~~UNITED STATES~~

~~SECURITIES AND EXCHANGE COMMISSION~~

~~Washington, D.C. 20549~~

~~FORM 10-Q~~

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 APRIL 30, ~~2022~~2023

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

Commission File Number: 1-37782

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	☐☒	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 June ~~10, 2022,~~12, 2023, 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:	~~14,501,517~~13,913,353 shares outstanding (excluding 760,911 shares held in treasury)

ZEDGE, INC.

TABLE OF CONTENTS

PART I. Financial Information

Item 1.	Financial Statements (Unaudited)	1

~~Item 1.~~		~~Financial Statements (Unaudited)~~	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	5

		Notes To Condensed Consolidated Financial Statements	6

Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations	2023

Item 3.		Quantitative and Qualitative Disclosures About Market Risks	3035

Item 4.		Controls and Procedures	3035

PART II. OTHER INFORMATION

31Item 1.	Legal Proceedings	36

Item 1.1A.	Risk Factors		~~Legal Proceedings~~	3136

~~Item 1A.~~		~~Risk Factors~~	31

Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds	3236

Item 3.		Defaults Upon Senior Securities	3237

Item 4.		Mine Safety Disclosures	3237

Item 5.		Other Information	3237

Item 6.		Exhibits	3337

SIGNATURES		3438

PART I. FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements

ZEDGE, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except par value data)

~~(Unaudited)~~

April 30, July 31,
2023 2022
(Unaudited)
Assets
Current assets:
Cash and cash equivalents $ 18,067 $ 17,085
Trade accounts receivable 3,056 2,411
Prepaid expenses and other receivables 897 396
Total current assets 22,020 19,892
Property and equipment, net 2,067 1,660
Intangible assets, net 19,287 21,025
Goodwill 1,870 10,788
Deferred tax assets, net 1,816 861
Other assets 516 400
Total assets $ 47,576 $ 54,626
Liabilities and stockholders’ equity
Current liabilities:
Trade accounts payable $ 1,056 $ 1,180
Deferred acquisition payment payable - 962
Contingent consideration-current portion - 215
Accrued expenses and other current liabilities 3,653 2,898
Deferred revenues 2,552 3,402
Total current liabilities 7,261 8,657
Term Loan, net of deferred financing costs 1,984 -
Contingent consideration-long term portion - 1,728
Other liabilities 218 53
Total liabilities 9,463 10,438
Commitments and contingencies (Note 10)
Stockholders’ equity:
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  April 30, 2023 and July 31, 2022 5 5
Class B common stock, $.01 par value; authorized shares—40,000; 14,674 shares issued and 13,913 shares outstanding at April 30, 2023, and 13,951 shares issued and 13,877 outstanding at July 31, 2022 147 139
Additional paid-in capital 45,558 43,609
Accumulated other comprehensive loss (1,712 ) (1,391 )
(Accumulated deficit) retained earnings (4,097 ) 2,160
Treasury stock, 761 shares at April 30, 2023 and  74 shares at July 31, 2022, at cost (1,788 ) (334 )
Total stockholders’ equity 38,113 44,188
Total liabilities and stockholders’ equity $ 47,576 $ 54,626
April 30, July 31,
2022 2021
Assets
Current assets:
Cash and cash equivalents $ 17,095 $ 24,908
Trade accounts receivable, net of allowance of $0 at April 30, 2022 and July 31, 2021 2,718 2,545
Prepaid expenses 298 111
Other current assets 211 49
Total current assets 20,322 27,613
Property and equipment, net 1,716 1,980
Intangible assets, net 21,602 -
Goodwill 11,031 2,262
Deferred tax assets, net 560 477
Other assets 436 5,145
Total assets $ 55,667 $ 37,477
Liabilities and stockholders’ equity
Current liabilities:
Trade accounts payable $ 1,425 $ 585
Acquisitions related contingent consideration and deferred payment payable 4,358 -
Accrued expenses and other current liabilities 4,422 1,771
Deferred revenues 3,724 1,821
Total current liabilities 13,929 4,177
Contingent consideration payable 2,508 -
Other liabilities 101 145
Total liabilities 16,538 4,322
Commitments and contingencies (Note 10)
Stockholders’ equity:
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 April 30, 2022 and July 31, 2021 5 5
Class B common stock, $.01 par value; authorized shares—40,000; 14,575 shares issued and 14,502 shares outstanding at April 30, 2022, and 13,923 shares issued and 13,865 outstanding at July 31, 2021 146 139
Additional paid-in capital 42,955 41,664
Accumulated other comprehensive loss (1,272 ) (997 )
Accumulated deficit (2,371 ) (7,554 )
Treasury stock, 74 shares at April 30, 2022 and 58 shares at July 31, 2021, at cost (334 ) (102 )
Total stockholders’ equity 39,129 33,155
Total liabilities and stockholders’ equity $ 55,667 $ 37,477
See accompanying notes to unaudited condensed consolidated financial statements.

~~ZEDGE, INC.~~
~~CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME~~
~~(in thousands, except per share data)~~
~~(Unaudited)~~
Three Months Ended Nine Months Ended
April 30, April 30,
2022 2021 2022 2021
Revenues $ 6,230 $ 5,252 $ 19,173 $ 14,328
Costs and expenses:
Direct cost of revenues (excluding amortization of capitalized software and technology development costs which is included below) 401 290 1,053 907
Selling, general and administrative 4,064 2,694 9,902 6,859
Depreciation and amortization 423 289 1,181 972
Income from operations 1,342 1,979 7,037 5,590
Interest and other income, net 15 9 42 14
Net (loss) gain resulting from foreign exchange transactions (125 ) (12 ) (220 ) 21
Income before income taxes 1,232 1,976 6,859 5,625
Provision for (benefit from) income taxes 429 (473 ) 1,676 (147 )
Net Income $ 803 $ 2,449 $ 5,183 $ 5,772
Other comprehensive (loss) income:
Changes in foreign currency translation adjustment (195 ) 129 (275 ) 335
Total other comprehensive (loss) income (195 ) 129 (275 ) 335
Total comprehensive income $ 608 $ 2,578 $ 4,908 $ 6,107
Income per share attributable to Zedge, Inc. common stockholders:
Basic $ 0.06 $ 0.18 $ 0.36 $ 0.46
Diluted $ 0.05 $ 0.17 $ 0.35 $ 0.43
Weighted-average number of shares used in calculation of income per share:
Basic 14,307 13,676 14,295 12,531
Diluted 14,859 14,570 14,974 13,323
~~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
Restricted stock issuance in connection with GuruShots acquisition - - 626 7 (7 ) - - - -
Stock-based compensation - - - - 483 - - - 483
Foreign currency translation adjustment - - - - - (195 ) - - (195 )
Net income - - - - - - 803 - 803
Balance – Apr. 30, 2022 525 $ 5 14,575 $ 146 $ 42,955 $ (1,272 ) $ (2,371 ) $ (334 ) $ 39,129
~~See accompanying notes to unaudited condensed consolidated financial statements.~~

ZEDGE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF ~~CHANGES IN STOCKHOLDERS’ EQUITY~~OPERATIONS AND COMPREHENSIVE (LOSS) INCOME
(in ~~thousands)~~thousands, except for per share data)
(Unaudited)
Three Months Ended Nine Months Ended
April 30, April 30,
2023 2022 2023 2022
Revenues, net $ 6,726 $ 6,230 $ 20,609 $ 19,173
Costs and expenses:
Direct cost of revenues (excluding amortization of capitalized software and technology development costs which is included below) 498 401 1,762 1,053
Selling, general and administrative 5,016 4,064 16,713 9,902
Depreciation and amortization 897 423 2,505 1,181
Goodwill impairment 8,727 - 8,727 -
Change in fair value of contingent consideration - - (1,943 ) -
(Loss) income from operations (8,412 ) 1,342 (7,155 ) 7,037
Interest and other income, net 84 15 196 42
Net loss resulting from foreign exchange transactions (84 ) (125 ) - (220 )
(Loss) income before income taxes (8,412 ) 1,232 (6,959 ) 6,859
(Benefit from) provision for income taxes (718 ) 429 (702 ) 1,676
Net (loss) income $ (7,694 ) $ 803 $ (6,257 ) $ 5,183
Other comprehensive loss:
Changes in foreign currency translation adjustment (214 ) (195 ) (321 ) (275 )
Total other comprehensive loss (214 ) (195 ) (321 ) (275 )
Total comprehensive (loss) income $ (7,908 ) $ 608 $ (6,578 ) $ 4,908
Income per share attributable to Zedge, Inc. common stockholders:
Basic $ (0.55 ) $ 0.06 $ (0.44 ) $ 0.36
Diluted $ (0.55 ) $ 0.05 $ (0.44 ) $ 0.35
Weighted-average number of shares used in calculation of (loss) income per share:
Basic 14,017 14,307 14,221 14,295
Diluted 14,017 14,859 14,221 14,974
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
Exercise of stock options - - 185 2 421 - - - 423
Stock-based compensation - - 93 1 98 - - - 99
Proceeds from sales of Class B Common Stock - - 489 5 7,096 - - - 7,101
Foreign currency translation adjustment - - - - - 129 - - 129
Net income - - - - - - 2,449 - 2,449
Balance – Apr. 30, 2021 525 $ 5 13,683 $ 137 $ 38,899 $ (750 ) $ (10,030 ) $ (102 ) $ 28,159
See accompanying notes to unaudited condensed consolidated financial statements.

ZEDGE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF ~~CASH FLOWS~~CHANGES IN STOCKHOLDERS’ EQUITY
(in thousands)
(Unaudited)
Nine Months Ended
April 30,
2022 2021

Operating activities
Net income $ 5,183 $ 5,772
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 1,181 972
Stock-based compensation 1,291 488
Deferred income taxes (83 ) (542 )
Change in assets and liabilities:
Trade accounts receivable 64 (1,336 )
Prepaid expenses and other current assets (274 ) 171
Other assets 7 75
Trade accounts payable and accrued expenses 2,042 1,651
Deferred revenue 1,903 486
Net cash provided by operating activities 11,314 7,737
Investing activities
Payments for business combination, net of cash acquired (17,422 ) -
Payments for asset acquisitions (917 ) -
Capitalized software and technology development costs and purchase of equipment (468 ) (543 )
Investment in private company - (50 )
Net cash used in investing activities (18,807 ) (593 )
Financing activities
Proceeds from sales of Class B common stock - 12,355
Payment of issuance costs - (469 )
Repayment of insurance premium loan payable - (161 )
Proceeds from exercise of stock options 7 819
Purchase of treasury stock in connection with restricted stock vesting (232 ) (26 )
Net cash (used in) provided by financing activities (225 ) 12,518
Effect of exchange rate changes on cash and cash equivalents (95 ) 142
Net (decrease) increase in cash and cash equivalents (7,813 ) 19,804
Cash and cash equivalents at beginning of period 24,908 5,111
Cash and cash equivalents at end of period $ 17,095 $ 24,915

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
Contingent consideration related to business acquisition $ 5,904 $ -
Right-of-use assets acquired under operating leases $ 86 $ -
Acquisition 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
Restricted stock issuance in connection with GuruShots acquisition - - 617 6 (6 ) - - - -
Stock-based compensation - - 58 1 742 - - - 743
Purchase of treasury stock - - - - - - - 318 (679 ) (679 )
Stock issued for matching contributions to the 401(k) Plan - - 18 - 45 - - - 45
Foreign currency translation adjustment - - - - - 152 - - 152
Net income - - - - - - 1,606 - 1,606
Balance – January 31, 2023 525 5 14,674 147 44,979 (1,498 ) 3,597 522 (1,323 ) 45,907
Stock-based compensation 579 579
Purchase of treasury stock 239 (465 ) (465 )
Foreign currency translation adjustment (214 ) (214 )
Net loss (7,694 ) (7,694 )
Balance – April 30, 2023 525 $ 5 14,674 $ 147 $ 45,558 $ (1,712 ) $ (4,097 ) 761 $ (1,788 ) $ 38,113

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 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
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 ) 74 (334 ) 38,038
Restricted stock issuance in connection with GuruShots acquisition - - 626 7 (7 ) - - - -
Stock-based compensation - - - - 483 - - - 483
Foreign currency translation adjustment - - - - - (195 ) - - (195 )
Net income - - - - - - 803 - 803
Balance – Apr. 30, 2022 525 $ 5 14,575 $ 146 $ 42,955 $ (1,272 ) $ (2,371 ) 74 $ (334 ) $ 39,129
See accompanying notes to unaudited condensed consolidated financial statements.

ZEDGE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
Nine Months Ended
April 30,
2023 2022
Operating activities
Net (loss) income $ (6,257 ) $ 5,183
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Depreciation 44 34
Amortization of intangible assets 1,738 429
Amortization of capitalized software and technology development costs 723 718
Amortization of deferred financing costs 2 -
Change in fair value of contingent consideration (1,943 ) -
Loss on goodwill impairment 8,727 -
Stock-based compensation 1,957 1,291
Deferred income taxes (955 ) (83 )

Change in assets and liabilities:
Trade accounts receivable (645 ) 64
Prepaid expenses and other current assets (501 ) (274 )
Other assets 50 7
Trade accounts payable and accrued expenses 653 2,042
Deferred revenue (850 ) 1,903
Net cash provided by operating activities 2,743 11,314
Investing activities
Payments for business combination, net of cash acquired - (17,422 )
Payments for asset acquisitions (962 ) (917 )
Capitalized software and technology development costs (1,110 ) (438 )
Purchase of property and equipment (57 ) (30 )
Net cash used in investing activities (2,129 ) (18,807 )
Financing activities
Proceeds from term loan payable 2,000 -
Payment of deferred financing costs (18 ) -
Proceeds from exercise of stock options - 7
Purchase of treasury stock in connection with share buyback program and restricted stock vesting (1,454 ) (232 )
Net cash provided by (used in) financing activities 528 (225 )
Effect of exchange rate changes on cash and cash equivalents (160 ) (95 )
Net increase (decrease) in cash and cash equivalents 982 (7,813 )
Cash and cash equivalents at beginning of period 17,085 24,908
Cash and cash equivalents at end of period $ 18,067 $ 17,095

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash payments made for income taxes $ 711 $ 309
Cash payments made for interest expenses $ 72 $ -

SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
Contingent consideration fair value on acquisition date $ - $ 5,904
Right-of-use assets acquired under operating leases $ - $ 86
Acquisition of Emojipedia through release of escrow funds of $4,776, plus additional amounts due to seller of $1,923 and legal fees of $12 $ - $ 6,711
Accounts receivable from certain Emojipedia websites collected by Seller $ - $ 45
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

Description of Business
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 notification sounds which historically was branded as Zedge Premium, and GuruShots, a skill-based photo challenge game. Our vision is to connect creators who enjoy friendly competitions with a community of prospective consumers in order to drive commerce. Except where the context clearly indicates otherwise, the terms the “Company,” “Zedge” “we,” “us” or “our” refer to Zedge, Inc. and its consolidated subsidiaries.
Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of Zedge, Inc. and its subsidiaries, GuruShots ~~Ltd,~~Ltd. (“GuruShots”), Zedge Europe AS and Zedge Lithuania UAB (the “Company”), have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and nine months ended April 30, ~~2022~~2023 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 (the “2022 Form 10-K”), as filed with the U.S. Securities and Exchange Commission (the “SEC”).

The Company’s fiscal year ends on July 31 of each calendar year. Each reference below to a fiscal year refers to the fiscal year ending in the calendar year indicated (e.g., fiscal 2022 refers to the fiscal year ~~ending~~ended July 31, 2022).

Reportable Segments
Effective August 1, 2022, the Company revised the presentation of segment information to reflect its acquisition of GuruShots (see Note 5). As such, the Company now reports operating results through two reportable segments: Zedge App and GuruShots, 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 various global events. To the extent that there are material differences between these estimates and actual results, the Company’s financial condition or operating results will be affected. The Company bases its estimates on past experience and other assumptions that the Company believes are reasonable under the circumstances, and the Company evaluates these estimates on an ongoing basis.

~~Recently Adopted Accounting Pronouncements~~

~~In December 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) No. 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 unaudited condensed 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~~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 contract assets and contract liabilities from acquired contracts using the revenue recognition guidance in Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers, rather than the prior requirement to record them at fair value. The guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2022. Early adoption is permitted. The Company will adopt the new standard effective August 1, 2023 and does not expect the adoption of this guidance to have a material impact on its consolidated financial statements.

