Zedge, Inc.

(Unaudited)

Note 1—Basis of Presentation and Summary of Significant Accounting Policies

Description of Business

Zedge, Inc. builds digital marketplaces and friendly competitive games around content that people use to express themselves. Our leading products include Zedge Ringtones and Wallpapers, which we refer to as our Zedge App, a freemium digital content marketplace offering mobile phone wallpapers, video wallpapers, ringtones, and notification sounds as well as pAInt, a suite of tools that can be used to render images from text or image prompts powered by generative AI, GuruShots, a skill-based photo challenge game, and Emojipedia, the #1 trusted source for ‘all things emoji’. Our vision is to enable and connect creators who enjoy friendly competitions with a community of prospective consumers in order to drive commerce. Except where the context clearly indicates otherwise, the terms the “Company,” “Zedge” “we,” “us” or “our” refer to Zedge, Inc. and its consolidated subsidiaries.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of Zedge, Inc. and its wholly-owned subsidiaries: GuruShots Ltd. (“GuruShots”); 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 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. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and six months ended January 31, 2025 are not necessarily indicative of the results that may be expected for the fiscal year ending July 31, 2025 or any other period. The balance sheet at July 31, 2024 has been derived from the Company’s audited financial statements at that date but does not include all of the information and footnotes required by U.S. GAAP for complete financial statements. For further information, please refer to the audited consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended July 31, 2024 (the “2024 Form 10-K”), as filed with the U.S. Securities and Exchange Commission (the “SEC”).

The Company’s fiscal year ends on July 31 of each calendar year. Each reference below to a fiscal year refers to the fiscal year ending in the calendar year indicated (e.g., fiscal 2024 refers to the fiscal year ended July 31, 2024).

Significant Accounting Policies and Estimates

Restructuring Charges

The restructuring charges consist primarily of cash expenditures for compensation and severance payments, employee benefits, payroll taxes and related facilitation costs associated with the Company’s workforce reduction plans, as well as facilities restructuring costs related to early termination of the lease agreement and impairment of the right-of-use asset. Employee termination benefits are recognized as a liability at estimated fair value, at the time of communication to employees, unless future service is required, in which case the costs are recognized ratably over the future service period. Ongoing termination benefits are recognized as a liability at estimated fair value when the amount of such benefits is probable and reasonably estimable.

There have been no other material changes to the Company’s significant accounting policies and critical accounting estimates described in the 2024 Form 10-K.

Use of Estimates

The preparation of our unaudited condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, as well as related disclosure of contingent assets and liabilities. Actual results could differ materially from our estimates due to risks and uncertainties, including uncertainty in the economic environment due to various global events. To the extent that there are material differences between these estimates and actual results, our financial condition or operating results will be affected. We base our estimates on past experience and other assumptions that we believe are reasonable under the circumstances, and we evaluate these estimates on an ongoing basis.

Recently Issued Accounting Pronouncements

Segment Reporting:In November 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-07Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. The guidance in ASU 2023-07 seeks to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. The amendments in this ASU require a public entity to disclose the following: significant segment expenses that are regularly provided to the chief operating decision maker (“CODM”) and included within each reported measure of segment profit or loss; an amount for other segment items by reportable segment and a description of its composition; and the title and position of the CODM and how the CODM uses the reported measure(s) of segment profit or loss in assessing segment performance and deciding how to allocate resources. This ASU requires public entities to provide all annual disclosures about a reportable segment’s profit or loss and assets currently required by Topic 280 in interim periods. ASU 2023-07 clarifies that, if the CODM uses more than one measure of a segment’s profit or loss in assessing segment performance and deciding how to allocate resources, a public entity may report one or more of those additional measures of segment profit. ASU 2023-07 is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. A retrospective approach is required to be applied to all prior periods presented in the financial statements. We plan to adopt the provisions of ASU 2023-07 in the third quarter of fiscal 2025 (the three months ending April 30, 2025), which will result in additional disclosures in the notes to our consolidated financial statements. The adoption of the provisions of ASU 2023-07 will not impact our financial position or results of operations.

