What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2022-03-16 compared with 2021-12-14 · 316 added, 211 removed, 366 unchanged (59% of the section changed)

Financial Statements

CONSOLIDATED BALANCE SHEETS

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except par value data)

1 unchanged sentence

Cash and cash equivalents

Trade accounts receivable, net of allowance of $ 0 at October 31, 2021 and July 31, 2021

Trade accounts receivable, net of allowance of $ 0 at January 31, 2022 and July 31, 2021

Prepaid expenses

20 unchanged sentences

authorized shares— 2,600 ;

525 shares issued and outstanding at October 31, 2021 and July 31, 2021

525 shares issued and outstanding at January 31, 2022 and July 31, 2021

Class B common stock, $ .01 par value;

authorized shares— 40,000 ;

13,935 shares issued and 13,861 shares outstanding at October 31, 2021, and 13,923 shares issued and 13,865 ouststanding at July 31, 2021

13,949 shares issued and 13,875 shares outstanding at January 31, 2022, and 13,923 shares issued and 13,865 ouststanding at July 31, 2021

Additional paid-in capital

1 unchanged sentence

Accumulated deficit

Treasury stock, 74 shares at October 31, 2021 and 58 shares at July 31, 2021, at cost

Treasury stock, 74 shares at January 31, 2022 and 58 shares at July 31, 2021, at cost

Total Stockholders’ equity

Total liabilities and Stockholders’ equity

See accompanying notes to consolidated financial

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

See accompanying notes to unaudited condensed consolidated

financial statements.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

AND COMPREHENSIVE INCOME

(in thousands, except per share data)

Three Months Ended

Six Months Ended

Costs and expenses:

Direct cost of revenues (exclusive of amortization of capitalized software and technology development costs included below)

Direct cost of revenues (excluding amortization of capitalized software and technology development costs which is included below)

Selling, general and administrative

2 unchanged sentences

Interest and other income, net

Net loss resulting from foreign exchange transactions

Net (loss) gain resulting from foreign exchange transactions

Income before income taxes

Provision for income taxes

Other comprehensive income (loss):

Other comprehensive (loss) income:

Changes in foreign currency translation adjustment

Total other comprehensive income (loss)

Total other comprehensive (loss) income

Total comprehensive income

2 unchanged sentences

Weighted-average number of shares used in calculation of income per share:

See accompanying notes to consolidated financial

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’

See accompanying notes to unaudited condensed consolidated

financial statements.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES

IN STOCKHOLDERS’ EQUITY

(in thousands)

1 unchanged sentence

Stockholders’

Balance – July 31, 2021

Stock-based compensation

Purchase of treasury stock

Foreign currency translation adjustment

Balance -October 31, 2021

B Common Stock

– July 31, 2021

of treasury stock

currency translation adjustment

-October 31, 2021

of stock options

issued for matching contributions to the 401(k) Plan

currency translation adjustment

– January 31, 2022

Comprehensive

5 unchanged sentences

Balance -October 31, 2020

See accompanying notes to consolidated financial

CONSOLIDATED STATEMENTS OF CASH FLOWS

Exercise of stock options

Stock-based compensation

Stock issued for matching contributions to the 401(k) Plan

Proceeds from sales of Class B Common Stock

Foreign currency translation adjustment

Balance – January 31, 2021

See accompanying notes to unaudited condensed consolidated

financial statements.

CONDENSED CONSOLIDATED STATEMENTS OF CASH

(in thousands)

Three Months Ended

Six Months Ended

Operating activities

2 unchanged sentences

Stock-based compensation

Deferred income taxes

Change in assets and liabilities:

8 unchanged sentences

Financing activities

Proceeds from sales of Class B Common Stock

Payment of issuance costs

Repayment of insurance premium loan payable

Proceeds from exercise of stock options

Purchase of treasury stock in connection with restricted stock vesting

Net cash used in financing activities

Net cash (used in) provided by financing activities

Effect of exchange rate changes on cash and cash equivalents

6 unchanged sentences

SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES

Acquisition of Emojipedia through release of escrow fund of $ 4,776 , due to seller of $ 2,118 and legal fee of $ 12

Acquistion of Emojipedia through release of escrow funds of $ 4,776 , due to seller of $ 1,923 and legal fee of $ 12

Accounts receivable from certain Emojipedia websites collected by Seller

Note payable issued for insurance premium financing

See accompanying notes to consolidated financial

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

See accompanying notes to unaudited condensed consolidated

financial statements.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL

Note 1—Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited consolidated financial

statements of Zedge, Inc.

and its subsidiary, Zedge Europe AS (the “Company”) have been prepared in accordance with accounting

principles generally accepted in the United States of America (“U.S.