With the exception of the ~~standard~~standards discussed above, there have been no other recent accounting pronouncements or changes in accounting pronouncements during the nine months ended April 30, ~~2022,~~2023, as compared to the recent accounting pronouncements described in the Company’s ~~Annual Report on~~2022 Form 10-K, ~~for the fiscal year ended July 31, 2021,~~ 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.
~~Business Combinations~~
The Company accounts for business combination using the acquisition method of accounting. The Company allocates the purchase price of the acquisition to the tangible and intangible assets acquired and liabilities assumed and contingent considerations based on their estimated fair values at the acquisition dates. The excess of the purchase price over those fair values is recorded as goodwill. During the measurement period, which may be up to one year from the acquisition date, the Company may record adjustments to the assets acquired and liabilities assumed with a corresponding offset to goodwill. Upon the conclusion of the measurement period or final determination of the values of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded to the unaudited condensed consolidated statements of operations and comprehensive income. Acquisition-related costs are recognized separately from the acquisition and are expensed as incurred.
~~Intangible Assets-Net~~
Intangible assets (see Note 6) 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 between five to fifteen years. The Company reviews identifiable amortizable intangible assets to be held and used for impairment whenever events or changes in circumstances indicate that the carrying value of the assets may not be recoverable. Determination of recoverability is based on the lowest level of identifiable estimated undiscounted cash flows resulting from use of the asset and its eventual disposition. Measurement of any impairment loss is based on the excess of the carrying value of the asset over its fair value. There were no impairment charges recorded in the nine months ended April 30, 2022 presented in the accompanying unaudited condensed consolidated financial statements.
Related Party Transactions
The Company was formerly a majority-owned subsidiary of IDT Corporation (“IDT”). On June 1, 2016, IDT’s interest in the Company was spun-off by IDT to IDT’s stockholders and the Company became an independent public-held company. IDT charges the Company for services it provides, and the Company charges IDT for services it provides, pursuant to a Transition Services Agreement (“TSA”). The Company was charged for legal services by IDT in the amounts of $29,600 and $91,600 respectively, for the three and nine month periods ended April 30, 2022, and $25,900 and $98,400 respectively, for the three and nine month periods ended April 30, 2021. The Company charged IDT for consulting services provided to IDT by a Zedge employee in the amounts of $35,100 and $140,000 respectively, for the three and nine month periods ended April 30, 2022, and $33,900 and $119,500, respectively, for the three and nine month periods ended April 30, 2021. As of April 30, 2022 and July 31, 2021, IDT owed the Company $5,000 and $6,000, respectively.

The Company is party to a consulting agreement with Activist Artist Management, LLC (“Activist”), which assists the ~~company~~Company in strategic business development. A member of the Company’s Board of Directors owns a significant minority stake in Activist. ~~The Company paid $11,000~~
Transactions with these related parties did not have a material impact to the consolidated balance sheets as of April 30, 2023 or July 31, 2022, or the consolidated statements of operations and ~~$38,000, respectively, in~~comprehensive (loss) income for the three and nine ~~month periods~~months ended April 30, 2022, and $11,000 and $38,000, respectively, in the three and nine month periods ended April 30, 2021, to Activist pursuant to the agreement. Under the terms of the agreement, which was amended as of August 1, 2020, the Company pays Activist $3,750 per month, plus possible commissions. On June 7, 2022 the Company’s Board approved a $65,000 advisory fee to Activist in connection with the GuruShots acquisition. In addition, the Board also approved the increase in monthly retainer from $3,750 to $5,000 per month retroactive from April 1, 2022, see Note 17 below.
The Company paid $0 and $30,000, respectively, in the three and nine month periods ended April 30, 2022, and $0 in the three and nine month periods ended April 30, 2021, to Braze Inc. (formerly “Appboy, Inc.”) for use of its customer relationship management and lifecycle marketing platform. The former Chief Executive Officer and Co-Founder of Braze, Inc. is a member of the Company’s Board of Directors.2023 or 2022.

Note 2—Revenue

Disaggregation of Revenue

The following table ~~summarizes~~presents revenue disaggregated by segment and type ~~of monetization mechanisms of~~(in thousands):
Three Months Ended Nine Months Ended
April 30, April 30,
2023 2022 2023 2022
Zedge App
(in thousands) (in thousands)
Advertising revenue $ 4,572 $ 4,842 $ 13,691 $ 15,439
Paid subscription revenue 832 910 2,598 2,823
Other revenues 232 184 652 617
Total Zedge App revenue 5,636 5,936 16,941 18,879
GuruShots
Digital goods and services 1,090 294 3,668 294
Total revenue $ 6,726 $ 6,230 $ 20,609 $ 19,173
Note- GuruShots’ operating results are consolidated with our operating results beginning on April 13, 2022. Accordingly, GuruShots’ revenue shown in the ~~Zedge App and other revenues, including Emojipedia revenues and GuruShots’~~above table represents only revenue from April 13, 2022 to April 30, 2022 ~~for the periods presented:~~.

Three Months Ended Nine Months Ended
April 30, April 30,
2022 2021 2022 2021
(in thousands) (in thousands)
Advertising revenue $ 4,526 $ 4,227 $ 14,532 $ 11,612
Paid subscription revenue 910 899 2,823 2,358
Other revenues 794 126 1,818 358
Total revenues $ 6,230 $ 5,252 $ 19,173 $ 14,328
Revenue from Emojipedia was $232,000 and $823,000 for the three and nine month periods ended April 30, 2022, and presented in the other revenues line in the table above. Revenue from GuruShots was $294,000 for the three and nine month periods ended April 30, 2022, and presented in the other revenues line in the table above.
Contract Balances

The Company enters into contracts with its customers, which may give rise to contract liabilities (deferred revenue) and contract assets (unbilled revenue). The payment terms and conditions within the Company’s contracts vary by products or services purchased, the substantial all of which are due in less than one year. When the timing of revenue recognition differs from the timing of payments made by customers, the Company recognizes only deferred revenue (customer payment is received in advance of performance). The Company does not have unbilled revenue (its performance precedes the billing date).

Deferred revenues

On April 1, 2022, the AppLovin Corporation paid the Company ~~received~~ a one-time integration bonus ~~for set up activities~~ of $2 million ~~from AppLovin Corporation~~ for migrating to their mediation platform. This amount is being amortized over an estimated service period of 24 months. The Company’s deferred revenue balance related to this bonus was approximately $0.9 million and $1.7 million as of April 30, 2023 and July 31, 2022, respectively.

The Company records deferred revenues related to the unsatisfied performance obligations with respect to subscription revenue. ~~As of April 30, 2022, the~~The Company’s deferred revenue balance related to paid subscriptions was approximately $1.4 million related to approximately 631,000 active subscribers, and approximately $1.5 million, ~~representing~~related to approximately ~~713,000~~692,000 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~~as of ~~payment fails~~April 30, 2023 and ~~the three-day grace period has ended without payment resolution. The account hold period lasts for up to 30 days. As of~~ July 31, ~~2021, the Company’s deferred revenue balance related to paid subscriptions was approximately $1.6 million, representing approximately 752,000 active subscribers.~~2022, respectively. The amount of revenue related to subscribers recognized in the nine months ended April 30, ~~2022~~2023 that was included in the deferred revenue balance at July 31, ~~2021~~2022 was ~~$1.5~~$1.4 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.~~inactivity (“Breakage”). As of April 30, ~~2022,~~2023, and July 31, ~~2021,~~2022, the Company’s deferred revenue balance related to Zedge Premium was approximately ~~$281,000~~$268,000 and ~~$218,000,~~$259,000, respectively.

Total deferred revenues ~~increased~~decreased by ~~$1.9~~$0.8 million from ~~$1.8~~$3.4 million at July 31, ~~2021~~2022 to ~~$3.7~~$2.6 million at April 30, ~~2022,~~2023, primarily attributed to the amortization of the one-time integration bonus ~~from AppLovin.~~mentioned above.

Significant Judgments

The advertising networks and advertising exchanges to which the Company sell its inventory track and report the impressions and ~~installs~~revenues to Zedge and Zedge recognizes revenues based on these reports. The networks and exchanges base their payments off of those reports and Zedge independently compares the data to each of the client sites to validate the imported data and identify any differences. The number of impressions and ~~installs~~revenues delivered by the advertising networks and advertising exchanges is determined at the end of each month, which resolves any uncertainty in the transaction price during the reporting period.

Practical Expedients

The Company expenses the fees retained by Google Play and App Store 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 inof the ~~unaudited~~ condensed consolidated statements of 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)
April 30, 2022
Assets:
April 30, 2023
Liabilities:
Contingent consideration-short term $                - $                 - $                 - $       -
Contingent consideration-long term $ - $ - $ - $ -
Foreign exchange forward contracts $         - $ - $ - $ - $ - $ 61 $ - $ 61

July 31, 2022
Liabilities:
Current portion of contingent consideration payable $ - $ - $ 3,396 $ 3,396
Contingent consideration payable $ - $ - $ 2,508 $ 2,508
Contingent consideration-short term $ - $ - $ 215 $ 215
Contingent consideration-long term $ - $ - $ 1,728 $ 1,728
Foreign exchange forward contracts $ - $ 167 $ - $ 167 $ - $ 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 (1,943 )
Balance at April 30, 2023 $ 0
The overall fair value of the contingent consideration decreased by $1,943,000 during the nine months ended April 30, 2023, 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 April 30, ~~2022~~2023 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~~WAB allowing the Company to enter into foreign exchange contracts under its revolving credit facility with the bank (see Note 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 (loss) 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 April 30, 2023, were as follows:
Settlement Date U.S. Dollar Amount NOK Amount
May-23 225,000 2,317,545
Jun-23 225,000 2,274,975
Jul-23 225,000 2,271,285
Aug-23 225,000 2,267,100
Sep-23 225,000 2,263,388
Oct-23 225,000 2,260,238
Nov-23 225,000 2,256,750
Dec-23 225,000 2,253,285
Jan-24 225,000 2,249,730
Feb-24 225,000 2,246,265
Mar-24 225,000 2,242,823
Apr-24 225,000 2,240,550
May-24 225,000 2,237,738
Total 2,925,000 29,381,670
Settlement Date U.S. Dollar Amount EUR Amount
May-23 225,000 220,070
Jun-23 225,000 208,507
Jul-23 225,000 208,160
Aug-23 225,000 207,852
Sep-23 225,000 207,526
Oct-23 225,000 207,240
Nov-23 225,000 206,935
Dec-23 225,000 206,555
Jan-24 225,000 206,271
Feb-24 225,000 205,893
Mar-24 225,000 205,611
Apr-24 225,000 205,386
May-24 225,000 205,142
Total 2,925,000 2,701,147

~~The outstanding contracts at April 30, 2022, were as follows:~~
Settlement Date U.S. Dollar
Amount NOK
Amount
May-22 225,000 1,970,619
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 $ 1,575,000 13,971,444
Settlement Date U.S. Dollar
Amount EUR
Amount
May-22 225,000 188,673
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 $ 1,575,000 1,404,459
The fair value of outstanding derivative instruments recorded in the accompanying unaudited condensed consolidated balance sheets were as follows:

April 30, July 31, April 30, July 31,
Assets and Liabilities Derivatives: Balance Sheet Location 2022 2021 Balance Sheet Location 2023 2022
Derivatives not designated or not qualifying as hedging instruments (in thousands) (in thousands)
Foreign exchange forward contracts Accrued expenses and other current liabilities $ 167 $ 54 Accrued expenses and other current liabilities $ 61 $ 141

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

Three Months Ended
April 30, Nine Months Ended
April 30, Three Months Ended April 30, Nine Months Ended April 30,
Amount of (Loss) Gain Recognized on Derivatives 2022 2021 2022 2021
Amount of Loss Recognized on Derivatives Amount of Loss Recognized on Derivatives 2023 2022 2023 2022
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) (in thousands)
Foreign exchange forward contracts Net (loss) gain resulting from foreign exchange transactions $ (154 ) $ 16 (271 ) $ 67 Net loss resulting from foreign exchange transactions $ (122 ) $ (154 ) (58 ) $ (271 )

Note 5—Business Combination and Assets Acquisition

GuruShots Acquisition

On April 12, 2022, the Company consummated the acquisition of 100% of the outstanding equity securities of GuruShots, Ltd. ~~(“GuruShots”)~~, an Israeli company that operates a platform used for its competitive photography game available across iOS, Android and the web. The acquisition was effected pursuant to a Share Purchase Agreement (the “SPA”) between the Company, GuruShots and the holders of the GuruShots equity interests. This acquisition was accounted for as a business combination under the acquisition method of accounting and the results of operations of GuruShots have been included in the Company’s results of operations as of the acquisition date.

The purchase price for the equity securities of GuruShots consists of 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 ~~has been~~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 ~~part~~ of July 31, 2022 and further reduced to $0 as of April 30, 2023. See Note 3, Fair Value Measurements, for additional discussion of contingent consideration as of April 30, 2023.
Under the ~~preliminary purchase price allocation. In connection therewith,~~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~~the acquired users generating minimum levels of Return On Ad Spend (“ROAS”). as set forth in the SPA. As of April 30, 2023, based on the Company’s assessment of ROAS, including the combination of industry-specific, macroeconomic, and geopolitical challenges that negatively impacted ROAS during the period, the Company did not make the minimum investment for the first annual period covered by the Earnout.

In addition, the Company has committed to a retention pool of $4 million in cash and ~~issued~~ 626,242 shares of the Company Class B common stock ~~with~~(the number of shares was determined based on a ~~fair~~ value of $4 million or $6.39 per share ~~(based on~~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~~April 1, 2022 based on the beneficiaries thereof remaining employed by the Company or a subsidiary. On April 17, 2023, 205,618 shares were vested with a fair value of $1.93 per share.

The parties to the SPA have made customary representations, warranties and covenants therein. The assertions embodied in those representations and warranties were made for purposes of the SPA and are subject to qualifications and limitations agreed by the respective parties in connection with negotiating the terms of the SPA. In addition, certain representations and warranties made as of a specified date may be subject to a contractual standard of materiality different from what might be viewed as material to stockholders, or may have been used for the purpose of allocating risk between the respective parties rather than establishing matters as facts. For the foregoing reasons, no person should rely on the representations and warranties as statements of factual information at the time they were made or otherwise.

The cash purchase price and the earnout have been ~~preliminarily~~ allocated to GuruShots’ tangible assets, identifiable intangible assets, and assumed liabilities based on their estimated fair values. 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).~~period. The excess of the total consideration over the tangible assets, identifiable intangible assets, and assumed liabilities was recorded as ~~goodwill.~~goodwill which was $8.9 million at closing.

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 Company recorded a measurement period adjustment of $180,000 in the three month period ended July 31, 2022 which reduced the goodwill balance from $8.9 million to $8.7 million. The Company wrote off the remaining goodwill balance and recorded a loss on goodwill impairment of $8.7 million in the three month period ended April 30, 2023 as discussed below in Note 6.
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 $ 15,242
Cash contributed to escrow accounts at close 2,700 2,700
Cash deducted from purchase price and contributed to GuruShots' working capital 58
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 3,396
Fair value of contingent consideration to be achieved at year 2 2,508 2,508
Fair value of total consideration transferred 23,904 23,904
Total purchase price, net of cash acquired $ 23,384 $ 23,384

Fair value allocation of purchase price:
Cash and cash equivalents $ 520 $ 520
Accounts receivable 282
Prepaid and other assets 145
Trade accounts receivable 282
Prepaid expenses 145
Property and equipment, net 17 17
Other assets (including ROU) 151 151
Accounts payable and accrued expenses (1,351 ) (1,351 )
Operating lease liabilities, current (53 ) (53 )
Operating lease liabilities, noncurrent (34 ) (34 )
Acquired intangible assets 15,320 15,320
Goodwill 8,907 8,907
Total purchase price $ 23,904 $ 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 April 30, 2023.

The earnout amount to be paid (up to the maximum ~~earnout~~ of $16.8 ~~million~~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~~management’s reasonable assumptions about the likelihood of payment based on the satisfaction of certain defined operational milestones and discount rates based on cost of debt. Please see Note 3 for the fair value measurement.

The Company has issued ~~626,242~~601,192 (net of forfeiture of 25,050 shares for employees who left the Company) shares of the Company’s Class B common onin respect of the ~~closing date~~retention pool to the GuruShots founders and employees, aswhich are held by a ~~retention bonus pool.~~trustee based in Israel. These shares will vest, in equal tranches, over three years from April 1, 2023 assuming that the recipients remain employed by the Company or a subsidiary through the vesting ~~dates.~~dates, 205,618 shares vested on April 1, 2023. The ~~$4 million~~grant date fair value of these unvested restricted stock of $4 million 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.~~years subject to the same continued service requirement, which was not included in the purchase price above. As of April 30, 2023, the Company has accrued $1.4 million in retention bonus which is included in accrued expenses and other current liabilities, of which $1.3 million was paid in May 2023.

