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Item 1. Financial Statements

2022-06-14 compared with 2022-03-16 · 514 added, 341 removed, 341 unchanged (71% of the section changed)

Financial Statements

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except par value data)

CONSOLIDATED BALANCE SHEETS

thousands, except par value data)

Current assets:

Cash and cash equivalents

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

Trade accounts receivable, net of allowance of $ 0 at April 30, 2022 and July 31, 2021

Prepaid expenses

7 unchanged sentences

Trade accounts payable

Due to seller of Emojipedia

Acquisitions related contingent consideration and deferred payment payable

Accrued expenses and other current liabilities

1 unchanged sentence

Total current liabilities

Contingent consideration payable

Other liabilities

4 unchanged sentences

authorized shares— 2,400 ;

no shares issued

no shares issued and outstanding

Class A common stock, $ .01 par value;

authorized shares— 2,600 ;

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

525 shares issued and outstanding at April 30, 2022 and July 31, 2021

Class B common stock, $ .01 par value;

authorized shares— 40,000 ;

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

14,575 shares issued and 14,502 shares outstanding at April 30, 2022, and 13,923 shares issued and 13,865 outstanding at July 31, 2021

Additional paid-in capital

1 unchanged sentence

Accumulated deficit

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

Treasury stock, 74 shares at April 30, 2022 and 58 shares at July 31, 2021, at cost

Total stockholders’ equity

Total liabilities and stockholders’ equity

See accompanying notes to unaudited condensed consolidated

financial statements.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

AND COMPREHENSIVE INCOME

(in thousands, except per share data)

accompanying notes to unaudited condensed consolidated financial statements.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

thousands, except per share data)

Three Months Ended

Six Months Ended

Nine Months Ended

Costs and expenses:

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Income before income taxes

Provision for income taxes

Provision for (benefit from) income taxes

Other comprehensive (loss) income:

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

See accompanying notes to unaudited condensed consolidated

financial statements.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES

IN STOCKHOLDERS’ EQUITY

(in thousands)

accompanying notes to unaudited condensed consolidated financial statements.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

Comprehensive

Stockholders’

Total Stockholders’

– July 31, 2021

of treasury stock

currency translation adjustment

Stock-based compensation

Purchase of treasury stock

Foreign currency translation

-October 31, 2021

of stock options

issued for matching contributions to the 401(k) Plan

currency translation adjustment

Exercise of stock options

Stock-based compensation

Stock issued for matching

contributions to the 401(k) Plan

Foreign currency translation

– January 31, 2022

Restricted stock issuance

in connection with GuruShots acquisition

Stock-based compensation

Foreign currency translation

accompanying notes to unaudited condensed consolidated financial statements.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

Comprehensive

Stockholders’

Balance – July 31, 2020

Total Stockholders’

– July 31, 2020

Stock-based compensation

Purchase of treasury stock

Foreign currency translation adjustment

Balance -October 31, 2020

Foreign currency translation

-October 31, 2020

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)

Six Months Ended

Stock issued for matching

contributions to the 401(k) Plan

Proceeds from sales of Class

B Common Stock

Foreign currency translation

– January 31, 2021

Exercise of stock options

Stock-based compensation

Proceeds from sales of Class

B Common Stock

Foreign currency translation

accompanying notes to unaudited condensed consolidated financial statements.

CONSOLIDATED STATEMENTS OF CASH FLOWS

Nine Months Ended

Operating activities

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Investing activities

Payments for business combination, net of cash acquired

Payments for asset acquisitions

Capitalized software and technology development costs and purchase of equipment

Investment in private company

Net cash used in investing activities

7 unchanged sentences

Effect of exchange rate changes on cash and cash equivalents

Net increase in cash and cash equivalents

Net (decrease) increase in cash and cash equivalents

Cash and cash equivalents at beginning of period

4 unchanged sentences

SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES

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

Contingent consideration related to business acquisition

Right-of-use assets acquired under operating leases

Acquisition 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 unaudited condensed consolidated

financial statements.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL

Note 1—Summary of Significant Accounting Policies

accompanying notes to unaudited condensed consolidated financial statements.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 1—Basis of Presentation and Summary of Significant Accounting

Basis of Presentation

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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.

and its subsidiaries, GuruShots Ltd, 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.

for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X.