Income Taxes:In December 2023, the FASB issued ASU 2023-09Income Taxes (Topic 740): Improvements to Income Tax Disclosures. The guidance in this ASU enhances the transparency and decision functionality of income tax disclosures to provide investors information to better assess how an entity’s operations and related tax risks, tax planning and operational opportunities affect its tax rate and prospects for future cash flow. The amendments in this ASU require public entities to disclose the following specific categories in the rate reconciliation by both percentages and reporting currency amounts: the effect of state and local income tax, net of federal (national) income tax, foreign tax effects, effects of changes in tax laws or rates enacted in the current period, effects of cross-border tax laws, tax credits, changes in valuation allowances, nontaxable or nondeductible items and changes in unrecognized tax benefits. The amendments in ASU 2023-09 also require public entities to provide additional information for reconciling items that meet the qualitative threshold (if the effect of those reconciling items is equal to or greater than five percent of the amount computed by multiplying pre-tax income (loss) by the applicable statutory income tax rate). This ASU requires reporting entities to annually disclose the year-to-date amount of income taxes paid (net of refunds received) disaggregated by federal, state and foreign localities. The amendments in this ASU should be applied on a prospective basis and retrospective application is permitted. For public business entities, ASU 2023-09 is effective for annual periods beginning after December 15, 2024, with early adoption permitted. We plan to adopt the provisions of ASU 2023-09 in fiscal 2026 and we are evaluating the disclosure requirements related to the new standard.

Income Statement-Reporting Comprehensive Income-Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses.In November 2024, the FASB issued ASU 2024-03, Income Statement (Subtopic 220-40): Disaggregation of Income Statement Expenses, which requires public entities to disclose, in the notes to the financial statements, specified information about certain costs and expenses at each interim and annual reporting period. This ASU is effective for fiscal years beginning after December 15, 2026, and interim periodswithin annual reporting periods beginning after December 15, 2027 (as amended by ASU 2025-01Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Clarifying the Effective Date), with early adoption permitted. We are currently evaluating the impact of the standard on our condensed consolidated financial statements.

All other new accounting pronouncements that have been issued but not yet effective are currently being evaluated and at this time are not expected to have a material impact on our financial position or results of operations.

Related Party Transactions

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 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 is party to a revenue sharing agreement with National Retail Services, Inc. (“NRS”), a wholly owned subsidiary of IDT, under which Zedge and certain of its subsidiaries (Emojipedia and GuruShots) provide a selection of their digital content for display on NR screens and share in the revenue generated from the resulting advertisements.

Transactions with these related parties did not have a material impact on the condensed consolidated balance sheets as of January 31, 2025 or July 31, 2024, or the condensed consolidated statements of operations and comprehensive loss for the three and six months ended January 31, 2025 or 2024.

Note 2—Revenue

Disaggregation of Revenue

The following table presents revenue disaggregated by segment and type (in thousands):

Contract Balances

Contract liabilities consist of deferred revenue, which are recorded for payments received in advance of the satisfaction of performance obligations*.*

The Company records deferred revenues related to the unsatisfied performance obligations with respect to subscription revenue. The Company’s deferred revenue balance for paid subscriptions was approximately $4.1 million related to approximately 791,000 active subscribers, and approximately $2.9 million, related to approximately 669,000 active subscribers, as of January 31, 2025 and July 31, 2024, respectively.

The Company also records deferred revenues when users purchase or earn Zedge Credits. Unused Zedge Credits represent the value of the Company’s unsatisfied performance obligation to its users. Revenue is recognized when Zedge App users use Zedge Credits to acquire Zedge Premium content or upon expiration of the Zedge Credits after 180 days of account inactivity (“Breakage”). As of January 31, 2025, and July 31, 2024, the Company’s deferred revenue balance related to Zedge Premium was approximately $252,000 and $251,000, respectively.

The amount of deferred revenue recognized in the six months ended January 31, 2025 that was included in the deferred revenue balance at July 31, 2024 was $1.2 million.

Unsatisfied Performance Obligations

Substantially all of the Company’s unsatisfied performance obligations relate to contracts with an original expected length of 30 months or less.

Significant Judgments

The advertising networks and advertising exchanges to which the Company sells its inventory track and report the impressions and revenues 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 revenues 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.