GAAP”) for interim financial information and with the

instructions to Form 10-Q and Article 10 of Regulation S-X.

Accordingly, they do not include all of the information and footnotes required

GAAP for complete financial statements.

In the opinion of management, all adjustments (consisting of normal recurring accruals)

considered necessary for a fair presentation have been included.

Operating results for the three months ended October 31, 2021 are not

necessarily indicative of the results that may be expected for the fiscal year ending July 31, 2022 or any other period.

sheet at July 31, 2021 has been derived from the Company’s audited financial statements at that date but does not include all of

The accompanying unaudited condensed consolidated

financial statements of Zedge, Inc.

and its subsidiaries, Zedge Europe AS and Zedge Lithuania UAB (the “Company”), have been

prepared in accordance with accounting principles generally accepted in the United States of America (“U.S.

GAAP”) for interim

financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X.

Accordingly, they do not include all of

the information and footnotes required by U.S.

GAAP for complete financial statements.

For further information, please refer to the

consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended

July 31, 2021, as filed with the U.S.

In the opinion of management, all adjustments

(consisting of normal recurring accruals) considered necessary for a fair presentation have been included.

Operating results for the three

and six months ended January 31, 2022 are not necessarily indicative of the results that may be expected for the fiscal year ending July 31,

2022 or any other period.

The balance sheet at July 31, 2021 has been derived from the Company’s audited financial statements at

that date but does not include all of the information and footnotes required by U.S.

GAAP for complete financial statements.

further information, please refer to the consolidated financial statements and footnotes thereto included in the Company’s Annual

Report on Form 10-K for the fiscal year ended July 31, 2021, as filed with the U.S.

Securities and Exchange Commission (the “SEC”).

4 unchanged sentences

Use of Estimates

The preparation of the Company’s consolidated

financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of

assets, liabilities, revenue and expenses, as well as related disclosure of contingent assets and liabilities.

Actual results could differ

materially from the Company’s estimates due to risks and uncertainties, including uncertainty in the current economic environment

due to the global impact of the COVID-19 pandemic.

To the extent that there are material differences between these estimates and actual

results, the Company’s financial condition or operating results will be affected.

The Company bases its estimates on past experience

and other assumptions that the Company believes are reasonable under the circumstances, and the Company evaluates these estimates on an

ongoing basis.

The preparation of the Company’s unaudited

condensed consolidated financial statements in conformity with U.S.

GAAP requires management to make estimates and assumptions that affect

the reported amounts of assets, liabilities, revenue and expenses, as well as related disclosure of contingent assets and liabilities.

Actual results could differ materially from the Company’s estimates due to risks and uncertainties, including uncertainty in the

current economic environment due to the global impact of the COVID-19 pandemic.

To the extent that there are material differences between

these estimates and actual results, the Company’s financial condition or operating results will be affected.

The Company bases its

estimates on past experience and other assumptions that the Company believes are reasonable under the circumstances, and the Company evaluates

these estimates on an ongoing basis.

Recently Adopted Accounting Pronouncements

In December 2019, the Financial Accounting Standards

Board (“FASB”) issued Accounting Standard Update No.

In December 2019, the Financial Accounting

Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) No.

2019-12, Income Taxes (Topic

Simplifying the Accounting

for Income Taxes (ASU 2019-12), which simplifies the accounting for income taxes.

The Company adopted this new accounting standard

on August 1, 2021, and the adoption did not have a material impact on the Company’s financial statements and related disclosures.

With the exception of the accounting standard discussed

above, there have been no other recent accounting pronouncements or changes in accounting pronouncements during the three months ended

October 31, 2021, as compared to the recent accounting pronouncements described in the Company’s Annual Report on Form 10-K for

the fiscal year ended July 31, 2021, that are of significance or potential significance to the Company.

Simplifying the Accounting for Income Taxes (ASU 2019-12), which simplifies the accounting for income taxes.

adopted this new accounting standard on August 1, 2021, and the adoption did not have a material impact on the Company’s

consolidated financial statements and related disclosures.

Recently Issued Accounting Pronouncements Not Yet Adopted

In June 2016, the FASB issued ASU 2016-13, Financial

Instruments - Credit Losses (Topic 326) , which requires the measurement and recognition of expected credit losses for financial assets

held at amortized cost.

ASU 2016-13 replaces the existing incurred loss impairment model with an expected loss model which requires consideration

of forward-looking information to calculate credit loss estimates.

These changes will result in an earlier recognition of credit losses.

The Company’s financial assets held at amortized cost include accounts receivable.

