What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2022-03-16 compared with 2021-12-14 · 255 added, 249 removed, 224 unchanged (69% of the section changed)

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The following information should be read in conjunction

with the accompanying consolidated financial statements and the associated notes thereto of this Quarterly Report, and the audited consolidated

financial statements and the notes thereto and our Management’s Discussion and Analysis of Financial Condition and Results of Operations

contained in our Annual Report on Form 10-K for the fiscal year ended July 31, 2021 (the “Form 10-K”), as filed with the U.S.

with the accompanying unaudited condensed consolidated financial statements and the associated notes thereto of this Quarterly Report,

and the audited consolidated financial statements and the notes thereto and our Management’s Discussion and Analysis of Financial

Condition and Results of Operations contained in our Annual Report on Form 10-K for the fiscal year ended July 31, 2021 (the “Form

10-K”), as filed with the U.S.

Securities and Exchange Commission (the “SEC”).

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We own a portfolio of leading digital consumer brands

that serve 43 million monthly active users across the globe.

Our portfolio consists of Zedge Ringtones and Wallpapers (“Zedge App”),

Shortz and, as of the beginning of August of 2021, Emojipedia.

that, as January 31, 2022, served 45 million monthly active users across the globe.

Our portfolio consists of Zedge Ringtones and Wallpapers

(“Zedge App”), Shortz and, as of the beginning of August of 2021, Emojipedia.

We operate a state-of-the-art digital publishing

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and wallpapers, video wallpapers, ringtones and custom icon packs on iOS.

We secure our content from amateur and professional artists,

and also from emerging and major brands.

Artists have the ability to easily launch a virtual storefront in our Zedge App where they can

market and sell their content to our user base.

That same platform powers an entertainment app called “Shortz – Chat Stories

by Zedge”, which is focused on serialized, short-form, fiction stories, as a beta that runs on our publishing platform.

past year, we have been expanding our content catalogue, started testing audio versions of a selected number of stories, materially improved

our ability to measure all types of engagement within the app, and invested a modest budget in paid user acquisition.

In August of 2021,

we acquired Emojipedia, the leading source of all things emoji.

secure our content from amateur and professional artists, and also from emerging and major brands.

Artists have the ability to easily

launch a virtual storefront in our Zedge App where they can market and sell their content to our user base.

That same platform powers

an entertainment app called “Shortz – Chat Stories by Zedge”, which is focused on serialized, short-form, fiction stories,

as a beta that runs on our publishing platform.

Over the past year, we have been expanding our content catalogue, started testing audio

versions of a selected number of stories, materially improved our ability to measure all types of engagement within the app, and invested

a modest budget in paid user acquisition.

In August of 2021, we acquired Emojipedia, the leading source of all things emoji.

Our Zedge App has been installed approximately 541

million times, and at October 31, 2021, boasted approximately 34 million monthly active users, or MAU.

million times, and at January 31, 2022, boasted approximately 36 million monthly active users, or MAU.

MAU is a key performance indicator

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from our Zedge App.

As of October 31, 2021, we had approximately 763,000 active paid subscribers.

In fiscal 2022, we expect to launch

subscriptions on iOS.

As of January 31, 2022, we had approximately 762,000 active paid subscribers.

In December 2019, we completed the beta launch of

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Day and the annual World Emoji Awards, and Emojitracker, which provides real time visualization of all emoji symbols used on Twitter.

In October 2021 Emojipedia receives approximately 48 million monthly page views and has approximately 9.6 million monthly active users

In January 2022 Emojipedia receives approximately 45 million monthly page views and has approximately 8.6 million monthly active users

of which approximately 50% are located in well-developed markets.

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works alongside major emoji creators including Apple, Google, Facebook and Twitter.

In December of 2021 we introduced ‘NFTs Made

Easy’ to select Zedge Premium artists initially interested in selling single edition, tokenized, video wallpapers.

Our all-in-one

platform allows creators to self-publish, mint and sell their NFTs simply by selecting the NFT option within our self-publishing platform

and without the need for them to be cryptocurrency experts or technology wizards.

‘NFTs Made Easy’ is currency agnostic and

allows consumers to purchase NFTs with Zedge tokens acquired via in-app purchases, eliminating the need to set up a crypto wallet to buy

cryptocurrencies.

Over time we expect to expand the offering with features including features like numbered editions, drop dates and new

content types.