Note 3—Fair Value Measurements

The following tables present the balance of liabilities measured at fair value on a recurring basis (in thousands):

(1) – quoted prices in active markets for identical assets or liabilities

(2) – observable inputs other than quoted prices in active markets for identical assets and liabilities

(3) – no observable pricing inputs in the market

Fair Value of Other Financial Instruments

Fair value of the outstanding foreign exchange forward contracts are marked to market price at the end of each measurement period.

The Company’s other financial instruments at January 31, 2025 and July 31, 2024 included trade accounts receivable and trade accounts payable. The carrying amounts of other assets and liabilities such as prepaid expenses, trade accounts receivable and trade accounts payable approximated fair value due to their short-term nature.

Note 4—Derivative Instruments

The primary risk managed by the Company using derivative instruments is foreign exchange risk. Foreign exchange forward contracts are entered into as hedges against unfavorable fluctuations in the U.S. Dollar (USD) to Norwegian Kroner (NOK) and USD to Euro (EUR) exchange rates. The Company is party to a Foreign Exchange Agreement with Western Alliance Bank (“WAB”) allowing the Company to enter into foreign exchange contracts under its revolving credit facility with the bank (see Note 10Term Loan and Revolving Credit Facility). 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 operations and comprehensive loss. 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, 2025 were as follows:

The fair value of outstanding derivative instruments recorded in the accompanying unaudited condensed consolidated balance sheets were as follows (in thousands):

The effects of derivative instruments on the condensed consolidated statements of operations and comprehensive loss were as follows (in thousands):

Note 5—Intangible Assets and Goodwill

Intangible assets are initially recorded at fair value and stated net of accumulated amortization and impairments. The Company amortizes its intangible assets that have finite lives using either the straight-line method, or if reliably determinable, based on the pattern in which the economic benefit of the asset is expected to be utilized. Amortization is recorded over the estimated useful lives ranging from 5 to 15 years. The Company evaluates the recoverability of its definite lived intangible assets whenever events or changes in circumstances or business conditions indicate that the carrying value of these assets may not be recoverable based on expectations of future undiscounted cash flows for each asset group. If the carrying value of an asset or asset group exceeds its undiscounted cash flows, the Company estimates the fair value of the assets, generally utilizing a discounted cash flow analysis based on the present value of after-tax cash flows to be generated by the assets using a risk-adjusted discount rate. To estimate the fair value of the assets, the Company uses market participant assumptions pursuant to ASC 820, Fair Value Measurements.

During the second quarter of fiscal 2024, in connection with its company-wide strategic planning process as well as evaluating the current operating performance of its GuruShots reporting unit, including product enhancement and marketing, the Company reassessed its short-term and long-term commercial plans for this business. The Company made certain operational and strategic decisions to invest in, and increase its focus on, the long-term success of this business, which resulted in the Company significantly reducing its forecasted revenues and operating results.

As a result, the Company identified indicators of impairment and performed an undiscounted cash flow analysis pursuant to ASC 360,Property, Plant, and Equipment - Overall, to determine if the cash flows expected to be generated by the GuruShots business over the estimated remaining useful life of its primary assets were sufficient to recover the carrying value of the asset group. Based on this analysis, the undiscounted cash flows were not sufficient to recover the carrying value of the long-lived assets. As a result, the Company was required to perform Step 3 of the impairment test and determine the fair value of the asset group. To estimate the fair value of the asset group, the Company utilized the income approach, which is based on a discounted cash flow (DCF) analysis and calculates the fair value by estimating the after-tax cash flows attributable to the asset group and then discounting the after-tax cash flows to present value using a risk-adjusted discount rate. Assumptions used in the DCF require significant judgment, including judgment about appropriate discount rates, growth rates, and the amount and timing of expected future cash flows. The forecasted cash flows were based on the Company’s most recent strategic plan and for periods beyond the strategic plan, the Company’s estimates were based on assumed growth rates expected as of the measurement date. The Company believes its assumptions were consistent with the plans and estimates that a market participant would use to manage the business. The discount rate used was intended to reflect the risks inherent in future cash flow projections and was based on an estimate of the weighted average cost of capital (WACC) of market participants relative to the asset group. The Company used a discount rate of 30.5%. Based on this analysis, the fair value of the GuruShots asset group was below its carrying value. The Company determined that the fair value of this asset group was approximately zero and the carrying value of the long-lived assets was fully impaired.

