UNITED STATES

~~UNITED STATES~~

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED ~~JANUARY~~OCTOBER 31, 2022

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 1-37782

~~ZEDGE, INC.~~

ZEDGE, INC.

(Exact Name of Registrant as Specified in its Charter)

Delaware

26-3199071

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification Number)

1178 Broadway, 3^rd Floor #1450, New York, NY		10001
(Address of principal executive offices)		(Zip Code)

(330) 577-3424

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class		Name of each exchange on which registered
Class B common stock, par value $.01 per share		NYSE American

Trading symbol: ZDGE

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☐		Accelerated filer	☐
Non-accelerated filer	☐
~~Non-accelerated filer~~	☐(Do not check if a smaller reporting company)	Smaller reporting company	☒
Emerging growth company	☐	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.): Yes ☐ No ☒

As of ~~March 14,~~December 12, 2022, the registrant had the following shares outstanding:

Class A common stock, $.01 par value:	524,775 shares outstanding
Class B common stock, $.01 par value:	~~13,875,275~~14,250,011 shares outstanding

ZEDGE, INC.

TABLE OF CONTENTS

PART I. Financial Information

Item 1.	Financial Statements (Unaudited)	1

~~Item 1.~~		~~Financial Statements (Unaudited)~~Condensed Consolidated Balance Sheets	1

		~~Condensed Consolidated Balance Sheets~~	1

		Condensed Consolidated Statements of Operations and Comprehensive (Loss) Income	2

		Condensed Consolidated Statements of Changes In Stockholders’ Equity	3

		Condensed Consolidated Statements of Cash Flows	4

		Notes To Condensed Consolidated Financial Statements	5

Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations	1518

Item 3.		Quantitative and Qualitative Disclosures About Market Risks	2328

Item 4.		Controls and Procedures	2328

PART II. OTHER INFORMATION		25

Item 1.	Legal Proceedings	29

Item 1.	1A.	~~Legal Proceedings~~Risk Factors	2529

Item ~~1A.~~	2.	~~Risk Factors~~	25

~~Item 2.~~		Unregistered Sales of Equity Securities and Use of Proceeds	2529

Item 3.		Defaults Upon Senior Securities	2529

Item 4.		Mine Safety Disclosures	2529

Item 5.		Other Information	2529

Item 6.	Exhibits	30
~~Item 6.~~		~~Exhibits~~	26

SIGNATURES		2731

PART I. FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements

ZEDGE, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except par value data)

~~(Unaudited)~~

							October 31,			July 31,
	January 31,			July 31,			2022			2022
	2022			2021			(Unaudited)
Assets
Current assets:
Cash and cash equivalents	$	30,016		$	24,908		$	18,419		$	17,085
Trade accounts receivable, net of allowance of $0 at January 31, 2022 and July 31, 2021		3,241			2,545
Prepaid expenses		285			111
Other current assets		108			49
Trade accounts receivable								2,481			2,411
Prepaid expenses and other receivables								601			396
Total current assets		33,650			27,613			21,501			19,892
Property and equipment, net		1,770			1,980			1,789			1,660
Intangible assets, net		6,488			-			20,446			21,025
Goodwill		2,228			2,262			10,646			10,788
Deferred tax assets, net		527			477			861			861
Other assets		318			5,145			353			400
Total assets	$	44,981		$	37,477		$	55,596		$	54,626
Liabilities and stockholders’ equity
Current liabilities:
Trade accounts payable	$	417		$	585		$	1,377		$	1,180
Due to seller of Emojipedia		1,879			-
Deferred acquisition payment payable								-			962
Contingent consideration-current portion								17			215
Accrued expenses and other current liabilities		2,769			1,771			3,300			2,898
Deferred revenues		1,782			1,821			3,084			3,402
Total current liabilities		6,847			4,177			7,778			8,657
Term Loan, net of deferred financing costs								1,982			-
Contingent consideration-long term portion								1,776			1,728
Other liabilities		96			145			20			53
Total liabilities		6,943			4,322			11,556			10,438
Commitments and contingencies (Note 8)
Commitments and contingencies (Note 10)
Stockholders’ equity:
Preferred stock, $.01 par value; authorized shares—2,400; no shares issued		-			-
Class A common stock, $.01 par value; authorized shares—2,600; 525 shares issued and outstanding at January 31, 2022 and July 31, 2021		5			5
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		139			139
Preferred stock, $.01 par value; authorized shares—2,400; no shares issued and outstanding								-			-
Class A common stock, $.01 par value; authorized shares—2,600; 525 shares issued and outstanding at October 31, 2022 and July 31, 2022								5			5
Class B common stock, $.01 par value; authorized shares—40,000; 13,981 shares issued and 13,777 shares outstanding at October 31, 2022, and 13,951 shares issued and 13,877 outstanding at July 31, 2022								140			139
Additional paid-in capital		42,479			41,664			44,198			43,609
Accumulated other comprehensive loss		(1,077	)		(997	)		(1,650	)		(1,391	)
Accumulated deficit		(3,174	)		(7,554	)
Treasury stock, 74 shares at January 31, 2022 and 58 shares at July 31, 2021, at cost		(334	)		(102	)
Total Stockholders’ equity		38,038			33,155
Total liabilities and Stockholders’ equity	$	44,981		$	37,477
Retained earnings								1,991			2,160
Treasury stock, 204 shares at October 31, 2022 and 74 shares at July 31, 2022, at cost								(644	)		(334	)
Total stockholders’ equity								44,040			44,188
Total liabilities and stockholders’ equity							$	55,596		$	54,626

See accompanying notes to unaudited condensed consolidated financial statements.

ZEDGE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE (LOSS) INCOME

(in thousands, except for per share data)

(Unaudited)

Three Months Ended Six Months Ended
January 31, January 31,
2022 2021 2022 2021
Revenues $ 6,915 $ 5,314 $ 12,943 $ 9,076
Costs and expenses:
Direct cost of revenues (excluding amortization of capitalized software and technology development costs which is included below) 342 313 652 617
Selling, general and administrative 3,106 2,159 5,838 4,165
Depreciation and amortization 360 324 758 683
Income from operations 3,107 2,518 5,695 3,611
Interest and other income, net 14 5 27 5
Net (loss) gain resulting from foreign exchange transactions (85 ) 74 (95 ) 34
Income before income taxes 3,036 2,597 5,627 3,650
Provision for income taxes 711 319 1,247 327
Net Income 2,325 2,278 4,380 3,323
Other comprehensive (loss) income:
Changes in foreign currency translation adjustment (222 ) 365 (80 ) 206
Total other comprehensive (loss) income (222 ) 365 (80 ) 206
Total comprehensive income $ 2,103 $ 2,643 $ 4,300 $ 3,529
Income per share attributable to Zedge, Inc. common stockholders:
Basic $ 0.16 $ 0.18 $ 0.31 $ 0.27
Diluted $ 0.16 $ 0.17 $ 0.29 $ 0.26
Weighted-average number of shares used in calculation of income per share:
Basic 14,297 12,633 14,289 12,412
Diluted 14,971 13,431 15,007 12,949
~~See accompanying notes to unaudited condensed consolidated financial statements.~~

~~ZEDGE, INC.~~
~~CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY~~
~~(in thousands)~~
~~(Unaudited)~~
Class A
Common Stock Class B
Common Stock Additional
Paid-in Accumulated
Other
Comprehensive Accumulated Treasury Total
Stockholders’
Shares Amount Shares Amount Capital Loss Deficit Stock Equity
Balance – July 31, 2021 525 $ 5 13,923 $ 139 $ 41,664 $ (997 ) $ (7,554 ) $ (102 ) $ 33,155
Stock-based compensation - - 12 - 319 - - - 319
Purchase of treasury stock - - - - - - - (232 ) (232 )
Foreign currency translation adjustment - - - - - 142 - - 142
Net income - - - - - - 2,055 - 2,055
Balance -October 31, 2021 525 $ 5 13,935 $ 139 $ 41,983 $ (855 ) $ (5,499 ) $ (334 ) $ 35,439
Exercise of stock options - - 3 - 7 - - - 7
Stock-based compensation - - 6 - 446 - - - 446
Stock issued for matching contributions to the 401(k) Plan - - 5 - 43 - - - 43
Foreign currency translation adjustment - - - - - (222 ) - - (222 )
Net income - - - - - - 2,325 - 2,325
Balance – January 31, 2022 525 $     5 13,949 $ 139 $ 42,479 $       (1,077 ) $       (3,174 ) $       (334 ) $        38,038
Class A
Common Stock Class B
Common Stock Additional
Paid-in Accumulated
Other
Comprehensive Accumulated Treasury Total
Stockholders’
Shares Amount Shares Amount Capital Loss Deficit Stock Equity
Balance – July 31, 2020 525 $ 5 11,788 $ 118 $ 25,725 $ (1,085 ) $ (15,802 ) $ (76 ) $ 8,885
Stock-based compensation - - 39 - 237 - - - 237
Purchase of treasury stock - - - - - - - (26 ) (26 )
Foreign currency translation adjustment - - - - - (159 ) - - (159 )
Net Income - - - - - - 1,045 - 1,045
Balance -October 31, 2020 525 $ 5 11,827 $ 118 $ 25,962 $ (1,244 ) $ (14,757 ) $ (102 ) $ 9,982
Exercise of stock options - - 312 3 393 - - - 396
Stock-based compensation - - 8 - 113 - - - 113
Stock issued for matching contributions to the 401(k) Plan - - 7 - 39 - - - 39
Proceeds from sales of Class B Common Stock - - 762 8 4,777 - - - 4,785
Foreign currency translation adjustment - - - - - 365 - - 365
Net income - - - - - - 2,278 - 2,278
Balance – January 31, 2021 525 $         5 12,916 $   129 $    31,284 $         (879 ) $    (12,479 ) $     (102 ) $      17,958
Three Months Ended
October 31
2022 2021
Revenues, net $ 6,900 $ 6,028
Costs and expenses:
Direct cost of revenues (excluding amortization of capitalized software and technology development costs which is included below) 632 310
Selling, general and administrative 5,826 2,732
Depreciation and amortization 793 398
Change in fair value of contingent consideration (150 ) -
(Loss) income from operations (201 ) 2,588
Interest and other income, net 35 13
Net loss resulting from foreign exchange transactions (76 ) (10 )
(Loss) income before income taxes (242 ) 2,591
(Benefit from) provision for income taxes (73 ) 536
Net (Loss) Income $ (169 ) $ 2,055
Other comprehensive (loss) income:
Changes in foreign currency translation adjustment (259 ) 142
Total other comprehensive (loss) income (259 ) 142
Total comprehensive (loss) income $ (428 ) $ 2,197
(Loss) income per share attributable to Zedge, Inc. common stockholders:
Basic $ (0.01 ) $ 0.14
Diluted $ (0.01 ) $ 0.14
Weighted-average number of shares used in calculation of (loss) income per share:
Basic 14,330 14,281
Diluted 14,330 15,031

See accompanying notes to unaudited condensed consolidated financial statements.

ZEDGE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF ~~CASH FLOWS~~CHANGES IN STOCKHOLDERS’ EQUITY
(in thousands)
(Unaudited)

Six Months Ended
January 31,
2022 2021

Operating activities
Net income $ 4,380 $ 3,323
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 758 683
Stock-based compensation 808 389
Deferred income taxes (50 ) -
Change in assets and liabilities:
Trade accounts receivable (741 ) (1,500 )
Prepaid expenses and other current assets (244 ) 156
Other assets 1 36
Trade accounts payable and accrued expenses 806 299
Deferred revenue (39 ) 375
Net cash provided by operating activities 5,679 3,761
Investing activities
Capitalized software and technology development costs and purchase of equipment (323 ) (401 )
Net cash used in investing activities (323 ) (401 )
Financing activities
Proceeds from sales of Class B Common Stock - 5,000
Payment of issuance costs - (215 )
Repayment of insurance premium loan payable - (100 )
Proceeds from exercise of stock options 7 396
Purchase of treasury stock in connection with restricted stock vesting (232 ) (26 )
Net cash (used in) provided by financing activities (225 ) 5,055
Effect of exchange rate changes on cash and cash equivalents (23 ) 82
Net increase in cash and cash equivalents 5,108 8,497
Cash and cash equivalents at beginning of period 24,908 5,111
Cash and cash equivalents at end of period $ 30,016 $ 13,608

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash payments made for income taxes $ 309 $ 1
Cash payments made for interest expenses $ - $ 2

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 $ 6,711 $ -
Accounts receivable from certain Emojipedia websites collected by Seller $ 45 $ -
Note payable issued for insurance premium financing $ - $ 181
Class A
Common Stock Class B
Common Stock Additional
Paid-in Accumulated
Other
Comprehensive Retained Treasury Stock Total
Stockholders’
Shares Amount Shares Amount Capital Loss Earnings Shares Amount Equity
Balance – July 31, 2022 525 $ 5 13,951 $ 139 $ 43,609 $ (1,391 ) $ 2,160 74 $ (334 ) $ 44,188
Stock-based compensation - - 30 1 589 - - - 590
Purchase of treasury stock - - - - - - - 130 (310 ) (310 )
Foreign currency translation adjustment - - - - - (259 ) - - (259 )
Net loss - - - - - - (169 ) - (169 )
Balance – October 31, 2022 525 $ 5 13,981 $ 140 $ 44,198 $ (1,650 ) $ 1,991 204 $ (644 ) $ 44,040
Class A
Common Stock Class B
Common Stock Additional
Paid-in Accumulated
Other
Comprehensive Accumulated Treasury Stock Total
Stockholders’
Shares Amount Shares Amount Capital Loss Deficit Shares Amount Equity
Balance – July 31, 2021 525 $ 5 13,923 $ 139 $ 41,664 $ (997 ) $ (7,554 ) 58 $ (102 ) $ 33,155
Stock-based compensation - - 12 - 319 - - - 319
Purchase of treasury stock - - - - - - - 16 (232 ) (232 )
Foreign currency translation adjustment - - - - - 142 - - 142
Net income - - - - - - 2,055 - 2,055
Balance -October 31, 2021 525 $ 5 13,935 $ 139 $ 41,983 $ (855 ) $ (5,499 ) 74 $ (334 ) $ 35,439

See accompanying notes to unaudited condensed consolidated financial statements.

ZEDGE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
Three months ended October, 31 2022 2021

Operating activities
Net (loss) income $ (169 ) $ 2,055
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Depreciation 14 12
Amortization of intangible assets 579 115
Amortization of capitalized software and technology development costs 200 271
Change in fair value of contingent consideration (150 ) -
Stock-based compensation 589 319
Change in assets and liabilities:
Trade accounts receivable (70 ) (295 )
Prepaid expenses and other current assets (205 ) (279 )
Other assets 14 (8 )
Trade accounts payable and accrued expenses 598 522
Deferred revenue (318 ) (18 )
Net cash provided by operating activities 1,082 2,694
Investing activities
Final payments for asset acquisitions (962 ) -
Capitalized software and technology development costs and purchase of equipment (349 ) (188 )
Net cash used in investing activities (1,311 ) (188 )
Financing activities
Proceed from term loan payable 2,000 -
Payment of deferred financing costs (18 ) -
Purchase of treasury stock in connection with share buyback program and restricted stock vesting (310 ) (232 )
Net cash provided by (used in) financing activities 1,672 (232 )
Effect of exchange rate changes on cash and cash equivalents (109 ) 67
Net increase in cash and cash equivalents 1,334 2,341
Cash and cash equivalents at beginning of period 17,085 24,908
Cash and cash equivalents at end of period $ 18,419 $ 27,249

SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
Acquisition of Emojipedia through release of escrow funds of $4,776, plus additional amounts due to seller of $1,923 and legal fee of $12 $ - $ 6,711
Accounts receivable from certain Emojipedia websites collected by Seller $ - $ 24
See accompanying notes to unaudited condensed consolidated financial statements.