Identified intangible assets consist of trade names, technology ~~non-compete agreements,~~ and customer relationships. The fair value of intangible assets and the determination of their respective useful lives were made in accordance with ASC 805 and are outlined in the table below:

(Dollar Amounts in Thousands) 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~~relief-from-royalty method and ~~Multi-period~~multi-period excess earnings. These valuation methods require management to project revenues, operating expenses, working capital investment, capital spending and cash flows for ~~the~~ GuruShots over a multiyear period, as well as determine the weighted average cost of capital to be used as a discount rate.
The Company amortizes its intangible assets assuming no residual value over periods in which the economic benefit of these assets is consumed.

The Company recorded the excess of the purchase price over the identified tangible and intangible assets as goodwill. The Company believes that the investment value of the future enhancement of the Company’s products and offerings created as a result of this acquisition has principally contributed to a purchase price that resulted in the recognition of $8.9 million of goodwill, which was subsequent reduced by $180,000 and to $0 as discussed below in Note 6. $2.8 million of the write-off of 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 ~~the nine months ended April 30,~~fiscal 2022, we incurred ~~and accrued~~ $860,000 of acquisition-related costs, which are included in Selling, General and Administrative expenses on the Company’s condensed consolidated ~~statement~~statements of operations and comprehensive (loss) income.

Unaudited Pro Forma Consolidated Financial Information

The unaudited pro forma financial information for all periods presented below has been calculated after adjusting the results of a combined Zedge and GuruShots to reflect the business combination accounting effects resulting from this acquisition, including acquisition costs and the amortization expense from acquired intangible assets as though the acquisition occurred on August 1, 2020. The information below reflects adjustments to Zedge’s historical consolidated ~~financial statements have been adjusted in the pro forma combined~~ financial statements to give effect to pro forma events that are directly attributable to the business combination. The pro forma financial information is for informational purposes only and is not indicative of the results of operations that would have been achieved if the acquisition had taken place on August 1, 2020.

Three Months Ended Nine Months Ended Three Months Ended Nine Months Ended
April 30 ⁽¹⁾ April 30 ⁽¹⁾ April 30 ⁽¹⁾ April 30 ⁽¹⁾
(‘000) 2021 2022 2021 2022
2021 2022 2021 2022

Revenue
$ 7,522 $ 7,625 $ 21,002 $ 24,134 $ 7,522 $ 7,625 $ 21,002 $ 24,134
Net income $ 1,625 $ 571 $ 2,240 $ 2,580 $ 1,625 $ 571 $ 2,240 $ 2,580

1) The fiscal year end of Zedge is July 31 and the fiscal year end of GuruShots iswas December 31. The pro forma financial information above has been prepared utilizing the three and nine months ended April 30th for Zedge and March 31st for GuruShots.

The unaudited pro forma financial information includes the following adjustments, net of any tax impacts:

(i) incremental amortization expense recognized based on fair value of intangible assets recorded upon acquisition of GuruShots;
(ii) incremental compensation expense related to the vesting of retention awards to GuruShots employees consisting of restricted stock awards and cash payments; and
(iii) the reversal of historical fair value adjustments and interest expense recorded on GuruShots’ convertible notes that were settled on the acquisition date.
(iv)
~~Income~~income tax expense (benefit) was adjusted for the impact of the above adjustments for each period.

Transaction costs related to the acquisition of GuruShots incurred during the three and nine months ended April 30, 2022 were $0.7 million and $0.9 million, respectively. For pro forma purposes, these expenses were reclassified to the earliest period presented. The unaudited pro forma financial information is for comparative purposes only and is not necessarily indicative of what the Company’s operating results would have been had the GuruShots Acquisition taken place on August 1, 2020.

GuruShots’ operating results are consolidated with our operating results beginning on April 13, 2022. Therefore, our consolidated results of operations for the three and nine months ended April 30, ~~2022~~2023 may not be comparable to the ~~same period~~corresponding periods in ~~2021.~~2022. GuruShots’ results of operations included in our consolidated results of operations for the three and nine months ended April 30, 2022 include revenues of $0.3 million and a net loss of $0.2 million.

Emojipedia Acquisition

Pursuant to an Asset Purchase Agreement, on August 1, 2021 (“Closing”), the Company consummated the acquisition of substantially all of the assets of Emojipedia Pty Ltd, a proprietary company organized under the laws of Australia. The total purchase price of the assets ~~has been determined to be~~was $6.7 million, of which $4.8 million was paid on August 2, 2021, ~~and~~ $917,000 was paid on February 1, 2022, ~~with~~and the remaining $962,000 ~~to be~~ paid ~~out~~ on ~~the twelve-month anniversary of the Closing.~~August 2, 2022. The ~~final purchase price of $6.7~~$4.8 million was ~~$194,000 lower than initially estimated.~~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 ~~and other assets~~ related to the seller’s business, including World Emoji Day, the annual World Emoji Awards, and Emojitracker. The asset purchase does not qualify as a business combination under FASB ASC 805, Business Combinations, and has therefore been accounted for as an asset acquisition. The total purchase price for this acquisition was allocated to intangible assets are amortized on a straight-line basis over their estimated useful lives of fifteen years.
~~The results of operations of the purchased assets are included in the Company’s unaudited condensed consolidated statements of operations and comprehensive income since the date of the acquisition.~~

Note 6—Intangible Assets and Goodwill

The following table presents the detail of intangible assets, net as of April 30, 2023 and July 31, ~~2021 and April 30,~~ 2022 (in thousands):

Gross Carrying Value Accumulated Amortization Net Carrying Value

Balance at July 31, 2021 $ - $ - $ -
    Websites and other internet domains acquired 6,711 335 6,376
Acquired developed technology 3,950 40 3,910
Customer relationships 7,800 39 7,761
Trademarks and trade names 3,570 15 3,555

Balance at April 30, 2022 $ 22,031 $ 429 $ 21,602
April 30, 2023 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 6,711 783 5,928 6,711 447 6,264
Acquired developed technology 3,950 832 3,118 3,950 238 3,713
Customer relationships 7,800 818 6,982 7,800 233 7,567
Trade names 3,570 311 3,259 3,570 89 3,481
Total intangible assets $ 22,031 $ 2,744 $ 19,287 $ 22,031 $ 1,007 $ 21,025

Estimated future amortization expense as of April 30, ~~2022~~2023 is as follows (in thousands):

Fiscal 2023 579
Fiscal 2024 2,315
Fiscal 2025 2,315
Fiscal 2026 2,315
Fiscal 2027 2,315
Thereafter 9,448
Total $ 19,287
The Company’s amortization expense for intangible assets were $579,000 and $205,000 for the three months ended April 30, 2023 and 2022, respectively. The Company’s amortization expense for intangible assets were $1,736,000 and $429,000 for the nine months ended April 30, 2023 and 2022, respectively. There were only 18 days of intangible amortization expenses related to GuruShots in the three and nine months ended April 30, 2022 following the April 12, 2022 acquisition date.
Goodwill
Goodwill represents the difference between the purchase price and the fair value of assets and liabilities acquired in a business combination (see Note 5). The Company reviews goodwill yearly, or more frequently whenever circumstances and situations change such that there is an indication that the carrying amounts may not be recovered, for impairment by initially considering qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount, including goodwill, as a basis for determining whether it is necessary to perform a quantitative analysis. If it is determined that it is more likely than not that the fair value of reporting unit is less than its carrying amount, a quantitative analysis is performed to identify goodwill impairment. If it is determined that it is not more likely than not that the fair value of the reporting unit is less than its carrying amount, it is unnecessary to perform a quantitative analysis. The Company may elect to bypass the qualitative assessment and proceed directly to performing a quantitative analysis.
The Company has two reporting units and assesses impairment based upon qualitative factors and if necessary, quantitative factors. A reporting unit’s fair value is determined using the income approach and discounted cash flow models by utilizing Level 3 inputs and assumptions such as future cash flows, discount rates, long-term growth rates, market value and income tax considerations. Specifically, the value of each reporting unit is determined on a stand-alone basis from the perspective of a market participant and represents the price estimated to be received in a sale of the reporting unit in an orderly transaction between market participants at the measurement date. The Company then reconciles the values of all reporting units to the market capitalization of the Company.
Interim Impairment Assessment
The Company performs its annual goodwill impairment tests on May 1 each year (the first day of fiscal 4^th quarter) based on information available as of April 30 in accordance with ASC 350-20-35-28. In light of a significant and sustained decline in the Company’s Class B common stock price, circumstances became evident that a possible goodwill impairment existed since last annual impairment test. The Company performed an interim impairment test during the quarter and concluded that the carrying value of the GuruShots reporting unit exceeded its fair value. Accordingly, the Company recorded a non-cash goodwill impairment charge of $8.7 million during the three month period ended April 30, 2023.
Remainder of fiscal 2022 $ 579
Fiscal 2023 2,315
Fiscal 2024 2,315
Fiscal 2025 2,315
Fiscal 2026 2,315
Thereafter 11,763
Total $ 21,602

~~Goodwill~~
~~Changes~~The following table summarizes the changes in the carrying amount of goodwill infor the nine months ended April 30, ~~2022 are as follows (in thousands):~~2023 and 2022.

(in thousands) Carrying Amount

Balance at July 31, 2021 $ 2,262
GuruShots acquisition 8,907
Foreign currency translation adjustments (138 )

Balance at April 30, 2022 $ 11,031
(in thousands) Carrying
Amounts

Balance as of July 31, 2022 $ 10,788
Goodwill impairment charge (8,727 )
Impact of currency translation (191 )
Balance as of April 30, 2023 $ 1,870

Balance as of July 31, 2021 $ 2,262
Goodwill acquired during the period 8,907
Impact of currency translation (138 )
Balance as of April 30, 2022 $ 11,031
The total accumulated impairment loss of the Company’s goodwill as of April 30, 2023 was $8.7 million. There were no accumulated impairment losses prior to the fiscal year ended July 31, 2022.

Note 7—Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consist of the ~~following:~~following (in thousands):
April 30, July 31,
2023 2022

Accrued payroll and bonuses $ 2,040 $ 1,084
Accrued vacation 669 585
Accrued payroll taxes 272 214
Due to artists 253 301
Accrued expenses 170 262
Operating lease liability-current portion 93 142
Derivative liability for foreign exchange contracts 61 141
Accrued income taxes payable 89 169
Other 6 -
Total accrued expenses and other current liabilities $ 3,653 $ 2,898

April 30, July 31,
2022 2021
(in thousands)
Accrued vacation $ 663 $ 424
Accrued income taxes payable 1,711 264
Accrued payroll taxes 304 291
Accrued payroll and bonuses 638 374
Accrued business combination expenses 340 -
Operating lease liability 142 86
Derivative liability 167 54
Due to artists 327 246
Other 130 32
Total accrued expenses and other current liabilities $ 4,422 $ 1,771
Note 8—Stock-Based Compensation

2016 Incentive Plan
On March 23, 2022, 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 685,000 shares to an aggregate of 2,531,000 shares, including 626,000 shares for the GuruShots retention pool. This amendment was ratified by the Company’s stockholders at the Annual Meeting of Stockholders held on January 18, 2023.
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 for ratification by the Company’s stockholders at the Annual Meeting of Stockholders to be held in January 2023.
At April 30, ~~2022,~~2023, there were ~~492,000~~448,000 shares of Class B common stock available for awards under the 2016 Incentive Plan before accounting for the ~~approximately~~ 204,000 contingently issuable shares related to the deferred stock units (“DSUs”) with both service and market conditions.

In addition to stock options and restricted stock awards, the Company occasionally issues DSU’s. On September 7, 2021, the Company granted a total of 291,320 DSUs to 64 of its employees and consultants. Each DSU represents the right to receive one share of the Company’s Class B common stock.Stock-based compensation

30% of the DSU’s (or 87,396) have service vesting conditions only, with a vesting schedule of 25% on September 7, 2022, 33% on September 7, 2023, and remaining on September 7, 2024. Vesting of the remaining 70% of the DSUs (or 203,924) is subject to continued service as well as a market condition. These DSUs will vest if the grantee remains in service to the Company and only if the aggregate market capitalization of the Company’s equity securities has reached or exceeded $451 million for five consecutive trading days between the grant date and the vest date. Subject to satisfaction of both of those conditions, these DSU’s with both service and market conditions have a vesting schedule of 25% September 7, 2022, up to 58% (the 25% eligible to vest in 2022 and an additional 33%) on September 7, 2023, and up to 100% on September 7, 2024. In the event the market capitalization condition has not been met prior to a vesting date, but is met by a subsequent vesting date, all DSUs with a market condition eligible for vesting prior to that date shall vest. In the event that the market capitalization condition has not been met by September 7, 2024, the DSUs with a market condition shall expire.
The Company recognizes stock-based compensation for stock-based awards, including stock options, restricted stock and DSUs based on the estimated fair value of the awards and recognized over the relevant service ~~period.~~period and/or market conditions. The Company estimates the fair value of stock options on the measurement date using the Black-Scholes option valuation model. The Company estimates the fair value of the restricted stock and ~~DSUs~~DSU’s with service conditions only using the current market price of the stock. The Company estimates the fair value of ~~DSUs~~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~~The Company recognizes stock-based compensation expense related to options and restricted stock units on a straight-line basis over the service period of the award, which is generally 4 years for options and 3 years for restricted stock units.

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

Three Months Ended Nine Months Ended
April 30, April 30,
2022 2021 2022 2021
(in thousands)
Selling, general and administrative $ 483 $ 98 $ 1,291 $ 488
Three Months Ended Nine Months Ended
April 30, April 30,
2023 2022 2023 2022
(in thousands) (in thousands)
Stock-based compensation expense $ 578 $ 483 $ 1,957 $ 1,291

~~The estimated grant-date fair value of our stock options was calculated using the Black-Scholes option pricing model, based on the following weighted-average assumptions:~~
Nine months ended April 30, 2022 2021
Expected term 6.0 years 6.0 years
Volatility 92.4 % 92.4 %
Risk free interest rate 1.5 % 0.6 %
Dividends — —
Weighted average grant date fair value $ 7.76 $ 3.26

~~The following table summarizes stock option activity for the nine months ended April 30, 2022:~~
Stock Options
Weighted-
Number of Average
Options Exercise
(in thousands) Price
Outstanding at July 31, 2021 843 $ 2.72
Granted 42 10.29
Exercised (4 ) 1.87
Cancelled / forfeited (27 ) 12.28
Outstanding at April 30, 2022 854 $ 2.79
Exercisable at April 30, 2022 645 $ 2.09
~~The following table summarizes restricted stock activity for the nine months ended April 30, 2022:~~
Number of
Shares Weighted
Average
Grant Date
Fair Value
Non-vested stock award as of July 31, 2021 127,300 $         3.27
Granted (GuruShots Retention Bonus shares) 626,242 6.39
Vested (65,101 ) 2.80
Forfeited - -
Non-vested stock award as of April 30, 2022 688,441 $ 6.15
~~The following table summarizes DSU activity for the nine months ended April 30, 2022:~~
Number of
Shares Weighted
Average
Grant Date
Fair Value
Non-vested DSU award as of July 31, 2021 37,500 $ 1.54
Granted ⁽¹⁾ 291,320 9.60
Vested (12,500 ) 1.54
Forfeited (18,720 ) 7.88
Non-vested DSU award as of April 30, 2022 297,600 $ 9.03
~~(1)~~ ~~Includes 203,924 DSUs (or 70% of total awards) of which vesting are subject to both service and market condition.~~
The DSUs with both service and market conditions were valued using a Monte Carlo simulation model, with a valuation of $7.19 per DSU. Total grant date fair value for these DSUs was approximately $1.5 million. The unrecognized compensation expense is being recognized on a graded vesting method over the vesting period. The DSUs with a service condition only had a grant date fair value of $1.3 million. Total grant date fair value for the remaining 30% DSUs without market-based condition was approximately $1.0 million. The unrecognized compensation expense is being recognized on a straight-line basis over the vesting period.
As of April 30, ~~2022,~~2023, the Company’s unrecognized stock-based compensation expense was ~~$661,000~~$350,000 for unvested stock options, ~~$1.9 million~~$804,000 for unvested DSUs and ~~$4.1~~$2.5 million for unvested restricted stock including the $4 million portion of retention bonus to be paid in the Company’s Class B common stock in connection with the GuruShots acquisition.

