the consent, notice or other action by any Person under, conflict with, result in a violation or breach of, constitute a default or an event that, with or without notice or lapse of time or both, would constitute a default under, result in the acceleration of or create in any party the right to accelerate, terminate, modify or cancel any Contract to which 5SD is a party or by which 5SD is bound or to which any of its properties and assets are subject or any Permit affecting the properties, assets or business of S5D; or (d) result in the creation or imposition of any Encumbrance other than Permitted Encumbrances on any properties or assets of S5D. No consent, approval, Permit, Governmental Order, declaration or filing with, or notice to, any Governmental Authority is required by or with respect to S5D in connection with the execution and delivery of this Agreement and the Ancillary Documents and the consummation of the transactions contemplated hereby and thereby.

 

f. Material Contracts.

 

i. Section 9(f) of the Disclosure Schedules lists all of the Contracts to which S5D involving an amount in excess of $100,000 (the “Material Contracts”).

 

ii. Each Material Contract is valid and binding on S5D in accordance with its terms and is in full force and effect. None of S5D or, to S5D’s Knowledge, any other party thereto is in breach of or default under (or is alleged to be in breach of or default under) or has provided or received any notice of any intention to terminate, any Material Contract. No event or circumstance has occurred that, with notice or lapse of time or both, would constitute an event of default under any Material Contract or result in a termination thereof or would cause or permit the acceleration or other changes of any right or obligation or the loss of any benefit thereunder. Complete and correct copies of each Material Contract (including all modifications, amendments and supplements thereto and waivers thereunder) have been made available to the Buyer.

 

g. Customers and Suppliers.

 

i. Section 9(g)(i) of the Disclosure Schedules sets forth (i) each customer who has paid aggregate consideration to the Company for goods or services rendered in an amount greater than or equal to $100,000 for each of the two (2) most recent fiscal years (collectively, the “Material Customers”); and (ii) the amount of consideration paid by each Material Customer during such periods. The Company has not received any notice, and has no reason to believe, that any of its Material Customers has ceased, or intends to cease after the Closing Date, to use its goods or services or to otherwise terminate or materially reduce its relationship with the Company.

 

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ii. Section 9(g)(ii) of the Disclosure Schedules sets forth (i) each supplier to whom the Company has paid consideration for goods or services rendered in an amount greater than or equal to $10,000 for each of the two (2) most recent fiscal years (collectively, the “Material Suppliers”); and (ii) the amount of purchases from each Material Supplier during such periods. Except as set forth in Section 3.14(b) of the Disclosure Schedules, the Company has not received any notice, and has no reason to believe, that any of its Material Suppliers has ceased, or intends to cease, to supply goods or services to the Company or to otherwise terminate or materially reduce its relationship with the Company.

 

h. Financial Statements.

 

i. Complete copies of the Company’s financial statements consisting of the balance sheet of the Company as at December 31 in each of the years 2020 and 2019 and the related statements of income and retained earnings, stockholders’ equity and cash flow for the years then ended (the “Annual Financial Statements”), and unaudited financial statements consisting of the balance sheet of the Company as at September 30, 2021 and the related statements of income and retained earnings, stockholders’ equity and cash flow for the nine-month period then ended (the “Interim Financial Statements” and together with the Annual Financial Statements, the “Financial Statements”) are included in the Disclosure Schedules. The Financial Statements have not been prepared in accordance with GAAP. The Financial Statements are based on the books and records of the Company, and fairly present the financial condition of the Company as of the respective dates they were prepared and the results of the operations of the Company for the periods indicated. The balance sheet of the Company as of December 31, 2020 is referred to herein as the “Balance Sheet” and the date thereof as the “Balance Sheet Date” and the balance sheet of the Company as of September 30, 2021 is referred to herein as the “Interim Balance Sheet” and the date thereof as the “Interim Balance Sheet Date.”

 

i. Bank Account Statements. True, correct and complete copies of all bank account statements of the Company as of the date hereof are set forth in Section 9(i) of the Disclosure Schedules.

 

j. Undisclosed Liabilities.

 

The Company has no material liabilities, obligations or commitments of any nature whatsoever, asserted or unasserted, known or unknown, absolute or contingent, accrued or unaccrued, matured or unmatured or otherwise (“Liabilities”), except (a) those which are adequately reflected or reserved against in the Balance Sheet as of the Balance Sheet Date, and (b) those which have been incurred in the ordinary course of business consistent with past practice since the Balance Sheet Date and which are not, individually or in the aggregate, material in amount.

 

k. Legal Proceedings.

 

There are no Actions pending or, to Company’s Knowledge, threatened (a) against or by the Company affecting any of its properties or assets (or by or against Company or any Affiliate thereof and relating to the Company) or against or by any Material Customer or Material Supplier; or (b) against or by the Company, or any Affiliate of Company, Material Customer or Material Supplier that challenges or seeks to prevent, enjoin or otherwise delay the transactions contemplated by this Agreement. No event has occurred or circumstances exist that may reasonably give rise to, or serve as a basis for, any such Action.

 

l. Governmental Orders. There are no outstanding Governmental Orders and no unsatisfied judgments, penalties or awards against or affecting the Company or any of its properties or assets. The Company is in compliance with the terms of each Governmental Order set forth in Section 9(1) of the Disclosure Schedules. No event has occurred or circumstances exist that may constitute or result in (with or without notice or lapse of time) a violation of any such Governmental Order.

 

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m. Intellectual Property.

 

i. Section 9(m)(i) of the Disclosure Schedules contains a correct, current, and complete list of: (i) all Company IP Registrations (including all assignments related thereto), specifying the issue, registration, or filing date, and the current status; (ii) all unregistered Trademarks included in the Company Intellectual Property; (iii) all proprietary software of the Company.