Over the past several years, our Zedge App has experienced

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an increasing portion of our user base.

As of October 31, 2021, users in emerging markets represented 75% of the MAU for our Zedge App

compared to 72% a year prior.

This shift has negatively impacted revenue because advertising rates in emerging markets are materially

lower than in well-developed markets.

In the first quarter of fiscal 2022, users in emerging markets grew by 11.2% while users in well-developed

economies declined 8.5% when compared to the same period in fiscal 2021.

As of October 31, 2021, approximately 42% of our Zedge App’s

user base was located in North America (20%) and Europe (including Eastern Europe, 22%), compared with 42% (North America, 20% and Europe

In addition, the rate of user growth in emerging markets slowed in the first half of fiscal 2022

compared to prior periods.

As of January 31, 2022, users in emerging markets represented 77% of the MAU for our Zedge App compared to

73% a year prior.

This shift has negatively impacted revenue because advertising rates in emerging markets are materially lower than in

well-developed markets.

In the second quarter of fiscal 2022, users in emerging markets grew by 7.3% while users in well-developed economies

declined 10.5% when compared to the same period in fiscal 2021.

As of January 31, 2022, approximately 41% of our Zedge App’s user

base was located in North America (20%) and Europe (including Eastern Europe, 21%), compared with 42% (North America, 20% and Europe 22%)

as of July 31, 2021.

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still an important factor, we now also dedicate resources to growth initiatives, both organic and paid.

In fiscal 2022, we expect to increase

our paid user acquisition spend while monitoring results to ensure that the investment is yielding a positive return on investment.

time, we believe that we can change our growth dynamic in well-developed markets.

Aside from targeted growth initiatives, we need to continually

improve the core user experience, test different mechanisms and content verticals that may spur growth and capitalize on the role that

Zedge Premium artists can have on driving new users into the Zedge platform.

We have started increasing paid

user acquisition spend while monitoring results to ensure that the investment is yielding a positive return on investment.

we believe that we can change our growth dynamic in well-developed markets and return to more robust growth in all markets.

targeted growth initiatives, we need to continually improve the core user experience, test different mechanisms and content verticals

that may spur growth and capitalize on the role that Zedge Premium artists can have on driving new users into the Zedge platform.

The COVID-19 pandemic has impacted our Zedge App’s

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to promote social distancing had a modest positive impact on user engagement.

During the quarters ended October 31, 2021 and 2020,

In February of 2022 the Russian Federation invaded

As a result, many governments and businesses imposed trade and economic sanctions on the Russian Federation and Belarus.

has a small user base in Russia and Belarus;

however, it also has a development center in Vilnius, Lithuania, which is approximately 40

kilometers from the Belarussian border.

In the event that the conflict broadens to additional countries, Zedge may experience a slowdown

relating to relocating personnel and/or employees being drafted into military or public service.

At present, the Company is working on

contingency planning to be in a position to minimize any potential interruptions.

During the quarters ended January 31, 2022 and 2021,

we generated approximately 79% and 83%, respectively, of our revenues from selling our Zedge App’s advertising inventory to advertising

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a customer’s sign up for the subscription-based product, Google retains up to 30% as a fee, which decreases to 15% from month 13

As of October 31, 2021, we had approximately 763,000 active subscribers, 90% of which had subscribed on an annual basis.

As of January 31, 2022, we had approximately 762,000 active subscribers, 90% of which had subscribed on an annual basis.

inception in January 2019, subscriptions have generated approximately $8.5 million in gross revenue.

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continues to evolve and may again in the future adversely affect our business, operations and financial results.

Our business, operations and financial performance

have been, and may in the future be, negatively impacted by the COVID-19 pandemic.

Our past results may not be indicative of our future

performance, and historical trends in revenue, income (loss) from operations, net income (loss), and net income (loss) per share may differ

The risks related to the COVID-19 pandemic on our business are further described in Part I, Item 1A - Risk Factors of the

Company’s Annual Report on Form 10-K for the year ended July 31, 2021, as filed with the SEC.

Our past results may not be indicative of our

future performance, and historical trends in revenue, income (loss) from operations, net income (loss), and net income (loss) per share

may differ materially.

The key risks facing our business are further described in Part I, Item 1A - Risk Factors of the Company’s

Annual Report on Form 10-K for the year ended July 31, 2021, as filed with the SEC.

Critical Accounting Policies

Our consolidated financial statements and accompanying

notes are prepared in accordance with accounting principles generally accepted in the United States of America, or U.S.