To record the adjustment of the carrying value of the asset group to fair value, the Company recorded an impairment charge of $11.9 million during the second quarter of fiscal 2024. The impairment charge was allocated to the long-lived assets on a pro-rata basis as follows: $2.5 million to acquired developed technology, $6.4 million to customer relationships, and $3.0 million to trade names. The Company believes its assumptions used to determine the fair value of the asset group were reasonable.

The following table presents the detail of intangible assets, net as of January 31, 2025 and July 31, 2024 (in thousands):

Estimated future amortization expense as of January 31, 2025 is as follows (in thousands):

The Company’s amortization expense for intangible assets were $224,000 and $1.2 million for the six months ended January 31, 2025 and 2024, respectively.

Goodwill

The following table summarizes the changes in the carrying amount of goodwill for the six months ended January 31, 2025 (in thousands).

The total accumulated impairment loss of the Company’s goodwill as of January 31, 2025 was $8.7 million.

Note 6—Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consist of the following (in thousands):

Note 7—Stock-Based Compensation

2016 Stock Incentive Plan

In November 2024, 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 100,000 shares to an aggregate of 2,631,000 shares, including 626,000 shares for the GuruShots retention pool. This amendment was ratified by the Company’s stockholders at the Annual Meeting of Stockholders held on January 15, 2025. At January 31, 2025, there were 143,000 shares of Class B common stock available for awards under the 2016 Incentive Plan.

The Company recognizes stock-based compensation for stock-based awards, including stock options, restricted stock and deferred stock units (“DSUs”) based on the estimated fair value of the awards and recognized over the relevant service period and/or market conditions. 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 the restricted stock and DSU’s with service conditions only using the current market price of the stock. The Company estimates the fair value of the DSU’s 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. The Company recognizes 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.

Deferred Stock Units Equity Incentive Programs

In November 2024, the Company adopted an equity incentive program (under the 2016 Incentive Plan) in the form of grants of DSUs that, upon vesting, will entitle the grantees to receive shares of the Company’s Class B common stock. The number of shares that will be issuable on each vesting date will vary between 33% to 300% of the number of DSUs that vest on that vesting date, depending on the market price for the underlying Class B common stock on the vesting date relative to the grant price approved by the Compensation Committee of the Company’s Board of Directors of $2.76 per share.

The Company estimated that the fair value of the DSUs on the date of grants was an aggregate of $388,000, which is being recognized on a graded vesting basis over the requisite service periods ending in September 2027. The Company used a risk neutral Monte Carlo simulation method in its valuation of the DSUs, which simulated the range of possible future values of the Company’s Class B common stock over the life of the DSUs. The Monte Carlo simulation model incorporates the likelihood of achieving the stock price targets and requires the input of assumptions including the underlying stock price, expected volatility, risk-free rate and dividend yield.

Stock Options Grants

The Company’s option awards generally have a term of 10 years from grant date, are exercisable upon vesting unless otherwise designated for early exercise by the Board of Directors at the time of grant and are pursuant to individual written agreements. Grants generally vest over a three-year or four -year period.

In January 2025 and 2024, the Compensation Committee approved grants of options to purchase 55,100 and 12,450 shares, respectively, of the Company’s Class B common stock to various executives, consultants and employees, vesting mostly over a three-year or four-year period. Unrecognized compensation expense related to these awards were $107,000 and $21,000 respectively based on the estimated fair value of the options on the grant dates.

Stock-based Compensation Expense

In our accompanying unaudited condensed consolidated statements of operations and comprehensive loss, the Company recognized stock-based compensation expense for our employees and non-employees as follows (in thousands):

As of January 31, 2025, the Company’s unrecognized stock-based compensation expense was $237,000 for unvested stock options, $331,000 for unvested DSUs and $446,000 for unvested restricted stock including the remaining unpaid amounts portion from the equity portion (in the original aggregate amount of $4 million) of the GuruShots retention bonus pool.