 

ii. Most customer contracts reference the ideas contained in Disclosure Schedule 9(m)(ii). All contracts have been available for Buyer review during due diligence. Each Company IP Agreement is valid and binding on the Company in accordance with its terms and is in full force and effect. Neither the Company nor any other party thereto is, or is alleged to be, in breach of or default under, or has provided or received any notice of breach of, default under, or intention to terminate (including by non-renewal), any Company IP Agreement.

 

iii. The Company is the sole and exclusive legal and beneficial, and with respect to the Company IP Registrations, record, owner of all right, title, and interest in and to the Company Intellectual Property, and has the valid and enforceable right to use all other Intellectual Property used or held for use in or necessary for the conduct of the Company’s business as currently conducted and as proposed to be conducted, in each case, free and clear of Encumbrances other than Permitted Encumbrances. The Company has entered into binding, valid and enforceable, written Contracts as contained in Disclosure Schedule 9(m)(iii) with all current employees and independent contractors and most former employees and independent contractors. The Company has made available true and complete copies of all such Contracts to Buyer.

 

iv. Neither the execution, delivery nor performance of this Agreement, nor the consummation of the transactions contemplated hereunder, will result in the loss or impairment of, or require the consent of any other Person in respect of, the Company’s right to own or use any Company Intellectual Property or Licensed Intellectual Property.

 

v. All of the Company Intellectual Property and Licensed Intellectual Property are valid and enforceable, and all Company IP Registrations are subsisting and in full force and effect. The Company has taken all necessary steps to maintain and enforce the Company Intellectual Property and Licensed Intellectual Property and to preserve the confidentiality of all Trade Secrets included in the Company Intellectual Property.

 

vi. The conduct of the Company’s business as currently and formerly conducted and as proposed to be conducted, including the use of the Company Intellectual Property and Licensed Intellectual Property in connection therewith, and the products, processes and services of the Company have not infringed, misappropriated or otherwise violated, and will not infringe, misappropriate or otherwise violate, the Intellectual Property or other rights of any Person. No Person has infringed, misappropriated or otherwise violated any Company Intellectual Property or Licensed Intellectual Property.

 

vii. There are no Actions (including any opposition, cancellation, revocation, review, or other proceeding), whether settled, pending, or threatened (including in the form of offers to obtain a license): (i) alleging any infringement, misappropriation, or other violation by the Company of the Intellectual Property of any Person; (ii) challenging the validity, enforceability, registrability, patentability, or ownership of any Company Intellectual Property or Licensed Intellectual Property or the Company’s right, title, or interest in or to any Company Intellectual Property or Licensed Intellectual Property; or (iii) by the Company or by the owner of any Licensed Intellectual Property alleging any infringement, misappropriation, or other violation by any Person of the Company Intellectual Property or such Licensed Intellectual Property. The Company is not aware of any facts or circumstances that could reasonably be expected to give rise to any such Action. The Company is not subject to any outstanding or prospective Governmental Order (including any motion or petition therefor) that does or could reasonably be expected to restrict or impair the use of any Company Intellectual Property or Licensed Intellectual Property.

 

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viii. Section 9(m)(viii) of the Disclosure Schedules contains a correct, current, and complete list of all social media accounts used in the Company’s business. The Company has complied with all terms of use, terms of service, and other Contracts and all associated policies and guidelines relating to its use of any social media platforms, sites, or services (collectively, “Platform Agreements”). There are no Actions, whether settled, pending, or threatened, alleging any (A) breach or other violation of any Platform Agreement by the Company; or (B) defamation, violation of publicity rights of any Person, or any other violation by the Company in connection with its use of social media.

 

ix. All Company IT Systems are in good working condition and are sufficient for the operation of the Company’s business as currently conducted and as proposed to be conducted. There has never been any malfunction, failure, continued substandard performance, denial-of-service, or other cyber incident, including any cyberattack, or other impairment of the Company IT Systems that has resulted or is reasonably likely to result in disruption or damage to the business of the Company and that has not been remedied. The Company has taken all commercially reasonable steps to safeguard the confidentiality, availability, security, and integrity of the Company IT Systems, including implementing and maintaining appropriate backup, disaster recovery, and Software and hardware support arrangements.

 

x. The Company has complied with all applicable Laws and all internal or publicly posted policies, notices, and statements concerning the collection, use, processing, storage, transfer, and security of personal information in the conduct of the Company’s business. The Company has never (i) experienced any actual, alleged, or suspected data breach or other security incident involving personal information in its possession or control or (ii) been subject to or received any written notice of any audit, investigation, complaint, or other Action by any Governmental Authority or other Person concerning the Company’s collection, use, processing, storage, transfer, or protection of personal information or actual, alleged, or suspected violation of any applicable Law concerning privacy, data security, or data breach notification, and to the Company’s Knowledge, there are no facts or circumstances that could reasonably be expected to give rise to any such Action.

 

 

n. Employment Matters. The Company is in compliance in all material respects with Laws relating to employment.

 

o. Taxes. Except as set forth in Section 9(o) of the Disclosure Schedules:

 

i. All Tax Returns required to be filed on or before the Closing Date by S5D have been, or will be, timely filed. Such Tax Returns are, or will be, true, complete and correct in all respects. All Taxes due and owing by S5D (whether or not shown on any Tax Return) have been, or will be, timely paid.

 

ii. S5D has withheld and paid each Tax required to have been withheld and paid in connection with amounts paid or owing to any employee, independent contractor, creditor, customer, shareholder or other party, and complied with all information reporting and backup withholding provisions of applicable Law.

 

iii. No claim has been made by any taxing authority in any jurisdiction where S5D does not file Tax Returns that it is, or may be, subject to Tax by that jurisdiction.