Accordingly, they do not include

all of the information and footnotes required by U.S.

GAAP for complete financial statements.

2 unchanged sentences

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,

and nine months ended April 30, 2022 are not necessarily indicative of the results that may be expected for the fiscal year ending July 31,

2022 or any other period.

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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.

current economic environment due to various global events.

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 (“ASU”) No.

In December 2019, the Financial Accounting Standards

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

2019-12, Income Taxes (Topic 740):

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.

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 unaudited condensed consolidated financial

statements and related disclosures.

Recently Issued Accounting Pronouncements Not Yet Adopted

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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.

combination to recognize and measure contract assets and contract liabilities from acquired contracts using the revenue recognition guidance

in Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers , rather than the prior

requirement to record them 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.

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.

there have been no other recent accounting pronouncements or changes in accounting pronouncements during the nine months ended April 30,

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

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year ended July 31, 2021.

Business Combinations

The Company accounts for business combination using

the acquisition method of accounting.

The Company allocates the purchase price of the acquisition to the tangible and intangible assets

acquired and liabilities assumed and contingent considerations based on their estimated fair values at the acquisition dates.

of the purchase price over those fair values is recorded as goodwill.

During the measurement period, which may be up to one year from

the acquisition date, the Company may record adjustments to the assets acquired and liabilities assumed with a corresponding offset to

Upon the conclusion of the measurement period or final determination of the values of assets acquired or liabilities assumed,

whichever comes first, any subsequent adjustments are recorded to the unaudited condensed consolidated statements of operations and comprehensive

Acquisition-related costs are recognized separately from the acquisition and are expensed as incurred.

Intangible Assets-Net

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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.

on a straight-line basis over their estimated useful lives of between five to 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 were no impairment charges recorded in the nine months ended April 30, 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.

The Company was formerly a majority-owned subsidiary

of IDT Corporation (“IDT”).

On June 1, 2016, IDT’s interest in the Company was spun-off by IDT to IDT’s stockholders

and the Company became an independent public-held company.

IDT charges the Company for services it provides, and the Company charges IDT

for services it provides, pursuant to a Transition Services Agreement (“TSA”).

The Company was charged for legal services

by IDT in the amounts of $ 29,600 and $ 91,600 respectively, for the three and nine month periods ended April 30, 2022, and $ 25,900 and

$ 98,400 respectively, for the three and nine month periods ended April 30, 2021.

The Company charged IDT for consulting services provided

to IDT by a Zedge employee in the amounts of $ 35,100 and $ 140,000 respectively, for the three and nine month periods ended April 30, 2022,

and $ 33,900 and $ 119,500 , respectively, for the three and nine month periods ended April 30, 2021.

As of April 30, 2022 and July 31, 2021,

IDT owed the Company $ 5,000 and $ 6,000 , respectively.

The Company is party to a consulting agreement with

Activist Artist Management, LLC (“Activist”), which assists the company in strategic business development.

A member of the

Company’s Board of Directors owns a significant minority stake in Activist.

The Company paid $ 11,000 and $ 38,000 , respectively,

in the three and nine month periods ended April 30, 2022, and $ 11,000 and $ 38,000 , respectively, in the three and nine month periods ended

April 30, 2021, to Activist pursuant to the agreement.

Under the terms of the agreement, which was amended as of August 1, 2020, the Company

pays Activist $ 3,750 per month, plus possible commissions.

On June 7, 2022 the Company’s Board approved a $ 65,000 advisory fee to

Activist in connection with the GuruShots acquisition.

In addition, the Board also approved the increase in monthly retainer from $ 3,750

to $ 5,000 per month retroactive from April 1, 2022, see Note 17 below.

The Company paid $ 0 and $ 30,000 , respectively, in

the three and nine month periods ended April 30, 2022, and $ 0 in the three and nine month periods ended April 30, 2021, to Braze Inc.

(formerly “Appboy, Inc.”) for use of its customer relationship management and lifecycle marketing platform.

The former Chief

Executive Officer and Co-Founder of Braze, Inc.

is a member of the Company’s Board of Directors.