Our significant

accounting policies are described in Note 1 to the consolidated financial statements included in the Form 10-K.

The preparation of financial

statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and

expenses as well as the disclosure of contingent assets and liabilities.

Critical accounting policies are those that require application

of management’s most subjective or complex judgments, often as a result of matters that are inherently uncertain and may change

in subsequent periods.

Our critical accounting policies include those related to capitalized software and technology development costs,

revenue recognition and goodwill.

Management bases its estimates and judgments on historical experience and other factors that are believed

to be reasonable under the circumstances.

Actual results may differ from these estimates under different assumptions or conditions.

additional discussion of our critical accounting policies, see our Management’s Discussion and Analysis of Financial Condition

and Results of Operations in the Form 10-K.

Our unaudited condensed consolidated financial

statements and accompanying notes are prepared in accordance with accounting principles generally accepted in the United States of America,

Our significant accounting policies are described in Note 1 to the consolidated financial statements included in the Form

The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of

assets, liabilities, revenues and expenses as well as the disclosure of contingent assets and liabilities.

Critical accounting policies

are those that require application of management’s most subjective or complex judgments, often as a result of matters that are inherently

uncertain and may change in subsequent periods.

Our critical accounting policies include those related to capitalized software and technology

development costs, revenue recognition, intangible assets and goodwill.

Management bases its estimates and judgments on historical experience and other factors

that are believed to be reasonable under the circumstances.

Actual results may differ from these estimates under different assumptions

or conditions.

For additional discussion of our critical accounting policies, see our Management’s Discussion and Analysis

of Financial Condition and Results of Operations in the Form 10-K.

Recently Issued Accounting Standards Not Yet Adopted

There have been

no recent accounting pronouncements or changes in accounting pronouncements during the three months ended October 31, 2021.

Please refer to

Note 1 to the Unaudited Condensed Consolidated Financial Statements included in Item 1 to Part I of this Quarterly Report on Form 10-Q.

Key Performance Indicators

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monetization investments are.

MAU increased 5.6% in the first quarter of fiscal

2022 when compared to the same period a year ago and decreased 0.6% on a sequential basis.

MAU increased 2.5% in the second quarter of fiscal

2022 when compared to the same period a year ago and increased 6.1% on a sequential basis.

Over the past several years, we have experienced

a continuing shift in our regional customer make-up with MAU in emerging markets representing an increasing portion of our user base.

As of October 31, 2021, users in emerging markets represented 75% of our MAU compared to 72% a year prior.

As of January 31, 2022, users in emerging markets represented 77% of our MAU compared to 73% a year prior.

This shift impacts our business

because emerging markets do not monetize as well as well-developed markets due to lower eCPMs and lower monthly and annual subscription

rates in these regions coupled with lower priced subscriptions SKUs.

However, ARPMAU for the three months ended October 31, 2021 was up

sales in these regions coupled with lower priced subscriptions SKUs.

However, ARPMAU for the three months ended January 31, 2022 was up

approximately 22% when compared to the same period a year ago, pointing to progress we have made in extracting more revenue from our users,

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ARPMAU - Zedge App

Three Months Ended July 31,

(in millions, except ARPMAU)

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The following charts present the MAU –

Zedge App and ARPMAU – Zedge App for the consecutive eight quarters ended October 31, 2021:

*Please note this table

excludes MAU for the Emojipedia.org of approximately 9.6 million.

Zedge App and ARPMAU – Zedge App for the consecutive eight quarters ended January 31, 2022:

* Please note the MAU-Zedge App graph above excludes MAU for

the Emojipedia.org of approximately 8.6 million for the month of January 31, 2022.

Results of Operations

Three months ended October 31, 2021 Compared to three months ended

October 31, 2020

Three and Six Months ended January 31, 2022 Compared to Three

and Six Months ended January 31, 2021

Three Months Ended

Six Months Ended

(in thousands)

Direct cost of revenues

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Interest and other income, net

Net loss resulting from foreign exchange transactions

Net (loss) gain resulting from foreign exchange transactions

Provision for income taxes

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The following table sets forth the composition

of our revenues for the three months ended October 31, 2021 and 2020:

of our revenues for the three and six months ended January 31, 2022 and 2021:

Three Months Ended

% of total Revenue

Six Months Ended

(in thousands)

Advertising revenue

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Advertising revenue increased

53% in the three months ended October 31, 2021 when compared to the three months ended October 31, 2020, primarily due to improvement

in our ad optimizations and higher advertising rates.