 

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iv. No extensions or waivers of statutes of limitations have been given or requested with respect to any Taxes of S5D.

 

v. The amount of S5D’s Liability for unpaid Taxes for all periods ending on or before June 30, 2021 does not, in the aggregate, exceed the amount of accruals for Taxes (excluding reserves for deferred Taxes) reflected on the Financial Statements. The amount of S5D’s Liability for unpaid Taxes for all periods following the end of the recent period covered by the Financial Statements shall not, in the aggregate, exceed the amount of accruals for Taxes (excluding reserves for deferred Taxes) as adjusted for the passage of time in accordance with the past custom and practice of S5D (and which accruals shall not exceed comparable amounts incurred in similar periods in prior years).

 

vi. Section 9(o)(vi) of the Disclosure Schedules sets forth:

 

1. the taxable years of S5D as to which the applicable statutes of limitations on the assessment and collection of Taxes have not expired;

 

2. those years for which examinations by the taxing authorities have been completed; and

 

3. those taxable years for which examinations by taxing authorities are presently being conducted.

 

vii. All deficiencies asserted, or assessments made, against S5D as a result of any examinations by any taxing authority have been fully paid.

 

viii. S5D has delivered to the Buyer copies of all federal income and franchise Tax Returns and similar tax returnsfor all Tax periods ending after January 1, 2013.

 

ix. There are no Encumbrances for Taxes (other than for current Taxes not yet due and payable) upon the assets of S5D.

 

x. S5D is not a party to, or bound by, any Tax indemnity, Tax sharing or Tax allocation agreement.

 

xi. S5D has not been a member of an affiliated, combined, consolidated or unitary Tax group for Tax purposes. S5D has no Liability for Taxes of any Person (other than the Company) under Treasury Regulations Section 1.1502-6 (or any corresponding provision of state, local or foreign Law), as transferee or successor, by contract or otherwise.

 

xii. S5D is not a “foreign person” as that term is used in Treasury Regulations Section 1.1445-2. The Company is not, nor has it been, a United States real property holding corporation (as defined in Section 897(c)(2) of the Code) during the applicable period specified in Section 897(c)(1)(a) of the Code.

 

xiii. S5D has not been a “distributing corporation” or a “controlled corporation” in connection with a distribution described in Section 355 of the Code.

 

xiv. S5D is not, and has not been, a party to, or a promoter of, a “reportable transaction” within the meaning of Section 6707A(c)(1) of the Code and Treasury Regulations Section 1.6011 4(b).

 

xv. There is currently no limitation on the utilization of net operating losses, capital losses, built-in losses, tax credits or similar items of S5D under Sections 269, 382, 383, 384 or 1502 of the Code and the Treasury Regulations thereunder (and comparable provisions of state, local or foreign Law).

 

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xvi. Section 9(i)(xix) of the Disclosure Schedules sets forth all foreign jurisdictions in which S5D is subject to Tax, is engaged in business or has a permanent establishment. S5D has not entered into a gain recognition agreement pursuant to Treasury Regulations Section 1.367(a)-8. S5D has not transferred an intangible the transfer of which would be subject to the rules of Section 367(d) of the Code.

 

xvii. No property owned by S5D is (i) required to be treated as being owned by another Person pursuant to the so-called “safe harbor lease” provisions of former Section 168(f)(8) of the Internal Revenue Code of 1954, as amended, (ii) subject to Section 168(g)(1)(A) of the Code, or (iii) subject to a disqualified leaseback or long-term agreement as defined in Section 467 of the Code.

 

p. Brokers.

 

No broker, finder or investment banker is entitled to any brokerage, finder’s or other fee or commission in connection with the transactions contemplated by this Agreement or any other Ancillary Document based upon arrangements made by or on behalf of S5D.

 

q. Galderma Lawsuit. The lawsuit against S5D’s customer, Galderma, is described in Section 9(q) of the Disclosure Schedules (the “Galderma Litigation”). A judgment in the Galderma Litigation against Galderma will not have a material adverse effect on S5D’s relationship with Galderma or the financial condition of S5D.

 

9. Representations of Sellers regarding the Buyer Shares.

 

a. Own Account. Such Seller understands that the Buyer Shares issued or issuable to such Seller hereunder (the “Stock Consideration Shares”) are “restricted securities” and have not been registered under the Securities Act or any applicable state securities law and is acquiring the Stock Consideration Shares as principal for its own account and not with a view to or for distributing or reselling such Stock Consideration Shares or any part thereof in violation of the Securities Act or any applicable state securities law, has no present intention of distributing any of such Shares in violation of the Securities Act or any applicable state securities law and has no direct or indirect arrangement or understandings with any other Persons to distribute or regarding the distribution of such Stock Consideration Shares in violation of the Securities Act or any applicable state securities law.

 

b. Seller Status. Each Seller (i) is an “accredited investor” as defined in Regulation D under the Securities Act or (ii) has such knowledge and experience in financial and business matters that such Seller is capable of evaluating the merits and risks of receiving the Stock Consideration Shares.

 

b. Experience of Such Seller. Such Seller, either alone or together with its Representatives, has such knowledge, sophistication and experience in business and financial matters so as to be capable of evaluating the merits and risks of the prospective investment in the Stock Consideration Shares, and has so evaluated the merits and risks of such investment. Such Seller is able to bear the economic risk of an investment in the Stock Consideration Shares and, at the present time, is able to afford a complete loss of such investment.

 

c. General Solicitation. Such Seller is not acquiring the Stock Consideration Shares as a result of any advertisement, article, notice or other communication regarding the Stock Consideration Shares published in any newspaper, magazine or similar media or broadcast over television or radio or presented at any seminar or any other general solicitation or general advertisement.

 

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d. Restrictions.