In the nine months ended April 30, 2023 and 2022, awards with respect to 237,000 shares and 65,000 shares vested. In connection with this vesting, the Company purchased 6,310 shares and 16,115 shares respectively of Class B Stock from certain employees for $17,000 and $232,000 respectively, to satisfy tax withholding obligations in connection with the vesting of restricted stock and DSUs.
Repricing of Outstanding and Unexercised Options
On October 20, 2022, the Board unanimously approved the repricing of all outstanding and unexercised stock options granted under the 2016 Plan with exercise prices above the then current market value held by then current employees, executive officers, and consultants of the Company (the “Eligible Stock Options”). Effective October 20, 2022, the exercise price of the eligible stock options was reduced to $2.27, the closing price of its common stock on October 19, 2022. Except for the modification to the exercise price of the Eligible Stock Options, all other terms and conditions of each of the Eligible Stock Options remained in full force and effect.
Pursuant to the 2016 Incentive Plan, the Compensation Committee of the Board of Directors, as the administrator, has discretionary authority, exercisable on such terms and conditions that it deems appropriate under the circumstances, to reduce the exercise price in effect for outstanding options under the 2016 Incentive Plan. In approving the repricing, the Compensation Committee considered the impact of the current exercise prices of outstanding stock options on the incentives provided to employees and consultants, the lack of retention value provided by the outstanding stock options to employees and consultants, and the impact of such options on the capital structure of the Company. As of October, 2022, there were 532,750 stock options outstanding under the 2016 Incentive Plan, of which 191,663 outstanding stock options had exercise prices in excess of the market price of the Company’s common stock as of October 20, 2022, which is why the Compensation Committee made the determination to deem all outstanding and unexercised stock options held by current employees, executive officers, and consultants as Eligible Stock Options.
Jonathan Reich, the Company’s Chief Executive Officer, and Yi Tsai, the Company’s Chief Financial Officer, hold Eligible Stock Options exercisable for an aggregate of 64,898 and 15,000 shares of the Company’s common stock, respectively.

The option repricing resulted in incremental stock-based compensation of $87,000, of which $48,000 was recorded as expense in the nine months ended April 30, 2023, and $39,000 will be recognized as expense over the requisite service periods over which the Eligible Stock Options vest.
Note 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, and is the same amount for the Company’s Class A common stock and Class B common stock.~~period. Diluted earnings per share is computed in the same manner as basic earnings per share, except that the number of shares is increased to include restricted stock still subject to risk of forfeiture, issuances to be made on the vesting of unvested DSUs and the exercise of potentially dilutive stock options using the treasury stock method, unless the effect of such increase is anti-dilutive.

The rights of holders of Class A common stock and Class B common stock are identical except for certain voting and conversion rights and restrictions on transferability. As such, the Company is not required to break out earnings per share by class.
The weighted-average number of shares used in the calculation of basic and diluted earnings per share attributable to the Company’s common stockholders consists of the ~~following:~~following (in thousands):

Three Months Ended Nine Months Ended
April 30, April 30, Three Months Ended Nine Months Ended
2022 2021 2022 2021 April 30, April 30,
(in thousands) 2023 2022 2023 2022
Basic weighted-average number of shares 14,307 13,676 14,295 12,531 14,017 14,307 14,221 14,295
Effect of dilutive securities:
Stock options 505 762 598 715 - 505 - 598
Non-vested restricted Class B common stock 30 98 63 48 - 30 - 63
Deferred stock units 17 34 18 29 - 17 - 18
Diluted weighted-average number of shares 14,859 14,570 14,974 13,323 14,017 14,859 14,221 14,974

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 Nine Months Ended
April 30, April 30, Three Months Ended Nine Months Ended
2022 2021 2022 2021 April 30, April 30,
(in thousands) (in thousands) 2023 2022 2023 2022
Stock options 95 24 59 25 855 95 831 59
Non-vested restricted Class B common stock - - - - 426 - 426 -
Deferred stock units 277 - 238 - 237 277 237 238
Shares excluded from the calculation of diluted earnings per share 372 24 297 25 1,518 372 1,494 297
For the three and nine months ended April 30, 2023, the diluted earnings per share equals basic earnings per share because the Company incurred a net loss during those periods and the impact of the assumed exercise of stock options and vesting of restricted stock and DSUs would have been anti-dilutive.

Note 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 April 1, 2022 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, subject to the acquired users generating minimum levels of Return On Ad Spend as set forth in the SPA. As of April 30, 2023, based on the Company’s assessment of ROAS, including the combination of industry-specific, macroeconomic, and geopolitical challenges that negatively impacted ROAS during the period, the Company did not make the minimum investment for the first annual period covered by the Earnout.

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 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 (“WAB”) for a revolving credit facility of up to $2.5 million for an initial two-year term which was extended twice for another two-year term ~~expiring~~which expired September 26, 2022. At the Company’s request in September 2020, advances under this facility have been reduced to the lesser of $2.0 million or 80% of the Company’s eligible accounts receivable, subject to certain concentration limits.2022 and was amended on October 28, 2022 as discussed below. 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~~$10 to ~~Western Alliance Bank.~~WAB. 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 ~~April 30,~~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 WAB. Pursuant to the Amended Loan Agreement, WAB agreed to provide the Company with a new term loan facility in the maximum principal amount of $7 million for a four-year term and a $4 million revolving credit facility for a two-year term. 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 million revolving credit facility under the prior version of the Loan and Security Agreement. At the time of the discontinuance, there was no outstanding balance on the revolving credit facility.
Pursuant to the Amended Loan Agreement, $2 million was advanced in a single-cash advance on October 28, 2022, with the remaining $5 million 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 million). On May 11, 2023, the Company entered into a Modification Agreement pursuant to which the Company agreed to modify the Amended Loan Agreement to reduce the remaining $5 million availability to $0, see Note 15.
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 (10^th) 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. Borrowings under 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 WAB, 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
April 30, 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~~WAB to allow the Company to enter into foreign exchange contracts not to exceed $5.0 million in the aggregate at any point in time under its revolving credit facility. This limit was raised to approximately ~~$6.5~~$7.5 million pursuant to the Loan and Security Modification Agreement dated May 30, 2018. The available borrowing under the revolving credit facility is reduced by an applicable foreign exchange reserve percentage as determined by ~~Western Alliance Bank,~~WAB, 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 April 30, ~~2022,~~2023, there were ~~$3.2~~$5.8 million of outstanding foreign exchange contracts, ~~with the majority being less than six months tenor under the credit facility,~~ which reduced the available borrowing under the revolving credit facility by ~~$326,000.~~$585,000.

Note 12—Segment and Geographic Information
Segment Information
Operating segments are components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker (“CODM”), or decision-making group, in deciding how to allocate resources and in assessing performance. The Company’s chief operating decision maker is its Chief Executive Officer as of April 30, 2023. Based on the criteria established by ASC 280, Segment Reporting, the Company 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.

~~Note 12—Business Segment~~The CODM evaluates the performance of each operating segment using revenue and ~~Geographic Information~~income (loss) from operations. The following table provides information about the Company’s two reportable segments (in thousands):

Three Months Ended Nine Months Ended
April 30, April 30,
2023 2022 2023 2022
(in thousands) (in thousands)
Revenue:
Zedge App $ 5,636 $ 5,936 $ 16,941 $ 18,879
GuruShots 1,090 294 3,668 294
Total $ 6,726 $ 6,230 $ 20,609 $ 19,173

Segment income (loss) from operations:
Zedge App $ 1,850 $ 1,590 $ 4,785 $ 7,285
GuruShots (10,262 ) (248 ) (11,940 ) (248 )
Total $ (8,412 ) $ 1,342 $ (7,155 ) $ 7,037
The CODM does not evaluate operating segments using asset information and, accordingly, the Company provides a content platform, worldwide, centered on self-expression, attracting both creators looking to promote their content and consumers who utilize such content to express their identity, feelings, tastes and interests. 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 Company conducts business as one operatingdoes not report asset information by segment.

GuruShots’ operating results are consolidated with our operating results beginning on April 13, 2022. Therefore, our consolidated results of operations for the three and nine months ended April 30, 2023 may not be comparable to the corresponding periods in 2022. Please refer to the unaudited pro forma consolidated financial information contained in Note 5.
Geographic Information
Net long-lived assets and total assets ~~other than goodwill, deferred tax assets and investment in private company,~~ held outside of the United States, which are located primarily in Israel and Norway, were as ~~follows:~~follows (in thousands):

United States Foreign Total
(in thousands)
Long-lived assets, net:
April 30, 2022 $ 7,995 $ 15,709 $ 23,704
July 31, 2021 $ 1,900 $ 399 $ 2,299

Total assets:
April 30, 2022 $ 25,960 $ 29,707 $ 55,667
July 31, 2021 $ 32,745 $ 4,732 $ 37,477
United States Foreign Total
Long-lived assets, net:
April 30, 2023 $ 7,275 $ 14,545 $ 21,820
July 31, 2022 $ 7,818 $ 15,217 $ 23,035

Total assets:
April 30, 2023 $ 27,066 $ 20,510 $ 47,576
July 31, 2022 $ 26,229 $ 28,397 $ 54,626

Note 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 ~~$164,000~~$324,000 and ~~$243,000~~$204,000 at April 30, ~~2022~~2023 and July 31, ~~2021,~~2022, respectively.

~~In connection~~The Company has one office lease in Norway with a term that was scheduled to expire on March 31, 2024. This lease was extended on April 26, 2023 for an additional three-year term from April 1, 2024 to March 31, 2027 at a cost of approximately $83,000 per year. The lease extension resulted in the ~~GuruShots acquisition,~~recognition of an additional right of use asset and a lease liability of $232,000 and $229,000, respectively, in the ~~Company also acquired $86,000 of right-of-use assets related to its office space in Tel Aviv and assumed $86,000 lease liabilities.~~nine months ended April 30, 2023.

~~Other than~~Except for the lease extension discussed above, there were no ~~other~~ material changes in the ~~Company's~~Company’s operating and finance leases in the ~~three and~~ nine months ended April 30, ~~2022,~~2023, as compared to the disclosure regarding such leases in the ~~Company's Annual Report on~~Company’s 2022 Form ~~10-K for the fiscal year ended July 31, 2021.~~10-K.

Note 14—Provision for Income Taxes

The Company’s tax provision or benefit from income taxes for interim periods has generally been determined using an estimate of its annual effective tax rate ~~adjusted for identified~~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 effective~~ tax ~~rate for the year-to-date period.~~provision as necessary.

The Company expects its overall effective tax rate for ~~the~~ fiscal year ending July 31, ~~2022~~2023 to be approximately ~~25.7%. The effective tax rate differed from the United States federal statutory tax rate of 21% due to certain factors with temporary impact primarily related to equity compensation expenses.~~24% before any discrete items. During the ~~nine months ended April 30, 2022,~~third quarter the Company accounted for avarious discrete ~~item related to restricted stock windfall (vesting date fair market value above the grant date fair market value)~~items including stock-based compensation, contingent liability and goodwill impairment which resulted in a net effective tax rate of ~~24.4%~~approximately 10%.

As of April 30, ~~2022,~~2023, the Company had ~~$560,000~~$3.7 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 15—~~Loans Payable~~Subsequent Events

~~Effective August 1, 2020,~~On May 11, 2023 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. This loan was completely repaid by April 2021.
~~Note 16—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~~a Modification Agreement, ~~with the Sales Agents (the “ATM Sales Agreement”),~~ pursuant to which the Company ~~sold 761,906 shares~~agreed to modify the Amended Loan Agreement on the terms and conditions set forth therein, including, without limitation, reducing the maximum amount that can be advanced in respect of the Term Loan from $7 million to $2 million, and agreed to keep cash deposit at ~~an average price of $6.5625 per share for~~WAB no less than 1.05 times total ~~proceeds of $5 million as of January 28, 2021. In connection with this offering,~~indebtedness to WAB. This will provide the Company ~~incurred~~with additional flexibility in cash management operations, including the ability to deposit a ~~total issuance cost~~greater portion of ~~$215,000. The Company intends to use the net proceeds from this offering for working capital~~funds in FDIC-insured deposits 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”), datedsecure vehicles, 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 cost of $350,000. We intend to use the net proceeds from this offering for working capital andwell as other ~~general corporate purposes.~~commercial banking relationships.

~~Note 17—Subsequent Events~~
On June 7, 2022, the Company’s Board approved a $65,000 advisory fee to Activist in connection with the GuruShots acquisition. In addition, the Board also approved the increase in monthly retainer from $3,750 to $5,000 per month retroactive from April 1, 2022,


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~~subsidiaries, GuruShots Ltd., Zedge Europe AS and Zedge Lithuania UAB, 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 future results. Factors that 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 successfully make acquisitions and/or successfully integrate acquisitions that we have made ~~in to~~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~~Russia’s invasion of Ukraine, and the international ~~community's~~community’s response. For further information regarding risks and uncertainties associated with our business, please refer to ~~Part II, Item 1A (Risk Factors) in this Quarterly Report on Form 10-Q, those discussed under~~ 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.

~~Impact of~~Geo-Political and Macroeconomic Conditions and the COVID-19 Pandemic

~~In March 2020, the World Health Organization declared the outbreak~~We are subject to risks and uncertainties caused by events with significant macroeconomic impacts, including but not limited to, Russia’s invasion of ~~COVID-19 as a pandemic, which continues~~Ukraine, rising interest rates, actions taken to ~~impact the U.S.~~counter inflation, reduced consumer confidence, supply side disruptions, and the ~~world. We are unable to accurately predict the~~COVID-19 pandemic. The future and full impact that ~~COVID-19 will~~these factors may have ~~due to numerous uncertainties, including the duration~~on our business, financial condition, and results of the outbreak, actions that may be taken by governmental authorities, the impact to the business of our customers and partners, the risk of additional, and currently-unknown COVID-19 variations necessitating further measures to mitigate risk and seek to protect employee and vendor health and safety. We will continue to evaluate the scope and extent of the impactoperations is unclear. The risks related to our business ~~consolidated results~~are further described in the section titled “Risk Factors” in Part II, Item 1A of ~~operations,~~this Quarterly Report on Form 10-Q and ~~financial condition.~~those discussed under Item 1A to Part I “Risk Factors” in the Form 10-K.

Impact of ~~Russia's recent invasion~~Russia’s Invasion of Ukraine

~~In February of 2022,~~We are closely monitoring the ~~Russian Federation invaded Ukraine. As a result, many governments~~current and ~~businesses imposed~~potential impact on our business, our people, and our users/customers as Russia’s war with Ukraine evolves. We have taken steps to comply with applicable domestic and international regulatory restrictions on international 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 spills over into other countries, Zedge may need to relocate personnel potentially resulting in a slowdown in work product generated by those personnel. At present, the Company is working on contingency planning to be in a position to minimize any potential interruptions. GuruShots has several contractors originally based in Ukraine who were inaccessible for a period of time. Most of them are now back at work and some of them have relocated to neighboring countries. As a result, there has been minimal disruption in the development work performed for GuruShots. We disabled both the Zedge app and GuruShotsfinancial transactions. Revenues associated with our users/customers in Russia and Belarus ~~resulting in~~are not material to our consolidated financial results, and we anticipate that blocking Russian and Belarus users/customers’ access to our mobile app and web platforms will not have a ~~loss~~material impact on our business. Management and our Board of ~~that customer base~~Directors are monitoring the regional and ~~associated revenue. Finally, at the outset~~global ramifications of the ~~war,~~continuing events.
COVID-19 Update
Although the World Health Organization declared in early May of 2023 that COVID-19 no longer constitutes a public health emergency we ~~changed~~continue to actively monitor the ~~color~~COVID-19 developments and potential impact on our employees, business and operations. The effects of COVID-19 did not have a material impact on our result of operations or financial condition for the three and nine months ended April 30, 2023. However, given the evolution of the ~~Zedge App's icon~~COVID-19 situation, and the global responses to curb its spread, we are not able to estimate the ~~colors~~effects COVID-19 may have on our future results of the Ukrainian flag as a demonstration of our solidarity with Ukraine. This change triggered a spate of users, primarily located in countries that have close ties to the Russian Federation, to either uninstall the Zedge App and/operations or reduce our star ranking across the various storefronts. We also updated the collateral materials in these storefronts to the color of the Ukrainian flag resulting in a decline in new installs from these same countries.financial condition.