24% and 35% in the three and six months ended January 31, 2022, respectively, compared to the three and six months ended January 31, 2021,

primarily due to improvement in our ad optimizations and higher advertising rates.

Paid subscription revenue .

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constitutes our largest subscriber base

and we generally charge $0.99 per month or $4.99 per year.

We generated $920,000 in gross prepaid subscription in the three months ended

October 31, 2021, compared to $862,000 in the three months ended October 31, 2020.

We expect that, based on research and testing we undertake

from time to time, the prices of our subscription in each country/region may change and we may test other plan and price variations.

The following table summarizes subscription revenue for the three months

ended October 31, 2021 and 2020.

and we generally charge $0.99 per month and $4.99 per year.

We generated $897,000 and $1,816,000 in gross prepaid subscription in the

three and six months ended January 31, 2022, respectively, compared to $952,000 and $1,816,000 in the three and six months ended January

The 6% decline in gross prepaid subscription sale for the three months ended January 31, 2022 when compared to the same period

a year ago was due to approximately 10% decline in new installs in the well-development markets in the corresponding periods.

that from time to time the prices of our subscription in each country/region may change and we may test other plan and price variations.

following table summarizes subscription revenue for the three and six months ended January 31, 2022 and 2021:

Three Months Ended

Six Months Ended

(in thousands, except revenue per subscriber and percentages)

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Average monthly revenue per active subscription

Zedge Premium .

We completed the

initial rollout of Zedge Premium in March 2018 to a segment of our Android user base and we expanded it to 100% of our Android user base

in January 2019.

In the three months ended October 31, 2021, gross transaction value (the total sales volume transacting through the platform),

or “GTV,” generated from Zedge Premium were $329,000, compared to $208,000 in the three months ended October 31, 2020.

the three months ended October 31, 2021 net revenue generated from Zedge Premium was $186,000, compared to $125,000 in the three months

ended October 31, 2020.

Revenue from Zedge Premium, web-based advertising

revenues from Emojipedia and other related sites, as well as revenues generated by Shortz, are reported under Other Revenues, and those

offerings constitute potential growth drivers in the quarters to come.

Direct cost of revenues .

In the three and six months ended January 31, 2022, gross transaction value (the total sales volume transacting

through the platform), or “GTV,” generated from Zedge Premium were $434,000 and $763,000, respectively, compared to $211,000

and $419,000 in the three and six months ended January 31, 2021.

In the three and six months ended January 31, 2021 net revenue generated

from Zedge Premium were $241,000 and $428,000, respectively, compared to $103,000 and $228,000 in the three and six months ended January

The gross and net revenue growth in Zedge Premium can be attributed to the investment we made in our new content management

system as well as the landing page redesign.

from Zedge Premium, web-based advertising revenues from Emojipedia and other related sites, as well as revenues generated by Shortz,

are reported under Other Revenues, and those offerings constitute potential growth drivers in the quarters to come.

cost of revenues .

Direct cost of revenues consists primarily of content hosting and content delivery costs.

Three Months Ended

Six Months Ended

(in thousands)

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As a percentage of revenues

Direct cost of revenues increased 2% in the three

months ended October 31, 2021, compared to three months ended October 31, 2020.

As a percentage of revenue, direct cost of revenues

in three months ended October 31, 2021 were 5.1% compared to 8.1% in the three months ended October 31, 2020, primarily due to significantly

higher revenue in the current periods and the fixed nature of many of our direct cost of revenues.

Selling, general and administrative expense .

general and administrative expense (“SG&A”) consists mainly of payroll, benefits, recruiting fees, facilities, marketing,

content acquisition costs, consulting, professional fees, software licensing (“SaaS”) and public company related expenses.

cost of revenues increased 9.3% and 5.7% in the three and six months ended January 31, 2022, respectively, compared to three and six

months ended January 31, 2021.

The increase in the direct cost of revenues can be attributed to the new data analytic tool provided by

Google Cloud:

Cloud Computing Services.

a percentage of revenue, direct cost of revenues in three and six months ended January 31, 2021 were 4.9% and 5.0%, respectively, compared

to 5.9% and 6.8%, in the three and six months ended January 31, 2020, primarily due to significantly higher revenue in the current periods

and the fixed nature of many of our direct cost of revenues.

general and administrative expense .