 

i. The Stock Consideration Shares may only be disposed of in compliance with state and federal securities laws. In connection with any transfer of Stock Consideration Shares other than pursuant to an effective registration statement or Rule 144, Buyer may require the transferor thereof to provide to Buyer an opinion of counsel selected by the transferor and reasonably acceptable to Buyer, the form and substance of which opinion shall be reasonably satisfactory to Buyer, to the effect that such transfer does not require registration of such transferred Stock Consideration Shares under the Securities Act or any other state, federal or foreign securities law. As a condition of transfer, any such transferee shall agree in writing to be bound by the restrictions with respect to the Stock Consideration Shares set forth in this Agreement.

 

ii. Such Seller agrees to the imprinting, so long as is required by this Section 9(d), of a legend on any of the Stock Consideration Shares in the following form:

 

THIS SECURITY HAS NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO BUYER. THIS SECURITY IS ALSO SUBJECT TO THE TERMS OF A LOCKUP AGREEMENT. THIS SECURITY MAY NOT BE SOLD, TRANSFERRED, PLEDGED, GIFTED OR OTHERWISE DISPOSED OF OTHER THAN IN ACCORDANCE WITH THE TERMS OF SUCH AGREEMENT, AND ANY ATTEMPT TO DO SO SHALL BE VOID.

 

iii. Certificates evidencing the Stock Consideration Shares shall not contain any legend (including the legend set forth in Section 9(d)(ii) hereof), (i) following any sale of such Stock Consideration Shares pursuant to Rule 144, (iii) if such Stock Consideration Shares are eligible for sale under Rule 144, without the requirement for Buyer to be in compliance with the current public information required under Rule 144 as to such Stock Consideration Shares and without volume or manner-of-sale restrictions, or (iii) if such legend is not required under applicable requirements of the Securities Act (including judicial interpretations and pronouncements issued by the staff of the Securities and Exchange Commission). Buyer shall cause its counsel to issue a legal opinion to its transfer agent reasonably promptly if required by the transfer agent to effect the removal of the legend hereunder.

 

10. Representations of Buyer.Buyer represents and warrants to the Sellers that the following are true as of the Effective Date:

 

a. Buyer is a corporation duly organized, validly existing and in good standing under the laws of the State of Nevada.

 

b. Buyer has full corporate power and authority to execute and deliver this Agreement and each other agreement, document, instrument or certificate provided for by this Agreement or to be executed by Buyer in connection with the consummation of the transactions provided for hereby and thereby and to consummate the transactions provided for hereby and thereby. The execution, delivery and performance by Buyer of this Agreement has been duly authorized by all necessary corporate action on behalf of Buyer.

 

Page 11 of 22

 

 

c. None of the execution and delivery by Buyer of this Agreement, the consummation of the transactions provided for hereby or thereby, or the compliance by Buyer with any of the provisions hereof or thereof will conflict with, or result in violation of or default (with or without notice or lapse of time, or both) under, or give rise to a right of termination or cancellation under any provision of (i) the Buyer’s certificate of formation, bylaws, or comparable organizational documents of Buyer; (ii) any contract or permit to which Buyer is a party or by which any of the properties or assets of Buyer are bound; (iii) any order of any governmental body applicable to Buyer or by which any of the properties or assets of Buyer are bound; or (iv) any applicable Law.

 

d. No consent, waiver, approval, order, permit or authorization of, or declaration or filing with, or notification to, any Person or governmental body other than the consent of a majority of the shareholders of Buyer and the board of directors of Buyer is required on the part of Buyer in connection with the execution and delivery of this Agreement or the compliance by Buyer with any of the provisions hereof or thereof, except for such consents, waivers, approvals, orders, Permits, declarations, filings or notifications that, if not obtained, made or given, would not, individually or in the aggregate, have a material adverse effect on the ability of Buyer to consummate the transactions provided for by this Agreement.

 

11. Indemnification.

 

a. Seller’ Indemnity. From and after the Closing Date, Sellers shall indemnify and hold Buyer and its directors, managers, officers, employees, successors and assigns (collectively, the “Buyer Indemnified Parties”) harmless from and against, and pay to the applicable Buyer Indemnified Parties the amount of, any and all losses, liabilities, claims, obligations, deficiencies, demands, judgments, damages (excluding incidental and consequential damages), Taxes, interest, fines, penalties, claims, suits, actions, causes of action, assessments, awards, costs, and expenses (individually, a “Loss” and, collectively, “Losses”) resulting from any third-party claim, not covered by insurance, attributed to:

 

i. any breach of the representations made by Sellers in this Agreement;

 

ii. any breach of any covenant or other agreement on the part of Sellers under this Agreement;

 

iii. any legal proceeding involving Sellers or S5D arising from an event, activity, incident, action, or omission occurring prior to the Closing Date; and

 

iv. any unforgiven amount of any PPP Loan.

 

b. Buyer’s Indemnity.From and after the Closing Date, Buyer shall indemnify and hold Sellers harmless from and against, and pay to Sellers the amount of, any and all Loss or Losses resulting from any third-party claim, not covered by insurance, attributed to:

 

i. any breach of the representations made by Buyer in this Agreement;

 

ii. any breach of any covenant or other agreement on the part of Buyer under this Agreement,

 

iii. any legal proceeding involving Buyer or S5D arising from an event, activity, incident, action, or omission occurring after the Closing Date.

 

c. All of the representations, warranties and covenants contained in this Agreement shall survive the closing.

 

d. Buyer shall have the right to setoff any indemnification claim relating to any unforgiven amount of a PPP Loan under this Section 11 against the Escrow Account.

 

Page 12 of 22

 

 

12. Pre-Closing Covenants. From and after the Effective Date until the Closing Date:

 

a. The Company shall conduct its business in the ordinary course consistent with past practice and shall not enter into any agreement or consummate any transaction involving more than $100,000 without prior written notice to Buyer.