ZEDGE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

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

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of Zedge, Inc. and its 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 108 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~~October 31, 2022 are not necessarily indicative of the results that may be expected for the fiscal year ending July 31, ~~2022~~2023 or any other period. The balance sheet at July 31, ~~2021~~2022 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 consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended July 31, ~~2021,~~2022, 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 2022 refers to the fiscal year ending July 31, 2022).
Reportable Segments
Effective August 1, 2022, the Company revised the presentation of segment information to reflect the addition, following the acquisition of GuruShots, of the GuruShots App to the Company’s portfolio of mobile apps resulting from the GuruShots acquisition (see Note 5). As such, the Company now reports operating results through two reportable segments: Zedge App and GuruShots App, as further discussed in Note 12.

Use of Estimates

The preparation of the Company’s unaudited condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, as well as related disclosure of contingent assets and liabilities. Actual results could differ materially from the Company’s estimates due to risks and uncertainties, including uncertainty in the current economic environment due to ~~the~~various global ~~impact of the COVID-19 pandemic.~~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. 2019-12,~~ ~~Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes~~ (ASU 2019-12), which simplifies the accounting for income taxes. The Company adopted this new accounting standard on August 1, 2021, and the adoption did not have a material impact on the Company’s consolidated financial statements and related disclosures.

Recently Issued Accounting Pronouncements Not Yet Adopted

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326), which requires the measurement and recognition of expected credit losses for financial assets held at amortized cost. ASU 2016-13 replaces the existing incurred loss impairment model with an expected loss model which requires consideration of forward-looking information to calculate credit loss estimates. These changes will result in an earlier recognition of credit losses. The Company’s financial assets held at amortized cost include accounts receivable. The amendments in ASU 2020-05 deferred the effective date for Topic 326 to fiscal years beginning after December 15, 2022. The Company will adopt the new standard effective August 1, 2023 and does not expect the adoption of this guidance to have a material impact on its consolidated financial statements.

In October 2021, the FASB issued ASU No. 2021-08, Accounting for Contract Assets and Contract Liabilities From Contracts With Customers. ASU 2021-08 requires an acquirer in a business combination to recognize and measure ~~deferred revenue~~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 ~~deferred revenue~~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.

With the exception of the ~~standard~~standards discussed above, there have been no other recent accounting pronouncements or changes in accounting pronouncements during the ~~six~~three months ended ~~January~~October 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,~~2022, that are of significance or potential significance to the Company.

Significant Accounting Policies

Other than intangible assets described below, there have been no material changes to the Company’s significant accounting policies from its Annual Report on Form 10-K for the fiscal year ended July 31, ~~2021.~~2022.
~~Intangible Assets-Net~~
Intangible assets (see Note 16) are carried at cost, less accumulated amortization, unless a determination has been made that their value has been impaired. Intangible assets are amortized on a straight-line basis over their estimated useful lives of fifteen years. The Company reviews identifiable amortizable intangible assets to be held and used for impairment whenever events or changes in circumstances indicate that the carrying value of the assets may not be recoverable. Determination of recoverability is based on the lowest level of identifiable estimated undiscounted cash flows resulting from use of the asset and its eventual disposition. Measurement of any impairment loss is based on the excess of the carrying value of the asset over its fair value. There have been no impairment charges recorded in the six months ended January 31, 2022 presented in the accompanying unaudited condensed consolidated financial statements.
Related Party Transactions
The Company has ~~certain routine~~no material related party transactions ~~with certain related parties. The related parties and nature of these transactions are described in Note 13 of~~that have impacted the consolidated ~~financial statements included in the Form 10-K~~balance sheets for the ~~fiscal year~~years ended October 31, 2022 or July 31, 2022, or the consolidated statements of operations and comprehensive (loss) income for the three months ended October 31, 2022 or 2021.

Note 2—Revenue

Disaggregation of Revenue

The following table ~~summarizes~~presents revenue disaggregated by segment and type ~~of monetization mechanisms of the Zedge App and other revenues, including Emojipedia revenues. for the periods presented:~~(in thousands):

Three Months Ended Six Months Ended Three Months Ended
October 31,
January 31, January 31, 2022 2021 %Changes
2022 2021 2022 2021
(in thousands) (in thousands)
Zedge App
Advertising revenue $ 5,437 $ 4,399 $ 10,006 $ 7,385 $ 3,957 $ 4,569 -13 %
Paid subscription revenue 953 809 1,913 1,459 391 960 -7 %
Zedge Premium revenue 187 186 1 %
Emojipedia revenue 260 310 -16 %
Applovin integration bonus 250 - nm
Other revenues 525 106 1,024 232 26 3 767 %
Total revenues $ 6,915 $ 5,314 $ 12,943 $ 9,076
Total Zedge App revenue 5,571 6,028 -8 %
GuruShots App
Virtual items used for online game 1,329 - nm
Total revenue $ 6,900 $ 6,028 14 %
nm-not meaningful

Contract Balances

~~Deferred revenues~~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 date).

Deferred revenues
On April 1, 2022, the Company received from AppLovin Corporation a one-time integration bonus of $2 million for migrating to their mediation platform. This amount is being amortized over initial estimated service period of 24 months. As of October 31, 2022, the Company’s deferred revenue balance related to this bonus was approximately $1.4 million. As of July 31, 2022, the Company’s deferred revenue balance related to this bonus was approximately $1.7 million.

The Company records deferred revenues related to the unsatisfied performance obligations with respect to subscription revenue. As of ~~January~~October 31, 2022, the Company’s deferred revenue balance related to paid subscriptions was approximately ~~$1,505,000, representing~~$1.4 million related to approximately ~~762,000~~674,000 active subscribers including those under the account hold designation implemented by Google Play on November 1, 2020. Account hold is a subscription state that begins when a user’s form of payment fails and the three-day grace period has ended without payment resolution. The account hold period lasts for up to 30 days.subscribers. As of July 31, ~~2021,~~2022, the Company’s deferred revenue balance related to paid ~~subscriptions~~subscribers was approximately ~~$1,603,000, representing~~$1.5 million, related to approximately ~~752,000~~692,000 active subscribers. The amount of revenue related to subscribers recognized in the ~~six~~three months ended ~~January~~October 31, 2022 that was included in the deferred balance at July 31, ~~2021~~2022 was ~~$1,218,000.~~$0.7 million.

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 upon 180 days of account inactivity. As of ~~January~~October 31, 2022, and July 31, ~~2021,~~2022, the Company’s deferred revenue balance related to Zedge Premium was approximately ~~$277,000~~$252,000 and ~~$218,000,~~$259,000, respectively.

Total deferred revenues decreased by ~~$39,000~~$0.3 million from ~~$1,821,000~~$3.4 million at July ~~31, 2021~~32, 2022 to ~~$1,782,000~~$3.1 million at ~~January~~October 31, 2022, primarily attributed to the ~~decline in new subscriptions sales in~~amortization of the ~~three and six months ended January 31, 2022 when compared to the prior periods.~~integration bonus mentioned above.

Significant Judgments

The advertising networks and advertising exchanges to which wethe Company sell ~~our~~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

The Company expenses the fees retained by Google Play related to subscription revenue when incurred as marketing expense because the duration of the contracts for which the Company pays commissions are less than one year. These costs are included in the selling, general and administrative expenses of the ~~Consolidated Statements~~condensed consolidated statements of ~~Comprehensive Income.~~operations and comprehensive (loss) income.

Note 3—Fair Value Measurements

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

Level 1 (1) Level 2 (2) Level 3 (3) Total Level 1 Level 2 Level 3 Total
(in thousands)
January 31, 2022
Assets:
October 31, 2022
Liabilities:
Contingent consideration-short term $         - $        - $ 17 $ 17
Contingent consideration-long term $ - $ - $ 1,776 $ 1,776
Foreign exchange forward contracts $       - $        - $       - $        - $ - $ 101 $ - $ 101

July 31, 2022
Liabilities:
Contingent consideration-short term $ - $ - $ 215 $ 215
Contingent consideration-long term $ - $ - $ 1,728 $ 1,728
Foreign exchange forward contracts $ - $ 67 $ - $ 67 $ - $ 141 $ - $ 141

July 31, 2021
Assets:
Foreign exchange forward contracts $ - $ - $ - $ -

Liabilities:
Foreign exchange forward contracts $ - $ 54 $ - $ 54

(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

Contingent Consideration
Contingent consideration related to the business combinations discussed below in Note 5 are classified within Level 3 of the fair value hierarchy as the determination of fair value uses considerable judgement and represents the Company’s best estimate of an amount that could be realized in a market exchange for the asset or liability.

The following table provides a rollforward of the contingent consideration related to the GuruShots acquisition (in thousands):
Balance at July 31, 2022 $ 1,943
Change in fair value (150 )
Balance at October 31, 2022 $ 1,793
The overall fair value of the contingent consideration decreased by $150 thousand during the three months ended October 31, 2022, due primarily to the decrease in the likelihood that certain contingent milestones would be achieved.
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~~October 31, 2022 and July 31, ~~2021~~2022 included trade accounts receivable and trade accounts ~~payable, and due to seller of Emojipedia.~~payable. The carrying amounts of the trade accounts receivable and trade accounts payable ~~and due to seller of Emojipedia~~ 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 allowing the Company to enter into foreign exchange contracts under its revolving credit facility with the bank (see Note 9)11). 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 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 October 31, 2022, were as follows:
Settlement Date U.S. Dollar
Amount NOK
Amount
Nov-22 225,000 2,000,925
Dec-22 225,000 2,297,948
Jan-23 225,000 2,296,103
Feb-23 225,000 2,294,685
Mar-23 225,000 2,293,065
Apr-23 225,000 2,291,355
May-23 225,000 2,317,545
Total $ 1,575,000 15,791,626
Settlement Date U.S. Dollar
Amount EUR
Amount
Nov-22 225,000 201,848
Dec-22 225,000 222,332
Jan-23 225,000 221,653
Feb-23 225,000 221,195
Mar-23 225,000 220,826
Apr-23 225,000 220,459
May-23 225,000 220,070
Total $ 1,575,000 1,528,383

~~The outstanding contracts at January 31, 2022, were as follows:~~
Settlement Date U.S. Dollar
Amount NOK
Amount
Feb-22 225,000 1,967,896
Mar-22 225,000 1,968,684
Apr-22 225,000 1,969,696
May-22 225,000 1,970,619

Total $ 900,000 7,876,895
Settlement Date U.S. Dollar
Amount EUR
Amount
Feb-22 225,000 189,037
Mar-22 225,000 188,926
Apr-22 225,000 188,800
May-22 225,000 188,673

Total $ 900,000 755,436
The fair value of outstanding derivative instruments recorded in the accompanying unaudited condensed consolidated balance sheets were as follows:

January 31, July 31,
Assets and Liabilities Derivatives: Balance Sheet Location 2022 2021 Balance Sheet Location October 31,
2022 July 31,
2022
Derivatives not designated or not qualifying as hedging instruments (in thousands) (in thousands)
Foreign exchange forward contracts Accrued expenses and other current liabilities $ 67 $ 54 Accrued expenses and other current liabilities $ 101 $ 141

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

Thre Months Ended
January 31, Six Months Ended
January 31, Three Months Ended
October 31,
Amount of Gain (Loss) Recognized on Derivatives 2022 2021 2022 2021
Amount of (Loss) Gain Recognized on Derivatives Amount of (Loss) Gain Recognized on Derivatives 2022 2021
Derivatives not designated or not qualifying as hedging instruments Location of Gain (Loss) Recognized
on Derivatives (in thousands) (in thousands) Location of Loss Recognized on Derivatives (in thousands)
Foreign exchange forward contracts Net gain (loss) resulting from foreign exchange transactions $ (127 ) $ 92 (117 ) $ 51 Net loss resulting from foreign exchange transactions $ (121 ) $ 10

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, for additional discussion of contingent consideration as of October 31, 2022.
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, 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.
Note 5—6—Intangible Assets and Goodwill
The following table presents the detail of intangible assets, net as of October 31, 2022 and July 31, 2022 (in thousands):
October 31, 2022 July 31, 2022
Gross
Carrying
Value Accumulated
Amortization Net
Carrying
Value Gross
Carrying
Value Accumulated
Amortization Net
Carrying
Value

Emojipedia.org and other internet domains acquired 6,711 559 6,152 6,711 447 6,264
Acquired developed technology 3,950 436 3,515 3,950 238 3,713
Customer relationships 7,800 428 7,372 7,800 233 7,567
Trade names 3,570 163 3,407 3,570 89 3,481

Total intangible assets $ 22,031 $ 1,586 $ 20,446 $ 22,031 $ 1,007 $ 21,025
Estimated future amortization expense as of October 31, 2022 is as follows (in thousands):
Fiscal 2023 1,737
Fiscal 2024 2,315
Fiscal 2025 2,315
Fiscal 2026 2,315
Fiscal 2027 2,315
Thereafter 9,449
Total $ 20,446
The Company’s amortization expense for intangible assets were $579 thousand and $115 thousand for the three months ended October 31, 2022 and 2021, respectively.

Goodwill
Changes in the carrying amount of goodwill in the three months ended October 31, 2022 are as follows (in thousands):
Carrying
Amount

Balance at July 31, 2022 $ 10,788
Foreign currency translation adjustments (142 )
Balance at October 31, 2022 $ 10,646
Note 7—Accrued Expenses and Other Current Liabilities

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

January 31, July 31, October 31, July 31,
2022 2021 2022 2022
(in thousands)
Accrued vacation $ 474 $ 424 $ 596 $ 585
Accrued income taxes payable 1,250 264 77 169
Accrued payroll taxes 246 291 277 214
Accrued payroll and bonuses 211 374 1,504 1,084
Operating lease liability 91 86
Derivative liability 67 54
Accrued expenses 328 262
Operating lease liability-current portion 133 142
Derivative liability for foreign exchange contracts 101 141
Due to artists 337 246 282 301
Other 93 32 2 -
Total accrued expenses and other current liabilities $ 2,769 $ 1,771 $ 3,300 $ 2,898

Note 6—8—Stock-Based Compensation
~~2016 Stock Option and Incentive Plan~~

On November ~~18, 2020,~~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 for the grant of awards thereunder by an additional 325,000 shares to an aggregate of 1,846,000 shares. This amendment was ratified by the Company’s stockholders at the Annual Meeting of Stockholders held on January 12, 2022.
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, as well as other changes to certain terms of the 2016 Incentive Plan for ratification by the Company’s stockholders at the Annual Meeting of Stockholders to be held in January 2023.
At ~~January~~October 31, 2022, there were ~~434,000~~501,000 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~~deferred stock units (“DSUs”) with both service and market ~~conditions discussed below.~~
~~Stock Options~~ conditions.