Vesting and Cancellation of Restricted Stock and DSUs

In the six months ended January 31, 2025 and 2024, awards of restricted stock and DSUs with respect to 119,000 shares and 125,000 shares, respectively, vested, and in connection with these vesting events, the Company purchased 6,903 shares and 6,328 shares respectively, of our Class B common stock from certain employees for $22,000 and $13,000, respectively, to satisfy tax withholding obligations.

On September 7, 2024, DSUs award with both service and market condition with respect to approximately 170,000 shares were canceled without the reversal of compensation expenses of approximately $1.2 million because the market condition was not achieved.

Note 8—Earnings Per Share

Basic earnings per share is computed by dividing 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 rights of holders of Class A common stock and Class B common stock are identical except for certain voting and conversion rights and restrictions on transferability. As such, the Company is not required to break out earnings per share by class.

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 (in thousands):

The following shares were excluded from the dilutive earnings per share computations because their inclusion would have been anti-dilutive (in thousands):

For the three and six months ended January 31, 2025 and 2024, the diluted earnings per share equals basic earnings per share because the Company incurred a net loss during those periods and the impact of the assumed exercise of stock options and vesting of restricted stock and DSUs would have been anti-dilutive.

Note 9—Commitments and Contingencies

Legal Proceedings

The Company may from time to time be subject to other legal proceedings that arise in the ordinary course of business. Although there can be no assurance in this regard, the Company does not expect any of those legal proceedings to have a material adverse effect on the Company’s results of operations, cash flows or financial condition.

Note 10—Term Loan and Revolving Credit Facility

On October 28, 2022, the Company entered into an Amended and Restated Loan and Security Agreement (“Amended Loan Agreement”) with WAB. Pursuant to the Amended Loan Agreement, WAB agreed to provide the Company with a new term loan facility in the maximum principal amount of $7 million for a four-year term and a $4 million revolving credit facility for a two-year term expiring October 28, 2024. Amounts outstanding under the term loan and credit facility of the Amended Loan Agreement bear interest at a per annum rate equal to the Prime Rate (as published in The Wall Street Journal) plus 0.5%, with a Prime “floor” rate of 4.00%.

Pursuant to the Amended Loan Agreement, $2 million was advanced in a single-cash advance on the closing date, with the remaining $5 million available for drawdown during twenty-four (24) months after closing. On May 11, 2023, the Company entered into a Modification Agreement pursuant to which the Company agreed to modify the Amended Loan Agreement to reduce the remaining $5 million availability to $0.

On November 15, 2023, the Company elected to prepay the entire principal amount of $2 million.

On October 28, 2024, the Company entered into an Amended and Restated Loan and Security Agreement Modification Agreement with WAB. Pursuant to the modification agreement, WAB agreed to renew the $4 million revolving credit facility for another four-year term through October 28, 2028 and remove certain provisions, including financial covenants, in respect of the $2 million term loan which has been repaid.

The Amended Loan Agreement includes customary negative covenants, subject to exceptions, which limit transfers, capital expenditures, indebtedness, certain liens, investments, acquisitions, dispositions of assets, restricted payments and the business activities of the Company, as well as customary representations and warranties, affirmative covenants and events of default, including cross defaults and a change of control default.

As of November 16, 2016, the Company entered into a Foreign Exchange Agreement with WAB to allow the Company to enter into foreign exchange contracts not to exceed $5.0 million in the aggregate at any point in time under its revolving credit facility. This limit was raised to approximately $7.5 million pursuant to the Loan and Security Modification Agreement dated May 30, 2018. The available borrowing under the revolving credit facility is reduced by an applicable foreign exchange reserve percentage as determined by WAB, in its reasonable discretion from time to time, which was set at 10% of the nominal amount of the foreign exchange contracts in effect at the relevant time. At January 31, 2025, there were $2.0 million of outstanding foreign exchange contracts, which reduced the available borrowing under the revolving credit facility by approximately $200,000.

Note 11—Segment and Geographic Information

Segment Information

Operating segments are components of an enterprise about which separate financial information is available that is evaluated regularly by the CODM, or decision-making group, in deciding how to allocate resources and in assessing performance. The Company’s chief operating decision maker was its Chief Executive Officer as of January 31, 2025.