 

b. The Company and Sellers shall use reasonable best efforts to cause all employees of the Company to enter into Employment Agreements.

 

c. The Company shall not initiate any discussions or enter into any agreements with any other Person regarding a transaction similar to the transactions contemplated hereby and agrees to provide Buyer with written notice of an unsolicited offer or indication of interest received from any other Person regarding any such transaction.

 

d. The Company and Sellers shall cooperate with Buyer and its accountants in the conduct of an audit of the Financial Statements (the Financial Statements as so audited, the “Audited Financial Statements”), it being understood and agreed that (i) the scope and methodology of such audit to be determined by Buyer and its accountants and (ii) the costs and expenses associated with such audit shall be borne by Buyer.

 

e. Buyer shall use reasonable best efforts to cause the Audited Financial statements to be completed as soon as commercially reasonable.

 

13. Restrictive Covenants. Non-Competition; Non-Solicitation.

 

a. For a period of three years commencing on the Closing Date (the “Restricted Period”), each Seller shall not, and shall not permit any of its Affiliates to, directly or indirectly, (i) engage in or assist others in engaging in any business that competes with any business engaged in by Buyer and its Affiliates (the “Restricted Business”) anywhere in the world (the “Territory”); (ii) have an interest in any Person that engages directly or indirectly in the Restricted Business in the Territory in any capacity, including as a partner, shareholder, member, employee, principal, agent, trustee or consultant; or (iii) cause, induce or encourage any material actual or prospective client, customer, supplier or licensor of the Company or the Buyer (including any existing or former client or customer of the Company and any Person that becomes a client or customer of the Company or the Buyer after the Closing Date), or any other Person who has a material business relationship with the Company or the Buyer, to terminate or modify any such actual or prospective relationship. Notwithstanding the foregoing, such Seller may own, directly or indirectly, solely as an investment, securities of any Person traded on any national securities exchange if such Seller is not a controlling Person of, or a member of a group which controls, such Person and does not, directly or indirectly, own 2% or more of any class of securities of such Person.

 

b. During the Restricted Period, each Seller shall not, and shall not permit any of its Affiliates to, directly or indirectly, hire or solicit any Person who is offered employment by Buyer pursuant hereto or is or was employed by the Buyer during the Restricted Period, or encourage any such employee to leave such employment or hire any such employee who has left such employment, except pursuant to a general solicitation which is not directed specifically to any such employees; provided, that nothing in this Section 13(b) shall prevent such Seller or any of its Affiliates from hiring (i) any employee whose employment has been terminated by Buyer or (ii) after 180 days from the date of termination of employment, any employee whose employment has been terminated by the employee.

 

c. Seller acknowledges that a breach or threatened breach of this Section 13 would give rise to irreparable harm to Buyer, for which monetary damages would not be an adequate remedy, and hereby agrees that in the event of a breach or a threatened breach by such Seller of any such obligations, Buyer shall, in addition to any and all other rights and remedies that may be available to it in respect of such breach, be entitled to equitable relief, including a temporary restraining order, an injunction, specific performance and any other relief that may be available from a court of competent jurisdiction (without any requirement to post bond).

 

Page 13 of 22

 

 

d. Each Seller acknowledges that the restrictions contained in this Section 13 are reasonable and necessary to protect the legitimate interests of Buyer and constitute a material inducement to Buyer to enter into this Agreement and consummate the transactions contemplated by this Agreement. In the event that any covenant contained in this Section 13 should ever be adjudicated to exceed the time, geographic, product or service or other limitations permitted by applicable Law in any jurisdiction, then any court is expressly empowered to reform such covenant, and such covenant shall be deemed reformed, in such jurisdiction to the maximum time, geographic, product or service or other limitations permitted by applicable Law. The covenants contained in this Section 13 and each provision hereof are severable and distinct covenants and provisions. The invalidity or unenforceability of any such covenant or provision as written shall not invalidate or render unenforceable the remaining covenants or provisions hereof, and any such invalidity or unenforceability in any jurisdiction shall not invalidate or render unenforceable such covenant or provision in any other jurisdiction.

 

14. Governing Law. This Agreement shall be construed in accordance with and governed by the laws of the State of New York without giving effect to the principles of conflicts of law thereof. Each of the Parties irrevocably agrees that any legal action or proceeding with respect to this Agreement or the transactions contemplated hereby, or for recognition and enforcement of any judgment in respect hereof, brought by the other party or its successors or assigns may be brought and determined in state or federal courts sitting in Clark County in the State of Nevada, and each party hereby irrevocably submits with regard to any such action or proceeding for itself and in respect of its property, generally and unconditionally, to the exclusive jurisdiction of the aforesaid courts. Each party hereto hereby irrevocably waives, and agrees not to assert, by way of a motion, as a defense, counterclaim or otherwise, in any action or proceeding with respect to this Agreement, (a) any claim that it is not personally subject to the jurisdiction of the above-named courts for any reason other than the failure to lawfully serve process; (b) that it or its property is exempt or immune from jurisdiction of any such court or from any legal process commenced in such courts (whether through service of notice, attachment prior to judgment, attachment in aid of execution of judgment, execution of judgment or otherwise); and (c) to the fullest extent permitted by applicable law, that (i) the suit, action or proceeding in any such court is brought in an inconvenient forum; (ii) the venue of such suit, action or proceeding is improper; and (iii) this Agreement, or the subject matter hereof, may not be enforced in or by such courts. Each party irrevocably and unconditionally waives any right it may have to a trial by jury in respect of any legal action arising out of or relating to this Agreement, the Ancillary Agreements or the transactions contemplated hereby and thereby.

