| Business Combination and Assets Acquisition | 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., 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 approximately $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 SPA. The fair value of the earnout amount at the acquisition date was estimated at $5.9 million based on a Monte Carlo
simulation model in an option pricing framework, whereby a range of possible scenarios were simulated. This fair value was reduced from
$5.9 million to $1.9 million as of July 31, 2022 and further reduced to $1.8 million as of October 31, 2022. See Note 3, Fair Value
Measurements Under the SPA, 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 626,242 shares of the Company Class B common stock (the number of shares was determined based on a value
of $4 million or $6.39 per share which was 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. The cash purchase price and the earnout have been
allocated to GuruShots’ tangible assets, identifiable intangible assets, and assumed liabilities based on their estimated fair values.
The 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 $ 15,242
Cash contributed to escrow accounts at close 2,700
Cash deducted from purchase price and contributed to GuruShots’ working capital 58
Fair value of contingent consideration to be achieved at year 1 3,396
Fair value of contingent consideration to be achieved at year 2 2,508
Fair value of total consideration transferred 23,904
Total purchase price, net of cash acquired $ 23,384
Fair value allocation of purchase price:
Cash and cash equivalents $ 520
Trade accounts receivable 282
Prepaid expenses 145
Property and equipment, net 17
Other assets (including ROU) 151
Accounts payable and accrued expenses (1,351 )
Operating lease liabilities, current (53 )
Operating lease liabilities, noncurrent (34 )
Acquired intangible assets 15,320
Goodwill 8,907
Total purchase price $ 23,904 The cash consideration paid includes $2.7 million
deposited with the escrow agent that is available to satisfy for post-closing indemnification claims made within 18 months of the acquisition
date. There have been no claims made as of October 31, 2022. The earnout amount to be paid (up to the maximum
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. The 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 has issued 616,848 (net of forfeiture
of 9,394 shares) shares of the Company’s Class B common in respect of the retention pool to the GuruShots founders and employees,
which will be held by a trustee based in Israel. 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 an
aggregate of up to $4 million retention cash bonus over three years subject to the same continued service requirement, which was not included
in the purchase price above. As of October 31, 2022, the Company has accrued $766 thousand in retention bonus which is included in the
accrued expense and other current liabilities. Identified intangible assets consist of trade
names, technology 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) Asset Value Useful Life
Identified intangible assets:
Trade names $ 3,570 12 years
Acquired developed technology 3,950 5 years
Customer relationships 7,800 10 years
Total identified intangible assets $ 15,320 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 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 has been reduced by $180,000 subsequently related to accounts payable
balance as of the closing date. The goodwill 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 incurred. During fiscal 2022, we incurred $860,000 of acquisition-related costs, which are included in Selling, General
and Administrative expenses on the Company’s condensed consolidated statements of operations and comprehensive (loss) income. 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 was $6.7 million of which $4.8 million was paid
on August 2, 2021, $917,000 was paid on February 1, 2022, and the remaining $962,000 paid on August 2, 2022. The $4.8 million was funded
into an escrow account and classified as other assets on our consolidated balance sheet as of July 31, 2021. The assets purchased include emojipeida.org, a
set of smaller websites, a bank of emoji related URLs 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 |