The amendments in ASU 2020-05 deferred the effective

date for Topic 326 to fiscal years beginning after December 15, 2022.

The Company will adopt the new standard effective August 1, 2023

and does not expect the adoption of this guidance to have a material impact on its consolidated financial statements.

In October 2021, the FASB issued ASU No.

Accounting for Contract Assets and Contract Liabilities From Contracts With Customers .

ASU 2021-08 requires an acquirer in a business

combination to recognize and measure deferred revenue from acquired contracts using the revenue recognition guidance in Accounting Standards

Codification Topic 606, rather than the prior requirement to record deferred revenue at fair value.

The guidance is effective for fiscal

years, and interim periods within those fiscal years, beginning after December 15, 2022.

Early adoption is permitted.

The Company will

adopt the new standard effective August 1, 2023 and does not expect the adoption of this guidance to have a material impact on its consolidated

financial statements.

With the exception of the standard discussed above,

there have been no other recent accounting pronouncements or changes in accounting pronouncements during the six months ended January

31, 2022, as compared to the recent accounting pronouncements described in the Company’s Annual Report on Form 10-K for the fiscal

year ended July 31, 2021, that are of significance or potential significance to the Company.

Significant Accounting Policies

2 unchanged sentences

year ended July 31, 2021.

Intangible Assets

Intangible Assets-Net

Intangible assets (see Note 16) are carried at

cost and amortized on a straight-line basis over their estimated useful lives of fifteen years.

The Company reviews identifiable amortizable

intangible assets to be held and used for impairment whenever events or changes in circumstances indicate that the carrying value of the

assets may not be recoverable.

Determination of recoverability is based on the lowest level of identifiable estimated undiscounted cash

flows resulting from use of the asset and its eventual disposition.

Measurement of any impairment loss is based on the excess of the carrying

value of the asset over its fair value.

There have been no impairment charges recorded in the three months ended October 31, 2021 presented

in the accompanying consolidated financial statements.

Note 2—Revenue Disaggregation of Revenue

cost, less accumulated amortization, unless a determination has been made that their value has been impaired.

Intangible assets are amortized

on a straight-line basis over their estimated useful lives of fifteen years.

The Company reviews identifiable amortizable intangible assets

to be held and used for impairment whenever events or changes in circumstances indicate that the carrying value of the assets may not

be recoverable.

Determination of recoverability is based on the lowest level of identifiable estimated undiscounted cash flows resulting

from use of the asset and its eventual disposition.

Measurement of any impairment loss is based on the excess of the carrying value of

the asset over its fair value.

There have been no impairment charges recorded in the six months ended January 31, 2022 presented in the

accompanying unaudited condensed consolidated financial statements.

Related Party Transactions

The Company has certain routine transactions with

certain related parties.

The related parties and nature of these transactions are described in Note 13 of the consolidated financial statements

included in the Form 10-K for the fiscal year ended July 31, 2021.

Note 2—Revenue

Disaggregation of Revenue

The following table summarizes revenue by type of

monetization mechanisms of the Zedge App for the periods presented:

monetization mechanisms of the Zedge App and other revenues, including Emojipedia revenues.

for the periods presented:

Three Months Ended

Six Months Ended

(in thousands)

Advertising revenue

6 unchanged sentences

to the unsatisfied performance obligations with respect to subscription revenue.

As of October 31, 2021, the Company’s deferred

As of January 31, 2022, the Company’s deferred

revenue balance related to paid subscriptions was approximately $1,505,000, representing approximately 762,000 active subscribers including

6 unchanged sentences

$1,603,000, representing approximately 752,000 active subscribers.

The amount of revenue recognized in the three months ended October

The amount of revenue recognized in the six months ended January 31,

2022 that was included in the deferred balance at July 31, 2021 was $ 1,218,000 .

5 unchanged sentences

Zedge Credits upon 180 days of account inactivity.

As of October 31, 2021, and July 31, 2021, the Company’s deferred revenue balance

As of January 31, 2022, and July 31, 2021, the Company’s deferred revenue balance

related to Zedge Premium was approximately $ 277,000 and $ 218,000 , respectively.

Total deferred revenues decreased by $ 39,000 from

$ 1,821,000 at July 31, 2021 to $ 1,803,000 at October 31, 2021, primarily attributed to the decline in new subscriptions sales in the three

months ended October 31, 2021 when compared to the prior period.

$ 1,821,000 at July 31, 2021 to $ 1,782,000 at January 31, 2022, primarily attributed to the decline in new subscriptions sales in the three

and six months ended January 31, 2022 when compared to the prior periods.