 

15. Notices. Any notice or other communication required or permitted hereunder shall be in writing and shall be delivered personally, sent by electronic mail transmission (followed by delivery of an original via overnight courier service), sent by nationally recognized overnight courier services, postage prepaid. Any such notice shall be deemed given when so delivered personally or upon confirmation of receipt when sent by electronic mail transmission, received the next day if sent by an overnight courier service, as follows:

 

Page 14 of 22

 

 

If to Sellers, to:

 

Jeff Meisner

 

401 Palladian Blvd.

 

Southlake, TX 76092, and to

 

Jeff Meade

 

901 Siena Dr.

 

Southlake, TX 76092, and to

 

Doug Fidler

 

7620 Northfield Drive

 

North Richland Hills

 

TX, 76182, and to

 

Brandy Cardwell

 

1644 Mountain Laurel Drive

 

Keller, TX, 76182.

 

If to Buyer, to:

 

The Glimpse Group, Inc.

 

15 West 38th Street, 9th Floor

 

New York, NY 10018

 

Attn: Maydan Rothblum

 

With a copy to:

 

Jay Yamamoto and Darrin Ocasio

 

Sichenzia Ross Ference LLP

 

1185 Avenue of the Americas, 31st Floor

 

New York, NY 10036

 

or at such other address for a party as shall be specified by like notice.

 

Page 15 of 22

 

 

16. Counterparts. This Agreement may be executed in two or more counterparts, each of which will be considered an original, but all of which together will constitute one and the same instrument. The exchange of a fully executed Agreement (in counterparts or otherwise) by fax or electronic mail shall be sufficient to bind the Parties to terms and conditions of this Agreement.

 

17. Entire Agreement. This Agreement, including all Exhibits attached hereto, contains the entire understanding of the Parties with respect to the subject matter hereof and supersedes any and all prior negotiations, agreements, commitments, and writings with respect thereto. There are no oral understandings, terms and conditions and neither Party has relied upon any representation, expressed or implied, not contained in this Agreement.

 

18. Severability. In the event that any provision of this Agreement is unenforceable under applicable law, the validity or enforceability of the remaining provisions will not be affected. To the extent any provision of this Agreement is judicially determined to be unenforceable, a court of competent jurisdiction may reform any such provision to make it enforceable. The provisions of this Agreement will, where possible, be interpreted so as to sustain its legality and enforceability.

 

19. Further Assurances. Each of the Parties hereto will use its reasonable good faith efforts to take all actions and to do all things necessary, proper or advisable following the Closing Date to consummate and effectuate the transactions contemplated by this Agreement.

 

20. Expenses. Each party hereto shall bear its own expenses, costs and fees associated with the preparation of this Agreement and the Ancillary Agreement and the consummation of the transactions contemplated hereby and thereby, except that Buyer shall bear all expenses associated with the Audited Financial Statements.

 

21. Assignment. Neither Sellers nor Buyer may assign this Agreement to any Person without the prior written consent of the other Party; provided, however, that Buyer may assign this Agreement to an Affiliate of Buyer without the prior written consent of Sellers or the Company.

 

22. Board Representation. Promptly after the Closing Date, the board of directors of Buyer shall appoint Jeff Meisner to serve on the board for a three-year term, subject to his compliance with all of Buyer’s corporate governance policies and procedures and the requirements of Nasdaq.

 

[Remainder of page intentionally left blank]

 

Page 16 of 22

 

 

IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed by their duly authorized representatives as of the date first written above.

 

Sellers   Buyer
       
/s/ Jeff Meisner     /s/ Lyron L. Bentovim
Jeff Meisner     The Glimpse Group, Inc.
       
/s/ Jeff Meade   By: Lyron L. Bentovim
Jeff Meade   Title: President & CEO
       
/s/ Doug Fidler      
Doug Fidler      
       
/s/ Brandy Cardwell      
Brandy Cardwell      

 

Company  
     
/s/ Jeffrey Meisner  
Sector 5 Digital, LLC  
     
By: Jeffrey Meisner  
Title: CEO  

 

Page 17 of 22

 

 

APPENDIX A

 

1. Definitions

 

“Action” means any claim, action, cause of action, demand, lawsuit, arbitration, inquiry, audit, governmental notice of violation, legal proceeding, litigation, citation, summons, subpoena or investigation of any nature, civil, criminal, administrative, regulatory or otherwise, whether at law or in equity.

 

“Affiliate” of a Person means any other Person that directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with, such Person. The term “control” (including the terms “controlled by” and “under common control with”) means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract or otherwise.

 

“Aggregate Recognized Revenue” has the meaning set forth in Section 2(b)(v).

 

“Agreement” has the meaning set forth in the preamble.

 

“Ancillary Documents” means the Escrow Agreement, the Employment Agreements and the Lockup Agreements.

 

“Annual Financial Statements” has the meaning set forth in Section 8(h)(i).

 

“Audited Financial Statements” has the meaning set forth in Section 12(d).

 

“Balance Sheet” has the meaning set forth in Section 8(h)(i).

 

“Balance Sheet Date” has the meaning set forth in Section 8(h)(i).

 

“Business Day” means any day except Saturday, Sunday or any other day on which commercial banks located in the State of New York are authorized or required by Law to be closed for business.

 

“Buyer” has the meaning set forth in the preamble.

 

“Buyer Indemnified Parties” has the meaning set forth in Section 11(a).

 

“Buyer Shares” has the meaning set forth in Section 2(c).

 

“Cardwell” has the meaning set forth in the preamble.

 

“Cash Payment” has the meaning set forth in Section 2(a).

 

“Closing Buyer Shares” has the meaning set forth in Section 2(c).

 

“Closing Date” has the meaning set forth in Section 3.