Selling, general and administrative expense (“SG&A”) consists mainly

of payroll, benefits, recruiting fees, facilities, marketing, content acquisition costs, consulting, professional fees, software licensing

(“SaaS”) and public company related expenses.

Three Months Ended

Six Months Ended

(in thousands)

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As a percentage of revenues

SG&A expense increased 36.2% in the three

months ended October 31, 2021, compared to three months ended October 31, 2020.

This increase was primarily attributable to higher compensation

costs resulting from additional headcount and bonus accrual, higher stock-based compensation expenses as discussed below, higher professional

fees, higher SaaS expenses, offset by reductions in discretionary expenses.

As a percentage of revenue, SG&A expense in

the three months ended October 31, 2021 was 45.3%, compared to 53.3% and in the three months ended October 31, 2020, primarily due to

significantly higher revenue in the current periods.

Our headcount totaled 56 as of October 31, 2021

compared to 43 as of October 31, 2020 with the majority of our employees currently based in Lithuania.

SG&A expense also included stock-based compensation

expense which was $319,000 for the three months ended October 31, 2021, compared to $237,000 for the three months ended October 31, 2020.

Stock-based compensation includes equity grants to employees and consultants, as well as stock issuances to pay for board compensations

and 401(k) matching contributions.

expense increased 43.8% and 40.2% in the three and six months ended January 31, 2022, respectively, compared to the three and six months

ended January 31, 2021.

This increase was primarily attributable to higher compensation costs resulting from additional headcount, higher

stock-based compensation as discussed below, higher professional fees offset by reductions in discretionary expenses.

a percentage of revenue, SG&A expense in the three and six months ended January 31, 2021 were 44.9% and 45.1%, respectively, compared

to 40.6% and 45.9%, in the three and six months ended January 31, 2021.

headcount totaled 63 as of January 31, 2022 compared to 46 as of January 31, 2021 with the majority of our employees currently based

in Lithuania.

expense also included stock-based compensation expense which were $489,000 and $808,000 for the three and six months ended January

31, 2021, respectively, compared to $152,000 and $389,000 for the three and six months ended January 31, 2021.

compensation includes equity grants to employees and consultants, as well as stock issuances to pay for board compensations and

401(k) matching contributions.

Certain stock options, deferred stock unit and restricted stock grants are more fully described in

Note 6 to the Consolidated Financial Statements included in Item 1 to Part I of this Quarterly Report on Form 10-Q.

Depreciation and amortization .

and amortization consist mainly of amortization of capitalized software and technology development costs of our internal developers on

various projects that we invested in specific to the various platforms on which we operate our service, and amortization of intangible

Note 6 to the Unaudited Condensed Consolidated Financial Statements included in Item 1 to Part I of this Quarterly Report on

and amortization .

Depreciation and amortization consist mainly of amortization of capitalized software and technology development

costs of our internal developers on various projects that we invested in specific to the various platforms on which we operate our service,

and amortization of intangible assets.

Three Months Ended

Six Months Ended

(in thousands)

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As a percentage of revenues

Depreciation and amortization expenses increased

10.9% in the three months ended October 31, 2021, compared to three months ended October 31, 2020.

This increase was primarily attributable

to the amortization of intangible assets related to the Emojipedia acquisition which was completed on August 1, 2021.

Interest and other income, net.

Interest and other income, net in the three months ended October 31, 2021 increased $12,000 when compared to the same period in fiscal

2021 due to higher cash balance resulting from cash flows provided by operating activities and financing activities in the past four

and amortization expenses increased approximately 11% in both three and six months ended January 31, 2022, compared to three and six

months ended January 31, 2021.

This increase was primarily attributable to the amortization of intangible assets related to the Emojipedia

acquisition which was completed on August 1, 2021.

and other income, net.

Interest and other income, net in the three and six months ended January 31, 2022 increased $7,000 and

$22,000 respectively when compared to the same periods in fiscal 2021 due to higher cash balance resulting from cash flows provided by

operating activities and financing activities in fiscal 2021.

Three Months Ended

Six Months Ended

(in thousands)

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As a percentage of revenues

Net loss resulting from foreign exchange

transactions .

Net loss resulting from foreign exchange transactions is comprised of gains and losses generated from movements

in NOK and EUR relative to the U.S.

(loss) gain resulting from foreign exchange transactions .