Significant Judgments

15 unchanged sentences

(in thousands)

October 31, 2021

January 31, 2022

Foreign exchange forward contracts

9 unchanged sentences

The Company’s other financial instruments

at October 31, 2021 and July 31, 2021 included trade accounts receivable, trade accounts payable, and due to seller of Emojipedia.

at January 31, 2022 and July 31, 2021 included trade accounts receivable, trade accounts payable, and due to seller of Emojipedia.

carrying amounts of the trade accounts receivable, trade accounts payable, and due to seller of Emojipedia approximated fair value due

9 unchanged sentences

The Company does not apply hedge accounting to these contracts, and therefore the changes in fair value are recorded

in consolidated statements of comprehensive income.

By using derivative instruments to mitigate exposures to changes in foreign exchange

rates, the Company is exposed to credit risk from the failure of the counterparty to perform under the terms of the contract.

or repayment risk is minimized by entering into transactions with high-quality counterparties.

The outstanding contracts at October 31, 2021, are as follows:

in unaudited condensed consolidated statements of comprehensive income.

By using derivative instruments to mitigate exposures to changes

in foreign exchange rates, the Company is exposed to credit risk from the failure of the counterparty to perform under the terms of the

The credit or repayment risk is minimized by entering into transactions with high-quality counterparties.

The outstanding contracts at January 31, 2022, were as follows:

Settlement Date

Dollar Amount

Settlement Date

Dollar Amount

The fair value of outstanding derivative instruments

recorded in the accompanying consolidated balance sheets were as follows:

recorded in the accompanying unaudited condensed consolidated balance sheets were as follows:

Assets and Liabilities Derivatives:

6 unchanged sentences

consolidated statements of comprehensive income were as follows:

Thre Months Ended

Six Months Ended

Amount of Gain (Loss) Recognized on Derivatives

Three Months Ended

Derivatives not designated or not qualifying as hedging instruments

Location of Gain (Loss) Recognized on Derivatives

Derivatives not designated or not qualifying

as hedging instruments

Location of Gain (Loss) Recognized

on Derivatives

(in thousands)

Foreign exchange forward contracts

23 unchanged sentences

for the grant of awards thereunder by an additional 325,000 shares to an aggregate of 1,846,000 shares.

This amendment is subject to ratification

by the Company’s stockholders during the Annual Meeting of Stockholders to be held on January 12, 2022.

At October 31, 2021, there

were 425,000 shares of Class B Stock available for awards under the 2016 Incentive Plan before accounting for the 204,000 contingently

issuable shares related to the DSUs with both service and market conditions discussed below.

This amendment was ratified by

the Company’s stockholders at the Annual Meeting of Stockholders held on January 12, 2022.

At January 31, 2022, there were 434,000

shares of Class B common stock available for awards under the 2016 Incentive Plan before accounting for the 204,000 contingently issuable

shares related to the DSUs with both service and market conditions discussed below.

Stock Options

In August and October 2020, the Compensation

Committee of the Company’s Board of Directors approved grants of options to purchase an aggregate of 90,849 shares of Class B Stock

to various individuals including company executives, employees and consultants.

Options with respect to 30,000 shares vested upon grant

with the remaining options with respect to 60,849 shares vesting over a three-year period.

Committee of the Company’s Board of Directors approved grants of options to purchase an aggregate of 90,849 shares of Class B common

stock to various individuals including company executives, employees and consultants.

Options with respect to 30,000 shares vested upon

grant with the remaining options with respect to 60,849 shares vesting over a three-year period.

Grant date fair value related to the

30,000 vested options was $32,000 which was expensed immediately.

Unrecognized compensation expense related to the 60,649 options grants was

an aggregate of $64,000 based on the estimated fair value of the options on the grant date.

The unrecognized compensation expense is being

recognized on a straight-line basis over the vesting period.

As of October 31, 2021, the unrecognized compensation expense related to

the unvested portion of this grant was $42,500.

Unrecognized compensation expense related to the 60,649 options grants

was an aggregate of $64,000 based on the estimated fair value of the options on the grant date.

The unrecognized compensation expense

is being recognized on a straight-line basis over the vesting period.

In October 2020, the Compensation Committee

extended the expiration date of options to purchase approximately 182,000 shares of the Company’s Class B common stock held by one

of the Company’s executive officers, from October 31, 2021 to May 31, 2026.

of the Company’s executive officers, from January 31, 2022 to May 31, 2026.

Such options are fully vested and were granted under

3 unchanged sentences

related to this modification was $78,000 and was fully expensed on the modification date.

In December 2020 and January 2021, the

Compensation Committee of the Company’s Board of Directors approved grants of options to purchase an aggregate of 37,000 shares

of Class B common stock to four employees vesting over a three to four year period.