 

“Code” means the Internal Revenue Code of 1986, as amended.

 

“Company” has the meaning set forth in the preamble.

 

“Company Intellectual Property” means all Intellectual Property that is owned by the Company.

 

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“Company IP Agreements” means all licenses, sublicenses, consent to use agreements, settlements, coexistence agreements, covenants not to sue, waivers, releases, permissions and other Contracts, whether written or oral, relating to Intellectual Property to which the Company is a party, beneficiary or otherwise bound.

 

“Company IP Registrations” means all Company Intellectual Property that is subject to any issuance, registration or application by or with any Governmental Authority or authorized private registrar in any jurisdiction, including issued patents, registered trademarks, domain names and copyrights, and pending applications for any of the foregoing.

 

“Company IT Systems” means all Software, computer hardware, servers, networks, platforms, peripherals, and similar or related items of automated, computerized, or other information technology (IT) networks and systems (including telecommunications networks and systems for voice, data and video) owned, leased, licensed, or used (including through cloud-based or other third-party service providers) by the Company.

 

“Contracts” means all contracts, leases, deeds, mortgages, licenses, instruments, notes, commitments, undertakings, indentures, joint ventures and all other agreements, commitments and legally binding arrangements, whether written or oral.

 

“Disclosure Schedules” means the Disclosure Schedules delivered by the Company concurrently with the execution and delivery of this Agreement.

 

“Dollars or $” means the lawful currency of the United States.

 

“Dollars Amount” has the meaning set forth in Section 2(c).

 

“Effective Date” has the meaning set forth in the preamble.

 

“Employment Agreements” for Sellers means the employment agreements between the Company and Cardwell, Fidler, Meade, and Meisner.

 

“Encumbrance” means any charge, claim, community property interest, pledge, condition, equitable interest, lien (statutory or other), option, security interest, mortgage, easement, encroachment, right of way, right of first refusal, or restriction of any kind, including any restriction on use, voting, transfer, receipt of income or exercise of any other attribute of ownership.

 

“Escrow Agent” means Sichenzia Ross Ference LLP, a New York limited liability partnership.

 

“Escrow Agreement” means the Escrow Agreement to be entered into by the Buyer, the Sellers and Escrow Agent at the Effective Date, attached hereto as Exhibit B.

 

“Escrowed Cash” has the meaning set forth in Section 2(b).

 

“Fidler” has the meaning set forth in the preamble.

 

“Financial Statements” has the meaning set forth in Section 8(h)(i).

 

“GAAP” means United States generally accepted accounting principles in effect from time to time.

 

“Governmental Authority” means any federal, state, local or foreign government or political subdivision thereof, or any agency or instrumentality of such government or political subdivision, or any self-regulated organization or other non-governmental regulatory authority or quasi-governmental authority (to the extent that the rules, regulations or orders of such organization or authority have the force of Law), or any arbitrator, court or tribunal of competent jurisdiction.

 

“Governmental Order” means any order, writ, judgment, injunction, decree, stipulation, determination or award entered by or with any Governmental Authority.

 

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“Intellectual Property” means any and all rights in, arising out of, or associated with any of the following in any jurisdiction throughout the world: (a) issued patents and patent applications (whether provisional or non-provisional), including divisionals, continuations, continuations-in-part, substitutions, reissues, reexaminations, extensions, or restorations of any of the foregoing, and other Governmental Authority-issued indicia of invention ownership (including certificates of invention, petty patents, and patent utility models) (“Patents”); (b) trademarks, service marks, brands, certification marks, logos, trade dress, trade names, and other similar indicia of source or origin, together with the goodwill connected with the use of and symbolized by, and all registrations, applications for registration, and renewals of, any of the foregoing (“Trademarks”); (c) copyrights and works of authorship, whether or not copyrightable, and all registrations, applications for registration, and renewals of any of the foregoing (“Copyrights”); (d) internet domain names and social media account or user names (including “handles”), whether or not Trademarks, all associated web addresses, URLs, websites and web pages, social media sites and pages, and all content and data thereon or relating thereto, whether or not Copyrights; (e) mask works, and all registrations, applications for registration, and renewals thereof; (f) industrial designs, and all Patents, registrations, applications for registration, and renewals thereof; (g) trade secrets, know-how, inventions (whether or not patentable), discoveries, improvements, technology, business and technical information, databases, data compilations and collections, tools, methods, processes, techniques, and other confidential and proprietary information and all rights therein (“Trade Secrets”); (h) computer programs, operating systems, applications, firmware, and other code, including all source code, object code, application programming interfaces, data files, databases, protocols, specifications, and other documentation thereof; (i) rights of publicity; and (j) all other intellectual or industrial property and proprietary rights.

 

“Interim Balance Sheet” has the meaning set forth in Section 8(h)(i).

 

“Interim Balance Sheet Date” has the meaning set forth in Section 8(h)(i).

 

“Interim Financial Statements” has the meaning set forth in Section 8(h)(i).

 

“Knowledge of the Company or the Company’s Knowledge” or any other similar knowledge qualification, means the actual or constructive knowledge of any director or officer of the Company, after due inquiry.

 

“Law” means any statute, law, ordinance, regulation, rule, code, order, constitution, treaty, common law, judgment, decree, other requirement or rule of law of any Governmental Authority.

 

“Liabilities” has the meaning set forth in Section 8(j).

 

“Licensed Intellectual Property” means all Intellectual Property in which the Company holds any rights or interests granted by other Persons, including the Sellers or any of its Affiliates.