Note 2—Revenue

1 unchanged sentence

The following table summarizes revenue by type of

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

for the periods presented:

monetization mechanisms of the Zedge App and other revenues, including Emojipedia revenues and GuruShots’ revenue from April 13

to April 30, 2022, for the periods presented:

Three Months Ended

Six Months Ended

Nine Months Ended

(in thousands)

4 unchanged sentences

Total revenues

Revenue from Emojipedia was $ 232,000 and $ 823,000

for the three and nine month periods ended April 30, 2022, and presented in the other revenues line in the table above.

Revenue from GuruShots

was $ 294,000 for the three and nine month periods ended April 30, 2022, and presented in the other revenues line in the table above.

Contract Balances

The Company enters into contracts with its customers,

which may give rise to contract liabilities (deferred revenue) and contract assets (unbilled revenue).

The payment terms and conditions

within the Company’s contracts vary by products or services purchased, the substantial all of which are due in less than one year.

When the timing of revenue recognition differs from the timing of payments made by customers, the Company recognizes only deferred revenue

(customer payment is received in advance of performance).

The Company does not have unbilled revenue (its performance precedes the billing

Deferred revenues

The Company records deferred revenues related

to the unsatisfied performance obligations with respect to subscription revenue.

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

On April 1, 2022, the Company received a one-time

integration bonus for set up activities of $ 2 million from AppLovin Corporation for migrating to their mediation platform.

is being amortized over an estimated service period of 24 months.

The Company records deferred revenues related to

the unsatisfied performance obligations with respect to subscription revenue.

As of April 30, 2022, the Company’s deferred revenue

balance related to paid subscriptions was approximately $1.5 million, representing approximately 713,000 active subscribers including

those under the account hold designation implemented by Google Play on November 1, 2020.

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As of July 31, 2021, the Company’s deferred revenue balance related to paid subscriptions was approximately

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

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 .

$1.6 million, representing approximately 752,000 active subscribers.

The amount of revenue recognized in the nine months ended April 30,

2022 that was included in the deferred balance at July 31, 2021 was $ 1.5 million.

The Company also records deferred revenues when

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Zedge Credits upon 180 days of account inactivity.

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

As of April 30, 2022, and July 31, 2021, the Company’s deferred revenue balance

related to Zedge Premium was approximately $ 281,000 and $ 218,000 , respectively.

Total deferred revenues decreased by $ 39,000 from

$ 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.

Total deferred revenues increased by $ 1.9 million

from $ 1.8 million at July 31, 2021 to $ 3.7 million at April 30, 2022, primarily attributed to the integration bonus from AppLovin.

Significant Judgments

The advertising networks and advertising exchanges

to which we sell our inventory track and report the impressions and installs to Zedge and Zedge recognizes revenues based on these reports.

The networks and exchanges base their payments off of those reports and Zedge independently compares the data to each of the client sites

to validate the imported data and identify any differences.

The number of impressions and installs delivered by the advertising networks

and advertising exchanges is determined at the end of each month, which resolves any uncertainty in the transaction price during the reporting

to which the Company sell its inventory track and report the impressions and installs to Zedge and Zedge recognizes revenues based on

these reports.

The networks and exchanges base their payments off of those reports and Zedge independently compares the data to each of

the client sites to validate the imported data and identify any differences.

The number of impressions and installs delivered by the advertising

networks and advertising exchanges is determined at the end of each month, which resolves any uncertainty in the transaction price during

the reporting period.

Practical Expedients

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commissions are less than one year.

These costs are included in the selling, general and administrative expenses of the Consolidated Statements

of Comprehensive Income.

These costs are included in the selling, general and administrative expenses in the unaudited condensed

consolidated statements of operations and comprehensive income.

Note 3—Fair Value Measurements

2 unchanged sentences

(in thousands)

January 31, 2022

April 30, 2022

Foreign exchange forward contracts

Current portion of contingent consideration payable

Contingent consideration payable

Foreign exchange forward contracts

8 unchanged sentences

The Company’s other financial instruments

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

to their short-term nature.

at April 30, 2022 and July 31, 2021 included trade accounts receivable, trade accounts payable, and due to seller of Emojipedia.

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

short-term nature.