Unrecognized compensation expense related to these

options grants was an aggregate of $ 141,000 based on the estimated fair value of the options on the grant date.

The unrecognized compensation

expense is being recognized on a straight-line basis over the vesting period.

In October 2021, the Compensation Committee

of the Company’s Board of Directors approved grants of options to purchase an aggregate of 15,250 shares of Class B Stock to three

of its non-executive employees based in Lithuania and one consultant, vesting over a four-year period.

Unrecognized compensation expense

related to the 15,250 options grants was an aggregate of $163,000 based on the estimated fair value of the options on the grant date.

of the Company’s Board of Directors approved grants of options to purchase an aggregate of 15,250 shares of Class B common stock

to three of its non-executive employees based in Lithuania and one consultant, vesting over a four-year period.

Unrecognized compensation

expense related to the 15,250 options grants was an aggregate of $163,000 based on the estimated fair value of the options on the grant

The unrecognized compensation expense is being recognized on a straight-line basis over the vesting period.

At October 31, 2021, unrecognized compensation

In November 2021 and January 2022, the

Compensation Committee of the Company’s Board of Directors approved grants of options to purchase an aggregate of 12,500 shares

of Class B common stock to three employees vesting over a four-year period.

Unrecognized compensation expense related to these options

grants was an aggregate of $ 97,000 based on the estimated fair value of the options on the grant date.

The unrecognized compensation expense

is being recognized on a straight-line basis over the vesting period.

The fair value of each grant of stock options

was estimated on the respective date of grant using a Black-Scholes valuation model (“BSM”) and the assumptions in

the following table.

Expected volatility is based on historical volatility of the Company’s Class B common stock.

uses the simplified method to estimate the expected term of the stock-based payments granted due to the limited history of the

The risk-free rate is based on the U.S.

Treasury yield curve in effect at the time of grant.

The Company used the following weighted average

assumptions in its BSM pricing model:

Six months ended January 31,

Expected term

Risk free interest rate

At January 31, 2022, unrecognized compensation

expense related to unvested stock options was an aggregate of $ 719,000 .

4 unchanged sentences

Class B common stock.

Vesting of 30% (87,396) of the DSUs is based on the grantee remaining

in service to the Company and will take place as to 25% on such DSUs on September 7, 2022, as to an additional 33% of such DSUs on September

7, 2023, and as to the remaining DSUs on September 7, 2024.

Vesting of 70% (203,924) of the DSUs

is subject to continued service as well as a market condition.

Those DSUs will only vest if the grantee remains in service to the Company

and only if the aggregate market capitalization of the Company’s equity securities has reached or exceeded $451 million for five

consecutive trading days between the grant date and the vest date.

Subject to satisfaction of both of those conditions, 25% of such DSUs

will vest on September 7, 2022, up to 58% (the 25% eligible to vest in 2022 and an additional 33%) of such DSUs will vest on September

7, 2023, and up to 100% will vest on September 7, 2024.

In the event the market capitalization condition has not been met prior to a vesting

date, but is met by a subsequent vesting date, all DSUs eligible for vesting prior to that date shall vest.

In the event that the market

capitalization condition has not been met by September 7, 2024, these 70% of the DSUs shall expire.

These 70% DSUs or 203,924 DSUs with market condition have been valued

by an outside valuation firm using a Monte Carlo simulation model.

The Monte Carlo simulation methodology estimates the future equity

value of Zedge on a risk-neutral basis.

The outside valuation firm’s mean value indication for a single DSU was $7.19 and their

mean standard of error was less than 1%.

Total grant date fair value for these 70% DSUs with both time and market condition was approximately

$1.5 million.

The unrecognized compensation expense is being recognized on a graded vesting method over the vesting period.

Vesting of 30% (or 87,396) of the DSUs

is based on the grantee remaining in service to the Company and will take place as to 25% on such DSUs on September 7, 2022, as to an

additional 33% of such DSUs on September 7, 2023, and as to the remaining DSUs on September 7, 2024.

Vesting of the remaining 70% (or 203,924)

of the DSUs is subject to continued service as well as a market condition (“DSUs with a market condition”).

These DSUs will

vest if the grantee remains in service to the Company and only if the aggregate market capitalization of the Company’s equity securities

has reached or exceeded $451 million for five consecutive trading days between the grant date and the vest date.

Subject to satisfaction

of both of those conditions, 25% of such DSUs will vest on September 7, 2022, up to 58% (the 25% eligible to vest in 2022 and an additional

33%) of such DSUs will vest on September 7, 2023, and up to 100% will vest on September 7, 2024.