In ~~August and October 2020, the Compensation Committee of the Company’s Board of Directors approved grants of options~~addition 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 date. 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~~and restricted stock awards, 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. The Company uses the simplified method to estimate the expected term of the stock-based payments granted due to the limited history of the Company. 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, 2022 2021
Expected term 6.0 years 6.0 years
Volatility 92.6 % 91.8 %
Risk free interest rate 1.4 % 0.5 %
Dividends — —
~~At January 31, 2022, unrecognized compensation expense related to unvested stock options was an aggregate of $719,000.~~
~~Deferred Stock Units (DSUs)~~
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.

~~Vesting~~30% of ~~30%~~the DSU’s (or 87,396) have service vesting conditions only, with a vesting schedule 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~~all remaining DSUs on September 7, 2024.
Vesting of the remaining 70% ~~(or 203,924)~~ of the DSUs (or 203,924) is subject to continued service as well as a market ~~condition (“DSUs with a market condition”).~~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%~~these DSU’s with both service and market conditions have a vesting schedule of ~~such DSUs will vest on~~25% 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 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 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. 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 (loss) income, the Company recognized stock-based compensation for our employees and non-employees as follows:
Three Months Ended
October 31,
2022 2021 % Change
(in thousands)
Stock-based compensation expense $ 589 $ 319 84.6 %
The DSUs with aboth service and market ~~condition have been~~conditions were valued ~~by the Company~~ using a Monte Carlo simulation ~~model. The Monte Carlo simulation methodology estimates the future equity value~~model, with a valuation 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 1%.~~per DSU. 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.
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 ~~$1.3~~$1.0 million. The unrecognized compensation expense is being recognized on a straight-line basis over the vesting period.

~~At January~~As of October 31, 2022, the Company’s unrecognized stock-based compensation expense ~~related~~was $0.5 million for unvested stock options, $1.2 million for DSUs and $3.3million for unvested restricted stock including the $4 million portion of retention bonus to ~~unvested DSUs was an aggregate of $2.3 million.~~be paid in the Company’s Class B common stock in connection with the GuruShots acquisition.

In the ~~six~~three months ended ~~January~~October 31, 2022 and 2021, the Company purchased ~~4,450~~6,310 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. Mr. 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 on grant. 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~~16,155 shares respectively of Class B ~~common stock~~Stock from certain employees for ~~$160,000~~$17,000 and ~~$18,000~~$232,000 respectively, to satisfy tax withholding obligations in connection with the vesting of restricted ~~stock.~~stock and DSUs.

Note 7—9—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 EPS 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:~~following (in thousands):

Three Months Ended
January 31, Six Months Ended
January 31, Three Months Ended
2022 2021 2022 2021 October 31,
(in thousands) 2022 2021
Basic weighted-average number of shares 14,297 12,633 14,289 12,412 14,330 14,281
Effect of dilutive securities:
Stock options 584 698 624 472 - 653
Non-vested restricted Class B common stock 68 73 72 44 - 75
Deferred stock units 22 27 22 21 - 22
Diluted weighted-average number of shares 14,971 13,431 15,007 12,949 14,330 15,031

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

Three Months Ended
January 31, Six Months Ended
January 31, Three Months Ended
2022 2021 2022 2021 October 31,
(in thousands) (in thousands) 2022 2021
Stock options 65 14 57 215 858 65
Non-vested restricted Class B common stock - - - - 679 -
Deferred stock units 289 - 230 - 239 171
Shares excluded from the calculation of diluted earnings per share 354 14 287 215 1,776 236
For the three months ended October 31, 2022, the diluted earnings per share equals basic earnings per share because the Company incurred a net loss during that period and the impact of the assumed exercise of stock options and vesting of restricted stock and DSUs would have been anti-dilutive.

Note 8—10—Commitments and Contingencies
Commitments
In connection with the acquisition of GuruShots, the Company has (i) committed to a retention pool of $4 million in cash to be paid to the founders and employees of GuruShots that will be payable over three years from closing of the acquisition based on the beneficiaries thereof remaining employed by the Company or a subsidiary; and (ii) agreed to make certain minimum investments in user acquisition for GuruShots in the period covered by the earnout to be contingently paid to the prior owners of GuruShots subject to GuruShots maintaining agreed upon levels of return on ad spend (ROAS).

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 9—11—Term Loan and Revolving Credit ~~Facility~~Facilities

As of September 27, 2016, the Company entered 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~~which expired September 26, ~~2022.~~2022 and was amended on October 28, 2022 as discussed below. At the Company’s request in September 2020, advances under this facility ~~have been~~were reduced to the lesser of $2.0 million or 80% of the Company’s eligible accounts receivable, subject to certain concentration limits. The revolving credit facility iswas secured by a lien on substantially all of the Company’s assets. Effective with the September 2020 extension, the outstanding principal amount ~~bears~~bore interest per annum at the greater of 3.5% or the prime rate plus 1.25%. Previously the interest rate was capped at 5.0%. Interest iswas payable monthly and all outstanding principal and any accrued and unpaid interest iswas due on the maturity date of September 26, 2022. The Company iswas required to pay an annual facility fee of $10,000 to Western Alliance Bank. The Company iswas also required to comply with various affirmative and negative covenants and to maintain certain financial ratios during the term of the revolving credit facility. The covenants ~~include~~included a prohibition on the Company paying any dividend on its capital stock. ~~The Company may terminate this agreement at any time without penalty or premium provided that it pays down any outstanding principal, accrued interest and bank expenses.~~ At ~~January 31,~~October 27, 2022 and July 31, ~~2021,~~2022, there were no amounts outstanding under the revolving credit facility and the Company was in compliance with all of the covenants.

On October 28, 2022, the Company entered into an Amended and Restated Loan and Security Agreement (“Amended Loan Agreement”) with Western Alliance Bank. Pursuant to the Amended Loan Agreement, Western Alliance Bank agreed to provide the Company with a new term loan facility in the maximum principal amount of $7,000,000 for a four-year term and a $4,000,000 revolving credit facility for a two-year term. 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, the Company discontinued the existing $2,000,000 revolving credit facility under the existing Loan and Security Agreement, dated as of September 26, 2016 (discussed above), as amended, restated, supplemented and otherwise modified from time to time prior to the date of the Amended Loan Agreement. At the time of the discontinuance, there was no outstanding balance on the revolving credit facility.
Pursuant to the Amended Loan Agreement, $2,000,000 was advanced in a single-cash advance on October 28, 2022, with the remaining $5,000,000 available for drawdown during twenty-four (24) months after closing. Each drawdown must be in an amount of not less than One Million Dollars ($1,000,000).
Interest accrued under the Amended Loan Agreement is due monthly, and the Company shall make monthly interest-only payments related to the term loan through the eighteen (18) month anniversary of the closing date. From the nineteen (19) month anniversary of the Closing Date through the maturity date, the Company shall repay each outstanding term loan by paying the Applicable Term Advance Amortization Payment equal to 1/12^th of 10% of the outstanding term loan balance plus monthly payments of accrued interest, in each case payable on the tenth (10th) day of each month. Zedge’s final payment for each Term Advance, due on the Term Loan Maturity Date, shall include all outstanding principal of and accrued and unpaid interest on such Term Advance. Once repaid, a Term Advance may not be reborrowed.
The Amended Loan Agreement may also require early repayments if certain conditions are met. The Amended Loan Agreement is secured by substantially all of the assets of the Company, its subsidiaries, and certain of its affiliates.
The Amended Loan Agreement includes the following financial covenants:
a) Debt Service Coverage Ratio. Zedge shall maintain, at all times, a Debt Service Coverage Ratio of no less than 1.25 to 1.00. This covenant shall be tested quarterly as of the end of each fiscal quarter.
b) Maximum Debt to EBITDA. Zedge shall maintain, at all times, a ratio of (a) indebtedness owed by Zedge to Western Alliance Bank, to (b) Zedge’s EBITDA for the trailing twelve (12) month period ended on such date of determination, shall not be greater than the amount set forth under the heading “Maximum Debt to EBITDA Ratio” as of, and for each of the dates appearing adjacent to such Maximum Debt to EBITDA Ratio”.
Maximum Debt to Quarter Ending EBITDA Ratio
October 31, 2022 1.75 to 1.00
January 31, 2023 1.75 to 1.00
April 30, 2023 1.75 to 1.00
July 31, 2023 1.75 to 1.00
October 31, 2023 1.25 to 1.00
January 31, 2024 1.25 to 1.00
April 30, 2024 1.25 to 1.00
July 31, 2024 1.25 to 1.00
Thereafter To be agreed upon
The Amended Loan Agreement also 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 Western Alliance Bank to allow the Company to enter into foreign exchange contracts not to exceed $5.0 million in the aggregate at any point in time under its revolving credit facility. This limit was raised to approximately $6.5 million pursuant to the Loan and Security Modification Agreement dated May 30, 2018. The available borrowing under the revolving credit facility is reduced by an applicable foreign exchange reserve percentage as determined by Western Alliance Bank, in its reasonable discretion from time to time, which was initially set at 10% of the nominal amount of the foreign exchange contracts in effect at the relevant time. In December 2016, the applicable foreign exchange reserve percentage was changed so that the reduction of available borrowing for major currency forward contracts of less than six months tenor is set at 10% of the nominal amount of the foreign exchange contracts, and for contracts over six months tenor, 12.5% of the nominal amount of the foreign exchange contracts. At ~~January~~October 31, 2022, there were ~~$1.8~~$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 ~~$180,000.~~$315,000.

Note ~~10—Business~~ 12—Segment and Geographic Information

~~The Company provides a content platform, worldwide, centered on self-expression, attracting both creators looking~~Segment
Operating segments are components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker (“CODM”), or decision-making group, in deciding how to ~~promote their content~~allocate resources and ~~consumers who utilize such content to express their identity, feelings, tastes and interests.~~in assessing performance. The Company’s ~~platform enables consumers to personalize their mobile devices with mostly free, high-quality ringtones, wallpapers, home screen app icons, widgets and notification sounds. The~~chief operating decision maker is its Chief Executive Officer as of October 31, 2022. Based on the criteria established by ASC 280, Segment Reporting, the Company ~~conducts business as~~had one operating and reportable segment as of July 31, 2022.
Beginning in the first quarter of fiscal 2023, the Company revised the presentation of segment information to align with changes to how the Company’s CODM manages the business, allocates resources and assesses operating performance reports operating results based on two reportable segments which are Zedge App and GuruShots App.
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:
Three Months Ended
October 31, Change
2022 2021 $ %
Revenue:
Zedge App $ 5,571 $ 6,028 $ (457 ) -7.6 %
GuruShots App 1,329 - 1,329 nm
Total Revenue $ 6,900 $ 6,028 872 14.5 %

Segment income (loss) from operation
Zedge App $ 1,371 $ 2,588 $ (1,217 ) -47.0 %
GuruShots App (1,572 ) - (1,572 ) nm
Segment income (loss) from operation $ (201 ) $ 2,588 (2,789 ) -107.8 %
Nm-not meaningful
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 ~~other than goodwill and investment in private company,~~ held outside of the United States, which are located primarily in Israel and Norway, were as ~~follows:~~follows (in thousands):

United States Foreign Total
(in thousands)
Long-lived assets, net:
January 31, 2022 $ 8,182 $ 345 $ 8,527
July 31, 2021 $ 1,900 $ 399 $ 2,299

Total assets:
January 31, 2022 $ 40,121 $ 4,860 $ 44,981
July 31, 2021 $ 32,745 $ 4,732 $ 37,477
United
States Foreign Total
Long-lived assets, net:
October 31, 2022 $ 7,634 $ 14,904 $ 22,538
July 31, 2022 $ 7,818 $ 15,217 $ 23,035

Total assets:
October 31, 2022 $ 27,342 $ 28,254 $ 55,596
July 31, 2022 $ 26,229 $ 28,397 $ 54,626

Note ~~11—~~13— Operating Leases

The Company has operating leases primarily for office space. Operating lease right-of-use assets recorded and included in other assets were ~~$195,000~~$163,000 and ~~$243,000~~$204,000 at ~~January~~October 31, 2022 and July 31, ~~2021,~~2022, respectively.

~~There~~

Other than the above, there were no other material changes in the Company’s operating and finance leases in the three ~~and six~~ months ended ~~January~~October 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.~~2022.

Note ~~12—~~14—Provision for Income ~~taxes~~Taxes

The Company’s tax provision or benefit ~~for~~from income taxes for interim periods has generally been determined using an estimate of its annual effective tax rate ~~adjusted for~~applied to year-to-date income and records the discrete tax items ~~if any. Under certain circumstances where~~in the period to which they relate. In each quarter, the Company ~~is unable to make a reliable estimate of~~updates the estimated annual effective tax rate and makes a year-to-date adjustment to the ~~accounting guidance permits the use of the actual~~tax provision as necessary.
The Company’s annual 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~~2023 differs from the United States federal statutory tax rate ~~of 21%~~ due to certain factors with temporary ~~impact~~differences 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~~October 31, 2022, the Company had ~~$527,000~~$2.8 million of deferred tax assets for which it has ~~not~~ established a valuation allowance of $1.9 million, related to U.S. federal and state taxes and for a certain international subsidiary. ~~The Company completed its reassessment of the ability to realize these assets and concluded that a valuation allowance was not required.~~

The Company is subject to taxation in the United 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 ~~Lithuania.~~Israel.

Note ~~13—Loans Payable~~
Effective August 1, 2020, the Company obtained a loan of $181,462 to pay for its insurance coverages, repayable in nine equal installments of $20,491 starting from September 1, 2020 which represented a 3.89% annual percentage interest rate.15—Subsequent Events

The Company ~~obtained~~performed 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 fullreview 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.
~~Note 14—Sales of Class B Common Stock~~
The Company filed with the SEC a Registration Statement on Form S-3 (the “Form S-3”) on November 30, 2020 which became effective on December 4, 2020 to facilitate capital raising. The Registration Statement registered the issuance and sale by the Company of Class B common stock or related securities for gross proceeds to the Company of up to $20 million. On November 30, 2020, the Company engaged National Securities Corp. and H.C. Wainwright & Co, LLC (the “Sales Agents”) to act as the Company’s exclusive co-Sales Agents in connection with the Company’s “at-the-market” offering of shares of the Company’s Class B common stock up to $5 million. The Company filed a Prospectus Supplement (supplementing the Prospectus included in the Form S-3) on December 9, 2020 and contemporaneously entered into an At The Market Offering Agreement with the Sales Agents (the “ATM Sales Agreement”), pursuant to which the Company sold 761,906 shares at an average price of $6.5625 per share for total proceeds of $5 million as of January 28, 2021. In connection with this offering, the Company incurred a total issuance costs of $215,000. The Company intends to use the net proceeds from this offering for working capital and other general corporate purposes.
On March 16, 2021, the Company filed a prospectus supplement with the SEC which contemplated the sale, for a gross aggregate sale price of up to $10,000,000, of shares of the Company’s Class B common stock, from time to time in “at the market offerings” pursuant to an At Market Issuance Sales Agreement with National Securities Corporation and Maxim Group LLC (the “New Sales Agents”), dated as of March 16, 2021 (the “New ATM Sales Agreement”), pursuant to which we sold 663,686 shares at an average price of $15.0674 per share for total proceeds of $10 million. In connection with this offering, we incurred a total issuance costs 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~~subsequent events through the date of ~~the acquisition. Actual~~these unaudited condensed consolidated financial statements and ~~pro forma revenue and results of operations~~noted no material items for ~~this acquisition have not been presented because they do not have a material impact on the consolidated results of operations.~~disclosure.
~~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 $ 223
Fiscal 2023 447
Fiscal 2024 447
Fiscal 2025 447
Fiscal 2026 447
Thereafter 4,477
Total $ 6,488
~~Note 17—Subsequent Event~~
~~On March 4, 2022, the Company entered into foreign exchange contracts as set forth below:~~
Settlement Date U.S. Dollar
Amount NOK
Amount
Jun-22 225,000 1,999,125
Jul-22 225,000 1,999,800
Aug-22 225,000 2,000,025
Sep-22 225,000 2,000,250
Oct-22 225,000 2,000,700
Nov-22 225,000 2,000,925

Total $ 1,350,000 12,000,825
Settlement Date U.S. Dollar
Amount EUR
Amount
Jun-22 225,000 203,381
Jul-22 225,000 203,105
Aug-22 225,000 202,812
Sep-22 225,000 202,484
Oct-22 225,000 202,156
Nov-22 225,000 201,848

Total $ 1,350,000 1,215,787

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following information should be read in conjunction with the accompanying unaudited condensed consolidated financial statements and the associated notes thereto of this Quarterly Report, and the audited consolidated financial statements and the notes thereto and our Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in our Annual Report on Form 10-K for the fiscal year ended July 31, ~~2021~~2022 (the “Form 10-K”), as filed with the U.S. Securities and Exchange Commission (the “SEC”).