Note 4—Derivative Instruments

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

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

in unaudited condensed consolidated statements of operations and 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.

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:

The outstanding contracts at April 30, 2022, were as follows:

Settlement Date

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Accrued expenses and other current liabilities

The effects of derivative instruments on the

consolidated statements of comprehensive income were as follows:

Thre Months Ended

Six Months Ended

Amount of Gain (Loss) Recognized on Derivatives

Derivatives not designated or not qualifying

as hedging instruments

Location of Gain (Loss) Recognized

on Derivatives

The effects of derivative instruments on the unaudited

condensed consolidated statements of operations and comprehensive income were as follows:

Three Months Ended

Nine Months Ended

Amount of (Loss) Gain Recognized on

Derivatives not designated or not qualifying as hedging instruments

Location of Gain (Loss) Recognized on Derivatives

(in thousands)

1 unchanged sentence

Foreign exchange forward contracts

Net gain (loss) resulting from foreign exchange transactions

Note 5—Accrued Expenses and Other Current Liabilities

Net (loss) gain resulting from foreign exchange transactions

Note 5—Business Combination and Assets Acquisition

GuruShots Acquisition

On April 12, 2022, the Company consummated the acquisition of 100 %

of the outstanding equity securities of GuruShots, Ltd.

(“GuruShots”), an Israeli company that operates a platform used for

its competitive photography game available across iOS, Android and the web.

The acquisition was effected pursuant to a Share Purchase

Agreement (the “SPA”) between the Company, GuruShots and the holders of the GuruShots equity interests.

This acquisition was

accounted for as a business combination under the acquisition method of accounting and the results of operations of GuruShots have been

included in the Company’s results of operations as of the acquisition date.

The purchase price for the equity securities of

GuruShots consists of $ 18 million in cash paid at closing and contingent payments (the “Earnout”) of up to a maximum of $ 8.4

million due on each of the first and second anniversaries from the closing, payable either in cash or Class B common stock of the Company

or a combination thereof, at the Company’s discretion, and subject to GuruShots achieving certain financial targets set forth in

The fair value of the earnout amount has been estimated at $ 5.9 million as part of the preliminary purchase price allocation.

In connection therewith, the Company has agreed to make certain minimum investments in user acquisition for GuruShots in the period covered

by the Earnout, subject to GuruShots maintaining agreed upon levels of Return On Ad Spend (“ROAS”).

In addition, the Company has committed to a retention pool of $4 million

in cash and issued 626,242 shares of the Company Class B common stock with a fair value of $4 million or $6.39 per share (based on the

volume weighted average closing prices of the Class B common stock on the NYSE American Exchange for the thirty trading days ended April

12, 2022) for GuruShots’ founders and employees that will be payable or vest, as applicable, over three years from closing based

on the beneficiaries thereof remaining employed by the Company or a subsidiary.

The parties to the SPA have made customary representations, warranties

and covenants therein.

The assertions embodied in those representations and warranties were made for purposes of the SPA and are subject

to qualifications and limitations agreed by the respective parties in connection with negotiating the terms of the SPA.

In addition, certain

representations and warranties made as of a specified date may be subject to a contractual standard of materiality different from what

might be viewed as material to stockholders, or may have been used for the purpose of allocating risk between the respective parties rather

than establishing matters as facts.

For the foregoing reasons, no person should rely on the representations and warranties as statements

of factual information at the time they were made or otherwise.

The cash purchase price and the earnout have been preliminarily allocated

to GuruShots’ tangible assets, identifiable intangible assets, and assumed liabilities based on their estimated fair values.

preliminary fair value estimates of the net assets acquired are based upon preliminary calculations and valuations, and those estimates

and assumptions are subject to change as the Company obtains additional information for those estimates during the measurement period

(up to one year from the acquisition date).

The excess of the total consideration over the tangible assets, identifiable intangible assets,

and assumed liabilities was recorded as goodwill.

The Company will record measurement period adjustments based on its

ongoing valuation and purchase price allocation procedures.

The Company is still finalizing the valuation and purchase price allocation

as it relates to the net working capital amount in the table below.