Net loss resulting from foreign exchange transactions is comprised

of gains and losses generated from movements in NOK and EUR relative to the U.S.

Dollar, including gains or losses from our hedging activities.

Three Months Ended

Six Months Ended

(in thousands)

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As a percentage of revenues

In the three months ended October 31, 2021, we

realized gains of $10,000 from NOK and EUR hedging activities, compared to losses of $41,000 in the three months ended October 31, 2020.

Provision for income taxes .

The tax expense consists of federal and state taxes based on taxable income and allocated net worth and certain income taxes payable in

foreign jurisdictions where our subsidiaries reside.

the three and six months ended January 31, 2021, we realized losses of $127,000 and $117,000, respectively, from NOK and EUR hedging

activities, compared to gains of $92,000 and $51,000, respectively in the three and six months ended January 31, 2021.

for income taxes .

The tax expense consists of federal and state taxes based on taxable income and allocated net worth

and certain income taxes payable in foreign jurisdictions where our subsidiaries reside.

Three Months Ended

Six Months Ended

(in thousands)

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As a percentage of revenues

Our tax provision or benefit for income taxes

for interim periods has generally been determined using an estimate of our annual effective tax rate, adjusted for discrete items, if

Under certain circumstances where we are unable to make a reliable estimate of the annual effective tax rate, the accounting guidance

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

We expects our overall effective tax rate for

fiscal year ending July 31, 2022 to be approximately 23.1%.

During the three months ended October 31, 2021, we 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 above the grant date fair market value which resulted in a net effective tax rate of 20.7%.

As of October 31, 2021, we had $477,000 of

deferred tax assets (related to U.S.

federal and state and one specific international jurisdiction) for which we had not established a

valuation allowance.

We completed our reassessment of our ability to realize these assets and concluded that a valuation allowance was

not required.

We are subject to taxation in the United States

and certain foreign jurisdictions.

tax provision or benefit for income taxes for interim periods has generally been determined using an estimate of its annual effective

tax rate, adjusted for discrete items, if any.

Under certain circumstances where we are unable to make a reliable estimate of the annual

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

expect our 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, we 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%.

of January 31, 2022, we had $527,000 of deferred tax assets for which it has not established a valuation allowance, related to the U.S.

federal states and certain international subsidiary.

The Company completed its reassessment of the ability to realize these assets and

concluded that a valuation allowance was not required.

are subject to taxation in the United States and certain foreign jurisdictions.

Earnings from non-U.S.

activities are subject to local country income tax.

The material jurisdictions

where we are subject to potential examination by tax authorities include the United States, Norway and Lithuania.

Liquidity and Capital Resources

At October 31, 2021, we had cash and cash equivalents

of $27.2 million and working capital (current assets less current liabilities) of $23.7 million, compared to $24.9 million and $23.4 million,

respectively, at July 31, 2021.

We expect that our cash and cash equivalents on hand and our cash flow from operations will be sufficient

to meet our anticipated cash requirements for the twelve months period ending October 31, 2022.

During fiscal 2021, we raised an aggregate

of $15 million through sales of equity in At the Market offerings.

We also maintain a revolving line of credit of up to $2.0 million and

a foreign exchange contract facility of up to $6.5 million with Western Alliance Bank, as discussed below in Financing Activities.

The following tables

present selected financial information for the three months ended October 31, 2021 and 2020:

Three Months Ended

activities are subject to local

country income tax.

The material jurisdictions where we are subject to potential examination by tax authorities include the United States,

Norway and Lithuania.

and Capital Resources

January 31, 2022, we had cash and cash equivalents of $30.0 million and working capital (current assets less current liabilities) of

$26.9 million, compared to $24.9 million and $23.4 million, respectively, at July 31, 2021.

We expect that our cash and cash equivalents

on hand and our cash flow from operations will be sufficient to meet our anticipated cash requirements for the twelve-month period ending

March 16, 2023.

During fiscal 2021, we raised an aggregate of $15 million through sales of equity in At the Market offerings.

maintain a revolving line of credit of up to $2.0 million and a foreign exchange contract facility of up to $6.5 million with Western

Alliance Bank, as discussed below in Financing Activities.

following tables present selected financial information for the six months ended January 31, 2022 and 2021:

Six Months Ended

(in thousands)

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Increase in cash and cash equivalents

Operating Activities

Our cash flow from operations varies significantly

from quarter to quarter and from year to year, depending on our operating results and the timing of operating cash receipts and payments,

specifically trade accounts receivable and trade accounts payable.