Overview

Zedge, Inc. (“Zedge”) builds digital marketplaces and friendly competitive games around ~~digital~~ content that people use to express themselves. Our ~~portfolio consists of several~~ leading ~~digital consumer brands that, as April 30, 2022, served 41 million monthly active users across the globe. Our portfolio consists of~~products include Zedge Ringtones and Wallpapers, (“a freemium digital content marketplace offering mobile phone wallpapers, video wallpapers, ringtones, and notification sounds which historically was branded as Zedge ~~App”), as~~Premium, and GuruShots, a skill-based photo challenge game. Our vision is to connect creators who enjoy friendly competitions with a community of ~~August 1, 2021, Emojipedia and, as of April 12, 2022, GuruShots.~~prospective consumers in order to drive commerce.

We ~~operate a state-of-the-art digital publishing platform that powers~~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 ~~App, which~~to expand its business, especially as we execute by connecting our gamers with our marketplace.
The Zedge Ringtones and Wallpapers app (which is ~~available~~named “Zedge Wallpapers” in the ~~Google Play store and~~ App ~~Store, and offers an easy, entertaining and immersive way for end-users~~Store), which we refer to ~~engage with~~as our ~~rich and diverse catalogue~~“Zedge App,” is a marketplace offering a wide array of ~~wallpapers, video wallpapers, ringtones, notification sounds on Android and~~mobile personalization content including wallpapers, video wallpapers, ringtones, and ~~custom icon packs on iOS. We secure our content from amateur~~notification sounds, and ~~professional artists, and also from emerging and major brands. Artists have the ability to easily launch a virtual storefront~~is available both in our Zedge App where they can market and sell their content to our user base. In August of 2021, we acquired Emojipedia, the leading source of all things emoji and, on April 12, 2022, we acquired GuruShots, an Israeli company that operates a platform used for its competitive photography game available across iOS, AndroidGoogle Play and the ~~web.~~
~~Our~~App Store. As of April 30, 2023, our Zedge App has been installed ~~approximately 556~~nearly 609 million times since inception and, ~~at April 30, 2022, served approximately 32~~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; however, we have started investing more in this area.
~~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’ (as discussed below) and social and community features, all meant to improve customer engagement, MAU, and revenue growth over the long term. In addition, we migrated to a new ad mediation platform – Applovin MAX. 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 November 2020 , 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. In April 2023, we introduced a ~~new content type on iOS: custom icon packs. Over time,~~subscription tier in the iOS app. As of April 30, 2023, we expect that Zedge Premium will contribute to a virtuous cycle whereby it drives new consumers into our Zedge App resulting 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. had approximately 631,000 active paying subscribers.
In ~~December of~~late 2021, we introduced ‘NFTs Made Easy’ to ~~select~~a limited number of Zedge Premium ~~artists interested in selling single edition, tokenized, video wallpapers. Our all-in-one platform allows creators~~creators. Over time we believe this product enhancement has the potential to ~~self-publish, mint~~drive significant artist growth 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.~~revenue production. ‘NFTs Made Easy’ is ~~currency agnostic~~an eco-friendly platform that enables artists and ~~allows~~ consumers to sell and purchase NFTs ~~with~~within the Zedge ~~tokens acquired via in-app purchases, eliminating~~App even though they may lack deep knowledge and proficiency in the ~~need to set up a~~ crypto ~~wallet to buy cryptocurrencies. Over time we expect to expand the offering with features including features like numbered editions, drop dates and new content types.~~space. All transactions are made using Zedge Credits.

In January 2019, we started offering freemium Zedge App Android users the ability to convert into paying subscribers for, amongst other things, the ability to remove 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 April ~~30,~~ 2022, we ~~had approximately 713,000 active subscribers, 90%~~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 345 competitions that result in players uploading in excess of 1 million photographs and casting close to 4+ billion “perceived votes”, which ~~had subscribed~~are calculated by multiplying the number of votes that each player casts by a weighting factor based on ~~an annual basis. Since inception in January 2019, subscriptions have generated approximately $9.4 million in gross revenue.~~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.

~~In December 2019, we completed~~Today, GuruShots utilizes a ‘Free-to-Play’ business model that leads to strong monetization with the ~~beta launch~~purchase of ~~‘Shortz’ our new entertainment app offering serialized, short-form fiction rendered~~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 ~~a text-message format and~~excess of 11.7% annually to 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. Based on the limited success of Shortz with our user base, we have decided to deprioritize its development and focus our resources on other opportunities.
During the quarters ended April 30, 2022 and 2021, we generated approximately 77% and 81%, respectively, of our revenues from selling our Zedge App’s advertising inventory primarily to advertising networks and advertising exchanges. 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.than $51.6 per player.

InAs 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 ~~Zedge Premium marketplace,~~in-game economy. Some of these include:
● New Gameplay Experiences. Introducing a new hybrid-casual gameplay experience that enables users to compete in short-duration photo and image competitions that are limited in size.
● 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.
● 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 have started preliminary testing of advertising on web and expect to extend that to the mobile apps during the summer.
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 ~~content owner sets~~game. Our marketing team invests material resources in analyzing all attributes of a campaign ranging from the ~~price~~creative assets, offer acquisition channel, 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~~platform (i.e., iOS, Android, and web), just to name 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~~few, with the ~~remainder being paid~~goal of determining whether a specific campaign is likely to ~~us.~~yield a profitable customer. When we 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 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.acquisition can significantly increase GuruShots’ player base.

~~Over~~Beyond our commitment to growing both the ~~past several years, our~~ Zedge App ~~has experienced~~and GuruShots on a ~~continuing decline in its~~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 become Zedge Premium artists and sell their photos to our audience of 30+ million 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.~~as standard digital images or NFTs. In addition, we look to benefit from the ~~rate of user growth in emerging markets slowed in~~experience that the ~~first half of fiscal 2022 compared~~GuruShots team possesses and test gamifying the Zedge App. We believe that successful gamification can contribute to ~~prior periods. As of April 30, 2022, users in emerging markets represented 77% of the MAU~~increasing engagement, retention, and lifetime value, all critical KPIs for our ~~Zedge App compared~~business. Longer term, we believe that there are complementary content verticals that lend themselves 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 third quarter of fiscal 2022, users in well-developed economies and emerging markets declined by 15.6% and 3.9% respectively when compared to the same period in fiscal 2021. As of April 30, 2022, approximately 41% of our Zedge App’s user base was located in North America (21%) and Europe (including Eastern Europe, 20%), compared with 42% (North America, 20% and Europe 22%) as of July 31, 2021. The remaining 59% of the user base was primarily located in emerging markets with 27% located in India.gamification.

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.
~~Business Combination and Asset Acquisition~~
~~Emojipedia~~
OnIn 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.~~Awards. In ~~January 2022~~April 2023, Emojipedia ~~receives~~received approximately 4549 million monthly page views and has approximately ~~8.6~~11.9 million monthly active users as of April 30, 2023 of which approximately ~~50%~~55.5% 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.

~~GuruShots~~
~~On April 12, 2022,~~We believe that Emojipedia provides growth potential to the Zedge App, and it was immediately accretive to earnings. In the past year, we ~~completed~~have made many changes to Emojipedia including migrating to a new ad mediation platform, redesigning the ~~acquisition~~Emojipedia website, and introducing localized versions of ~~GuruShots (“GS”). GS, founded~~Emojipedia in ~~2014, is an Israeli company~~eighteen different languages aside from English. We will continue to enhance this offering and the leader in the photo gaming space. It provides a fun, educational, and structured way for amateur photographers -- anyone with a cell phone -- to compete and showcase their photos, gain recognition and progress via votes, badges, and awards. GS, via its LiveOps team, posts daily competitive challenges that are voted on by the platform's Gurus and the wider community. The platform releases approximately 10 challenges daily and users upload more than1 million high-quality photos monthly. Challenges can amass more than 20,000 submissions within 36 hours of being posted.
GS has developed a sophisticated gamification platform that is being used to power its photo game GS business is based on a Free-to-Play model that leads to strong monetization with the purchase of resources that are used to give competitors a competitive edge while still maintaining a fair and competitive experience for all participants. Furthermore, it has a built-in social layer withexploring new features including ~~leaderboards, chat, and team leagues.~~
~~Its uniqueness is tied to several key elements including:~~
● ~~Retention Dynamics – focused on individual, team, and community dynamics that create a sense of belonging, inspiration, recognition, improvement, and competition.~~
● Crowd Based Voting System – allows users to vote in favor or other player’s photos in order to secure a higher ranking. Users can earn greater voting power, or “perceived votes,” by engaging in gameplay. On a monthly basis, this yields more than 4.5 billion perceived votes, a strong indication of user-engagement.

● Real-Time Image Ranking – a competitive dynamic that acts as a catalyst for users to reach top ranks. To date, GS has more than 130 million ranked images. By definition these are high-quality images, otherwise, they would not be ranked.
● ~~Gamification Dynamics – these include challenges, points, levels, achievements, and game loops.~~
~~GS’s Business Model~~
~~GS generates revenue by selling game resources via in-app and online purchases. Some of these resources include increasing~~ a ~~photograph’s exposure, access to locked game content, exchanging an image in the competition with a different image, and skipping voting sessions.~~
~~GS’s User Growth and Acquisition~~
~~GS’ user acquisition and growth strategy is currently focused on paid user acquisition channels including Google, Facebook, and Instagram. GS is in the early stages of testing~~native mobile offering as well as additional ~~user acquisition platforms. Prior to the acquisition by Zedge, GS outsourced paid user acquisition to a 3~~^rd party marketing agency. In the coming months, we expect to migrate many of the marketing responsibilities in-house which we believe will yield improved ROAS and ROI. In addition, we plan on investing in organic user growth initiatives including user referral programs, search engine optimization, app store optimization, etc. which are standard growth drivers for gaming apps. Finally, we expect to cross market to existing Zedge users.
~~GS’s Product Roadmap~~
In 2021, GS focused on improving retention with game loops focused on improving challenges and achievements. In addition, it rolled out “Leagues,” which enables team-play, and which is scaling well. GS is increasingly focusing on improving the on boarding process in order to draw more users into the competitions, introducing a set of self-learning modules that can assist users in becoming better photographers. Gamifying learning is an area that can make a material difference in engagement and monetization.
~~GS’s Technology~~
GS’ cloud-based platform uses machine learning ranking technology to ensure fair exposure of all photos submitted to competitions. It also employs image classification technology to suggest which competitions a photo should enter. It has a strong moderation tool that actively detects content for policy violations. In addition, the platform is self-governing with regards to flagging inappropriate and copyrighted content, as many users are quick to flag this due to the competition context. Over time the plan is to migrate GS technology to the same cloud platform that Zedge currently uses with the expectation that this will yield cost savings and simplify operations.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 assets and goodwill, capitalized software and technology development costs, ~~revenue recognition, business combinations~~ and ~~valuing contingent considerations, recognition and impairment of 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 included in Item 1 to Part I of this Quarterly Report on Form 10-Q.

Key Performance Indicators (KPIs)

~~Key Performance Indicators~~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 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'~~users/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 decreased ~~7.0%~~0.3% in the ~~third quarter of fiscal 2022~~three months ended April 30, 2023 when compared to the same period a year ~~ago and increased 11.6% on a sequential basis.~~ago. 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 April 30, ~~2022,~~2023, users in emerging markets represented ~~77%~~about 78% of our MAU as compared to ~~73%~~77% from a year ~~prior.~~ago. 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 April 30, ~~2022 was up approximately 7.8%~~2023 increased 1.5% 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 declined 13.0% on a sequential basis due to seasonality.ago.

~~We believe that much of the decline was caused by one-off events and estimate that a third or more of~~The following tables present the MAU decline is attributable to a combination of uninstalls driven by our need to push a forced upgrade of the Zedge App in order to migrate to AppLovin’s Max ad mediation platform combined with losses attributable to our decision to change the color of the Zedge App's icon to the colors of the Ukrainian flag as a demonstration of our solidarity with Ukraine. This change triggered a spate of users, primarily located in countries that have close ties to the Russian Federation, to either uninstall the Zedge App and/or reduce our star ranking across the various storefronts. We also updated the collateral materials in these storefronts to the color of the Ukrainian flag resulting in a decline in new installs from these same countries. In addition, we disabled both the– Zedge App and ~~GuruShots in Russia and Belarus resulting in~~ARPMAU – Zedge App for the three months ended April 30, 2023 as compared to the same period a loss of that customer base. Furthermore, we are accustomed to experiencing MAU declines resulting from seasonality in the business in Q3, which follows the end-of-year holiday season. Thus, we believe much of the decline was caused by [one-off events. Nonetheless, we have implemented a variety of product changes to reverse the trend, including changing our app icon and store branding in India, increasing the frequency and regularity of push notification campaigns as well as app icon changes, and continuing our rollout of social and community features.year ago:

Three Months Ended
April 30,
(in millions, except ARPMAU - Zedge App) 2022 2021 % Change
MAU- Zedge App 32.1 34.5 -7.0 %
Developed Markets MAU - Zedge App 7.5 8.9 -15.7 %
Emerging Markets MAU - Zedge App 24.6 25.6 -3.9 %
Emerging Markets MAU - Zedge App/Total MAU - Zedge App 77 % 73 % 5.0 %

ARPMAU - Zedge App $ 0.0523 $ 0.0485 7.8 %
Three Months Ended
April 30, Three Months Ended
January 31, Three Months Ended April 30,
(in millions, except ARPMAU) 2022 2022 % Change
(in millions, except ARPMAU - Zedge App) 2023 2022 % Change
MAU- Zedge App 32.1 36.3 -11.6 % 32.0 32.1 -0.3 %
Developed Markets MAU - Zedge App 7.5 8.5 -11.8 % 7.0 7.5 -6.7 %
Emerging Markets MAU - Zedge App 24.6 27.8 -11.5 % 25.0 24.6 1.6 %
Emerging Markets MAU - Zedge App/Total MAU - Zedge App 77 % 77 % 0.1 % 78 % 77 % 1.9 %

ARPMAU - Zedge App $ 0.0523 $ 0.0601 -13.0 % $ 0.0531 $ 0.0523 1.5 %

The following charts present the MAU – Zedge App and ARPMAU – Zedge App for the consecutive eight fiscal quarters ended April 30, ~~2022:~~2023:

GuruShots-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 revenue from IAPs derived from GuruShots and GuruShots.com 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 MAP and ARPMAP for the three months ended April 30, 2023 and 2022. Please note that we acquired GuruShots on April 12, 2022, as such, information for the three months ended April 30, 2022 is presented below as pro forma and is only used for comparative purpose.
Three Months Ended April 30,
2023 2022 % Change
Monthly Active Payers 6,817 8,664 -21.3 %
Average Revenue per Monthly Active Payer $ 53.2 $ 59.6 -10.7 %
The following charts present the MAP and ARPMAP – GuruShots for the consecutive eight quarters ended April 30, 2023:
* ~~Please note the MAU-Zedge App graph above excludes MAU for both Emojipedia and GuruShots~~
Our KPIs related to GuruShots 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 ~~Nine~~nine months ended April 30, ~~2022 Compared~~2023 compared to ~~Three~~three and ~~Nine~~nine months ended April 30, ~~2021~~2022

Three Months Ended Nine Months Ended
Three Months Ended
April 30, Change Nine Months Ended
April 30, Change April 30, Change April 30, Change
2022 2021 $ % 2022 2021 $ % 2023 2022 % 2023 2022 %
(in thousands) (in thousands) (in thousands) (in thousands)
Revenues $ 6,230 $ 5,252 $ 978 18.6 % $ 19,173 $ 14,328 $ 4,845 33.8 % $ 6,726 $ 6,230 8.0 % $ 20,609 $ 19,173 7.5 %
Direct cost of revenues 401 290 111 38.3 % 1,053 907 146 16.1 % 498 401 24.2 % 1,762 1,053 67.3 %
Selling, general and administrative 4,064 2,694 1,370 50.9 % 9,902 6,859 3,043 44.4 % 5,016 4,064 23.4 % 16,713 9,902 68.8 %
Depreciation and amortization 423 289 134 46.4 % 1,181 972 209 21.5 % 897 423 112.1 % 2,505 1,181 112.1 %
Income from operations 1,342 1,979 (637 ) -32.2 % 7,037 5,590 1,447 25.9 %
Goodwill impairment 8,727 - nm 8,727 - nm
Change in fair value of contingent consideration - - nm (1,943 ) - nm
(Loss) income from operations (8,412 ) 1,342 -726.8 % (7,155 ) 7,037 -201.7 %
Interest and other income, net 15 9 6 66.7 % 42 14 28 200.0 % 84 15 460.0 % 196 42 366.7 %
Net (loss) gain resulting from foreign exchange transactions (125 ) (12 ) (113 ) 941.7 % (220 ) 21 (241 ) nm
Provision for (benefit from) income taxes 429 (473 ) 902 nm 1,676 (147 ) 1,823   nm
Net Income $ 803 $ 2,449 $ (1,646 ) -67.2 % $ 5,183 $ 5,772 $ (589 ) -10.2 %
Net loss resulting from foreign exchange transactions (84 ) (125 ) -32.8 % - (220 ) nm
(Benefit from) provision for income taxes (718 ) 429 nm (702 ) 1,676 nm
Net (loss) income $ (7,694 ) $ 803 -1058.2 % $ (6,257 ) $ 5,183 -220.7 %