The allocation of the preliminary purchase price

is as follows (in thousands):

(Dollar Amounts in Thousands)

Purchase price consideration:

Cash consideration paid at close

Cash contributed to escrow accounts at close

Cash deducted from purchase price and contributed to GuruShots' working capital

Fair value of contingent consideration to be achieved at year 1

Fair value of contingent consideration to be achieved at year 2

Fair value of total consideration transferred

Total purchase price, net of cash acquired

Fair value allocation of purchase price:

Cash and cash equivalents

Accounts receivable

Prepaid and other assets

Property and equipment, net

Other assets (including ROU)

Accounts payable and accrued expenses

Operating lease liabilities, current

Operating lease liabilities, noncurrent

Acquired intangible assets

Total purchase price

The cash consideration paid includes $ 2.7 million deposited with the

escrow agent for post-closing indemnification claims made within 18 months of the acquisition date.

The maximum earnout of $ 16.8 million will be determined based upon

the satisfaction of certain defined operational milestones and will be remeasured at fair value at each reporting period through earnings.

As the fair value is based on unobservable inputs, the liabilities are included in Level 3 of the fair value measurement hierarchy.

unobservable inputs used in the determination of the fair value of the earnout which is assumed to be paid in cash include managements

assumptions about the likelihood of payment based on the satisfaction of certain defined operational milestones and discount rates based

on cost of debt.

The Company issued 626,242 shares of the Company’s Class B common

on the closing date to the founders and employees as a retention bonus pool.

These shares will vest, in equal tranches, over three years

assuming that the recipients remain employed by the Company or a subsidiary through the vesting dates.

The $4 million fair value of these

unvested restricted stock is not included as purchase consideration above, as it has a post-combination service requirement and will be

accounted for separately from the business combination as stock compensation expense.

Additionally, the founders and employees are also

entitled to receive $4 million retention cash bonus over three years.

Identified intangible assets consist of trade names, technology, non-compete

agreements, and customer relationships.

The fair value of intangible assets and the determination of their respective useful lives were

made in accordance with ASC 805 and are outlined in the table below:

(Dollar Amounts in Thousands)

Identified intangible assets:

Acquired developed technology

Customer relationships

Total identified intangible assets

The Company’s initial fair value estimates related to the various

identified intangible assets were determined under various valuation approaches including the Relief-from-Royalty Method and Multi-period

excess earnings.

These valuation methods require management to project revenues, operating expenses, working capital investment, capital

spending and cash flows for the GuruShots over a multiyear period, as well as determine the weighted average cost of capital to be used

as a discount rate.

The Company amortizes its intangible assets assuming no residual value

over periods in which the economic benefit of these assets is consumed.

The Company recorded the excess of the purchase price over the identified

tangible and intangible assets as goodwill.

The Company believes that the investment value of the future enhancement of the Company’s

products and offerings created as a result of this acquisition has principally contributed to a purchase price that resulted in the recognition

of $ 8.9 million of goodwill, which is deductible for tax purposes.

Acquisition-related transaction costs (e.g., legal, due diligence,

valuation, and other professional fees) are not included as a component of consideration transferred but are required to be expensed as

During the nine months ended April 30, 2022, we incurred and accrued $ 860,000 of acquisition-related costs, which are included

in Selling, General and Administrative expenses on the Company’s condensed consolidated statement of operations and comprehensive

Unaudited Pro Forma Consolidated Financial Information

The unaudited pro forma financial information for

all periods presented below has been calculated after adjusting the results of Zedge and GuruShots to reflect the business combination

accounting effects resulting from this acquisition, including acquisition costs and the amortization expense from acquired intangible

assets as though the acquisition occurred on August 1, 2020.

The historical consolidated financial statements have been adjusted in the

pro forma combined financial statements to give effect to pro forma events that are directly attributable to the business combination.

The pro forma financial information is for informational purposes only and is not indicative of the results of operations that would have

been achieved if the acquisition had taken place on August 1, 2020.

Three Months Ended

Nine Months Ended

1) The fiscal year end of Zedge is July 31 and the fiscal year

end of GuruShots is December 31.

The pro forma financial information above has been prepared utilizing the three and nine months ended

April 30th for Zedge and March 31st for GuruShots.