As used below, unless the context otherwise requires, the terms “the Company,” “Zedge,” “we,” “us,” and “our” refer to Zedge, Inc., a Delaware corporation and its subsidiary Zedge Europe AS, collectively.

Forward-Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including statements that contain the words “believes,” “anticipates,” “expects,” “plans,” “intends,” and similar words and phrases. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from ~~the results projected in any forward-looking statement. In addition to the factors specifically noted in the forward-looking statements, other important factors, risks and uncertainties~~future results. Factors that ~~could result in those~~may cause such differences include, but are not limited to: (1) Economic, geopolitical and market conditions can adversely affect our business, results of operations and financial condition, including our revenue growth and profitability, which in turn could adversely affect our stock price; (2) Our ability to ~~those discussed under~~successfully make acquisitions and/or successfully integrate acquisitions that we have made into Zedge without incurring unanticipated costs or without being subject to other integration issues that may disrupt our existing operations; (3) Delay or failure to realize the expected synergies and benefits of the GuruShots acquisition; (4) The impact of the Covid-19 pandemic on our employees, customers, partners, and the global financial markets; and (5) Russia’s recent invasion of Ukraine, and the international community’s response. For further information regarding risks and uncertainties associated with our business, please refer to Item 1A to Part I “Risk Factors” in the Form 10-K. The forward-looking statements are made as of the date of this report and we assume no obligation to update the forward-looking statements, or to update the reasons why actual results could differ from those projected in the forward-looking statements. Investors should consult all of the information set forth in this report and the other information set forth from time to time in our reports filed with the SEC pursuant to the Securities Act of 1933 and the Securities Exchange Act of 1934, including the Form 10-K.

~~Overview~~Current Economic Conditions and COVID-19

We ~~own a portfolio~~are subject to risks and uncertainties caused by events with significant macroeconomic impacts, including but not limited to, the COVID-19 pandemic, the Russian invasion of ~~leading digital~~Ukraine, and actions taken to counter inflation. Inflation, rising interest rates and reduced consumer ~~brands that, as January 31, 2022, served 45 million monthly active users across~~confidence have caused and may continue to cause our clients to be cautious in their spending. The full impact of these macroeconomic events and the ~~globe. Our portfolio consists~~extent to which these macro factors may impact our business, financial condition, and results of ~~Zedge Ringtones~~operations in the future remains uncertain. The risks related to our business are further described in the section titled “Risk Factors” in Part II, Item 1A of this Quarterly Report on Form 10-Q and ~~Wallpapers (“Zedge App”), Shortz and, as~~those discussed under Item 1A to Part I “Risk Factors” in the Form 10-K.
Impact of ~~the beginning~~Russia’s recent invasion of ~~August of 2021, Emojipedia.~~Ukraine

We ~~operate a state-of-the-art digital publishing platform that powers Zedge App, available in~~are closely monitoring the ~~Google Play store~~current and ~~App Store, which offers an easy, entertaining~~potential impact on our business, our people, and ~~immersive way for end-users~~our clients as Russia’s war with Ukraine evolves. We have taken steps to ~~engage~~comply with applicable domestic and international regulatory restrictions on international trade and financial transactions. In connection with our ~~rich~~compliance efforts, we have identified active clients and ~~diverse catalogue~~vendors inside Russia and Belarus that are subject to evolving sanctions imposed by the United States and/or the European Union and have terminated or suspended our contracts with them. Revenues associated with clients and vendors in Russia and Belarus are not material to our consolidated financial results, and we anticipate that the termination of ~~wallpapers, video wallpapers, ringtones, notification sounds~~Russian and Belarus clients and vendors that are subject to duly authorized sanctions will not have a material impact on ~~Android~~our business or other client relationships. Management and our Board of Directors are monitoring the regional and global ramifications of the continuing events.
Overview
Zedge, Inc. (“Zedge”) builds digital marketplaces and friendly competitive games around content that people use to express themselves. Our leading products include Zedge Ringtones and Wallpapers, a freemium digital content marketplace offering mobile phone wallpapers, video wallpapers, ringtones, and ~~custom icon packs on iOS. We secure our content from amateur~~notification sounds which historically was branded as Zedge Premium, and ~~professional artists, and also from emerging and major brands. Artists have the ability~~GuruShots Ltd (“GuruShots”), a skill-based photo challenge game. Our vision is to ~~easily launch~~connect creators who enjoy friendly competitions with a ~~virtual storefront~~community of prospective consumers in ~~our Zedge App where they can market and sell their content~~order to our user base. That same platform powers an entertainment app called “Shortz – Chat Stories by Zedge”, which is focused on serialized, short-form, fiction stories, as a beta that runs on our publishing platform. Over the past year, we have been expanding our content catalogue, started testing audio versions of a selected number of stories, materially improved our ability to measure all types of engagement within the app, and invested a modest budget in paid user acquisition. In August of 2021, we acquired Emojipedia, the leading source of all things emoji.drive commerce.

~~Our~~

We are part of the ‘Creator Economy,’ where over 1 billion people create and share their content across social platforms, mobile, and video games, and content marketplaces. Within this group of individuals, over 200 million identify as creators, people who use their influence, skill, and creativity to amass an audience and monetize it. Furthermore, approximately 12% of full-time creators earn more than $50,000 per year, and 10% of influencers earn more than $100,000 per year. We view the Creator Economy as an untapped opportunity for Zedge to expand its business, especially as we execute by connecting our gamers with our marketplace.
The Zedge Ringtones and Wallpapers app (which is named “Zedge Wallpapers” in the App Store), which we refer to as our “Zedge App,” is a marketplace offering a wide array of mobile personalization content including wallpapers, video wallpapers, ringtones, and notification sounds, and is available both in Google Play and the App Store. As of October 31, 2022, our Zedge App has been installed ~~approximately 541~~nearly 583 million times since inception and, ~~at January 31, 2022, boasted approximately 36~~over the past two years, has had between 31.9 and 36.3 million monthly active users ~~or MAU.~~(“MAU”). MAU is a key performance indicator (“KPI”) that captures the number of unique users that used our Zedge App during the final 30 days of the relevant period. Our ~~Zedge App has consistently ranked as one of the most popular~~platform allows creators to upload content to our marketplace and avail it to our users either for free ~~apps in the Google Play store in the United States. Historically, we have not made a material investment in paid user acquisition for our Zedge App.~~
~~Our Zedge App’s success stems from its ability to meet consumer demand~~or for a rich and diverse catalogue of both long-tail and popular content in a fun, intuitive and user-friendly fashion that aligns with their interest in expressing their essence in a bespoke manner, to offer reliable search and discovery capabilities and to make relevant content recommendations toprice, via ‘Zedge Premium.’ In turn, our ~~users. To this end, we invest heavily in both product design and development and~~users utilize the ~~underlying technology required to satisfy both our Zedge App’s users’ and content contributors’ expectations. Our Zedge App contains both user-generated and licensed, third-party~~ content to ~~achieve these goals.~~personalize their phones and express their individuality.

In ~~March 2018,~~fiscal 2022 we ~~launched~~introduced several new customer facing product features including ‘NFTs Made Easy’ and social and community features, all meant to improve customer engagement, MAU, and revenue growth over the long term. In addition, due to developments outside of our control, we migrated to a new ad mediation platform - Applovin MAX -, which monopolized internal resources and delayed the completion of other product initiatives we had planned for in fiscal 2022. Applovin paid us a one-time $2 million integration bonus and their performance has been on-par or better than our prior platform.
The Zedge ~~Premium, a marketplace within our~~App’s monetization stack consists of advertising revenue generated when users view advertisements when using the Zedge App ~~where professional creators and brands market, distribute and sell their digital content~~or surfing our website, the in-app sale of Zedge Credits, our virtual currency, that is used to ~~our consumers. At launch, Zedge Premium was a “walled garden” – a separate section of the app which users needed to proactively choose to enter. In 2021, we embedded~~purchase Zedge Premium content, ~~throughout the app making it far more prominent. We also~~and a paid-subscription offering that provides an ad-free experience to users that purchase a monthly or annual subscription. As of October 31, 2022, we had approximately 674,000 active paying subscribers.
In late 2021, we introduced NFT functionality to a ~~new content type on iOS: custom icon packs.~~limited number of Zedge Premium creators via ‘NFTs Made Easy’. Over time we ~~expect~~believe this product enhancement has the potential to drive significant artist growth and revenue production. ‘NFTs Made Easy’ is an eco-friendly platform that ~~Zedge Premium will contribute~~enables artists and consumers to ~~a virtuous cycle whereby it drives new consumers into our~~sell and purchase NFTs within the Zedge App ~~resulting~~even though they may lack deep knowledge and proficiency in ~~more artist payouts, which in turn makes~~ the ~~platform more attractive for artists and brands looking to expand their reach and increase their income.~~crypto space. All transactions are made using Zedge Credits.

In April 2022, we acquired GuruShots a recognized category leader focused on gamifying the photography vertical. GuruShots offers a platform spanning iOS, Android, and the web that provides a fun, educational and structured way for amateur photographers to compete in a wide variety of contests showcasing their photos while gaining recognition with votes, badges, and awards. We estimate that the total addressable market of amateur photographers using their smartphones to take and publicly share artistic photos is 30-40 million people per month and that the market is still in its infancy. Every month, GuruShots stages more than 300 competitions that result in players uploading in excess of 1 million photographs and casting close to 4.5+ billion “perceived votes,” which are calculated by multiplying the number of votes that each player casts by a weighting factor based on various factors related to that user. To improve engagement, GuruShots has adopted a set of retention dynamics focused on individual, team and community dynamics that create a sense of belonging, inspiration, recognition, improvement, and competition.
Today, GuruShots utilizes a ‘Free-to-Play’ business model that leads to strong monetization with the purchase of resources that are used to give paying players an edge while still maintaining a fair and competitive experience for all participants. Over the past six years, the monthly average paying player spend has increased in excess of 14% annually to more than $55 per player.
As we look to the future, we are advancing several initiatives that we expect will drive user growth, increase engagement, drive in-app purchases, and advance our in-game economy. Some of these include:
● On-Boarding. Revamping the customer onboarding experience in order to maximize first time purchasers by immediately drawing new players into simplified photo competitions that are limited to a small audience taking place in a short time duration.
● Subscriptions. Introducing value-adds that we can bundle into a subscription. For example, we started testing a feed of short and engaging instructional videos that offer players techniques for improving their photographs. If users engage with this content, we expect to bundle it into a paid subscription.

● Economy. Evolving the game economy by maturing the game’s progression mechanics and features, earn and spend dynamics, and introducing soft and premium currencies tied to resources and benefits. Furthermore, we hope to introduce an advertising layer in the monetization stack in the future.
~~In January 2019,~~
We market GuruShots to prospective players, primarily via paid user acquisition channels, and utilize a host of creative formats including static and video ads in order to promote the game. Our marketing team invests material resources in analyzing all attributes of a campaign ranging from the creative assets, offer acquisition channel, and platform (i.e., iOS, Android, and web), just to name a few, with the goal of determining whether a specific campaign is likely to yield a profitable customer. When we ~~started offering freemium~~unearth a successful combination of these variables we scale up until we experience diminishing returns. Ultimately, we believe that the efforts we are making to advance the product coupled with the investment in user acquisition can significantly increase GuruShots’ player base.
Beyond our commitment to growing both the Zedge App ~~Android users~~and GuruShots on a standalone basis, we believe that there are many potential synergies that we can capitalize on that exist between the two businesses. Specifically, we plan to enable the ability for GuruShots players to ~~convert into paying subscribers for, amongst other things,~~become Zedge Premium artists and sell their photos to our audience of 30+ million MAU as standard digital images or NFTs. In addition, we look to benefit from the ~~ability to remove unsolicited advertisements from our~~experience that the GuruShots team possesses and test gamifying the Zedge App. ~~As of January 31, 2022,~~We believe that successful gamification can contribute to increasing engagement, retention, and lifetime value, all critical KPIs for our business. Longer term, we ~~had approximately 762,000 active paid subscribers.~~believe that there are complementary content verticals that lend themselves to gamification.

In December 2019, we completed the beta launch of ‘Shortz’ our new entertainment app offering serialized, short-form fiction rendered in a text-message format and more recently as audio productions available across both Android and iOS, and focusing on users in the United States, the United Kingdom and Canada and it is now available globally. New stories are added to the app regularly and we continuously improve content discovery in order to guide users to the stories that will most interest them and improve engagement.
On August 1, 2021, we acquired the assets of Emojipedia Pty Ltd (“Emojipedia”), including Emojipedia.org the world’s leading authority dedicated to providing ~~up to date~~up-to-date and well-researched emoji definitions, information, and news as well as World Emoji Day and the annual World Emoji Awards, and Emojitracker, which provides real time visualization of all emoji symbols used on Twitter. ~~In January 2022~~ Emojipedia receives approximately 4547 million monthly page views and has approximately ~~8.6~~9.9 million monthly active users as of October 31, 2022 of which approximately ~~50%~~54% are located in well-developed markets. It is the top resource for all things emoji, offering insights into data and cultural trends. As a voting member of the Unicode Consortium, the standards body responsible for approving new emojis, Emojipedia works alongside major emoji creators including Apple, Google, Facebook, and Twitter.