~~nm—not measurable~~nm-not meaningful

GuruShots’ operating results are consolidated with our operating results beginning on April 13, 2022. Therefore, our consolidated results of operations for the three and nine months ended April 30, 2023 may not be comparable to the corresponding periods in 2022. Please refer to the unaudited pro forma consolidated financial information contained 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.
Revenues

The following table sets forth the composition of our revenues for the three and nine months ended April 30, ~~2022~~2023 and ~~2021:~~2022:

Three Months Ended Nine Months Ended Three Months Ended
April 30, Nine Months Ended
April 30,
April 30, April 30, % Changes 2023 2022 % Changes 2023 2022 % Changes
2022 2021 2022 2021 Three Months Nine Months
(in thousands) (in thousands)
Zedge App (in thousands) (in thousands)
Advertising revenue $ 4,526 $ 4,227 $ 14,532 $ 11,612 7 % 25 % $ 4,572 $ 4,842 -5.6 % $ 13,691 $ 15,439 -11.3 %
Paid subscription revenue 910 899 2,823 2,358 1 % 20 % 832 910 -8.6 % 2,598 2,823 -8.0 %
Other revenues 794 126 1,818 358 530 % 408 % 232 184 26.1 % 652 617 5.7 %
Total revenues $ 6,230 $ 5,252 $ 19,173 $ 14,328 19 % 34 %
Total Zedge App revenue 5,636 5,936 -5.1 % 16,941 18,879 -10.3 %
GuruShots
Digital goods and services 1,090 294 nm 3,668 294 nm
Total revenue $ 6,726 $ 6,230 8.0 % $ 20,609 $ 19,173 7.5 %
nm-not meaningful

Advertising revenue. Advertising revenue ~~increased 7%~~decreased 5.6% and ~~25%~~11.3% in the three and nine months ended April 30, ~~2022,~~2023, respectively, compared to the three and nine months ended April 30, ~~2021,~~2022, primarily due to ~~improvement~~the decline in ~~our ad optimizations~~MAU in well-developed markets and ~~higher advertising rates.~~lower eCPM which have suffered due to the downturn in the global economic conditions.

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.~~United States 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 ~~$931,000~~$0.8 million and ~~$2,747,000~~$2.4 million in gross prepaid subscription revenue in the three and nine months ended April 30, ~~2022, respectively,~~2023 compared to ~~$990,000~~$0.9 million and ~~$2,806,000~~$2.7 million in the three and nine months ended April 30, ~~2021.~~2022. The 6%7% and 10% decline in gross prepaid subscription ~~sale~~sales for the three and nine months ended April 30, ~~2022~~2023 when compared to the same ~~period~~periods a year ago was primarily ~~due~~attributable to ~~approximately 3%~~the decline in ~~new installs~~MAU in ~~well-development~~well-developed markets inbetween the ~~corresponding periods and a decrease in renewal rate. As of April 30, 2022, the first year renewal rate was 44% and second year renewal rate was 53%.~~comparative periods. 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.

In late April 2023, we rolled out an ad-free subscription offering on the iOS platform which generated immaterial gross and net subscription revenue for the three months ended April 30, 2023.
The following table summarizes subscription revenue for the three and nine months ended April 30, ~~2022~~2023 and ~~2021:~~2022:

Three Months Ended Nine Months Ended
April 30, April 30,
2022 2021 % Change 2022 2021 % Change
(in thousands, except revenue per subscriber and percentages)
Revenues $ 910 $ 899 1 % $ 2,823 $ 2,358 $ 20 %
Active subscriptions net additions -49 42 nm -39 249 nm
Active subscriptions at end of period 713 753 -5 % 713 753 -5 %
Average active subscriptions 718 734 -2 % 747 652 15 %
Average monthly revenue per active subscription $ 0.42 $ 0.41 2 % $ 0.42 $ 0.40 $ 5 %
~~Gaming revenue.~~ GuruShots sells game resources via in-app and online purchases. Some of these virtual items include increasing a photograph’s exposure, exchanging an image in the competition with a different image, and skipping voting sessions. GuruShots recognizes revenue at the time of purchase because the overwhelming majority of users only purchase game resources when they need them to progress in the game. GuruShots generated $294,000 between April 13, 2022 to April 30, 2022 which is included in Other Revenues.
Three Months Ended
April 30, Nine Months Ended
April 30,
2023 2022 % Change 2023 2022 % Change
(in thousands, except revenue per subscriber and percentages)
Revenues $ 832 $ 910 -8.6 % $ 2,598 $ 2,823 $ -8.0 %
Active subscriptions net decrease (23 ) (49 ) -53.2 % (61 ) (39 ) 56.5 %
Active subscriptions at end of period 631 713 -11.5 % 631 713 -11.5 %
Average active subscriptions during the period 642 718 -10.6 % 663 747 -11.3 %
Average monthly revenue per active subscription $ 0.43 $ 0.42 2.4 % $ 0.44 $ 0.42 $ 4.8 %

Zedge Premium. Gross transaction value (the total sales volume transacting through the platform), or “GTV,” was flat in the three months ended April 30, 2023 and decreased 1.1% in the nine months ended April 30, 2023, compared to the same periods a year ago. Net revenue increased ~~63%~~26.9%% and ~~75%~~6.1%, respectively, in the three and nine months ended April 30, ~~2022, respectively,~~2023 compared to the ~~three and nine months ended April 30, 2021. Net revenue increased 47% and 74%~~same periods a year ago, primarily attributable to lower Breakage in the three and nine months ended April 30, 2022, respectively, compared to the three and nine months ended April 30, 2021.The gross and net revenue growth in Zedge Premium can be attributed to the investment we made in our new content management system as well as the landing page redesign.prior year periods.

The following table summarizes Zedge Premium gross and net revenue for the three and nine months ended April 30, ~~2022~~2023 and ~~2021:~~2022:

Three Months Ended Nine Months Ended
April 30, April 30, % Changes Three Months Ended
April 30, Nine Months Ended
April 30,
2022 2021 2022 2021 Three Months Nine Months 2023 2022 % Changes 2023 2022 % Changes
(in thousands) (in thousands) (in thousands) (in thousands)
Zedge Premium-gross revenue (“GTV”) $ 410 $ 252 $ 1,173 $ 671 63 % 75 % $ 410 $ 410 0.0 % $ 1,160 $ 1,173 -1.1 %
Zedge Premium-net revenue $ 182 $ 124 $ 610 $ 351 47 % 74 % $ 231 $ 182 26.9 % $ 647 $ 610 6.1 %
Gross margin 56 % 44 % 56 % 52 %
~~Revenue from Zedge Premium, web-based advertising revenues from Emojipedia~~Digital goods and ~~other related sites, as well as revenues generated by Shortz, are reported under Other Revenues,~~services. 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. Game resources revenue were $1.1 million and ~~those offerings constitute potential growth drivers~~$3.7 million for the three and nine months ended April 30, 2023, respectively, compared to $1.5 million and $5.1 million for the three and nine months ended April 30, 2022, a decline of 29.8% and 28.3% respectively. The decline in ~~the quarters~~revenue were primarily due to ~~come.~~lower MAP and lower ARPMAP, please see GuruShots’ KPIs discussion above.

~~Integration bonus.~~ On April 1, 2022, we received a one-time integration bonus of $2 million from AppLovin Corporation for migrating to their mediation platform. This amount is being amortized over an initial estimated service period of 24 months which is also included in Other Revenues.
Direct cost of revenues. Direct cost of revenues consists primarily of content hosting and content delivery costs.

Three Months Ended
April 30, Nine Months Ended
April 30, Three Months Ended
April 30, Nine Months Ended
April 30,
(in thousands) 2022 2021 % Change 2022 2021 % Change 2023 2022 % Change 2023 2022 % Change
Direct cost of revenues $ 401 $ 290 38.3 % $ 1,053 $ 907 16.1 % $ 498 $ 401 24.2 % $ 1,763 $ 1,053 67.4 %
As a percentage of revenues 6.4 % 5.5 % 5.5 % 6.3 % 7.4 % 6.4 % 8.6 % 5.5 %

Direct cost of revenues increased ~~38.3%~~24% and ~~16.1%~~67% in the three and nine months ended April 30, ~~2022,~~2023, respectively, compared to three and nine months ended April 30, ~~2021.~~2022. The increase in the direct cost of revenues ~~can be attributed to utilizing~~is a ~~new data analytics tool provided by Google’s Cloud Computing Services and the inclusion~~result of consolidating GuruShots’ infrastructure ~~costs.~~costs in the current year periods. On a sequential basis, direct cost of revenues decreased 21% from the three months ended January 31, 2023 to the three months ended April 30, 2023 primarily due to the revamping of our backend infrastructure in both Zedge App and GuruShots as part of the cost reduction initiatives.

As a percentage of revenue, direct cost of revenues in the three and nine months ended April 30, ~~2022~~2023 were ~~6.4%~~7.4% and ~~5.5%~~8.6%, respectively, compared to ~~5.5%~~6.4% and ~~6.3%,~~5.5% in the three and nine months ended April 30, ~~2021,~~2022. The higher percentages in the current periods were primarily due to ~~significant higher revenue in~~ the ~~nine-month periods and the fixed nature~~inclusion of ~~many of our direct cost of revenues.~~GuruShots’ operating results since April 13, 2022.

Selling, general and administrative expense. Selling, general and administrative expense (“SG&A”) consists mainly of ~~GuruShots’ operating~~payroll and benefits, stock-based compensation expense (as discussed below), paid user acquisition expenses, ~~payroll, benefits, recruiting fees, facilities,~~third-party payment processing fee relate to in-app purchases, marketing, consulting, professional fees, software licensing (“SaaS”), ~~M&A related expenses~~recruiting fees, facilities and public company related expenses.

Three Months Ended
April 30, Nine Months Ended
April 30,
(in thousands) 2022 2021 % Change 2022 2021 % Change
Selling, general and administrative $ 4,064 $ 2,694 50.9 % $ 9,902 $ 6,859 44.4 %
As a percentage of revenues 65.2 % 51.3 % 51.6 % 47.9 %
Three Months Ended
April 30, Nine Months Ended
April 30,
(in thousands) 2023 2022 % Change 2023 2022 % Change
Selling, general and administrative $ 5,016 $ 4,064 23.4 % $ 16,712 $ 9,902 68.8 %
As a percentage of revenues 74.6 % 65.2 % 81.1 % 51.6 %

SG&A expense increased ~~50.9%~~23.4% and ~~44.4%~~68.8% in the three and nine months ended April 30, ~~2022,~~2023, respectively, compared to the three and nine months ended April 30, ~~2021. This~~2022. GuruShots’ SG&A accounted for the majority of the increase. The remaining increase ~~was primarily attributable~~can be attributed to ~~transaction costs of $860,000 related to the GuruShots acquisition,~~ higher compensation costs resulting from additional headcount and salary increases, higher stock-based compensation as discussed below, and higher professional fees, ~~and~~higher paid user acquisition expenses, partially offset by reductions in certain discretionary expenses.

As a percentage of revenue, SG&A expense in the three and nine months ended April 30, ~~2022~~2023 were 74.6% and 81.1% respectively, compared to 65.2% and 51.6%~~, respectively, compared to 51.3% and 47.9%,~~ in the three and nine months ended April 30, ~~2021. Excluding costs related~~2022, primarily due to the addition of GuruShots ~~acquisition~~which has higher SG&A ~~expense as a percentage of~~expenses relative to its revenue ~~in the three and nine months ended April 30, 2021 would have been 53.3% and 47.2%.~~base.

~~Our~~Global headcount ~~(including 30 added through the GS acquisition) totaled 93~~ as of April 30, ~~2022~~2023 totaled 96 (including 31 from GuruShots) compared to 5294 (including 30 from GuruShots) as of April 30, ~~2021~~2022 with the majority of our employees currently based in ~~Lithuania.~~Lithuania and Israel.

SG&A expense also included stock-based compensation expense including equity grants to employees and consultants, as well as stock issuances to pay for board compensations and 401(k) matching contributions. The following table summarizes stock-based compensation expense for the three and nine months ended April 30, 2023 and 2022:
Three Months Ended
April 30, Nine Months Ended
April 30,
2023 2022 % Change 2023 2022 % Change
(in thousands) (in thousands)
Stock-based compensation expense $ 578 $ 483 19.6 % $ 1,957 $ 1,291 51.6 %
Stock-based compensation expenses increased 19.6% and 51.6% in the three and nine months ended April 30, 2023, respectively, compared to the three and nine months ended April 30, 2022. The increase was primarily attributable to the amortization of the restricted stock (with a grant date fair value of $4 million) issued in connection with the GuruShots acquisition. Certain stock options, deferred stock unit and restricted stock grants are more fully described in Note 8 to the unaudited condensed consolidated financial statements included in Item 1 to Part I of this Quarterly Report on Form 10-Q.

Goodwill impairment. We performed an interim impairment assessment during the quarter and determined that the fair value of the GuruShots reporting unit exceeded its carrying value and took a $8.7 million goodwill impairment charge in the three months ended April 30, 2023. Please see Note 6 to the unaudited condensed consolidated financial statements included in Item 1 to Part I of this Quarterly Report on Form 10-Q for a discussion of the Company’s interim impairment test and the non-cash impairment charge recorded.

Depreciation and amortization. Depreciation and amortization consist mainly of amortization of intangible assets in connection with the GuruShots and Emojipedia acquisitions as 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, 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.

Three Months Ended
April 30, Nine Months Ended
April 30, Three Months Ended
April 30, Nine Months Ended
April 30,
(in thousands) 2022 2021 % Change 2022 2021 % Change 2023 2022 % Change 2023 2,022 % Change
Depreciation and amortization $ 423 $ 289 46.4 % $ 1,181 $ 972 21.5 % $ 897 $ 423 112.1 % $ 2,505 $ 1,181 112.1 %
As a percentage of revenues 6.8 % 5.5 % 6.2 % 6.8 % 13.3 % 6.8 % 12.2 % 6.2 %

Depreciation and amortization expenses increased ~~approximately 46.4%~~112.1% in both three and ~~21.5% in~~nine months ended April 30, 2023 compared to the three and nine months ended April 30, ~~2022, compared to three and nine months ended April 30, 2021.~~2022. This increase was primarily attributable to the amortization of intangible assets related to the acquisition of GuruShots which were $467,000 and ~~Emojipedia.~~$1.4 million for the three and nine months ended April 30, 2023, respectively.
In December 2019, the Company launched ’Shortz’ an entertainment app offering serialized, short-form fiction rendered in both text-message and audio formats available across both Android and iOS. Shortz did not gain much traction with the Company’s users, and on March 8, 2023, the Company turned off the app and removed it from Google Play and Apple’s App Store. The Company wrote off the remaining unamortized capitalized software development costs of approximately $124,000 in the third quarter ended April 30, 2023.

Interest and other income, net. Interest and other income, net in the three and nine months ended April 30, ~~2022~~2023 increased ~~$6,000 and $28,000 respectively~~significantly when compared to the ~~same~~prior year periods ~~in fiscal 2021~~ due to higher interest rates earned on our cash ~~balance resulting from cash flows provided by operating activities and financing activities in fiscal 2021.~~balances.

Three Months Ended
April 30, Nine Months Ended
April 30,
(in thousands) 2022 2021 % Change 2022 2021 % Change
Interest and other income, net $ 15 $ 9 66.7 % $ 42 $ 14 200.0 %
As a percentage of revenues 0.2 % 0.2 % 0.2 % 0.1 %

Three Months Ended
April 30, Nine Months Ended
April 30,
(in thousands) 2023 2022 % Change 2023 2,022 % Change
Interest and other income, net $ 84 $ 15 460.0 % $ 196 $ 42 366.7 %
As a percentage of revenues 1.2 % 0.2 % 1.0 % 0.2 %

Net ~~(loss) gain~~loss resulting from foreign exchange transactions. Net loss resulting from foreign exchange transactions is comprised of gains and losses generated from movements in NOK and EUR relative to the U.S. Dollar, including gains or losses from our hedging activities.