 

“Liquidation Event” shall mean any of (i) the acquisition of all of the equity of Buyer by another entity that is not included in the consolidated financial statements of Buyer (an “Unrelated Acquirer”);; (ii) any sale, lease, conveyance, exclusive license or other disposition of all or substantially all of the assets of Buyer to an Unrelated Acquirer; or (iii) a filing of bankruptcy of Buyer, or (v) any spinoff or sale of S5D or any major assets of S5D to an Unrelated Acquirer.

 

“Lockup Agreement” means a lockup agreement in the form attached hereto as Exhibit C.

 

“Loss” has the meaning set forth in Section 11(a).

 

“Material Contracts” has the meaning set forth in Section 8(f)(i).

 

“Material Customers” has the meaning set forth in Section 8(g)(i).

 

“Material Suppliers” has the meaning set forth in Section 8(g)(ii).

 

“Meade” has the meaning set forth in the preamble.

 

Page 20 of 22

 

 

“Meisner” has the meaning set forth in the preamble.

 

“Membership Interests” has the meaning set forth in the recitals.

 

“Organizational Documents” shall mean the Certificate of Formation, the Member Agreement, the Employer Identification Number, and any other documents the Company may have drafted in order to do business and be a valid company under the laws of Texas.

 

“Parties” means the Buyer, the Seller and any Affiliates thereof.

 

“Permits” means all permits, licenses, franchises, approvals, authorizations, registrations, certificates, variances and similar rights obtained, or required to be obtained, from Governmental Authorities.

 

“Permitted Encumbrances” means any Encumbrances in which the Buyer has specifically and explicitly allowed to remain under either this Agreement or any Ancillary Documents.

 

“Person” means an individual, corporation, partnership, joint venture, limited liability company, Governmental Authority, unincorporated organization, trust, association or other entity.

 

“Pre-Closing Date” shall have the meaning set forth in Section 3.

 

“PPP Loans” means those loans set forth on Schedule X attached hereto.

 

“Purchase Price” has the meaning set forth in the Section 2.

 

“Representative” means, with respect to any Person, any and all directors, officers, employees, consultants, financial advisors, counsel, accountants and other agents of such Person.

 

“Restricted Business” has the meaning set forth in Section 13(a).

 

“Restricted Period” has the meaning set forth in Section 13(a).

 

“S5D” has the meaning set forth in the preamble.

 

“Sellers” has the meaning set forth in the preamble.

 

“Securities Act” means the Securities Act of 1933, as amended.

 

“Stock Consideration Shares” has the meaning set forth in Section 9(a).

 

“Taxes” means all federal, state, local, foreign and other income, gross receipts, sales, use, production, ad valorem, transfer, franchise, registration, profits, license, lease, service, service use, withholding, payroll, employment, unemployment, estimated, excise, severance, environmental, stamp, occupation, premium, property (real or personal), real property gains, windfall profits, customs, duties or other taxes, fees, assessments or charges of any kind whatsoever, together with any interest, additions or penalties with respect thereto and any interest in respect of such additions or penalties.

 

“Tax Return” means any return, declaration, report, claim for refund, information return or statement or other document relating to Taxes, including any schedule or attachment thereto, and including any amendment thereof.

 

“Territory” has the meaning set forth in Section 13(a).

 

“Trade Secrets” means know-how, inventions (whether or not patentable), discoveries, improvements, technology, business and technical information, databases, data compilations and collections, tools, methods, processes, techniques, and other confidential and proprietary information and all rights therein.

 

“VWAP Calculation” has the meaning set forth in Section 2(c).

 

Page 21 of 22

 

 

Schedule 1

 

Meisner 25%
Meade 25%
Fidler 25%
Cardwell 25%

 

Page 22 of 22

 

 

Exhibit 31.1

 

CERTIFICATIONS OF CHIEF EXECUTIVE OFFICER

PURSUANT TO RULES 13A-14 AND 15D-14

OF THE SECURITIES EXCHANGE ACT OF 1934

 

I, Lyron Bentovim, certify that:

 

1) I have reviewed this quarterly report of The Glimpse Group, Inc.;
   
2) Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
   
3) Based on my knowledge, the financial statements and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

 

4) The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

  a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant , including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared.

 

  b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

  c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this quarterly report based on such evaluation; and

 

  d. Disclosed in this quarterly report any changes in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5) The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

 

  a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
     
  b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date: February 14, 2022 /s/ Lyron Bentovim
  Lyron Bentovim
  Chief Executive Officer, President
  (Principal Executive Officer)

 

 

 

 

Exhibit 31.2

 

CERTIFICATIONS OF CHIEF FINANCIAL OFFICER

PURSUANT TO RULES 13A-14 AND 15D-14

OF THE SECURITIES EXCHANGE ACT OF 1934

 

I, Maydan Rothblum, certify that:

 

1) I have reviewed this quarterly report on Form 10-Q of The Glimpse Group, Inc.;

 

2) Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

 

3) Based on my knowledge, the financial statements and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

 

4) The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

  a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared.

 

  b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

  c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this quarterly report based on such evaluation; and

 

  d. Disclosed in this quarterly report any changes in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5) The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

 

  a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

  b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date: February 14, 2022 /s/ Maydan Rothblum
  Maydan Rothblum
  Chief Financial Officer
  (Principal Financial Officer)

 

 

 

 

Exhibit 32.1

 

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

 

In connection with the Quarterly Report of The Glimpse Group, Inc. (“Company”) on Form 10-Q for the quarter ending December 31, 2021, as filed with the Securities and Exchange Commission on the date hereof (“Report”), the undersigned, in the capacities and on the date indicated below, hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to his knowledge:

 

  1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

 

  2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

Date: February 14, 2022

 

  /s/ Lyron Bentovim
  Lyron Bentovim
  Chief Executive Officer, President
  (Principal Executive Officer)

 

  /s/ Maydan Rothblum
  Maydan Rothblum
  Chief Financial Officer
  (Principal Financial Officer)