We believe that Emojipedia provides growth potential to the Zedge App, and it was immediately accretive to earnings. In ~~December~~the past year, we have made many changes to Emojipedia including migrating to a new ad mediation platform, redesigning the Emojipedia website, and introducing localized versions of ~~2021 we introduced ‘NFTs Made Easy’~~Emojipedia in Spanish, French, German, Italian, and Portuguese. We will continue to ~~select Zedge Premium artists initially interested in selling single edition, tokenized, video wallpapers. Our all-in-one platform allows creators to self-publish, mint~~enhance this offering and sell their NFTs simply by selecting the NFT option within our self-publishing platform and without the need for them to be cryptocurrency experts or technology wizards. ‘NFTs Made Easy’ is currency agnostic and allows consumers to purchase NFTs with Zedge tokens acquired via in-app purchases, eliminating the need to set up a crypto wallet to buy cryptocurrencies. Over time we expect to expand the offering withare exploring new features including ~~features like numbered editions, drop dates and new content types.~~
~~Over the past several years, our Zedge App has experienced~~ a continuing decline in its MAU in well-developed markets with growth of MAU in emerging markets, so that users in emerging markets represent an increasing portion of our user base. In addition, the rate of user growth in emerging markets slowed in the first half of fiscal 2022 compared to prior periods. As of January 31, 2022, users in emerging markets represented 77% of the MAU for our Zedge App compared to 73% a year prior. This shift has negatively impacted revenue because advertising rates in emerging markets are materially lower than in well-developed markets. In the second quarter of fiscal 2022, users in emerging markets grew by 7.3% while users in well-developed economies declined 10.5% when compared to the same period in fiscal 2021. As of January 31, 2022, approximately 41% of our Zedge App’s user base was located in North America (20%) and Europe (including Eastern Europe, 21%), compared with 42% (North America, 20% and Europe 22%)native mobile offering as ~~of July 31, 2021. The remaining 58% of the user base was primarily located in emerging markets with 27% located in India.~~
MAU growth is tightly coupled with new user growth. Historically, our relatively high ranking in the Google Play store has been one of the primary drivers for securing new users. Although still an important factor, we now also dedicate resources to growth initiatives, both organic and paid. We have started increasing paid user acquisition spend while monitoring results to ensure that the investment is yielding a positive return on investment. With time, we believe that we can change our growth dynamic in well-developed markets and return to more robust growth in all markets. Aside from targeted growth initiatives, we need to continually improve the core user experience, test different mechanisms and content verticals that may spur growth and capitalize on the role that Zedge Premium artists can have on driving new users into the Zedge platform.
~~The COVID-19 pandemic has impacted our Zedge App’s new user growth. According to Gartner, a leading research and advisory company, new smartphone sales declined 10.5% in calendar year 2020~~well as a result of the pandemic, negatively impacting new user growth, especially in well-developed markets. As of September 1, 2021, Gartner reported that worldwide smartphone sales grew by 10.8% year over year in the second quarter of calendar year 2021 despite supply constraints relating to COVID-19 component shortages and production disruptions; however, it is still unclear what the impact on user growth will be as vaccines become more available globally and as precautions like social distancing start to wane. The pandemic and measures implement to promote social distancing had a modest positive impact on user engagement.
In February of 2022 the Russian Federation invaded Ukraine. As a result, many governments and businesses imposed trade and economic sanctions on the Russian Federation and Belarus. Zedge has a small user base in Russia and Belarus; however, it also has a development center in Vilnius, Lithuania, which is approximately 40 kilometers from the Belarussian border. In the event that the conflict broadens to additional countries, Zedge may experience a slowdown relating to relocating personnel and/or employees being drafted into military or public service. At present, the Company is working on contingency planning to be in a position to minimize any potential interruptions.

During the quarters ended January 31, 2022 and 2021, we generated approximately 79% and 83%, respectively, of our revenues from selling our Zedge App’s advertising inventory to advertising networks, advertising exchanges, and direct arrangements with advertisers. Advertising networks and advertising exchanges are third-party technology platforms that facilitate the buying and selling of media advertising inventory from multiple ad networks. The price of advertising inventory is fixed on an advertising network whereas the price for inventory is determined through real-time bidding on an advertising exchange. Advertisers are attracted to our Zedge App because of its sizable user base.
In our Zedge Premium marketplace, the content owner sets the price and the user can purchase the content by paying for it with Zedge Credits, our closed virtual currency. A user can earn Zedge Credits when taking specific actions such as watching a rewarded video or taking a survey. Alternatively, users can buy Zedge Credits via an in-app purchase. If a user purchases Zedge Credits, Google Play or App Store keeps up to 30% of the purchase price with the remainder being paid to us. When a user purchases Zedge Premium content, the artist or brand receives 70% of the actual value of the Zedge Credits used to buy the content item as a royalty and we retain the remaining 30% as our fee, which we recognize as revenue. As Zedge Premium matures and expands, we expect to also diversify our revenue source mix.
In January 2019, we started offering paid subscriptions to our Android users which amongst other things removed unsolicited advertisements from our Zedge App. During the first 12 months after a customer’s sign up for the subscription-based product, Google retains up to 30% as a fee, which decreases to 15% from month 13 and beyond. As of January 31, 2022, we had approximately 762,000 active subscribers, 90% of which had subscribed on an annual basis. Since inception in January 2019, subscriptions have generated approximately $8.5 million in gross revenue.
The COVID-19 pandemic, which has been ongoing since the third quarter of fiscal 2020, has resulted in public health responses including travel bans, restrictions, social distancing requirements, and shelter-in-place orders, which have impacted our business, operations, and financial performance in different ways. As a result of the COVID-19 pandemic, we experienced a reduction in advertiser demand in the second half of fiscal 2020. After that time, advertisers around the world increased their investment on mobile advertising. We saw continued momentum across key markets and increased advertiser demand for digital ads in general. The ongoing impact of the COVID-19 pandemic on our business and on global economic activity continues to evolve and may again in the future adversely affect our business, operations and financial results.
Our past results may not be indicative of our future performance, and historical trends in revenue, income (loss) from operations, net income (loss), and net income (loss) per share may differ materially. The key risks facing our business are further described in Part I, Item 1A - Risk Factors of the Company’s Annual Report on Form 10-K for the year ended July 31, 2021, as filed with the SEC.monetization opportunities.

Critical Accounting Policies

Our unaudited condensed consolidated financial statements and accompanying notes are prepared in accordance with accounting principles generally accepted in the United States of America, or U.S. GAAP. Our significant accounting policies are described in Note 1 to the consolidated financial statements included in the Form 10-K. The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses as well as the disclosure of contingent assets and liabilities. Critical accounting policies are those that require application of management’s most subjective or complex judgments, often as a result of matters that are inherently uncertain and may change in subsequent periods. Our critical accounting policies include those related to revenue recognition, business combination, intangible and goodwill, capitalized software and technology development costs ~~revenue recognition, intangible assets~~ and ~~goodwill.~~stock-based compensation. Management bases its estimates and judgments on historical experience and other factors that are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions. For additional discussion of our critical accounting policies, see our Management’s Discussion and Analysis of Financial Condition and Results of Operations in the Form 10-K.

Recently Issued Accounting Standards Not Yet Adopted
Please refer to Note 1 to the ~~Unaudited Condensed Consolidated Financial Statements~~unaudited condensed consolidated financial statements included in Item 1 to Part I of this Quarterly Report on Form 10-Q.

Key Performance Indicators (KPIs)
Zedge App-MAU and ARPMAU

The presentation of our results of operations includes disclosure of two key performance indicators - Monthly Active Users (MAU) and Average Revenue Per Monthly Active User (ARPMAU) from our Zedge App. MAU is a key performance indicator that ~~captures~~we define as the number of unique users that used our Zedge App during the previous 30-day period, which is important to understanding the size of the user base for ~~the Company’s~~our Zedge App which is a main driver of our revenue. Changes and trends in MAU are useful for measuring the general health of our business, gauging both present and potential customers’ experience, assessing the efficacy of product improvements and marketing campaigns and overall user engagement.

ARPMAU is defined as (i) the total revenue derived from Zedge App in a monthly period, divided by (ii) MAU in that same period. ARPMAU for a particular time period longer than one month is the average ARPMAU for each month during that period. ARPMAU is valuable because it provides insight into how well we monetize our users and, changes and trends in ARPMAU are indications of how effective our monetization investments are.

MAU ~~increased 2.5%~~decreased 6.7% in ~~the second quarter~~Q1 of fiscal ~~2022~~2023 when compared to the same period a year ago and ~~increased 6.1%~~was flat on a sequential basis. Over the past several years, we have experienced a continuing shift in our regional customer make-up with MAU in emerging markets representing an increasing portion of our user base. As of ~~January~~October 31, 2022, users in emerging markets represented ~~77%~~78% of our MAU compared to ~~73%~~75% a year prior. This shift impacts our business because emerging markets do not monetize as well as well-developed markets due to lower ~~eCPMs~~effective cost per thousand ad impressions (“eCPM”) and lower monthly and annual subscription sales in these regions coupled with lower priced subscriptions SKUs. However, ARPMAU for the three months ended ~~January~~October 31, 2022 was up approximately ~~22%~~0.8% when compared to the same period a year ago, pointing to progress we have made in extracting more revenue from our users, particularly from paid subscriptions sales and improvement in ad optimization. ARPMAU ~~improved 12.8%~~declined 8.0% on a sequential ~~basis.~~basis due to seasonality.

Three Months Ended
January 31,
(in millions, except ARPMAU - Zedge App) 2022 2021 % Change
MAU - Zedge App 36.3 35.4 2.5 %
Developed Markets MAU - Zedge App 8.5 9.5 -10.5 %
Emerging Markets MAU - Zedge App 27.8 25.9 7.3 %
Emerging Markets MAU - Zedge App/Total MAU - Zedge App 77 % 73 % 4.9 %

ARPMAU - Zedge App $ 0.0601 $ 0.0492 22.2 %
The following tables present the MAU – Zedge App and ARPMAU – Zedge App for the three months ended October 31, 2022 as compared to the same period a year ago and the three months ended July 31, 2022:

Three Months
Ended
January 31, Three Months
Ended
October 31,
(in millions, except ARPMAU) 2022 2021 % Change
MAU - Zedge App 36.3 34.2 6.1 %
Developed Markets MAU - Zedge App 8.5 8.4 1.0 %
Emerging Markets MAU - Zedge App 27.8 25.8 7.8 %
Emerging Markets MAU - Zedge App/Total MAU - Zedge App 77 % 75 % 1.6 %

ARPMAU - Zedge App $ 0.0601 $ 0.0533 12.8 %
YoY Comparison

Three Months Ended
October 31,
(in millions, except ARPMAU - Zedge App) 2022 2021 % Change
MAU- Zedge App 31.9 34.2 -6.7 %
Developed Markets MAU - Zedge App 7.1 8.4 -15.5 %
Emerging Markets MAU - Zedge App 24.8 25.8 -3.9 %
Emerging Markets MAU - Zedge App/Total MAU - Zedge App 78 % 75 % 3.7 %

ARPMAU - Zedge App $ 0.0537 $ 0.0533 0.8 %

QoQ Comparison
Three Months
Ended
October 31, Three Months
Ended
July 31,
(in millions, except ARPMAU) 2022 2022 % Change
MAU- Zedge App 31.9 32.0 -0.3 %
Developed Markets MAU - Zedge App 7.1 7.3 -2.7 %
Emerging Markets MAU - Zedge App 24.8 24.7 0.4 %
Emerging Markets MAU - Zedge App/Total MAU - Zedge App 78 % 77 % 0.7 %

ARPMAU - Zedge App $ 0.0537 $ 0.0584 -8.0 %

The following charts present the MAU – Zedge App and ARPMAU – Zedge App for the consecutive eight quarters ended ~~January~~October 31, 2022:

* Please note the MAU-Zedge App graph above excludes MAU for ~~the Emojipedia.org of approximately 8.6 million for the month of January 31, 2022.~~both Emojipedia and GuruShots

GuruShots App-MAPs and ARPMAP
Monthly Active Payers (“MAPs”). We define a MAP as a unique active user on the GuruShots App or GuruShots.com in a month that completed at least one in-app purchase (“IAP”) during that time period. MAPs for a time period longer than one month are the average MAPs for each month during that period. We estimate the number of MAPs by aggregating certain data from third-party attribution platforms.
Average Revenue Per Monthly Active Payer (“ARPMAP”). We define ARPMAP as (i) the total IAP derived from GuruShots App in a monthly period, divided by (ii) MAPs in that same period. ARPMAP for a particular time period longer than one month is the average ARPMAP for each month during that period. ARPMAP shows how efficiently we are monetizing each MAP.
The following table shows our Monthly Active Payers and Average Revenue Per Monthly Active Payer for the three months ended October 31, 2022 and 2021. Please note that we acquired GuruShots on April 12, 2022, as such, information for the three months ended October 31, 2021 is presented below as pro forma and is only used for comparative purpose.
Three Months Ended
October 31,
(in thousands, except ARPMAP 2022 2021 % Change
Monthly Active Payers 8,690 10,112 -14.1 %
Average Revenue per Monthly Active Payer $ 51 $ 60 -15.0 %
The following charts present the MAP and ARPMAP – GuruShots App for the consecutive eight quarters ended October 31, 2022:
Our KPIs are not based on any standardized industry methodology and are not necessarily calculated in the same manner that other companies or third parties may use to calculate these or similarly titled measures. The numbers that we use to calculate MAP and ARPMAP are derived from data that we generate internally. While these numbers are based on what we believe to be reasonable judgments and estimates for the applicable period of measurement, there are inherent challenges in measuring usage and engagement. We regularly review and may adjust our processes for calculating our internal metrics to improve their accuracy.

Results of Operations

Three ~~and Six Months~~months ended ~~January~~October 31, 2022 Compared to Three ~~and Six Months~~months ended ~~January~~October 31, 2021

Three Months Ended
January 31, Change Six Months Ended
January 31, Change Three Months Ended
October 31, Change
2022 2021 $ % 2022 2021 $ % 2022 2021 $ %
(in thousands) (in thousands) (in thousands)
Revenues $ 6,915 $ 5,314 $ 1,601 30.1 % $ 12,943 $ 9,076 $ 3,867 42.6 % $ 6,900 $ 6,028 $ 872 14.5 %
Direct cost of revenues 342 313 29 9.3 % 652 617 35 5.7 % 632 310 322 103.9 %
Selling, general and administrative 3,106 2,159 947 43.9 % 5,838 4,165 1,673 40.2 % 5,826 2,732 3,094 113.3 %
Depreciation and amortization 360 324 36 11.1 % 758 683 75 11.0 % 793 398 395 99.2 %
Income from operations 3,107 2,518 589 23.4 % 5,695 3,611 2,084 57.7 %
Change in fair value of contingent consideration (150 ) - (150 ) nm
(Loss) income from operations (201 ) 2,588 (2,789 ) -107.8 %
Interest and other income, net 14 5 9 180.0 % 27 5 22 440.0 % 35 13 22 169.2 %
Net (loss) gain resulting from foreign exchange transactions (85 ) 74 (159 ) nm (95 ) 34 (129 ) nm
Provision for income taxes 711 319 392 122.9 % 1,247 327 920 281.3 %
Net Income $ 2,325 $ 2,278 $ 47 2.1 % $ 4,380 $ 3,323 $ 1,057 31.8 %
Net loss resulting from foreign exchange transactions (76 ) (10 ) (66 ) 660.0 %
(Benefit from) provision for income taxes (73 ) 536 (609 ) nm
Net (loss) income $ (169 ) $ 2,055 $ (2,224 ) -108.2 %
~~nm—not measurable~~

Revenues

The following table sets forth the composition of our revenues for the three ~~and six~~ months ended ~~January~~October 31, 2022 and 2021:

Three Months Ended Six Months Ended Three Months Ended
October 31,
January 31, January 31, % Changes 2022 2021 % Changes
2022 2021 2022 2021 Three Months Six Months
(in thousands) (in thousands)
Zedge App
Advertising revenue $ 5,437 $ 4,399 $ 10,006 $ 7,385 24 % 35 % $ 3,957 $ 4,569 -13 %
Paid subscription revenue 953 809 1,913 1,459 18 % 31 % 891 960 -7 %
Zedge Premium revenue 187 186 1 %
Emojipedia revenue 260 310 -16 %
Applovin integration bonus 250 - NM
Other revenues 525 106 1,024 232 395 % 341 % 26 3 767 %
Total revenues $ 6,915 $ 5,314 $ 12,943 $ 9,076 30 % 43 %
Total Zedge App revenue 5,571 6,028 -8 %
GuiuShots App
Virtual items used for online game 1,329 - nm
Total revenue $ 6,900 $ 6,028 14 %
nm-not meaningful

Advertising revenue.Advertising revenue ~~increased 24% and 35%~~decreased 13% in the three ~~and six~~ months ended ~~January~~October 31, 2022 ~~respectively,~~ compared to the three ~~and six~~ months ended ~~January~~October 31, 2021, primarily due to ~~improvement~~the decline in ~~our ad optimizations~~MAU in well-developed markets and ~~higher~~lower effective advertising rates.