The unaudited pro forma financial information includes the following

adjustments, net of any tax impacts:

(i) incremental amortization expense recognized based on fair value of intangible assets recorded upon acquisition of GuruShots;

(ii) incremental compensation expense related to the vesting of retention awards to GuruShots employees consisting of restricted stock

awards and cash payments;

(iii) the reversal of historical fair value adjustments and interest expense recorded on GuruShots’ convertible notes that were settled

on the acquisition date.

(iv) Income tax expense (benefit) was adjusted for the impact of the

above adjustments for each period.

Transaction costs incurred during the three and nine months ended April

30, 2022 were $ 0.7 million and $ 0.9 million, respectively.

For pro forma purposes, these expenses were reclassified to the earliest

period presented.

The unaudited pro forma financial information is for comparative purposes only and is not necessarily

indicative of what the Company’s operating results would have been had the GuruShots Acquisition taken place on August 1, 2020.

GuruShots’ operating results are consolidated with our operating

results beginning on April 13, 2022.

Therefore, our consolidated results of operations for the three and nine months ended April

30, 2022 may not be comparable to the same period in 2021.

GuruShots’ results of operations included in our consolidated

results of operations for the three and nine months ended April 30, 2022 include revenues of $0.3 million and a net loss of

$0.2 million.

Emojipedia 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 has been determined to be $6.7 million of which

$4.8 million was paid on August 2, 2021 and $917,000 was paid on February 1, 2022, with the remaining $962,000 to be paid out on the 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 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 are amortized on a straight-line basis over their estimated useful lives of fifteen years.

The results of operations of the purchased assets

are included in the Company’s unaudited condensed consolidated statements of operations and comprehensive income since the date

of the acquisition.

Note 6—Intangible Assets and Goodwill

The following table presents the detail of intangible assets as of

July 31, 2021 and April 30, 2022 (in thousands):

Gross Carrying Value

Accumulated Amortization

Net Carrying Value

Balance at July 31, 2021

Websites and other internet domains acquired

Acquired developed technology

Customer relationships

Trademarks and trade names

Balance at April 30, 2022

Estimated future amortization expense as of April 30, 2022 is as follows

(in thousands):

Remainder of fiscal 2022

Changes in the carrying amount of goodwill in the nine months ended

April 30, 2022 are as follows (in thousands):

(in thousands)

Carrying Amount

Balance at July 31, 2021

GuruShots acquisition

Foreign currency translation adjustments

Balance at April 30, 2022

Note 7—Accrued Expenses and Other Current

Accrued expenses and other current liabilities

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Accrued payroll and bonuses

Accrued business combination expenses

Operating lease liability

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Note 8—Stock-Based Compensation

2016 Stock Option and Incentive Plan

On November 10, 2021, the Company’s

Board of Directors amended the Company’s 2016 Stock Option and Incentive Plan (as amended to date, the “2016 Incentive Plan”)

to increase the number of shares of the Company’s Class B common stock available for the grant of awards thereunder by an additional

250,000 shares to an aggregate of 1,521,000 shares.

This amendment was ratified by the Company’s stockholders at the Annual Meeting

of Stockholders held on January 11, 2021.

On November 10, 2021, the Company’s

Board of Directors amended the 2016 Incentive Plan to increase the number of shares of the Company’s Class B common stock available

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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 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.

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 January 31, 2022 to May 31, 2026.

Such options are fully vested and were granted under

the Company’s 2008 Stock Option and Incentive Plan.

The options have an exercise price of $1.73 per share.

Compensation expense

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 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.

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,

On March 23, 2022, the Company’s

Board of Directors amended the 2016 Incentive Plan to increase the number of shares of the Company’s Class B common stock available

for the grant of awards thereunder by an additional 685,000 shares to an aggregate of 2,531,000 shares, including 685,000 shares for the

GuruShots retention pool.

The Company expects to submit the amendment for ratification by the Company’s stockholders at the Annual

Meeting of Stockholders to be held in January 2023.

At April 30, 2022, there were 492,000

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

issuable shares related to the deferred stock units (“DSUs”) with both service and market conditions.

In addition to stock options and restricted

stock awards, the Company occasionally issues DSU’s.

On September 7, 2021, the Company granted a total of 291,320 DSUs to 64 of

its employees and consultants.