Cash provided by operating activities increased $1.2 million in the

three months ended October 31, 2021 to $2.7 million from $1.5 million in the three months ended October 31, 2020, primarily attributable

to the higher revenues generated from our service offerings, including primarily advertising and paid subscription revenue.

Investing Activities

Pursuant to an Asset Purchase Agreement, on August

1, 2021 (“Closing”), we acquired 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 on the six-month and twelve month anniversary of the Closing.

$4.8 million was funded into an escrow account on July 30, 2021 and classified as other assets on our balance sheet as of July 31, 2021.

The final determination of the purchase price will be made in the 2 nd quarter of fiscal 2022 and is not expected to be materially

different than what has been recorded at October 31, 2021.

Cash used in investing activities in the three

months ended October 31, 2021 and 2020 consisted mostly of capitalized software and technology development costs related to various projects

that we invested in specific to the various platforms on which we operate our service.

Financing Activities

Between December 14, 2020 and January 26, 2021,

we sold an aggregate of 761,906 shares of our Class B common stock at an average price of $6.5625 per share for total gross proceeds of

$5 million in a registered “At the Market” offering through National Securities Corp.

Wainwright & Co, LLC as

sales agents.

cash flow from operations varies significantly from quarter to quarter and from year to year, depending on our operating results and

the timing of operating cash receipts and payments, specifically trade accounts receivable and trade accounts payable.

Cash provided

by operating activities increased $1.9 million in the six months ended January 31, 2022 to $5.7 million from $3.7 million in the six

months ended January 31, 2021, primarily attributable to the higher revenues generated from our service offerings, principally advertising

and paid subscription revenues.

to an Asset Purchase Agreement, on August 1, 2021 (“Closing”), we acquired substantially all of the assets of Emojipedia

Pty Ltd, a proprietary company organized under the laws of Australia.

The final 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 on the six-month and twelve-month

anniversary of the Closing.

That $4.8 million was funded into an escrow account on July 30, 2021 and classified as other assets on our

balance sheet as of July 31, 2021.

used in investing activities in six months ended January 31, 2022 and 2021 consisted mostly of capitalized software and technology development

costs related to various projects that we invested in specific to the various platforms on which we operate our service.

December 14, 2020 and January 26, 2021, we sold an aggregate of 761,906 shares of our Class B common stock at an average price of $6.5625

per share for total gross proceeds of $5 million in a registered “At the Market” offering through National Securities Corp.

Wainwright & Co, LLC as sales agents.

In connection with this offering, total issuance costs were $215,000.

We are using the net proceeds from this offering for

general corporate purposes including organic and other growth initiatives.

Between March 17 and June 11, 2021 we sold 663,686

shares at an average price of $15.0674 per share for total proceeds of $10 million in this offering.

Total issuance costs were $350,000.

We intend to use the net proceeds from this offering for general corporate purposes including organic and other growth initiatives.

In August 2020, we obtained a loan of $181,000

to finance about 82% of our directors’ and officers’ liability and cyber liability insurance policies, at an annual percentage

interest rate of 3.89% to be repaid over nine equal monthly installments of $20,490 starting from September 1, 2020.

We repaid approximately

$161,000 in principal in the nine months ended October 31, 2020.

In the three months ended October 31, 2021 and

2020, we purchased 16,115 shares and 17,630 shares, respectively, of Class B Stock from employees for $232,000 and $26,000 respectively,

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

We maintain a credit facility of up to $2.0 million

provided by Western Alliance Bank which is more fully described in Note 9 to the Consolidated Financial Statements included in Item 1

to Part I of this Quarterly Report on Form 10-Q.

We do not anticipate paying dividends on our common

stock until we achieve sustainable profitability and retain certain minimum cash reserves.

The payment of dividends in any specific period

will be at the sole discretion of our Board of Directors.

Changes in Trade Accounts Receivable

Gross trade accounts receivable increased $0.3

million to $2.8 million at October 31, 2021 from $2.5 million at July 31, 2021, primarily due to higher revenue in the three months ended

October 31, 2021 when compared to the three months ended July 31, 2021.

Concentration of Credit Risk and Significant Customers

Historically, we have had very little or no bad

debt, which is common with other platforms of our size that derive their revenue from digital advertising, as we aggressively manage our

collections and perform due diligence on our customers.