Paid subscription revenue. We ~~rolled out a subscription-based product on Android in January 2019, whereby~~offer users of our Zedge app ~~could~~a subscription option where they can pay a monthly or annual fee to remove unsolicited ads when using our Zedge app. We employ a regional pricing strategy in order to improve conversions. The U.S. constitutes our largest subscriber base and we generally charge $0.99 per month and $4.99 per year. Pricing in other markets is based on local conditions. We generated ~~$897,000 and $1,816,000~~$829,000 in gross prepaid subscription in the three ~~and six~~ months ended ~~January~~October 31, 2022 ~~respectively,~~ compared to ~~$952,000 and $1,816,000~~$920,000 in the three ~~and six~~ months ended ~~January~~October 31, 2021. The 6%10% decline in gross prepaid subscription sale for the three months ended ~~January~~October 31, 2022 when compared to the same period a year ago was ~~due~~primarily attributable to ~~approximately 10%~~our decline in ~~new installs in the well-development markets in the corresponding periods.~~MAU. We expect that from time to time the prices of our subscription in each country/region may change and we may test other plan and price variations.

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

Three Months Ended Six Months Ended
January 31, January 31, Three Months Ended
2022 2021 % Change 2022 2021 % Change 10/31/22 10/31/21 % Change
(in thousands, except revenue per subscriber and percentages) (in thousands, except revenue per subscriber and percentages)
Revenues $ 953 $ 809 18 % $ 1,913 $ 1,459 $ 31 % $ 891 $ 960 -7.2 %
Active subscriptions net additions -1 102 -100 % 10 207 -95 %
Active subscriptions net (decrease) increase (18 ) 11 nm
Active subscriptions at end of period 762 711 7 % 762 711 7 % 674 763 -11.7 %
Average active subscriptions 765 669 14 % 762 612 25 % 682 759 -10.1 %
Average monthly revenue per active subscription $ 0.42 $ 0.40 5 % $ 0.42 $ 0.40 $ 5 % $ 0.44 $ 0.42 4.8 %
Zedge Premium. ~~In the three and six months ended January 31, 2022, gross~~Gross transaction value (the total sales volume transacting through the platform), or “GTV,” ~~generated from Zedge Premium were $434,000 and $763,000, respectively, compared to $211,000 and $419,000~~decreased 5% in the three ~~and six~~ months ended ~~January~~October 31, ~~2021. In the three and six months ended January 31, 2021 net revenue generated from Zedge Premium were $241,000 and $428,000, respectively,~~2022 compared to ~~$103,000 and $228,000~~the same period a year ago. Net revenue increased slightly in the three ~~and six~~ months ended ~~January~~October 31, ~~2021.~~ 2022 compared to the same period a year ago.
The following table summarizes Zedge Premium gross and net revenue ~~growth in Zedge Premium can be attributed to~~for the ~~investment we made in our new content management system as well as the landing page redesign.~~three months ended October 31, 2022 and 2021:
Three Months Ended

October 31,
2022 2021 % Changes
(in thousands)
Zedge Premium-gross revenue (“GTV”) $ 312 $ 329 -5.2 %
Zedge Premium-net revenue $ 187 $ 186 0.5 %
~~Revenue from Zedge Premium, web-based advertising revenues from Emojipedia~~
Virtual goods used for online game. GuruShots sells virtual game resources that provide game play benefits via in-app and ~~other related sites, as well as revenues generated by Shortz, are reported under Other Revenues, and those offerings constitute potential growth drivers~~online purchases. GuruShots recognizes revenue at the time of purchase because the overwhelming majority of users purchase game resources when they use them at a rate that exceeds the rate in which they earn them for free through participation. The $1.3 million revenue was earned in the ~~quarters to come.~~three months ended October 31, 2022.
Direct cost of revenues. Direct cost of revenues consists primarily of content hosting and content delivery costs.
Three Months Ended
January 31, Six Months Ended
January 31,
(in thousands) 2022 2021 % Change 2022 2021 % Change
Direct cost of revenues $ 342 $ 313 9.3 % $ 652 $ 617 5.7 %
As a percentage of revenues 4.9 % 5.9 % 5.0 % 6.8 %
Three Months Ended
October 31,
(in thousands) 2022 2021 % Change
Direct cost of revenues $ 632 $ 310 103.9 %
As a percentage of revenues 9.2 % 5.1 %
Direct cost of revenues increased ~~9.3% and 5.7%~~by $322 thousand or 103.9% in the three ~~and six~~ months ended ~~January~~October 31, 2022 ~~respectively,~~ compared to three ~~and six~~ months ended ~~January~~October 31, 2021. The increase in the direct cost of revenues ~~can be attributed to~~is a result of GuruShots’ infrastructure costs and the ~~new data analytic tool provided by Google Cloud: Cloud Computing Services.~~addition of analytical tools.
As a percentage of revenue, direct cost of revenues in three ~~and six~~ months ended ~~January 31, 2021 were 4.9% and 5.0%, respectively,~~April 30, 2022 was 9.2% compared to ~~5.9% and 6.8%,~~5.1% in the ~~three and six months ended January 31, 2020,~~prior year period. The higher percentage in the current period was primarily due to ~~significantly~~ higher ~~revenue in~~infrastructure costs related to the ~~current periods and the fixed nature of many of our direct cost of revenues.~~GuruShots App.
Selling, general and administrative expense. Selling, general and administrative expense (“SG&A”) consists mainly of payroll and benefits, paid user acquisition expenses, third-party payment processing fee relate to in-app purchases, recruiting fees, facilities, marketing, ~~content acquisition costs,~~ consulting, professional fees, software licensing (“SaaS”), and public company related expenses.
Three Months Ended
January 31, Six Months Ended
January 31,
(in thousands) 2022 2021 % Change 2022 2021 % Change
Selling, general and administrative $ 3,105 $ 2,159 43.8 % $ 5,838 $ 4,165 40.2 %
As a percentage of revenues 44.9 % 40.6 % 45.1 % 45.9 %
Three Months Ended
October 31,
(in thousands) 2022 2021 % Change
Selling, general and administrative $ 5,826 $ 2,732 113.3 %
As a percentage of revenues 84.4 % 45.3 %

SG&A expense increased ~~43.8% and 40.2%~~by $3.1 million or 113.3% in the three ~~and six~~ months ended ~~January~~October 31, 2022 ~~respectively,~~ compared to the ~~three and six months ended January 31, 2021. This increase was primarily attributable~~prior year period. GuruShots accounted for $2.3 million of the increase. The remaining $0.8 million can be attributed to higher compensation costs resulting from additional headcount, higher stock-based compensation as discussed below, higher professional fees and offset by reductions in discretionary expenses.

As a percentage of revenue, SG&A expense in the three ~~and six~~ months ended ~~January~~October 31, ~~2021~~2022 were ~~44.9% and 45.1%, respectively,~~84.4% compared to ~~40.6% and 45.9%,~~45.3% in the ~~three and six months ended January 31, 2021.~~prior year period, primarily due to the addition of GuruShots which has higher SG&A expenses relative to its revenue base.
~~Our~~Global headcount ~~totaled 63~~ as of ~~January~~October 31, 2022 totaled 100 compared to 4661 as of ~~January~~October 31, 2021 with the majority of our employees currently based in ~~Lithuania.~~Lithuania and Israel.
SG&A expense also included stock-based compensation expense which were $489,000 and $808,000 for the three and six months ended January 31, 2021, respectively, compared to $152,000 and $389,000 for the three and six months ended January 31, 2021. Stock-based compensation includesincluding equity grants to employees and consultants, as well as stock issuances to pay for board compensations and 401(k) matching contributions. Certain stock options, deferred stock unit and restricted stock grants are more fully described in Note 68 to the ~~Unaudited Condensed Consolidated Financial Statements~~unaudited condensed consolidated financial statements included in Item 1 to Part I of this Quarterly Report on Form 10-Q.
Depreciation and amortization. Depreciation and amortization consist mainly of amortization of intangible assets and capitalized software and technology development costs of our internal developers on various projects that we invested in specific to the various platforms on which we operate our ~~service, and amortization of intangible assets.~~service.
Three Months Ended
January 31, Six Months Ended
January 31, Three Months Ended
October 31,
(in thousands) 2022 2021 % Change 2022 2021 % Change 2022 2021 % Change
Depreciation and amortization $ 360 $ 324 11.1 % $ 758 $ 683 11.0 % $ 793 $ 398 99.2 %
As a percentage of revenues 5.2 % 6.1 % 5.9 % 7.5 % 11.5 % 6.6 %
Depreciation and amortization expenses increased ~~approximately 11%~~$395 thousand or 99.2% in ~~both~~the three ~~and six~~ months ended ~~January~~October 31, 2022, compared to three ~~and six~~ months ended ~~January~~October 31, 2021. This increase was primarily attributable to the amortization of intangible assets related to the acquisition of GuruShots and Emojipedia ~~acquisition~~ which ~~was completed on August 1, 2021.~~were $579 thousand and $115 thousand for the three months ended October 31, 2022 and 2021, respectively.
Interest and other income, net. Interest and other income, net in the three ~~and six~~ months ended ~~January~~October 31, 2022 increased ~~$7,000 and $22,000 respectively~~$12,000 or 169.2% when compared to the ~~same~~prior periods ~~in fiscal 2021~~ due to higher interest rate earned from our cash ~~balance resulting from cash flows provided by operating activities and financing activities in fiscal 2021.~~balances.
Three Months Ended
January 31, Six Months Ended
January 31, Three Months Ended
October 31,
(in thousands) 2022 2021 % Change 2022 2021 % Change 2022 2021 % Change
Interest and other income, net $ 14 $ 5 180.0 % $ 27 $ 5 440.0 % $ 35 $ 13 169.2 %
As a percentage of revenues 0.2 % 0.1 % 0.2 % 0.1 % 0.5 % 0.2 %
Net (loss) gain resulting from foreign exchange transactions. Net loss resulting from foreign exchange transactions is comprised of gains and losses generated from movements in NOK and EUR relative to the U.S. Dollar, including gains or losses from our hedging activities.
Three Months Ended
January 31, Six Months Ended
January 31, Three Months Ended
October 31,
(in thousands) 2022 2021 % Change 2022 2021 % Change 2022 2021 % Change
Net loss resulting from foreign exchange transactions $ (85 ) $ 74 nm $ (95 ) $ 34 nm $ (76 ) $ (10 ) 660.0 %
As a percentage of revenues -1.2 % 1.4 % -0.7 % 0.4 % -1.1 % -0.2 %
In the three ~~and six~~ months ended ~~January~~October 31, ~~2021,~~2022, we realized losses of ~~$127,000 and $117,000, respectively,~~$121,000 from NOK and EUR hedging activities, compared to gains of ~~$92,000 and $51,000, respectively~~$10,000 in the three ~~and six~~ months ended ~~January~~October 31, ~~2021.~~2021 due to the strengthening of the US dollar in current periods, as more fully described in Note 4 to the unaudited condensed consolidated financial statements included in Item 1 to Part I of this Quarterly Report on Form 10-Q.
Provision for income taxes. The tax expense consists of federal and state taxes based on taxable income and allocated net worth and certain income taxes payable in foreign jurisdictions where our subsidiaries reside.
Three Months Ended
January 31, Six Months Ended
January 31,
(in thousands) 2022 2021 % Change 2022 2021 % Change
Provision for income taxes $ 711 $ 319 122.9 % $ 1,247 $ 327 281.3 %
As a percentage of revenues 10.3 % 6.0 % 9.6 % 3.6 %
~~Our~~

Three Months Ended
October 31,
(in thousands) 2022 2021 % Change
(Benefit from) provision for income taxes $ (73 ) $ 536 nm
As a percentage of revenues -1.1 % 8.9 %
The Company’s tax provision or benefit ~~for~~from income taxes for interim periods has generally been determined using an estimate of its annual effective tax rate ~~adjusted for~~applied to year-to-date income and records the discrete tax items ~~if any. Under certain circumstances where we are unable~~in the period to ~~make a reliable estimate of~~which they relate. In each quarter, the Company updates the estimated annual effective tax rate and makes a year-to-date adjustment to the ~~accounting guidance permits the use of the actual~~tax provision as necessary.
The Company’s annual effective tax rate for the ~~year-to-date period.~~

~~We expect our overall effective tax rate for~~ fiscal year ending July 31, ~~2022 to be approximately 22.8%. The effective tax rate differed~~2023 differs from the United States federal statutory tax rate ~~of 21%~~ due to certain factors with temporary ~~impact~~differences primarily related to ~~the~~ equity compensation expenses. ~~During the six months ended January~~
As of October 31, 2022, ~~we accounted for a discrete item related to restricted stock windfall (vesting date fair market value above~~ the ~~grant date fair market value) which resulted in a net effective tax rate of 22.1%.~~
~~As of January 31, 2022, we~~Company had ~~$527,000~~$2.8 million of deferred tax assets for which it has ~~not~~ established a valuation allowance of $1.9 million, related to ~~the~~ U.S. federal ~~states~~ and state taxes and for a certain international subsidiary.
The Company ~~completed its reassessment of the ability to realize these assets and concluded that a valuation allowance was not required.~~
~~We are~~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 ~~we are~~the Company is subject to potential examination by tax authorities include the United States, Norway, Lithuania and ~~Lithuania.~~Israel.
Comparison of our Segment Results of Operations
The following table presents the results for our Zedge App and GuruShots segment loss income from operations for the three months ended October 31, 2022 and 2021:
Three Months Ended
October 31, Change
2022 2021 $ %
Segment income (loss) from operation
Zedge App 1,371 2,588 (1,217 ) -47.0 %
GuruShots App (1,572 ) - (1,572 ) nm
Segment income (loss) from operation $ (201 ) $ 2,588 $ (2,789 ) -107.8 %
For the three months ended October 31, 2022, our income from operations related to the Zedge App decreased by $1.2 million, or 47%, from the prior year period primarily due to lower revenue coupled with higher operating expenses. The decline in revenue was largely due to the decrease in MAU, particularly in well-developed markets. Higher operating expenses can be attributed to additional headcounts as well as our investment in the paid user acquisition in Zedge App.
For the three months ended October 31, 2022, our loss from operations related to the GuruShots App was $1.6 million, primarily due to lower revenue coupled with higher operating expenses. Lower revenue can be attributed to lower MAP and ARPMAP when compared to prior periods. In the three months ended October 31, 2022, we ramped up paid users acquisition campaigns and incurred higher costs and expenses as a result.
Liquidity and Capital Resources
General
At ~~January~~October 31, 2022, we had cash and cash equivalents of ~~$30.0~~$18.4 million and working capital (current assets less current liabilities) of ~~$26.9~~$13.4 million, compared to ~~$24.9~~$17.1 million and ~~$23.4~~$11.2 million, respectively, at July 31, ~~2021.~~2022. We expect that our cash and cash equivalents on hand and our cash flow from operations will be sufficient to meet our anticipated cash requirements for the twelve-month period ending ~~March 16,~~December 15, 2023. ~~During fiscal 2021, we raised an aggregate of $15 million through sales of equity in At the Market offerings.~~ We also maintain a term loan and a revolving ~~line of~~ credit facility of up to ~~$2.0~~$11 million in aggregate and a foreign exchange contract facility of up to $6.5 million with Western Alliance Bank, as discussed below in Financing ~~Activities.~~Activities and Note 11 to the unaudited condensed consolidated financial statements included in Item 1 to Part I of this Quarterly Report on Form 10-Q.