Each DSU represents the right to receive one share of the Company’s Class B common stock.

30% of the DSU’s (or 87,396) have

service vesting conditions only, with a vesting schedule of 25% on September 7, 2022, 33% on September 7, 2023, and remaining on September

Vesting of the remaining 70% of the DSUs (or 203,924) is subject to continued service as well as a market condition.

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.

satisfaction of both of those conditions, these DSU’s with both service and market conditions have a vesting schedule of 25% September

7, 2022, up to 58% (the 25% eligible to vest in 2022 and an additional 33%) on September 7, 2023, and up to 100% 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 Company recognizes stock-based compensation

for stock-based awards, including stock options, restricted stock and DSUs based on the estimated fair value of the awards and recognized

over the relevant service period.

The Company estimates the fair value of stock options on the measurement date using the Black-Scholes

option valuation model.

The Company estimates the fair value of restricted stock and DSUs with service conditions only using the current

market price of the stock.

The Company estimates the fair value of DSUs with both service and market conditions using the Monte Carlo

Simulation valuation model.

The Black-Scholes and Monte Carlo Simulation

valuation models incorporate assumptions as to stock price volatility, the expected life of options or awards, a risk-free interest rate

and dividend yield.

We recognize stock-based compensation expense related to options and restricted stock units on a straight-line basis

over the service period of the award, which is generally 4 years for options and 3 years for restricted stock units.

In our accompanying unaudited condensed

consolidated statements of operations and comprehensive income, the Company recognized stock-based compensation for our employees and

non-employees as follows:

Three Months Ended

Nine Months Ended

(in thousands)

Selling, general and administrative

The estimated grant-date fair value of our stock options was calculated

using the Black-Scholes option pricing model, based on the following weighted-average assumptions:

Nine months ended April 30,

Expected term

Risk free interest rate

At January 31, 2022, unrecognized compensation

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

Deferred Stock Units (DSUs)

On September 7, 2021, the Company granted

a total of 291,320 DSUs to 64 of its employees and consultants.

Each DSU represents the right to receive one share of the Company’s

Class B common stock.

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

remaining 30 % DSUs without market-based condition was approximately $ 1.3 million.

The unrecognized compensation expense is being recognized

on a straight-line basis over the vesting period.

At January 31, 2022, unrecognized compensation

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

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

a grant of 10,619 restricted shares of Class B common stock to each of Mr.

Elliot Gibber and Mr.

Howard Jonas which were fully vested

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 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.

Weighted average grant date fair value

The following table summarizes stock option activity

for the nine months ended April 30, 2022:

(in thousands)

Outstanding at July 31, 2021

Cancelled / forfeited

Outstanding at April 30, 2022

Exercisable at April 30, 2022

The following table summarizes restricted stock

activity for the nine months ended April 30, 2022:

Non-vested stock award as of July 31, 2021

Granted (GuruShots Retention Bonus shares)

Non-vested stock award as of April 30, 2022

The following table summarizes DSU activity for

the nine months ended April 30, 2022:

Non-vested DSU award as of July 31, 2021

Non-vested DSU award as of April 30, 2022

(1) Includes 203,924 DSUs (or 70% of total awards) of which vesting

are subject to both service and market condition.

The DSUs with both service and market conditions

were valued using a Monte Carlo simulation model, with a valuation of $ 7.19 per DSU.

Total grant date fair value for these DSUs was approximately

$ 1.5 million.

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

The DSUs with

a service condition only had a grant date fair value of $ 1.3 million.

Total grant date fair value for the remaining 30 % DSUs without market-based

condition was approximately $ 1.0 million.

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

vesting period.

As of April 30, 2022, the Company’s unrecognized

stock-based compensation expense was $ 661,000 for unvested stock options, $ 1.9 million for DSUs and $ 4.1 million for unvested restricted

stock including the $ 4 million portion of retention bonus to be paid in the Company’s Class B common stock in connection with the

GuruShots acquisition.

Note 9—Earnings Per Share

1 unchanged sentence

net income attributable to all classes of common stockholders of the Company by the weighted average number of shares of all classes of

common stock outstanding during the applicable period.