In addition, the majority of our revenue is derived from large, credit-worthy

customers, e.g.

MoPub (owned by Twitter), Google, Facebook and Ogury, and we terminate our services with smaller customers immediately

upon balances becoming past due.

Since these smaller customers rely on us to derive their own revenue, they generally pay their outstanding

balances on a timely basis.

In the three months ended October 31, 2021, three

customers represented 25%, 21% and 12% of our revenue.

In the three months ended October 31, 2020, three customers represented 25%, 20%

and 12% of our revenue.

At October 31, 2021, three customers represented 31%, 29% and 10% of our accounts receivable balance, and at July

31, 2021, two customers represented 37% and 28% of our accounts receivable balance.

All of these significant customers were advertising

exchanges operated by leading companies, and the receivables represent many smaller amounts due from their advertisers.

Contractual Obligations and Other Commercial Commitments

Smaller reporting companies are not required

to provide the information required by this item.

Off-Balance Sheet Arrangements

At October 31, 2021, we did not have any “off-balance

sheet arrangements,” as defined in relevant SEC regulations that are reasonably likely to have a current or future effect on our

financial condition, results of operations, liquidity, capital expenditures or capital resources.

the net proceeds from this offering for general corporate purposes including organic and other growth initiatives.

August 2020, we obtained a loan of $181,000 to finance about 82% of our directors’ and officers’ liability and cyber liability

insurance policies, at an annual percentage interest rate of 3.89% to be repaid over nine equal monthly installments of $20,490 starting

from September 1, 2020.

We repaid approximately $100,000 in principal in the six months ended January 31, 2021.

the six months ended January 31, 2022 and 2021, we issued 3,666 shares and 312,287 shares respectively of Class B common stock and received

$7,000 and $396,000 respectively, in connection with options exercised during the period.

the six months ended January 31, 2022 and 2021, we purchased 16,115 shares and 17,630 shares, respectively, of Class B common stock from

employees for $232,000 and $26,000 respectively, to satisfy tax withholding obligations in connection with the vesting of restricted

stock and DSUs.

maintain a credit facility of up to $2.0 million provided by Western Alliance Bank which is more fully described in Note 9 to the Unaudited

Condensed Consolidated Financial Statements included in Item 1 to Part I of this Quarterly Report on Form 10-Q.

do not anticipate paying dividends on our common stock until we achieve sustainable profitability and retain certain minimum cash reserves.

The payment of dividends in any specific period will be at the sole discretion of our Board of Directors.

in Trade Accounts Receivable

trade accounts receivable increased $0.7 million to $3.2 million at January 31, 2022 from $2.5 million at July 31, 2021, primarily due

to higher revenue in the preceding two months ended January 31, 2022 when compared to the same period ended July 31, 2021.

Concentration

of Credit Risk and Significant Customers

Historically,

we have had very little or no bad debt, which is common with other platforms of our size that derive their revenue from digital advertising,

as we aggressively manage our collections and perform due diligence on our customers.

In addition, the majority of our revenue is derived

from large, credit-worthy customers, e.g.

MoPub (owned by Twitter until it was sold to AppLovin on January 3, 2022), Google, Facebook

and Applovin, and we terminate our services with smaller customers immediately upon balances becoming past due.

Since these smaller customers

rely on us to derive their own revenue, they generally pay their outstanding balances on a timely basis.

the six months ended January 31, 2022, three customers represented 25%, 23% and 12% of our revenue.

In the six months ended January 31,

2021, three customers represented 31%, 22% and 12% of our revenue.

At January 31, 2022, two customers represented 39% and 29% of our

accounts receivable balance, and at July 31, 2021, two customers represented 37% and 28% of our accounts receivable balance.

significant customers were advertising exchanges operated by leading companies, and the receivables represent many smaller amounts due

from their advertisers.

Obligations and Other Commercial Commitments

reporting companies are not required to provide the information required by this item.

Sheet Arrangements

January 31, 2022, we did not have any “off-balance sheet arrangements,” as defined in relevant SEC regulations that are reasonably

likely to have a current or future effect on our financial condition, results of operations, liquidity, capital expenditures or capital

Quantitative and Qualitative Disclosures About Market Risks

Smaller reporting companies are not required

to provide the information required by this item.

reporting companies are not required to provide the information required by this item.

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 2. Management’s Discussion and Analysis