The following tables present selected financial information for the ~~six~~three months ended ~~January~~October 31, 2022 and 2021:
Six Months Ended
January 31, Three Months Ended
October 31,
(in thousands) 2022 2021 2022 2021 $ Changes
Cash flows provided by (used in):
Operating activities $ 5,679 $ 3,761 $ 1,082 $ 2,694 (1,612 )
Investing activities (323 ) (401 ) (1,311 ) (188 ) (1,123 )
Financing activities (225 ) 5,055 1,672 (232 ) 1,904
Effect of exchange rate changes on cash and cash equivalents (23 ) 82 (109 ) 67 (176 )
Increase in cash and cash equivalents $ 5,108 $ 8,497 $ 1,334 $ 2,341 (1,007 )
Operating Activities
Our cash flow from operations varies significantly from quarter to quarter and from year to year, depending on our operating results and the timing of operating cash receipts and payments, specifically trade accounts receivable and trade accounts payable. Cash provided by operating activities ~~increased $1.9~~decreased $1.6 million in the ~~six~~three months ended ~~January~~October 31, 2022 to ~~$5.7~~$1.1 million from ~~$3.7~~$2.7 million in the ~~six~~three months ended ~~January~~October 31, 2021, primarily attributable to the ~~higher revenues generated from our service offerings, principally advertising and paid subscription revenues.~~net loss incurred in the current period.
~~Investing Activities~~Changes in Trade Accounts Receivable
~~Pursuant~~Gross trade accounts receivable decreased $0.1 million to ~~an Asset~~$2.4 million at October 31, 2022 from $2.5 million at July 31, 2022, primarily due to lower revenue in the preceding two months ended October 31, 2022 when compared to the same period ended July 31, 2022.
Investing Activities
On April 12, 2022, we acquired 100% of the outstanding equity securities of GuruShots. The purchase price consists of $18 million in cash paid at closing and contingent payments (the “Earnout”) of up to a maximum of $16.8 million, payable either in cash or Class B common stock of the Company or a combination thereof (in the Company’s discretion) payable over two years from closing subject to GuruShots achieving certain financial targets set forth in the Share Purchase Agreement (“SPA”). In connection therewith, we 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, we committed to a retention pool of $4 million in cash and 626,242 shares of the Company Class B common stock with a fair value of $4 million or $6.39 per share for GuruShots’ founders and other 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.
On August 1, 2021, ~~(“Closing”),~~ we acquired substantially all of the assets of Emojipedia Pty Ltd, a proprietary company organized under the laws of Australia. The final purchase price of the assets has been determined to be $6.7 million of which $4.8 million was paid on August 2, 2021 with the remaining $1.9 million to be paid out on the six-month and twelve-month anniversary of the Closing. ~~That $4.8~~We paid approximately half of the $1.9 million on February 1, 2022 and the remaining amount was ~~funded into an escrow account~~paid on ~~July 30, 2021 and classified as other assets on our balance sheet as of July 31, 2021.~~August 1, 2022.
Business combination and assets acquisition are more fully described in Note 5 to the unaudited condensed consolidated financial statements included in Item 1 to Part I of this Quarterly Report on Form 10-Q.
Cash used in investing activities in ~~six months~~the fiscal years ended ~~January~~July 31, 2022 and 2021 also consisted ~~mostly~~ of capitalized software and technology development costs related to various projects that we invested in specific to the various platforms on which we operate our service.
Financing Activities
On October 28, 2022, we entered into an Amended Loan Agreement with Western Alliance Bank. Pursuant to the Amended Loan Agreement, Western Alliance Bank 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.
The Company discontinued the existing $2 million revolving credit facility under the existing Loan and Security Agreement, dated as of September 26, 2016, please see Note 11 to the unaudited condensed consolidated financial statements included in Item 1 to Part I of this Quarterly Report on Form 10-Q. As of July 31, 2022 and the time of the discontinuance, there was no outstanding balance on the revolving credit facility.

~~Financing Activities~~Pursuant to the Amended Loan Agreement, $2,000,000 was advanced in a single-cash advance on October 28, 2022, with the remaining $5,000,000 available for drawdown during twenty-four (24) months after closing. Each drawdown must be in an amount of not less than $1,000,000.
Between December 14, 2020 and January 26, 2021, we sold an aggregate of 761,906 shares of our Class B common stock at an average price of $6.5625 per share for total gross proceeds of $5 million in a registered “AtIn the Market” offering through National Securities Corp. and H.C. Wainwright & Co, LLC as sales agents. In connection with this offering, total issuance costs were $215,000. We are using the net proceeds from this offering for general corporate purposes including organic and other growth initiatives.
In August 2020, we obtained a loan of $181,000 to finance about 82% of our directors’ and officers’ liability and cyber liability insurance policies, at an annual percentage interest rate of 3.89% to be repaid over nine equal monthly installments of $20,490 starting from September 1, 2020. We repaid approximately $100,000 in principal in the sixthree months ended ~~January 31, 2021.~~
In the six months ended January 31, 2022 and 2021, we issued 3,666 shares and 312,287 shares respectively of Class B common stock and received $7,000 and $396,000 respectively, in connection with options exercised during the period.
~~In the six months ended January~~October 31, 2022 and 2021, we purchased ~~16,115~~6,310 shares and ~~17,630~~16,115 shares, respectively, of Class B common stock from employees for ~~$232,000~~$17,000 and ~~$26,000~~$232,000 respectively, to satisfy tax withholding obligations in connection with the vesting of restricted stock and DSUs. In connection with the share repurchase program as discussed below, we bought back 124 thousand shares for approximately $293 thousand in the three months ended October 31, 2022.
We maintain a credit facility of up to $2.0 million provided by Western Alliance Bank which is more fully described in Note 9 to the Unaudited Condensed Consolidated Financial Statements included in Item 1 to Part I of this Quarterly Report on Form 10-Q.
We do not anticipate paying dividends on our common stock until we achieve sustainable profitability and retain certain minimum cash reserves. The payment of dividends in any specific period will be at the sole discretion of our Board of Directors.
~~Changes in Trade Accounts Receivable~~
Gross trade accounts receivable increased $0.7 million to $3.2 million at January 31, 2022 from $2.5 million at July 31, 2021, primarily due to higher revenue in the preceding two months ended January 31, 2022 when compared to the same period ended July 31, 2021.
Concentration of Credit Risk and Significant Customers
Historically, we have had very little or no bad debt, which is common with other platforms of our size that derive their revenue from ~~digital~~mobile advertising, as we aggressively manage our collections and perform due diligence on our customers. In addition, the majority of our revenue is derived from large, credit-worthy customers, e.g. ~~MoPub (owned by Twitter until it was sold to AppLovin on January 3, 2022),~~ Google, Facebook, and ~~Applovin,~~AppLovin, and we terminate our services with smaller customers immediately upon balances becoming past due. Since these smaller customers rely on us to derive their own revenue, they generally pay their outstanding balances on a timely basis.
In the ~~six~~three months ended ~~January~~October 31, 2022, three customers represented 24%, 22% and 10% of our revenue. In the three months ended October 31, 2021, three customers represented 25%, ~~23%~~21% and 12% of our revenue. ~~In the six months ended January~~At October 31, 2022, three customers represented 33%, 27% and 16% of our accounts receivable balance. At October 31, 2021, three customers represented 31%, ~~22%~~29% and ~~12% of our revenue. At January 31, 2022, two customers represented 39% and 29% of our accounts receivable balance, and at July 31, 2021, two customers represented 37% and 28%~~10% of our accounts receivable balance. All of these significant customers were advertising exchanges operated by leading companies, and the receivables represent many smaller amounts due from their advertisers.
Contractual Obligations and Other Commercial Commitments
Smaller reporting companies are not required to provide the information required by this item.
Off-Balance Sheet Arrangements
At ~~January~~October 31, 2022, we did not have any “off-balance sheet arrangements,” as defined in relevant SEC regulations that are reasonably likely to have a current or future effect on our financial condition, results of operations, liquidity, capital expenditures or capital resources.
Item 3. Quantitative and Qualitative Disclosures About Market Risks
Smaller reporting companies are not required to provide the information required by this item.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures. Our Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended), as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective as of ~~January~~October 31, 2022.

Changes in Internal Control over Financial Reporting. ~~Other than the remediation discussed below, there~~There were no changes in our internal control over financial reporting during the quarter ended ~~January~~October 31, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
~~Previously Reported Material Weakness~~

Management previously identified a material weakness in internal control over financial reporting related to accounting for taxes, which is disclosed in Item 9A. “Controls and Procedures” of our Form 10-K for the fiscal year ended July 31, 2021. Specifically, we determined that our management review controls related to valuation allowance against deferred tax assets were ineffective.
~~Remediation~~
~~In order to remediate the material weakness, we designed and implemented the following internal controls:~~
● We have historically engaged tax consultants to prepare and review the Company’s income tax provision. The tax consultants appointed a second tax partner as an independent reviewer to perform a final review of the tax provision work prepared by its engagement team.
● The chief financial officer performed a final review of the tax provision, which is performed at a more granular level than in the past, and performed at a sufficient level of precision. This review involves a detailed review of the tax provision schedules prepared by the tax consultants.  This includes, among other procedures, assessing the completeness and accuracy of amounts included in the tax provision schedules, reconciling amounts in the tax provision schedules to the Company’s records, reviewing the mathematical accuracy of the schedules, understanding key fluctuations in the tax accounts, and reviewing that amounts recorded in the financial statements for income taxes reconciles to the tax provision schedules.
~~We believe our material weakness related to accounting for taxes has been remediated and that our internal control processes over financial reporting are effective as January 31, 2022.~~

PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Legal proceedings in which we are involved are more fully described in Note 810 to the ~~Unaudited Condensed Consolidated Financial Statements~~unaudited condensed consolidated financial statements included in Item 1 to Part I of this Quarterly Report on Form 10-Q.
Item 1A. Risk Factors
There are no other material changes from the risk factors previously disclosed in Item 1A to Part I of our Annual Report on Form 10-K for the fiscal year ended July 31, ~~2021.~~2022.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
~~None~~Sales of Unregistered Securities
During the three months ended October 31, 2022, we issued 29,820 shares of our Class A common stock upon the vesting and settlement of DSUs issued under our 2016 Incentive Plan.
The foregoing transactions did not involve any underwriters, any underwriting discounts or commissions, or any public offering. We believe the offer, sale, and issuance of the above securities was exempt from registration under the Securities Act of 1933, as amended (the “Act”) by virtue of Section 4(a)(2) of the Act and Regulation S promulgated under the Act, because the issuance of securities to the recipients did not involve a public offering. The recipients of the securities in the transaction represented their intentions to acquire the securities for investment only and not with a view to or for sale in connection with any distribution thereof, and appropriate legends were placed upon the stock certificates issued in the transaction. All recipients had adequate access, through their relationships with us or otherwise, to information about us. The issuance of these securities was made without any general solicitation or advertising.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
The following table summarizes the share repurchase activity for the three months ended October 31, 2022:
Period

Total Number of Shares Purchased

Average Price paid per Share

Total Value of Shares Purchased as Part of Repurchase Program

Max $ Value (excl commissions) yet to be Purchased under the
Program ⁽¹⁾

September 1 - 30, 2022 30,423 $ 2.4250 $ 73,775 $ 2,926,225
October 1 - 31, 2022 93,172 $ 2.3049 $ 288,530 $ 2,711,470
Total 123,595 2.3345
(1) In October 2021, our board of directors authorized a repurchase program of up to 1.5 million shares at a maximum of $3.0 million of our Class A common stock. Repurchases may be made from time to time through open market purchases or through privately negotiated transactions, subject to market conditions, applicable legal requirements and other relevant factors. Open market repurchases may be structured to occur in accordance with the requirements of Rule 10b-18. We may also, from time to time, enter into Rule 10b-5 trading plans to facilitate repurchases of its shares. The repurchase program does not obligate us to acquire any particular amount of our Class A common stock, has no expiration date and may be modified, suspended, or terminated at any time at our discretion.
Item 3. Defaults Upon Senior Securities
None
Item 4. Mine Safety Disclosures
Not applicable
Item 5. Other Information
None

Item 6. Exhibits
Exhibit
Number
Description
31.1* Certification of Chief Executive Officer pursuant to 17 CFR 240.13a-14(a), as adopted pursuant to §302 of the Sarbanes-Oxley Act of 2002.
31.2* Certification of Chief Financial Officer pursuant to 17 CFR 240.13a-14(a), as adopted pursuant to §302 of the Sarbanes-Oxley Act of 2002.
32.1* Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002.
32.2* Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002.
101.INS* Inline XBRL Instance ~~Document.~~Document

101.SCH* Inline XBRL Taxonomy Extension Schema ~~Document.~~Document

101.CAL* Inline XBRL Taxonomy Extension Calculation Linkbase ~~Document.~~Document

101.DEF* Inline XBRL Taxonomy Extension Definition Linkbase ~~Document.~~Document

101.LAB* Inline XBRL Taxonomy Extension Label Linkbase ~~Document.~~Document

101.PRE* Inline XBRL Taxonomy Extension Presentation Linkbase ~~Document.~~Document

104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

* * Filed or furnished herewith.

SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
ZEDGE, INC.