Diluted earnings per share is computed in the same manner as basic earnings per

share, except that the number of shares is increased to include restricted stock still subject to risk of forfeiture, issuances to be

made on the vesting of unvested DSUs and the exercise of potentially dilutive stock options using the treasury stock method, unless the

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:

common stock outstanding during the applicable period, and is the same amount for the Company’s Class A common stock and Class B

common stock.

Diluted earnings per share is computed in the same manner as basic earnings per share, except that the number of shares

is increased to include restricted stock still subject to risk of forfeiture, issuances to be made on the vesting of unvested DSUs and

the exercise of potentially dilutive stock options using the treasury stock method, unless the 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:

Three Months Ended

Six Months Ended

Nine Months Ended

(in thousands)

8 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

(in thousands)

14 unchanged sentences

into a loan and security agreement with Western Alliance Bank for a revolving credit facility of up to $ 2.5 million for an initial two-year

term which was extended twice for another two two-year term expiring September 26, 2022.

term which was extended twice for another two-year term expiring September 26, 2022.

At the Company’s request in September 2020,

15 unchanged sentences

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

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

At April 30, 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.

10 unchanged sentences

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.

At April 30, 2022, there were $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 $326,000.

Note 12—Business Segment and Geographic Information

6 unchanged sentences

as one operating segment.

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:

Net long-lived assets and total assets, other

than goodwill, deferred tax assets and investment in private company, held outside of the United States, which are located primarily in

Israel and Norway, were as follows:

United States

1 unchanged sentence

Long-lived assets, net:

January 31, 2022

April 30, 2022

July 31, 2021

Total assets:

January 31, 2022

April 30, 2022

July 31, 2021

3 unchanged sentences

Operating lease right-of-use assets recorded and included in other assets were $ 164,000 and $ 243,000

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 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.

at April 30, 2022 and July 31, 2021, respectively.

In connection with the

GuruShots acquisition, the Company also acquired $ 86,000 of right-of-use assets related to its office space in Tel Aviv and assumed $ 86,000

lease liabilities.

Other than the above,

there were no other material changes in the Company's operating and finance leases in the three and nine months ended April 30, 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 14—Provision for Income Taxes

The Company’s 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 the Company is 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.

The Company’s tax provision or benefit from

income taxes for interim periods has generally been determined using an estimate of its annual effective tax rate, adjusted for identified

discrete items, if any.

Under certain circumstances where the Company is 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.

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 %.

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

rate for the fiscal year ending July 31, 2022 to be approximately 25.7 %.

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 equity compensation expenses.

During the nine

months ended April 30, 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 24.4 %.

As of April 30, 2022, the Company had $ 560,000

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

13 unchanged sentences

which represented a 3.89 % annual percentage interest rate.

The Company obtained a loan under the Payroll

Protection Program (PPP) of the CARES Act in the amount of $ 218,000 loan from Western Alliance Bank, a loan servicer and the Company’s

lender (see Note 9), on April 22, 2020.

The Company used these proceeds in full for payroll purposes for U.S.

employees during the covered

period provided under the PPP (which was extended to 24 weeks).

Any portion of the loan that is not forgiven would have been due two years

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 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.

This loan was completely repaid by April 2021.

Note 16—Sales of Class B Common Stock

11 unchanged sentences

In connection with this offering, the Company

incurred a total issuance costs of $215,000.

incurred a total issuance cost of $215,000.

The Company intends to use the net proceeds from this offering for working capital and other

5 unchanged sentences

Sales Agreement”), pursuant to which we sold 663,686 shares at an average price of $ 15.0674 per share for total proceeds of $ 10

In connection with this offering, we incurred a total issuance costs of $ 350,000 .

In connection with this offering, we incurred a total issuance cost of $ 350,000 .

We intend to use the net proceeds from this

offering for working capital and other general corporate purposes.

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 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 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 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

impact on the consolidated results of operations.

Note 16—Intangible Assets

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

Note 17—Subsequent Events

On June 7, 2022, the Company’s Board approved

a $ 65,000 advisory fee to Activist in connection with the GuruShots acquisition.

In addition, the Board also approved the increase in

monthly retainer from $ 3,750 to $ 5,000 per month retroactive from April 1, 2022,

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