Three Months Ended
April 30, Nine Months Ended
April 30, Three Months Ended
April 30, Nine Months Ended
April 30,
(in thousands) 2022 2021 % Change 2022 2021 % Change 2023 2022 % Change 2023 2,022 % Change
Net (loss) gain resulting from foreign exchange transactions $ (125 ) $ (12 ) nm $ (220 ) $ 21 nm
Net loss resulting from foreign exchange transactions $ (84 ) $ (125 ) -32.8 % $ - $ (220 ) nm
As a percentage of revenues -2.0 % -0.2 % -1.1 % 0.1 % -1.2 % -2.0 % 0.0 % -1.1 %

In the three and nine months ended April 30, ~~2021,~~2023, we realized losses of ~~$154,000~~$122,000 and ~~$271,000,~~$58,000, respectively from NOK and EUR hedging activities, compared to ~~gains~~losses of ~~$16,000~~$154,000 and ~~$67,000, respectively~~$271,000 in the three and nine months ended April 30, ~~2021~~2022 due primarily to the strengthening of the US ~~dollars in current periods,~~dollar against NOK, 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~~(Benefit from) 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
April 30, Nine Months Ended
April 30, Three Months Ended
April 30, Nine Months Ended
April 30,
(in thousands) 2022 2021 % Change 2022 2021 % Change 2023 2022 % Change 2023 2022 % Change
Provision for (benefit from) income taxes $ 429 $ (473 ) nm $ 1,676 $ (147 ) nm
(Benefit from) provision for income taxes $ (718 ) $ 429 nm $ (702 ) $ 1,676 nm
As a percentage of revenues 6.9 % -9.0 % 8.7 % -1.0 % -10.7 % 6.9 % -3.4 % 8.7 %

~~Our~~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 effective~~ tax ~~rate for the year-to-date period.~~provision as necessary.

~~We expect our~~The Company expects its overall effective tax rate for fiscal year ending July 31, ~~2022~~2023 to be approximately ~~25.7 %. The effective tax rate differed from the United States federal statutory tax rate of 21% due to certain factors with temporary impact primarily related to the equity compensation expenses.~~24% before any discrete items. During the ~~nine months ended April 30, 2022, we~~third quarter the Company accounted for avarious discrete ~~item related to restricted stock windfall (vesting date fair market value above the grant date fair market value)~~items including stock-based compensation, contingent liability and goodwill impairment which resulted in a net effective tax rate of ~~24.4%~~approximately 10%.

As of April 30, ~~2022, we~~2023, the Company had ~~$560,000~~$3.7 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~~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 ~~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 income (loss) from operations for the three and nine months ended April 30, 2023 and 2022:
Three Months Ended
April 30, Change Nine Months Ended
April 30, Change
2023 2022 % 2023 2022 %
(in thousands) (in thousands)
Segment income (loss) from operations:
Zedge App $ 1,850 $ 1,590 16.4 % $ 4,785 $ 7,285 -34.3 %
GuruShots (10,262 ) (248 ) 4037.9 % (11,940 ) (248 ) 4714.5 %
Total $ (8,412 ) $ 1,342 -726.8 % $ (7,155 ) $ 7,037 -201.7 %
For the three and nine months ended April 30, 2023, our income from operations related to the Zedge App increased 16.4% in the three months ended April 30, 2023 and decreased 34.3% in the nine months ended April 30, 2023, compared to the three and nine months ended April 30, 2022. The 16.4% improvement in income from operations was primarily due to the $744,000 GuruShots transaction expense incurred in prior year quarter. The 34.3% decrease in income from operation for the nine months ended April 30, 2023 was largely due to 1) lower advertising revenue resulting from MAU decline in well-developed countries and lower eCPM and 2) higher operating expenses attributable to higher compensation costs (including stock-based compensation), higher professional fees and higher paid user acquisition expenses in Zedge App.
For the three and nine months ended April 30, 2023, our loss from operations related to GuruShots was $10.3 million and $11.9 million, respectively. Excluding goodwill impairment charge of $8.7 million and changes in fair value of contingent consideration of $1.9 million, loss from operations related to GuruShots would have been $1.6 million and $5.1 million for the three and nine months ended April 30, 2023, respectively. GuruShots continued to underperform due primarily to lower revenue from existing users and adding fewer new users to the platform which resulted in lower MAP and lower ARPMAP when compared to prior periods.
GuruShots’ operating results are consolidated with our operating results beginning on April 13, 2022. Therefore, our consolidated results of operations for the three and nine months ended April 30, 2023 may not be comparable to the corresponding periods in 2022. Please refer to the unaudited pro forma consolidated financial information contained 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.

Liquidity and Capital Resources

General

At April 30, ~~2022,~~2023, we had cash and cash equivalents of ~~$17.1~~$18.1 million and working capital (current assets less current liabilities) of ~~$6.4~~$15.0 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 June 14, ~~2023. During fiscal 2021, we raised an aggregate of $15 million through sales of equity in At the Market offerings.~~2024. We also maintain a term loan and a revolving ~~line of~~ credit facility of up to ~~$2.0~~$11 million ~~and~~in aggregate (reduced to $6 million as of May 11, 2023), including a foreign exchange contract facility of up to $6.5 million with ~~Western Alliance Bank,~~WAB, as discussed below in Financing ~~Activities.~~Activities and in Note 11 and Note 15 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 nine months ended April 30, ~~2022~~2023 and ~~2021:~~2022:

Nine Months Ended
April 30,
(in thousands) 2022 2021 $ Changes
Cash flows provided by (used in):
Operating activities $ 11,314 $ 7,737 $ 3,577
Investing activities (18,807 ) (593 ) (18,214 )
Financing activities (225 ) 12,518 (12,743 )
Effect of exchange rate changes on cash and cash equivalents (95 ) 142 (237 )
(Decrease) increase in cash and cash equivalents $ (7,813 ) $ 19,804 $ (27,617 )

Nine Months Ended April 30,
(in thousands) 2023 2022 $ Changes
Cash flows provided by (used in):
Operating activities $ 2,743 $ 11,314 $ (8,571 )
Investing activities (2,129 ) (18,807 ) 16,678
Financing activities 528 (225 ) 753
Effect of exchange rate changes on cash and cash equivalents (160 ) (95 ) (65 )
Increase (decrease) in cash and cash equivalents $ 982 $ (7,813 ) $ 8,795

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 $3.6~~decreased $8.6 million in the nine months ended April 30, 2023 to $2.7 million from $11.3 million in the nine months ended April 30, 2022, primarily attributable to ~~$11.3 million from $7.7 million~~the net loss incurred in the ~~nine~~current period and changes in assets and liabilities.
Changes in Trade Accounts Receivable
Gross trade accounts receivable increased $0.7 million to $3.1 million at April 30, 2023 from $2.4 million at July 31, 2022, primarily due to higher revenue in the preceding two months ended April 30, ~~2021, primarily attributable~~2023 when compared to the ~~higher revenues generated from our service offerings, principally advertising, paid subscription revenues and a $2 million integration bonus received from AppLovin.~~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 GSGuruShots achieving certain financial targets set forth in the ~~SPA.~~Share Purchase Agreement (“SPA”). In connection therewith, we agreed to make certain minimum investments in user acquisition for GSGuruShots in the period covered by the Earnout, subject to GSGuruShots maintaining agreed upon levels of return on ad spend (ROAS). In addition, we committed to a retention pool of $4 million in cash and ~~issued~~ 626,242 shares of the Company Class B common stock with a fair value of $4 million or $6.39 per share for GuruShots’ founders and other employees that will be payable or vest, as applicable, over three years from ~~closing~~April 1, 2022 based on the beneficiaries thereof remaining employed by the Company or a subsidiary.

On August 1, 2021, 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~~was 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. We paid approximately half of the $1.9 million on February 1, ~~2022. That $4.8 million~~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 ~~the~~ included in Item 1 to Part I of this Quarterly Report on Form 10-Q.

Cash used in investing activities in ~~nine months~~the fiscal years ended ~~April 30,~~July 31, 2022 and 2021 also consisted of capitalized software and technology development costs related to various projects that we invested in specific to the various platforms on which we operate our service.

Financing Activities

~~Between December 14, 2020~~On October 28, 2022, we entered into an Amended Loan Agreement with WAB. Pursuant to the Amended Loan Agreement, WAB agreed to provide the Company with a new term loan facility in the maximum principal amount of $7 million for a four-year term and ~~January 26, 2021, we sold an aggregate~~a $4 million revolving credit facility for a two-year term. In conjunction with the closing of ~~761,906 shares of our Class B common stock at an average price of $6.5625 per share for total gross proceeds of~~the credit facilities, $2 million was advanced in a single-cash advance on the same day, with the remaining $5 million available for drawdown during twenty-four (24) months after closing. Each drawdown must be in a registered “At 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.an amount of not less than $1 million.

~~In August 2020,~~On May 11, 2023, we ~~obtained a loan of $181,000~~agreed to ~~finance about 82% of our directors’ and officers’ liability and cyber liability insurance policies, at an annual percentage interest rate of 3.89%~~reduce the maximum principal amount from $7 million 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 nine months ended April 30, 2021.~~
In the nine months ended April 30, 2022 and 2021, we issued 3,666 shares and 497,252 shares respectively of Class B common stock and received $7,000 and $819,000 respectively, in connection with options exercised during the period.
In the nine months ended April 30, 2022 and 2021, we purchased 16,115 shares and 17,630 shares, respectively, of Class B common stock from employees for $232,000 and $26,000 respectively, to satisfy tax withholding obligations in connection with the vesting of restricted stock and DSUs.
~~We maintain a credit facility of up to $2.0~~$2 million, ~~provided by Western Alliance Bank which is more fully described in~~please see Note ~~11 to the~~15 to the unaudited condensed consolidated financial statements included in Item 1 to Part I of this Quarterly Report on Form 10-Q.
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.
In the nine months ended April 30, 2023 and 2022, we purchased 6,310 shares and 16,115 shares, respectively, of Class B common stock from employees for $17,000 and $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 680,594 shares for approximately $1.4 million in the nine months ended April 30, 2023, including commission and banking fees of approximately $14,000.

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 $0.2 million to $2.7 million at April 30, 2022 from $2.5 million at July 31, 2021, primarily due to the inclusion of GS’ accounts receivable.~~
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 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, 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 nine months ended April 30, 2023, three customers represented 24%, 18% and 10% of our revenue. In the nine months ended April 30, 2022, three customers represented 29%, 19% and 13% of our revenue. ~~In the nine months ended~~At April 30, ~~2021,~~2023, three customers represented ~~31%~~32%, ~~22%~~21% and ~~12%~~10% of our ~~revenue.~~accounts receivable balance. At ~~April 30,~~July 31, 2022, two customers represented 40% and 19% ~~of our accounts receivable balance, and at July 31, 2021, two customers represented 37% and 28%~~ of our accounts receivable balance. All of these significant customers were advertising exchanges operated by leading companies, and the receivables represent many smaller amounts due from their advertisers.

Contractual Obligations and Other Commercial Commitments

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

Off-Balance Sheet Arrangements

At April 30, ~~2022,~~2023, 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 April 30, ~~2022.~~2023.

Changes in Internal Control over Financial Reporting. There were no changes in our internal control over financial reporting during the quarter ended April 30, ~~2022~~2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

Legal proceedings in which we are involved are more fully described in Note 10 to the unaudited condensed consolidated financial statements included in Item 1 to Part I of this Quarterly Report on Form 10-Q.

Item 1A. Risk Factors

~~Other than the risk factors described below, there~~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.

~~We may not be successful in acquiring a sufficient number of users that convert into paying players that generate profits for GuruShots~~
We invest in paid user acquisition and in other marketing activities in order to secure new users and we dedicate resources to convert free users into paying users as well as to prompt existing paying users to increase their spend with us. If our user acquisition and monetization strategies do not yield the desired results we may fail to attract, retain or monetize users and experience a decrease in spending levels which would result in lower revenues and could have a material adverse effect on our business and financial results.
~~We may not be successful converting free users into paying players to generate profits for GuruShots~~
Revenues of free-to-play games typically rely on a small percentage of players who convert into paying users by purchasing game resources that yield additional advantages and features. The vast majority of users play for free or only occasionally spend money on the game. Accordingly, only a small percentage of users who play GuruShots’ games in any period are paying users. In addition, even among the paying users, a small portion of those users generate a large percentage of GuruShots’ revenues. Because of this, it is imperative for us to retain the small percentage of paying users and to maintain or increase their spending. Over the past six years, GuruShots has successfully increased the compounded annual growth rate of monthly spending per paying player by around 18%. There can be no assurance that we will be able to continue to retain paying users or that paying users will maintain or increase their spending. We may experience a net decline in paying players resulting in a decrease in revenue resulting in a materially adverse outcome for our business and financial results.
~~We may not manage our game economy properly and as a result, disincentivize players from purchasing game resources~~
GuruShots is available to players for free, and GuruShots generates nearly all of its revenues from the sale of game resources that users can purchase to secure additional advantages and features that can be utilized to increase the visibility of their photos in a competition. The perceived value of these resources can be impacted by how much we charge for them, how much we discount them, and what resources can be earned by taking specific actions during gameplay. If we fail to manage our economy well we risk confusing or upsetting paying players to the point that they reduce their purchases which could negatively hurt the business.
In addition, there are players that share strategies about how to win the competitions across various social media platforms which could reduce the paying player spend or provide advantages to players negating the need for them to purchase in-game resources.
~~We may not accurately track key performance indicators needed to run our business profitably accurately~~
We track certain key performance indicators, including the number of active and paying players using both internal and third-party tracking tools. Our analytical tools have certain limitations, and our ability to access and monitor this data may change, which would adversely impact our ability to track these KPIs. If the internal or external tools we use to track data contain bugs we may make poor decisions based on flawed and inaccurate data which hurt our reputation and financial position.
~~Zedge may experience a material downturn in its business making it impossible to meet the user acquisition spend obligations that we have made to GuruShots~~
In connection with the purchase of GuruShots, we made commitments on user acquisition spend at GuruShots. In the event that there is a material economic setback or another catastrophic event that negatively impacts advertising spend we may be unable to meet our user acquisition obligations to GuruShots which would expose us to liability to the prior owners of GuruShots.

~~Zedge may be unable to successfully integrate GuruShots into Zedge~~
Zedge and GuruShots will need to integrate their operations which will require coordination between management, marketing, technology, product development, and operations. Zedge may not execute the integration successfully resulting in higher costs, product delays, employee resignations, and overall underperformance.
~~The GuruShots acquisition may fail to yield growth opportunities and achieve beneficial synergies~~
Zedge acquired GuruShots with the expectation that the transaction will yield growth on a standalone basis as well as strategic synergies on a combined basis. Our success in realizing these growth opportunities and strategic synergies, and their associated timing depends, amongst other things, on the successful integration of the respective businesses. Even if we are successful with the integration, there is no guarantee that the strategic synergies that we envisioned will bear fruit.
~~We may cause additional dilution to investors~~
~~In the event that GuruShots meets or exceeds the target thresholds associated with the earnout Zedge may need to issue stock to make the earnout payments resulting in additional dilution to you.~~
~~Russia's recent invasion of Ukraine, and the international community's response, have created substantial political and economic disruption, uncertainty, and risk.~~
In February 2022, Russia's military action in Ukraine resulted in wide-ranging sanctions and international protests, creating significant political and economic uncertainty at a global level. These and related actions, responses, and consequences may contribute to world-wide economic downturns. We have no way to predict the progress or outcome of the situation, as the conflict and government reactions are rapidly developing and beyond our control. Prolonged unrest, military activities, or broad-based sanctions could have a material adverse effect on our operations and business outlook.
We track certain key performance indicators with internal and third-party tools and do not independently verify all of these metrics. Certain of these indicators may have challenges in being tracked accurately which could negatively impact our business.
We track certain key performance indicators, including the number of active and paying players using a both internal and third-party tracking tools. Our analytical tools have certain limitations, including those from third-party providers, and our ability to access and monitor this data may change adversely impacting our ability to track these KPIs. If the internal or external tools we use to track data contain bugs we may make poor decisions based on flawed and inaccurate data which hurt our reputation and financial position.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

~~None~~Sales of Unregistered Securities
During the nine months ended April 30, 2023, 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 issuances did not involve any underwriters, any underwriting discounts or commissions, and were covered by a Registration Statement on Form S-8 filed by the Company with the Securities and Exchange Commission under the Securities Act of 1933, as amended (the “Act”).
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
The following table summarizes the share repurchase activity for the three months ended April 30, 2023:
Total
Number of Approximate
Dollar
Shares
Purchased Value of
Shares that
as Part of May Yet Be
Total Number
of Shares Average
Price Paid Publicly
Announced Purchased
Under
Period Purchased Per Share (1) Programs (2) the Program (2)
(in thousands) (in thousands) (in thousands)
February 1 - 28, 2023 - $ - - $ 2,030
March 1 - 31, 2023 92 $ 1.88 92 $ 1,858
April 1 - 30, 2023 147 $ 2.00 147 $ 1,564
Total 239 239
(1)  The average price paid per share includes any broker commissions.
(2) In October 2021, our board of directors authorized a repurchase program of up to 1.5 million shares of our Class B common stock at a maximum aggregate purchase price of $3.0 million. 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

101.SCH* Inline XBRL Taxonomy Extension Schema Document

101.CAL* Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF* Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB* Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE* Inline XBRL Taxonomy Extension Presentation Linkbase 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.