There aretwo reportable segments, which are the Zedge Marketplace and GuruShots.

The CODM evaluates the performance of each operating segment using revenue and income (loss) from operations. The following table provides information about the Company’s two reportable segments (in thousands):

The CODM does not evaluate operating segments using asset information and, accordingly, the Company does not report asset information by segment.

Geographic Information

Net long-lived assets and total assets held outside of the United States, which are located primarily in Israel and Norway, were as follows (in thousands):

Note 12— Operating Leases

The Company has operating leases primarily for office space. Operating lease right-of-use (“ROU”) assets recorded and included in other assets were $251,000 and $214,000 at January 31, 2025 and July 31, 2024, respectively.

On August 7, 2024, the Company renewed its lease for the office space in Tel Aviv, Israel for a two-year term.

Future minimum lease payments related to this lease renewal are as follows (in thousands):

The Company reviews the impairment of ROU assets consistent with the approach applied for the Company’s other long-lived assets. The Company reviews the recoverability of long-lived assets when events or changes in circumstances occur that indicate that the carrying value of the asset may not be recoverable. The assessment of possible impairment is based on the Company’s ability to recover the carrying value of the asset from the expected undiscounted future pre-tax cash flows of the related operations.

In connection with the restructuring we implemented in January 2025 (See Note 14Restructuring, Impairments, and Related Charges for more details), we are evaluating the potential impairment of the right-of-use assets associated with our leased office space in Norway.

There were no other material changes in the Company’s operating and finance leases in the six months ended January 31, 2025, as compared to the disclosure regarding such leases in the 2024 Form 10-K.

Note 13—Income Taxes

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 applied to year-to-date income and records the discrete tax items in the period to which they relate. In each quarter, the Company updates the estimated annual effective tax rate and makes a year-to-date adjustment to the tax provision as necessary.

The Company’s estimated annual effective tax rate for the fiscal year ending July 31, 2025 differs from the U.S. federal statutory tax rate due to certain items primarily related to stock-based compensation expense, jurisdictional mix of earnings, foreign derived intangible income deduction, global intangible low-taxed income and the change in basis differences associated with tax deductible intangible assets and goodwill.

As of January 31, 2025, the Company had $6.3 million of deferred tax assets, for which it has established a valuation allowance of $1.8 million, related to U.S. federal and state taxes and for a certain international subsidiary.

The Company is 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 the Company is subject to potential examination by tax authorities include the United States, Norway, Lithuania and Israel.

Note 14—Restructuring, Impairments, and Related Charges

In January 2025, the Company implemented a corporate restructuring aimed to reduce headcount and other operating expenses, including the closure of our Norway operations. As a result of the restructuring steps, the Company’s workforce will be consolidated in Lithuania and Israel. We expect this to allow for more efficient operations and cost savings beyond the compensation expenses of the terminated employees.

In connection with this initiative, the Company reduced its total global headcount by approximately 22% and recognized a restructuring charge of $0.5 million primarily consisting of employee termination benefit which is recorded in the Company’s condensed consolidated statements of operations and comprehensive loss for the three months ended January 31, 2025.

The Company capitalizes certain costs related to software to be sold, leased, or marketed in accordance with ASC 985-20,Costs of Software to Be Sold, Leased, or Marketed related to GuruShots. The Company evaluates these long-lived assets for impairment whenever circumstances arise that indicate the carrying amount of an asset may not be recoverable. The Company’s strategic reassessment of GuruShots’ operations resulted in a $0.8 million impairment of capitalized software and technology development costs which is recorded in the Company’s unaudited condensed consolidated statements of operations and comprehensive loss for the three months ended January 31, 2025.

The following table summarizes total restructuring, impairments, and related charges for the Company’s two reportable segments (in thousands):

The following table provides information about restructuring, impairments, and related charges for the Company’s two reportable segments (in thousands):

The following table shows a roll forward of restructuring reserves, primarily consists of employee termination benefits, that will result in cash spending. These amounts exclude asset impairment charges and other asset disposal activities (in thousands):