In the event the market capitalization

condition has not been met prior to a vesting date, but is met by a subsequent vesting date, all DSUs with a market condition eligible

for vesting prior to that date shall vest.

In the event that the market capitalization condition has not been met by September 7, 2024,

the DSUs with a market condition shall expire.

The DSUs with a market condition have

been valued by the Company using a Monte Carlo simulation model.

The Monte Carlo simulation methodology estimates the future equity value

of Zedge on a risk-neutral basis.

Their mean value indication for a single DSU was $7.19 and their mean standard of error was less than

Total grant date fair value for these DSUs with both service and market conditions was approximately $1.5 million.

The unrecognized

compensation expense is being recognized on a graded vesting method over the vesting period.

Total grant date fair value for the

2 unchanged sentences

on a straight-line basis over the vesting period.

At October 31, 2021, unrecognized compensation

At January 31, 2022, unrecognized compensation

expense related to unvested DSUs was an aggregate of $ 2.3 million.

In the three months ended October 31,

2021 and 2020, the Company purchased 4,450 shares and 5,625 shares of Class B Stock from various employees for $ 72,000 and $ 8,000 , respectively,

to satisfy tax withholding obligations in connection with the vesting of DSUs.

In the six months ended January 31,

2022 and 2021, the Company purchased 4,450 shares and 5,625 shares of Class B common stock from various employees for $ 72,000 and $ 8,000 ,

respectively, to satisfy tax withholding obligations in connection with the vesting of DSUs.

Restricted Stock Awards

In November 2020, the Compensation Committee and

the Corporate Governance Committee of our Board of Directors approved a grant of 92,593 restricted shares of the Company’s Class

B common stock to our Executive Chairman Michael Jonas.

Jonas agreed to accept all of his compensation for his service as Executive

Chairman during fiscal 2021 in the form of equity in the Company and to make receipt of such equity compensation contingent on the Company

achieving certain milestones relative to its fiscal 2021 budget.

The grant was made at that time because the milestones previously set

were achieved.

These shares shall vest in equal amounts on February 7, 2022, 2023 and 2024.

These shares had an aggregate grant date fair

value of $ 350,000 which is being amortized on a straight-line basis over the vesting period.

In October 2020, the Compensation Committee approved

2 unchanged sentences

Howard Jonas which were fully vested

These shares had an aggregate grant date fair value of $ 30,000 and have been fully amortized accordingly.

At October 31, 2021, unrecognized compensation

These shares had an aggregate grant date fair value of $ 30,000 and have been fully expensed accordingly.

In our accompanying condensed consolidated statements

of operations and comprehensive income, we recognized stock-based compensation of $ 446,000 and $ 765,000 for our employees and non-employees

for the three and six months period ended January 31, 2022, respectively, and $ 113,000 and $ 350,000 for the three and six months period

ended January 31, 2021, respectively.

At January 31, 2022, unrecognized compensation

expense related to unvested restricted stock awards was an aggregate of $ 222,000 .

In the three months ended October 31, 2021 and

2020, the Company purchased 11,665 shares and 12,005 shares respectively of Class B Stock from certain employees for $ 160,000 and $ 18,000

In the six months ended January 31, 2022 and 2021,

the Company purchased 11,665 shares and 12,005 shares respectively of Class B common stock from certain employees for $ 160,000 and $ 18,000

respectively, to satisfy tax withholding obligations in connection with the vesting of restricted stock.

7 unchanged sentences

effect of such increase is anti-dilutive.

The weighted-average number of shares used in

the calculation of basic and diluted earnings per share attributable to the Company’s common stockholders consists of the following:

The weighted-average number of shares used in the

calculation of basic and diluted earnings per share attributable to the Company’s common stockholders consists of the following:

Three Months Ended

Six Months Ended

(in thousands)

8 unchanged sentences

Three Months Ended

Six Months Ended

(in thousands)

Stock options

30 unchanged sentences

it pays down any outstanding principal, accrued interest and bank expenses.

At October 31, 2021 and July 31, 2020, there were no amounts

At January 31, 2022 and July 31, 2021, there were no amounts

outstanding under the revolving credit facility and the Company was in compliance with all of the covenants.

As of November 16, 2016, the Company entered into a Foreign Exchange

Agreement with Western Alliance Bank to allow the Company to enter into foreign exchange contracts not to exceed $5.0 million in the aggregate

at any point in time under its revolving credit facility.

This limit was raised to approximately $6.5 million pursuant to the Loan and

Security Modification Agreement dated May 30, 2018.

The available borrowing under the revolving credit facility is reduced by an applicable

foreign exchange reserve percentage as determined by Western Alliance Bank, in its reasonable discretion from time to time, which was

initially set at 10% of the nominal amount of the foreign exchange contracts in effect at the relevant time.