~~March 16,~~December 15, 2022 By:
/s/ JONATHAN REICH

Jonathan Reich

Chief Executive Officer

~~March 16,~~December 15, 2022 By:
/s/ YI TSAI

Yi Tsai

Chief Financial Officer

2731

2023 false --07-31 Q1 0001667313

	Three Months Ended					Six Months Ended
	January 31,					January 31,
	2022			2021		2022			2021
Revenues	$	6,915		$	5,314	$	12,943		$	9,076
Costs and expenses:
Direct cost of revenues (excluding amortization of capitalized software and technology development costs which is included below)		342			313		652			617
Selling, general and administrative		3,106			2,159		5,838			4,165
Depreciation and amortization		360			324		758			683
Income from operations		3,107			2,518		5,695			3,611
Interest and other income, net		14			5		27			5
Net (loss) gain resulting from foreign exchange transactions		(85	)		74		(95	)		34
Income before income taxes		3,036			2,597		5,627			3,650
Provision for income taxes		711			319		1,247			327
Net Income		2,325			2,278		4,380			3,323
Other comprehensive (loss) income:
Changes in foreign currency translation adjustment		(222	)		365		(80	)		206
Total other comprehensive (loss) income		(222	)		365		(80	)		206
Total comprehensive income	$	2,103		$	2,643	$	4,300		$	3,529
Income per share attributable to Zedge, Inc. common stockholders:
Basic	$	0.16		$	0.18	$	0.31		$	0.27
Diluted	$	0.16		$	0.17	$	0.29		$	0.26
Weighted-average number of shares used in calculation of income per share:
Basic		14,297			12,633		14,289			12,412
Diluted		14,971			13,431		15,007			12,949

	Class A Common Stock				Class B Common Stock				Additional Paid-in		Accumulated Other Comprehensive			Accumulated			Treasury			Total Stockholders’
	Shares		Amount		Shares		Amount		Capital		Loss			Deficit			Stock			Equity
Balance – July 31, 2021		525	$	5		13,923	$	139	$	41,664	$	(997	)	$	(7,554	)	$	(102	)	$	33,155
Stock-based compensation		-		-		12		-		319		-			-			-			319
Purchase of treasury stock		-		-		-		-		-		-			-			(232	)		(232	)
Foreign currency translation adjustment		-		-		-		-		-		142			-			-			142
Net income		-		-		-		-		-		-			2,055			-			2,055
Balance -October 31, 2021		525	$	5		13,935	$	139	$	41,983	$	(855	)	$	(5,499	)	$	(334	)	$	35,439
Exercise of stock options		-		-		3		-		7		-			-			-			7
Stock-based compensation		-		-		6		-		446		-			-			-			446
Stock issued for matching contributions to the 401(k) Plan		-		-		5		-		43		-			-			-			43
Foreign currency translation adjustment		-		-		-		-		-		(222	)		-			-			(222	)
Net income		-		-		-		-		-		-			2,325			-			2,325
Balance – January 31, 2022		525	$	5		13,949	$	139	$	42,479	$	(1,077	)	$	(3,174	)	$	(334	)	$	38,038

	Three Months Ended
	October 31
	2022			2021
Revenues, net	$	6,900		$	6,028
Costs and expenses:
Direct cost of revenues (excluding amortization of capitalized software and technology development costs which is included below)		632			310
Selling, general and administrative		5,826			2,732
Depreciation and amortization		793			398
Change in fair value of contingent consideration		(150	)		-
(Loss) income from operations		(201	)		2,588
Interest and other income, net		35			13
Net loss resulting from foreign exchange transactions		(76	)		(10	)
(Loss) income before income taxes		(242	)		2,591
(Benefit from) provision for income taxes		(73	)		536
Net (Loss) Income	$	(169	)	$	2,055
Other comprehensive (loss) income:
Changes in foreign currency translation adjustment		(259	)		142
Total other comprehensive (loss) income		(259	)		142
Total comprehensive (loss) income	$	(428	)	$	2,197
(Loss) income per share attributable to Zedge, Inc. common stockholders:
Basic	$	(0.01	)	$	0.14
Diluted	$	(0.01	)	$	0.14
Weighted-average number of shares used in calculation of (loss) income per share:
Basic		14,330			14,281
Diluted		14,330			15,031

Three months ended October, 31	2022			2021

Operating activities
Net (loss) income	$	(169	)	$	2,055
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Depreciation		14			12
Amortization of intangible assets		579			115
Amortization of capitalized software and technology development costs		200			271
Change in fair value of contingent consideration		(150	)		-
Stock-based compensation		589			319
Change in assets and liabilities:
Trade accounts receivable		(70	)		(295	)
Prepaid expenses and other current assets		(205	)		(279	)
Other assets		14			(8	)
Trade accounts payable and accrued expenses		598			522
Deferred revenue		(318	)		(18	)
Net cash provided by operating activities		1,082			2,694
Investing activities
Final payments for asset acquisitions		(962	)		-
Capitalized software and technology development costs and purchase of equipment		(349	)		(188	)
Net cash used in investing activities		(1,311	)		(188	)
Financing activities
Proceed from term loan payable		2,000			-
Payment of deferred financing costs		(18	)		-
Purchase of treasury stock in connection with share buyback program and restricted stock vesting		(310	)		(232	)
Net cash provided by (used in) financing activities		1,672			(232	)
Effect of exchange rate changes on cash and cash equivalents		(109	)		67
Net increase in cash and cash equivalents		1,334			2,341
Cash and cash equivalents at beginning of period		17,085			24,908
Cash and cash equivalents at end of period	$	18,419		$	27,249

SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
Acquisition of Emojipedia through release of escrow funds of $4,776, plus additional amounts due to seller of $1,923 and legal fee of $12	$	-		$	6,711
Accounts receivable from certain Emojipedia websites collected by Seller	$	-		$	24

	Three Months Ended				Six Months Ended				Three Months Ended October 31,
	January 31,				January 31,				2022		2021		%Changes
	2022		2021		2022		2021
	(in thousands)				(in thousands)
Zedge App
Advertising revenue	$	5,437	$	4,399	$	10,006	$	7,385	$	3,957	$	4,569		-13	%
Paid subscription revenue		953		809		1,913		1,459		391		960		-7	%
Zedge Premium revenue										187		186		1	%
Emojipedia revenue										260		310		-16	%
Applovin integration bonus										250		-		nm
Other revenues		525		106		1,024		232		26		3		767	%
Total revenues	$	6,915	$	5,314	$	12,943	$	9,076
Total Zedge App revenue										5,571		6,028		-8	%
GuruShots App
Virtual items used for online game										1,329		-		nm
Total revenue									$	6,900	$	6,028		14	%

	Level 1 (1)		Level 2 (2)		Level 3 (3)		Total		Level 1		Level 2		Level 3		Total
	(in thousands)
January 31, 2022
Assets:
October 31, 2022
Liabilities:
Contingent consideration-short term									$	-	$	-	$	17	$	17
Contingent consideration-long term									$	-	$	-	$	1,776	$	1,776
Foreign exchange forward contracts	$	-	$	-	$	-	$	-	$	-	$	101	$	-	$	101

July 31, 2022
Liabilities:
Contingent consideration-short term									$	-	$	-	$	215	$	215
Contingent consideration-long term									$	-	$	-	$	1,728	$	1,728
Foreign exchange forward contracts	$	-	$	67	$	-	$	67	$	-	$	141	$	-	$	141

July 31, 2021
Assets:
Foreign exchange forward contracts	$	-	$	-	$	-	$	-

Liabilities:
Foreign exchange forward contracts	$	-	$	54	$	-	$	54

Balance at July 31, 2022	$	1,943
Change in fair value		(150	)
Balance at October 31, 2022	$	1,793

Settlement Date	U.S. Dollar Amount		NOK Amount
Nov-22		225,000		2,000,925
Dec-22		225,000		2,297,948
Jan-23		225,000		2,296,103
Feb-23		225,000		2,294,685
Mar-23		225,000		2,293,065
Apr-23		225,000		2,291,355
May-23		225,000		2,317,545
Total	$	1,575,000		15,791,626

Settlement Date	U.S. Dollar Amount		EUR Amount
Nov-22		225,000		201,848
Dec-22		225,000		222,332
Jan-23		225,000		221,653
Feb-23		225,000		221,195
Mar-23		225,000		220,826
Apr-23		225,000		220,459
May-23		225,000		220,070
Total	$	1,575,000		1,528,383

		January 31,		July 31,
Assets and Liabilities Derivatives:	Balance Sheet Location	2022		2021		Balance Sheet Location	October 31, 2022		July 31, 2022
Derivatives not designated or not qualifying as hedging instruments		(in thousands)					(in thousands)
Foreign exchange forward contracts	Accrued expenses and other current liabilities	$	67	$	54	Accrued expenses and other current liabilities	$	101	$	141

		Thre Months Ended January 31,					Six Months Ended January 31,							Three Months Ended October 31,
Amount of Gain (Loss) Recognized on Derivatives		2022			2021		2022			2021
Amount of (Loss) Gain Recognized on Derivatives												Amount of (Loss) Gain Recognized on Derivatives		2022			2021
Derivatives not designated or not qualifying as hedging instruments	Location of Gain (Loss) Recognized on Derivatives	(in thousands)					(in thousands)						Location of Loss Recognized on Derivatives	(in thousands)
Foreign exchange forward contracts	Net gain (loss) resulting from foreign exchange transactions	$	(127	)	$	92		(117	)	$	51		Net loss resulting from foreign exchange transactions	$	(121	)	$	10

(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

(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

	October 31, 2022						July 31, 2022
	Gross Carrying Value		Accumulated Amortization		Net Carrying Value		Gross Carrying Value		Accumulated Amortization		Net Carrying Value

Emojipedia.org and other internet domains acquired		6,711		559		6,152		6,711		447		6,264
Acquired developed technology		3,950		436		3,515		3,950		238		3,713
Customer relationships		7,800		428		7,372		7,800		233		7,567
Trade names		3,570		163		3,407		3,570		89		3,481

Total intangible assets	$	22,031	$	1,586	$	20,446	$	22,031	$	1,007	$	21,025

Fiscal 2023		1,737
Fiscal 2024		2,315
Fiscal 2025		2,315
Fiscal 2026		2,315
Fiscal 2027		2,315
Thereafter		9,449
Total	$	20,446

	Carrying Amount

Balance at July 31, 2022	$	10,788
Foreign currency translation adjustments		(142	)
Balance at October 31, 2022	$	10,646

Six months ended January 31,	2022			2021
Expected term		6.0 years			6.0 years
Volatility		92.6	%		91.8	%
Risk free interest rate		1.4	%		0.5	%
Dividends		—			—

	Three Months Ended January 31,				Six Months Ended January 31,				Three Months Ended
	2022		2021		2022		2021		October 31,
	(in thousands)								2022		2021
Basic weighted-average number of shares		14,297		12,633		14,289		12,412		14,330		14,281
Effect of dilutive securities:
Stock options		584		698		624		472		-		653
Non-vested restricted Class B common stock		68		73		72		44		-		75
Deferred stock units		22		27		22		21		-		22
Diluted weighted-average number of shares		14,971		13,431		15,007		12,949		14,330		15,031

Maximum Debt to Quarter Ending		EBITDA Ratio
October 31, 2022		1.75 to 1.00
January 31, 2023		1.75 to 1.00
April 30, 2023		1.75 to 1.00
July 31, 2023		1.75 to 1.00
October 31, 2023		1.25 to 1.00
January 31, 2024		1.25 to 1.00
April 30, 2024		1.25 to 1.00
July 31, 2024		1.25 to 1.00
Thereafter		To be agreed upon

	Three Months Ended
	October 31,					Change
	2022			2021		$			%
Revenue:
Zedge App	$	5,571		$	6,028	$	(457	)		-7.6	%
GuruShots App		1,329			-		1,329			nm
Total Revenue	$	6,900		$	6,028		872			14.5	%

Segment income (loss) from operation
Zedge App	$	1,371		$	2,588	$	(1,217	)		-47.0	%
GuruShots App		(1,572	)		-		(1,572	)		nm
Segment income (loss) from operation	$	(201	)	$	2,588		(2,789	)		-107.8	%

	United States		Foreign		Total
	(in thousands)
Long-lived assets, net:
January 31, 2022	$	8,182	$	345	$	8,527
July 31, 2021	$	1,900	$	399	$	2,299

Total assets:
January 31, 2022	$	40,121	$	4,860	$	44,981
July 31, 2021	$	32,745	$	4,732	$	37,477

	United States		Foreign		Total
Long-lived assets, net:
October 31, 2022	$	7,634	$	14,904	$	22,538
July 31, 2022	$	7,818	$	15,217	$	23,035

Total assets:
October 31, 2022	$	27,342	$	28,254	$	55,596
July 31, 2022	$	26,229	$	28,397	$	54,626

Remainder of fiscal 2022	$	223
Fiscal 2023		447
Fiscal 2024		447
Fiscal 2025		447
Fiscal 2026		447
Thereafter		4,477
Total	$	6,488

	Three Months Ended January 31,
(in millions, except ARPMAU - Zedge App)	2022			2021			% Change
MAU - Zedge App		36.3			35.4			2.5	%
Developed Markets MAU - Zedge App		8.5			9.5			-10.5	%
Emerging Markets MAU - Zedge App		27.8			25.9			7.3	%
Emerging Markets MAU - Zedge App/Total MAU - Zedge App		77	%		73	%		4.9	%

ARPMAU - Zedge App	$	0.0601		$	0.0492			22.2	%

	Three Months Ended January 31,			Three Months Ended October 31,
(in millions, except ARPMAU)	2022			2021			% Change
MAU - Zedge App		36.3			34.2			6.1	%
Developed Markets MAU - Zedge App		8.5			8.4			1.0	%
Emerging Markets MAU - Zedge App		27.8			25.8			7.8	%
Emerging Markets MAU - Zedge App/Total MAU - Zedge App		77	%		75	%		1.6	%

ARPMAU - Zedge App	$	0.0601		$	0.0533			12.8	%

	Three Months Ended October 31,			Three Months Ended July 31,
(in millions, except ARPMAU)	2022			2022			% Change
MAU- Zedge App		31.9			32.0			-0.3	%
Developed Markets MAU - Zedge App		7.1			7.3			-2.7	%
Emerging Markets MAU - Zedge App		24.8			24.7			0.4	%
Emerging Markets MAU - Zedge App/Total MAU - Zedge App		78	%		77	%		0.7	%

ARPMAU - Zedge App	$	0.0537		$	0.0584			-8.0	%

	Three Months Ended October 31,
(in thousands, except ARPMAP	2022		2021		% Change
Monthly Active Payers		8,690		10,112		-14.1	%
Average Revenue per Monthly Active Payer	$	51	$	60		-15.0	%

Period	Total Number of Shares Purchased		Average Price paid per Share		Total Value of Shares Purchased as Part of Repurchase Program			Max $ Value (excl commissions) yet to be Purchased under the Program ⁽¹⁾
September 1 - 30, 2022		30,423	$	2.4250	$	73,775	$	2,926,225
October 1 - 31, 2022		93,172	$	2.3049	$	288,530	$	2,711,470
Total		123,595		2.3345

Exhibit Number		Description

31.1*		Certification of Chief Executive Officer pursuant to 17 CFR 240.13a-14(a), as adopted pursuant to §302 of the Sarbanes-Oxley Act of 2002.

31.2*		Certification of Chief Financial Officer pursuant to 17 CFR 240.13a-14(a), as adopted pursuant to §302 of the Sarbanes-Oxley Act of 2002.

32.1*		Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002.

32.2*		Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002.

101.INS*		Inline XBRL Instance ~~Document.~~Document

101.SCH*		Inline XBRL Taxonomy Extension Schema ~~Document.~~Document

101.CAL*		Inline XBRL Taxonomy Extension Calculation Linkbase ~~Document.~~Document

101.DEF*		Inline XBRL Taxonomy Extension Definition Linkbase ~~Document.~~Document

101.LAB*		Inline XBRL Taxonomy Extension Label Linkbase ~~Document.~~Document

101.PRE*		Inline XBRL Taxonomy Extension Presentation Linkbase ~~Document.~~Document

104		Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

	ZEDGE, INC.

~~March 16,~~December 15, 2022	By:	/s/ JONATHAN REICH
		Jonathan Reich
		Chief Executive Officer

~~March 16,~~December 15, 2022	By:	/s/ YI TSAI
		Yi Tsai
		Chief Financial Officer