June 14, ~~2022~~2023 By:
/s/ JONATHAN REICH

Jonathan Reich
Chief Executive Officer

June 14, ~~2022~~2023 By:
/s/ YI TSAI

Yi Tsai
Chief Financial Officer

3438

Zedge, Inc. false --07-31 Q3 0001667313

	April 30,			July 31,
	2023			2022
	(Unaudited)
Assets
Current assets:
Cash and cash equivalents	$	18,067		$	17,085
Trade accounts receivable		3,056			2,411
Prepaid expenses and other receivables		897			396
Total current assets		22,020			19,892
Property and equipment, net		2,067			1,660
Intangible assets, net		19,287			21,025
Goodwill		1,870			10,788
Deferred tax assets, net		1,816			861
Other assets		516			400
Total assets	$	47,576		$	54,626
Liabilities and stockholders’ equity
Current liabilities:
Trade accounts payable	$	1,056		$	1,180
Deferred acquisition payment payable		-			962
Contingent consideration-current portion		-			215
Accrued expenses and other current liabilities		3,653			2,898
Deferred revenues		2,552			3,402
Total current liabilities		7,261			8,657
Term Loan, net of deferred financing costs		1,984			-
Contingent consideration-long term portion		-			1,728
Other liabilities		218			53
Total liabilities		9,463			10,438
Commitments and contingencies (Note 10)
Stockholders’ equity:
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 April 30, 2023 and July 31, 2022		5			5
Class B common stock, $.01 par value; authorized shares—40,000; 14,674 shares issued and 13,913 shares outstanding at April 30, 2023, and 13,951 shares issued and 13,877 outstanding at July 31, 2022		147			139
Additional paid-in capital		45,558			43,609
Accumulated other comprehensive loss		(1,712	)		(1,391	)
(Accumulated deficit) retained earnings		(4,097	)		2,160
Treasury stock, 761 shares at April 30, 2023 and 74 shares at July 31, 2022, at cost		(1,788	)		(334	)
Total stockholders’ equity		38,113			44,188
Total liabilities and stockholders’ equity	$	47,576		$	54,626

	Three Months Ended						Nine Months Ended
	April 30,						April 30,
	2022			2021			2022			2021
Revenues	$	6,230		$	5,252		$	19,173		$	14,328
Costs and expenses:
Direct cost of revenues (excluding amortization of capitalized software and technology development costs which is included below)		401			290			1,053			907
Selling, general and administrative		4,064			2,694			9,902			6,859
Depreciation and amortization		423			289			1,181			972
Income from operations		1,342			1,979			7,037			5,590
Interest and other income, net		15			9			42			14
Net (loss) gain resulting from foreign exchange transactions		(125	)		(12	)		(220	)		21
Income before income taxes		1,232			1,976			6,859			5,625
Provision for (benefit from) income taxes		429			(473	)		1,676			(147	)
Net Income	$	803		$	2,449		$	5,183		$	5,772
Other comprehensive (loss) income:
Changes in foreign currency translation adjustment		(195	)		129			(275	)		335
Total other comprehensive (loss) income		(195	)		129			(275	)		335
Total comprehensive income	$	608		$	2,578		$	4,908		$	6,107
Income per share attributable to Zedge, Inc. common stockholders:
Basic	$	0.06		$	0.18		$	0.36		$	0.46
Diluted	$	0.05		$	0.17		$	0.35		$	0.43
Weighted-average number of shares used in calculation of income per share:
Basic		14,307			13,676			14,295			12,531
Diluted		14,859			14,570			14,974			13,323

	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
Restricted stock issuance in connection with GuruShots acquisition		-		-		626		7		(7	)		-			-			-			-
Stock-based compensation		-		-		-		-		483			-			-			-			483
Foreign currency translation adjustment		-		-		-		-		-			(195	)		-			-			(195	)
Net income		-		-		-		-		-			-			803			-			803
Balance – Apr. 30, 2022		525	$	5		14,575	$	146	$	42,955		$	(1,272	)	$	(2,371	)	$	(334	)	$	39,129

	Nine Months Ended
	April 30,
	2022			2021

Operating activities
Net income	$	5,183		$	5,772
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		1,181			972
Stock-based compensation		1,291			488
Deferred income taxes		(83	)		(542	)
Change in assets and liabilities:
Trade accounts receivable		64			(1,336	)
Prepaid expenses and other current assets		(274	)		171
Other assets		7			75
Trade accounts payable and accrued expenses		2,042			1,651
Deferred revenue		1,903			486
Net cash provided by operating activities		11,314			7,737
Investing activities
Payments for business combination, net of cash acquired		(17,422	)		-
Payments for asset acquisitions		(917	)		-
Capitalized software and technology development costs and purchase of equipment		(468	)		(543	)
Investment in private company		-			(50	)
Net cash used in investing activities		(18,807	)		(593	)
Financing activities
Proceeds from sales of Class B common stock		-			12,355
Payment of issuance costs		-			(469	)
Repayment of insurance premium loan payable		-			(161	)
Proceeds from exercise of stock options		7			819
Purchase of treasury stock in connection with restricted stock vesting		(232	)		(26	)
Net cash (used in) provided by financing activities		(225	)		12,518
Effect of exchange rate changes on cash and cash equivalents		(95	)		142
Net (decrease) increase in cash and cash equivalents		(7,813	)		19,804
Cash and cash equivalents at beginning of period		24,908			5,111
Cash and cash equivalents at end of period	$	17,095		$	24,915

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
Contingent consideration related to business acquisition	$	5,904		$	-
Right-of-use assets acquired under operating leases	$	86		$	-
Acquisition 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

	Level 1 (1)		Level 2 (2)		Level 3 (3)		Total		Level 1		Level 2		Level 3		Total
	(in thousands)
April 30, 2022
Assets:
April 30, 2023
Liabilities:
Contingent consideration-short term									$	-	$	-	$	-	$	-
Contingent consideration-long term									$	-	$	-	$	-	$	-
Foreign exchange forward contracts	$	-	$	-	$	-	$	-	$	-	$	61	$	-	$	61

July 31, 2022
Liabilities:
Current portion of contingent consideration payable	$	-	$	-	$	3,396	$	3,396
Contingent consideration payable	$	-	$	-	$	2,508	$	2,508
Contingent consideration-short term									$	-	$	-	$	215	$	215
Contingent consideration-long term									$	-	$	-	$	1,728	$	1,728
Foreign exchange forward contracts	$	-	$	167	$	-	$	167	$	-	$	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		(1,943	)
Balance at April 30, 2023	$	0

Settlement Date	U.S. Dollar Amount		NOK Amount
May-23		225,000		2,317,545
Jun-23		225,000		2,274,975
Jul-23		225,000		2,271,285
Aug-23		225,000		2,267,100
Sep-23		225,000		2,263,388
Oct-23		225,000		2,260,238
Nov-23		225,000		2,256,750
Dec-23		225,000		2,253,285
Jan-24		225,000		2,249,730
Feb-24		225,000		2,246,265
Mar-24		225,000		2,242,823
Apr-24		225,000		2,240,550
May-24		225,000		2,237,738
Total		2,925,000		29,381,670

Settlement Date	U.S. Dollar Amount		EUR Amount
May-23		225,000		220,070
Jun-23		225,000		208,507
Jul-23		225,000		208,160
Aug-23		225,000		207,852
Sep-23		225,000		207,526
Oct-23		225,000		207,240
Nov-23		225,000		206,935
Dec-23		225,000		206,555
Jan-24		225,000		206,271
Feb-24		225,000		205,893
Mar-24		225,000		205,611
Apr-24		225,000		205,386
May-24		225,000		205,142
Total		2,925,000		2,701,147

Settlement Date	U.S. Dollar Amount		NOK Amount
May-22		225,000		1,970,619
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	$	1,575,000		13,971,444

Settlement Date	U.S. Dollar Amount		EUR Amount
May-22		225,000		188,673
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	$	1,575,000		1,404,459

		Three Months Ended April 30,					Nine Months Ended April 30,							Three Months Ended April 30,						Nine Months Ended April 30,
Amount of (Loss) Gain Recognized on Derivatives		2022			2021		2022			2021
Amount of Loss Recognized on Derivatives												Amount of Loss Recognized on Derivatives		2023			2022			2023			2022
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)						(in thousands)
Foreign exchange forward contracts	Net (loss) gain resulting from foreign exchange transactions	$	(154	)	$	16		(271	)	$	67		Net loss resulting from foreign exchange transactions	$	(122	)	$	(154	)		(58	)	$	(271	)

(Dollar Amounts in Thousands)
Purchase price consideration:
Cash consideration paid at close	$	15,242		$	15,242
Cash contributed to escrow accounts at close		2,700			2,700
Cash deducted from purchase price and contributed to GuruShots' working capital		58
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			3,396
Fair value of contingent consideration to be achieved at year 2		2,508			2,508
Fair value of total consideration transferred		23,904			23,904
Total purchase price, net of cash acquired	$	23,384		$	23,384

Fair value allocation of purchase price:
Cash and cash equivalents	$	520		$	520
Accounts receivable		282
Prepaid and other assets		145
Trade accounts receivable					282
Prepaid expenses					145
Property and equipment, net		17			17
Other assets (including ROU)		151			151
Accounts payable and accrued expenses		(1,351	)		(1,351	)
Operating lease liabilities, current		(53	)		(53	)
Operating lease liabilities, noncurrent		(34	)		(34	)
Acquired intangible assets		15,320			15,320
Goodwill		8,907			8,907
Total purchase price	$	23,904		$	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

	Three Months Ended				Nine Months Ended				Three Months Ended				Nine Months Ended
	April 30 ⁽¹⁾				April 30 ⁽¹⁾				April 30 ⁽¹⁾				April 30 ⁽¹⁾
(‘000)	2021		2022		2021		2022
									2021		2022		2021		2022
Revenue	$	7,522	$	7,625	$	21,002	$	24,134	$	7,522	$	7,625	$	21,002	$	24,134
Net income	$	1,625	$	571	$	2,240	$	2,580	$	1,625	$	571	$	2,240	$	2,580

	Gross Carrying Value		Accumulated Amortization		Net Carrying Value

Balance at July 31, 2021	$	-	$	-	$	-
Websites and other internet domains acquired		6,711		335		6,376
Acquired developed technology		3,950		40		3,910
Customer relationships		7,800		39		7,761
Trademarks and trade names		3,570		15		3,555

Balance at April 30, 2022	$	22,031	$	429	$	21,602

	April 30, 2023						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		783		5,928		6,711		447		6,264
Acquired developed technology		3,950		832		3,118		3,950		238		3,713
Customer relationships		7,800		818		6,982		7,800		233		7,567
Trade names		3,570		311		3,259		3,570		89		3,481
Total intangible assets	$	22,031	$	2,744	$	19,287	$	22,031	$	1,007	$	21,025

Fiscal 2023		579
Fiscal 2024		2,315
Fiscal 2025		2,315
Fiscal 2026		2,315
Fiscal 2027		2,315
Thereafter		9,448
Total	$	19,287

Remainder of fiscal 2022	$	579
Fiscal 2023		2,315
Fiscal 2024		2,315
Fiscal 2025		2,315
Fiscal 2026		2,315
Thereafter		11,763
Total	$	21,602

(in thousands)	Carrying Amount

Balance at July 31, 2021	$	2,262
GuruShots acquisition		8,907
Foreign currency translation adjustments		(138	)

Balance at April 30, 2022	$	11,031

(in thousands)	Carrying Amounts

Balance as of July 31, 2022	$	10,788
Goodwill impairment charge		(8,727	)
Impact of currency translation		(191	)
Balance as of April 30, 2023	$	1,870

Balance as of July 31, 2021	$	2,262
Goodwill acquired during the period		8,907
Impact of currency translation		(138	)
Balance as of April 30, 2022	$	11,031

	Stock Options
				Weighted-
	Number of			Average
	Options			Exercise
	(in thousands)			Price
Outstanding at July 31, 2021		843		$	2.72
Granted		42			10.29
Exercised		(4	)		1.87
Cancelled / forfeited		(27	)		12.28
Outstanding at April 30, 2022		854		$	2.79
Exercisable at April 30, 2022		645		$	2.09

	Number of Shares			Weighted Average Grant Date Fair Value
Non-vested stock award as of July 31, 2021		127,300		$	3.27
Granted (GuruShots Retention Bonus shares)		626,242			6.39
Vested		(65,101	)		2.80
Forfeited		-			-
Non-vested stock award as of April 30, 2022		688,441		$	6.15

	Number of Shares			Weighted Average Grant Date Fair Value
Non-vested DSU award as of July 31, 2021		37,500		$	1.54
Granted ⁽¹⁾		291,320			9.60
Vested		(12,500	)		1.54
Forfeited		(18,720	)		7.88
Non-vested DSU award as of April 30, 2022		297,600		$	9.03

Maximum Debt to Quarter Ending		EBITDA Ratio
October 31, 2022		1.75 to 1.00
April 30, 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

	United States		Foreign		Total
	(in thousands)
Long-lived assets, net:
April 30, 2022	$	7,995	$	15,709	$	23,704
July 31, 2021	$	1,900	$	399	$	2,299

Total assets:
April 30, 2022	$	25,960	$	29,707	$	55,667
July 31, 2021	$	32,745	$	4,732	$	37,477

	Three Months Ended April 30,
(in millions, except ARPMAU - Zedge App)	2022			2021			% Change
MAU- Zedge App		32.1			34.5			-7.0	%
Developed Markets MAU - Zedge App		7.5			8.9			-15.7	%
Emerging Markets MAU - Zedge App		24.6			25.6			-3.9	%
Emerging Markets MAU - Zedge App/Total MAU - Zedge App		77	%		73	%		5.0	%

ARPMAU - Zedge App	$	0.0523		$	0.0485			7.8	%

	Three Months Ended April 30,			Three Months Ended January 31,						Three Months Ended April 30,
(in millions, except ARPMAU)	2022			2022			% Change
(in millions, except ARPMAU - Zedge App)										2023			2022			% Change
MAU- Zedge App		32.1			36.3			-11.6	%		32.0			32.1			-0.3	%
Developed Markets MAU - Zedge App		7.5			8.5			-11.8	%		7.0			7.5			-6.7	%
Emerging Markets MAU - Zedge App		24.6			27.8			-11.5	%		25.0			24.6			1.6	%
Emerging Markets MAU - Zedge App/Total MAU - Zedge App		77	%		77	%		0.1	%		78	%		77	%		1.9	%

ARPMAU - Zedge App	$	0.0523		$	0.0601			-13.0	%	$	0.0531		$	0.0523			1.5	%

	Three Months Ended April 30,						Change			Nine Months Ended April 30,						Change
	2023			2022			%			2023			2022			%
	(in thousands)									(in thousands)
Segment income (loss) from operations:
Zedge App	$	1,850		$	1,590			16.4	%	$	4,785		$	7,285			-34.3	%
GuruShots		(10,262	)		(248	)		4037.9	%		(11,940	)		(248	)		4714.5	%
Total	$	(8,412	)	$	1,342			-726.8	%	$	(7,155	)	$	7,037			-201.7	%

					Total Number of		Approximate Dollar
					Shares Purchased		Value of Shares that
					as Part of		May Yet Be
	Total Number of Shares		Average Price Paid		Publicly Announced		Purchased Under
Period	Purchased		Per Share (1)		Programs (2)		the Program (2)
	(in thousands)				(in thousands)		(in thousands)
February 1 - 28, 2023		-	$	-		-	$	2,030
March 1 - 31, 2023		92	$	1.88		92	$	1,858
April 1 - 30, 2023		147	$	2.00		147	$	1,564
Total		239				239

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

101.SCH*		Inline XBRL Taxonomy Extension Schema Document

101.CAL*		Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF*		Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB*		Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE*		Inline XBRL Taxonomy Extension Presentation Linkbase Document

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