In December 2016, the applicable

foreign exchange reserve percentage was changed so that the reduction of available borrowing for major currency forward contracts of less

than six months tenor is set at 10% of the nominal amount of the foreign exchange contracts, and for contracts over six months tenor,

12.5% of the nominal amount of the foreign exchange contracts.

At October 31, 2021, there were approximately $3.2 million of outstanding

foreign exchange contracts with the majority being less than six months tenor under the credit facility, which reduced the available borrowing

under the revolving credit facility by $326,250.

As of November 16, 2016, the Company entered into

a Foreign Exchange Agreement with Western Alliance Bank to allow the Company to enter into foreign exchange contracts not to exceed $5.0

million in the aggregate at any point in time under its revolving credit facility.

This limit was raised to approximately $6.5 million

pursuant to the Loan and Security Modification Agreement dated May 30, 2018.

The available borrowing under the revolving credit facility

is reduced by an applicable foreign exchange reserve percentage as determined by Western Alliance Bank, in its reasonable discretion from

time to time, which was initially set at 10% of the nominal amount of the foreign exchange contracts in effect at the relevant time.

December 2016, the applicable foreign exchange reserve percentage was changed so that the reduction of available borrowing for major currency

forward contracts of less than six months tenor is set at 10% of the nominal amount of the foreign exchange contracts, and for contracts

over six months tenor, 12.5% of the nominal amount of the foreign exchange contracts.

At January 31, 2022, there were $1.8 million of

outstanding foreign exchange contracts with the majority being less than six months tenor under the credit facility, which reduced the

available borrowing under the revolving credit facility by $180,000.

Note 10—Business Segment and Geographic Information

6 unchanged sentences

as one operating segment.

Net long-lived assets and total assets held outside

Net long-lived assets and total assets, other than goodwill and investment in private company, held outside

of the United States, which are located primarily in Norway, were as follows:

2 unchanged sentences

Long-lived assets, net:

October 31, 2021

January 31, 2022

July 31, 2021

Total assets:

October 31, 2021

January 31, 2022

July 31, 2021

3 unchanged sentences

Operating lease right-of-use assets recorded and included in other assets were $ 195,000 and $ 243,000

at October 31, 2021 and July 31, 2021, respectively.

Future minimum lease

payments under non-cancellable leases at October 31, 2021 are as follows (in thousands):

Years ending July 31,

Operating Leases

Total future minimum lease payments

Less imputed interest

at January 31, 2022 and July 31, 2021, respectively.

There were no other material

changes in the Company’s operating and finance leases in the three months ended October 31, 2021, as compared to the disclosure in the

Company’s Annual Report on Form 10-K for the fiscal year ended July 31, 2021.

changes in the Company’s operating and finance leases in the three and six months ended January 31, 2022, as compared to the disclosure

in the Company’s Annual Report on Form 10-K for the fiscal year ended July 31, 2021.

Note 12—Provision for Income taxes

4 unchanged sentences

accounting guidance permits the use of the actual effective tax rate for the year-to-date period.

The Company expects its overall effective tax rate for fiscal year

ending July 31, 2022 to be approximately 23.1 %.

During the three months ended October 31, 2021, the Company accounted for a discrete item

related to shares of restricted stock vested during the three months period ended October 31, 2021 with a vesting date fair market value

The Company expects its overall effective tax

rate for fiscal year ending July 31, 2022 to be approximately 22.8 %.

The effective tax rate differed from the United States federal statutory

tax rate of 21 % due to certain factors with temporary impact primarily related to the equity compensation expenses.

During the six months

ended January 31, 2022, the Company accounted for a discrete item related to restricted stock windfall (vesting date fair market value

above the grant date fair market value) which resulted in a net effective tax rate of 22.1 %.

As of October 31, 2021, the Company had $ 477,000

of deferred tax assets for which it has not established a valuation allowance, related to the U.S.

federal states and certain international

The Company completed its reassessment of the ability to realize these assets and concluded that a valuation allowance was

not required.

Comparatively for the prior period, at July 31,

2020, the Company had available net operating loss (“NOL”) carryforwards from domestic operations of approximately $ 5.6

million for U.S.

federal taxes and $ 5.9 million for state and local taxes, to offset future taxable income.

The Company also had

available NOL carryforwards of approximately $ 433,000 to offset future foreign taxable income.

The Company expects to utilize these

NOL carryforwards to offset the taxable income and reduced its effective tax rate from 21 % to 8.9 % for the fiscal year ended July 31, 2021.

As of January 31, 2022, the Company had $ 527,000

of deferred tax assets for which it has not established a valuation allowance, related to U.S.

federal and state taxes and for a certain

international subsidiary.

The Company completed its reassessment of the ability to realize these assets and concluded that a valuation

allowance was not required.

The Company is subject to taxation in the United

16 unchanged sentences

after inception of the loan.

On November 25, 2020, the Company submitted the PPP Loan Forgiveness

Application Form 3508EZ and on May 21, 2021, the Company was notified that such application for the loan forgiveness has been approved

and the loan, including accrued interest, has been deemed satisfied in full by the Small Business Administration to Western Alliance Bank.

The Company therefore recorded a gain on forgiveness of debt of $ 218,000 in the three months ended July 31, 2021.

On November 25,

2020, the Company submitted the PPP Loan Forgiveness Application Form 3508EZ and on May 21, 2021, the Company was notified that such application

for the loan forgiveness had been approved and the loan, including accrued interest, had been deemed satisfied in full by the Small Business

Administration to Western Alliance Bank.

The Company therefore recorded a gain of forgiveness of debt of $ 218,000 in the three months

ended July 31, 2021.

Note 14—Sales of Class B Common Stock

15 unchanged sentences

On March 16, 2021, the Company filed a prospectus

supplement with the SEC which contemplates the sale, for a gross aggregate sale price of up to $ 10,000,000 , of shares of the Company’s

supplement with the SEC which contemplated the sale, for a gross aggregate sale price of up to $ 10,000,000 , of shares of the Company’s

Class B common stock, from time to time in “at the market offerings” pursuant to an At Market Issuance Sales Agreement with

5 unchanged sentences

Note 15—Acquisition

Pursuant to an Asset Purchase Agreement, on August 1, 2021 (“Closing”),

the Company consummated the acquisition of substantially all of the assets of Emojipedia Pty Ltd, a proprietary company organized under

the laws of Australia.

The total purchase price of the assets is estimated to be approximately $ 6.9 million of which $ 4.8 million was

paid on August 2, 2021 with the remaining $ 2.1 million to be paid out in two equal installments on the six-month and twelve-month anniversary

of the Closing.

The final determination of the purchase price will be made in the 2 nd quarter of fiscal 2022 and is currently

not expected to be materially different than what has been recorded at October 31, 2021.

The assets purchased include emojipedia.org, a set

of smaller websites, a bank of emoji related URLs and other assets related to the seller’s business, including World Emoji Day,

Pursuant to an Asset Purchase Agreement, on August

1, 2021 (“Closing”), the Company consummated the acquisition of substantially all of the assets of Emojipedia Pty Ltd, a proprietary

company organized under the laws of Australia.

The total purchase price of the assets has been determined to be $ 6.7 million of which

$ 4.8 million was paid on August 2, 2021 with the remaining $ 1.9 million to be paid out in two equal installments on the six-month and

twelve-month anniversary of the Closing.

The final purchase price of $ 6.7 million was $ 194,000 lower than initially estimated.

The assets purchased include emojipeida.org, a

set of smaller websites, a bank of emoji related URLs and other assets related to the seller’s business, including World Emoji Day,

the annual World Emoji Awards, and Emojitracker.

The transaction does not qualify as a business combination under FASB ASC 805, Business

The asset purchase does not qualify as a business combination under FASB ASC 805, Business

Combinations , and has therefore been accounted for as an asset acquisition.

The total purchase price for this acquisition was allocated

to intangible assets and is being amortized on a straight-line basis over their estimated useful lives of fifteen years .

of operations for this acquisition are included in the Company’s consolidated statements of operations since the date of the acquisition.

to intangible assets are amortized on a straight-line basis over their estimated useful lives of fifteen years .

The results of operations for this acquisition

are included in the Company’s Consolidated Statements of Operations and Comprehensive Income since the date of the acquisition.

Actual and pro forma revenue and results of operations for this acquisition have not been presented because they do not have a material

1 unchanged sentence

Note 16—Intangible Assets

The following

table presents the detail of intangible assets for the three months ended October 31, 2021 (in thousands):

Balance at July 31, 2021

Emojipedia.org and other internet domains acquired

Balance at October 31, 2021

Estimated future

amortization expense as of October 31, 2021 is as follows (in thousands):

The following table presents the detail

of intangible assets as of July 31, 2021 and January 31, 2022 (in thousands):

Estimated future amortization expense as of January 31, 2022 is as

follows (in thousands):

Remainder of fiscal 2022

Note 17—Subsequent Event

On March 4, 2022, the Company entered into foreign exchange contracts

as set forth below:

Settlement Date

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements