What changed in this filing

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Item 1. Financial Statements

2020-12-14 compared with 2020-06-12 · 771 added, 1059 removed, 167 unchanged (92% of the section changed)

Financial Statements

CONSOLIDATED BALANCE SHEETS

(in thousands, except par value data)

BALANCE SHEETS

thousands, except par value data)

Current assets:

Cash and cash equivalents

Trade accounts receivable, net of allowance for doubtful accounts of $0 at April 30, 2020 and July 31, 2019

Trade accounts receivable, net of allowance for doubtful accounts of $0 at October 31, 2020 and July 31, 2020

Prepaid expenses

18 unchanged sentences

Class A common stock, $.01 par value;

shares—2,600;

525 shares issued and outstanding at April 30, 2020 and July 31, 2019

authorized shares—2,600;

525 shares issued and outstanding at October 31, 2020 and July 31, 2020

Class B common stock, $.01 par value;

authorized shares—40,000;

11,715 shares issued, and 11,675 shares outstanding at April 30, 2020 and 9,876 shares issued and 9,854 outstanding at July 31, 2019

11,827 shares issued and 11,769 shares outstanding at October 31, 2020, and 11,789 shares issued and 11,749 outstanding at July 31, 2020

Additional paid-in capital

1 unchanged sentence

Accumulated deficit

Treasury stock, 40 shares at April 30, 2020 and 22 shares at July 31, 2019, at cost

Treasury stock, 58 shares at October 31, 2020 and 40 shares at July 31, 2020, at cost

Total stockholders’

Total liabilities and stockholders’

See accompanying notes to consolidated financial

CONSOLIDATED STATEMENTS OF COMPREHENSIVE

(in thousands, except per share data)

accompanying notes to consolidated financial statements.

STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

thousands, except per share data)

Three Months Ended

Nine Months Ended

Costs and expenses:

2 unchanged sentences

Depreciation and amortization

Loss from operations

Interest and other income

Income (loss) from operations

Interest and other income (expense), net

Net loss resulting from foreign exchange transactions

Loss before income taxes

Income (loss) before income taxes

Provision for income taxes

Net Income (loss)

Other comprehensive loss:

1 unchanged sentence

Total other comprehensive loss

Total comprehensive loss

Loss per share attributable to Zedge, Inc.

Total comprehensive income (loss)

Income (loss) per share attributable to Zedge, Inc.

common stockholders:

Basic and diluted

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

Basic and diluted

See accompanying notes to consolidated financial

CONSOLIDATED STATEMENTS OF CHANGES

IN STOCKHOLDERS’

(in thousands)

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

accompanying notes to consolidated financial statements.

STATEMENTS OF CHANGES IN STOCKHOLDERS’

Additional Paid-in

Comprehensive

Accumulated Other Comprehensive

Stockholders’

4 unchanged sentences

Foreign currency translation adjustment

Balance –

Exercise of stock options

Stock-based compensation

Purchase of treasury stock

Stock issued for matching contributions to the

Proceeds from sales of Class B Common Stock

Foreign currency translation adjustment

Balance –

Net proceeds from sales of Class B Common Stock

Stock-based compensation

Foreign currency translation adjustment

Balance sheet-Apr.

See accompanying notes to consolidated financial

Class A Common Stock

Class B Common Stock

Balance -October 31, 2020

Additional Paid-in

Comprehensive

Total Stockholders’

Accumulated Other Comprehensive

Stockholders’

Balance –

4 unchanged sentences

Balance –

Exercise of stock options

Stock-based compensation

Stock issued for matching contributions to the 401(k) Plan

Balance –

Exercise of stock options

Stock-based compensation

Foreign currency translation adjustment

Balance –

See accompanying notes to consolidated financial

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

Nine Months Ended

October 31, 2019

accompanying notes to consolidated financial statements.

STATEMENTS OF CASH FLOWS

Three Months Ended

Operating activities

Adjustments to reconcile net loss to net cash provided by operating activities:

Net income (loss)

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

Depreciation and amortization

Loss on disposal of furniture and fixtures

Stock-based compensation

2 unchanged sentences

Prepaid expenses and other current assets

Trade accounts payable and accrued expenses and other current liabilities

Due to IDT Corporation

Deferred revenues

Trade accounts payable and accrued expenses

Deferred revenue

Net cash provided by operating activities

1 unchanged sentence

Capitalized software and technology development costs and purchase of equipment

Investment in privately-held company

Net cash used in investing activities

Financing activities

Proceeds from sales of Class B Common Stock

Payment of issuance costs

Proceeds from PPP loan payable

Repayment of insurance premium loan payable

Proceeds from exercise of stock options

Purchase of treasury stock in connection with restricted stock vesting

Net cash provided by (used in) financing activities

Net cash used in financing activities

Effect of exchange rate changes on cash and cash equivalents

Net increase (decrease) in cash and cash equivalents

Net increase in cash and cash equivalents

Cash and cash equivalents at beginning of period

2 unchanged sentences

Cash payments made for interest expenses

Cash payments made for income taxes

See accompanying notes to consolidated financial

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1—Basis of Presentation and Recently Adopted

Accounting Pronouncements

Basis of Presentation

The accompanying unaudited consolidated

financial statements of Zedge, Inc.

and its subsidiaries, Zedge Europe AS and Zedge Canada, Inc.

(dissolved as of May 2, 2019)

(the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States

of America (“U.S.

GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of

Regulation S-X.

Accordingly, they do not include all of the information and footnotes required by U.S.

GAAP for complete financial

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 months and nine months ended April 30, 2020 are not necessarily

indicative of the results that may be expected for the fiscal year ending July 31, 2020 or any other period.

The balance sheet

at July 31, 2019 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.

SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES

Note payable issued for insurance premium financing

accompanying notes to consolidated financial statements.

TO CONSOLIDATED FINANCIAL STATEMENTS

1—Basis of Presentation and Recently Adopted Accounting Pronouncements

of Presentation

accompanying unaudited consolidated financial statements of Zedge, Inc.

and its subsidiary, Zedge Europe AS (the “Company”)

have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S.

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

Accordingly, they do

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

year ended July 31, 2019, as filed with the U.S.

In the opinion

of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been

Operating results for the three months ended October 31, 2020 are not necessarily indicative of the results that may

be expected for the fiscal year ending July 31, 2021 or any other period.

The balance sheet at July 31, 2020 has been derived

from the Company’s audited financial statements at that date but does not include all of the information and footnotes required

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 year ended July 31, 2020, as filed with

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 2020 refers to the fiscal year ending July 31, 2020).

COVID-19 Impacts on Financial and Operational Results

The COVID-19 pandemic has caused widespread

economic disruption impacting the Company in a number of ways, most notably, with a significant decrease in global advertising

As such, the Company lacks clarity about how the pandemic will influence its future financial and operational results.

In light of the current operating and economic

environment, the Company has shifted resources and priorities to increase focus on generating incremental revenue at the expense

of delivering new product.

The Company imposed a temporary hiring freeze and lowered its discretionary spend to preserve cash for

mission critical projects.

The Company has responded quickly and decisively to the challenges presented by the pandemic in order

to ensure the continuity of its service.

As of April 30, 2020, the Company had $4.6

million of cash and cash equivalents.

The Company has developed certain contingency plans to preserve liquidity if such actions

may be determined to be necessary due to worsening conditions, including related to an increase in impacts from the COVID-19 pandemic

or if the effects of the pandemic last longer than currently anticipated.

At the current time, the Company does not believe taking

such actions is prudent nor, does it expect to need to take such action based on its current forecasts.

The Company believes that

its existing cash and cash equivalents, together with cash generated by operations will be sufficient to meet its working capital

and capital expenditure requirements for the foreseeable future when accounting for the ill effects of the COVID-19 pandemic.

The Company considered the impacts of the

COVID-19 pandemic on its significant estimates and judgments used in applying its accounting policies in the three months ended

April 30, 2020.

In light of the pandemic, there is a greater degree of uncertainty in applying these judgments and depending on

the duration and severity of the pandemic, changes to its estimates and judgments could result in a meaningful impact to its financial

statements in future periods.

Of the more significant items subject to a greater degree of uncertainty during this time include

estimates of revenue collectability and credit losses related to accounts receivable.

Recently Adopted Accounting Pronouncements

In February 2016, the Financial Accounting

Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-02 —Leases (Topic

842), and additional changes, modifications, clarifications, or interpretations related to this guidance thereafter, which require

a reporting entity to recognize right-of-use (“ROU”) assets and lease liabilities on the balance sheet for operating

leases to increase the transparency and comparability.

The Company adopted this standard in the

first quarter of fiscal 2020, effective as of August 1, 2019, using the modified retrospective approach.

The adoption of Topic

842 had a material impact on the Company’s consolidated balance sheets, but did not impact its consolidated statements of

comprehensive loss, consolidated statements of stockholders’

equity, or consolidated statements of cash flows.

no adjustment to beginning retained earnings on August 1, 2019.

The Company elected the short-term lease recognition exemption

for all leases that qualify.

Accordingly, the Company did not recognize ROU assets or lease liabilities for leases that qualify,

including leases for existing short-term leases in effect at transition and continue to recognize those lease payments as expenses

on the Company’s consolidated statements of comprehensive loss on a straight-line basis over the lease term.

elected the practical expedient to not separate lease and non-lease components for all its leases.

Upon adoption, the Company recognized

new ROU assets and lease obligations on the Consolidated Balance Sheet for its operating leases of $538,000 and $512,000, respectively.

See Note 12 –

Lease for further details.

In August 2017, the FASB issued ASU 2017-12

Derivatives and Hedging (Topic 815):

Targeted Improvements to Accounting Hedging Activities , which was intended

to improve the financial reporting of hedging relationships to better portray the economic results of an entity’s risk management

activities in its financial statements.

In addition, the ASU includes certain targeted improvements to simplify the application

of hedge accounting guidance in U.S.

The amendments in this ASU were effective for the Company on August 1, 2019.

were to apply the amendments to qualified hedge relationships that existed on the date of adoption using a modified retrospective

The presentation and disclosure requirements were to be applied prospectively.

The adoption of this ASU did not have

a significant impact on the Company’s consolidated financial statements as the Company’s hedging activities of foreign

currency are not designated and/or do not qualify as hedging instruments.

See Note 4 –

Derivative Instruments for further

Note 2—Revenue

Revenue Recognition

The Company generates revenue from three

(1) advertising;

(2) subscriptions and Zedge Premium;

and (3) in prior periods, service.

Most of the Company’s revenue

is generated from selling its advertising inventory (“Advertising Revenue”) to advertising networks, advertising exchanges,

and direct arrangements with advertisers.

The Company also earns revenue from subscriptions and Zedge Premium (“Other Revenue”)

which were launched in January 2019 and March 2018, respectively.

Prior to May 31, 2019, the Company generated service revenue

by managing and optimizing the advertising inventory of a third-party mobile application publisher, as well as overseeing the billing,

collections and reporting related to advertising for this publisher (“Service Revenue”).

The contract with this publisher

was terminated effective May 31, 2019.

The Company’s current subscription

offering allows users to pay a monthly or annual fee to remove unsolicited advertisements from the Zedge app.

The Company is exploring

adding additional features to its subscription offering.

On the Zedge Premium platform, the Company retains 30% as fee revenue

when users purchase licensed content using Zedge Credits or unlock licensed content by watching a video.

Additionally, the Company

earns revenue from breakage related to expired Zedge Credits.

The following table summarizes revenue by

type of service for the periods presented:

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 2021 refers to the fiscal year ending July 31, 2021).

Impacts on Financial and Operational Results

COVID-19 pandemic has caused widespread economic disruption impacting the Company in a number of ways, most notably, with a significant

decrease in global advertising spend in the third quarter of fiscal 2020, followed by a rebound in the following two consecutive

The Company expects the extent of the impact on its financial and operational results will continue to depend on the

duration and severity of the economic disruption caused by the COVID-19 pandemic, including demand for new phones sales worldwide

which drives the new installs of the Company’s flagship app.

of October 31, 2020, the Company had $6.3 million of cash and cash equivalents.

The Company has developed certain contingency

plans to preserve liquidity if such actions become necessary due to worsening economic conditions, including those related to

the COVID-19 pandemic.

At the current time, the Company does not believe taking such actions would be prudent nor, does it expect

to need to take such actions based on its current forecasts.

The Company believes that its existing cash and cash equivalents,

together with cash generated by operations will be sufficient to meet its working capital and capital expenditure requirements

for the foreseeable future when accounting for the ill effects of the COVID-19 pandemic.

Company considered the impacts of the COVID-19 pandemic on its significant estimates and judgments used in applying its accounting

policies in the three months ended October 31, 2020.

In light of the pandemic, there is a greater degree of uncertainty in applying

these judgments and depending on the duration and severity of the pandemic, changes to its estimates and judgments could result

in a meaningful impact to its financial statements in future periods.

Adopted Accounting Pronouncements

June 2016, Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No.

2016-13, Financial

Instruments-Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments (ASU 2016-13) which changes the

impairment model for most financial assets and certain other instruments.

For receivables, loans and other instruments, entities

will be required to use a new forward-looking “expected loss”

model that generally will result in the earlier recognition

of allowance for losses.

For available-for-sale debt securities with unrealized losses, entities will measure credit losses in

a manner similar to current practice, except the losses will be recognized as allowances instead of reductions in the amortized

cost of the securities.

In addition, an entity will have to disclose significantly more information about allowances, credit quality

indicators and past due securities.

The Company adopted this new accounting standard on August 1, 2020, and the adoption did not

have a material impact on the Company’s financial statements and related disclosures.

August 2018, the FASB issued Accounting Standard Update No.

2018-13, Changes to Disclosure Requirements for Fair Value

Measurements (Topic 820) (ASU 2018-13), which improved the effectiveness of disclosure requirements for recurring and nonrecurring

fair value measurements.

The standard removes, modifies, and adds certain disclosure requirements.

The Company adopted this new

accounting standard on August 1, 2020, and the adoption did not have a material impact on the Company’s financial statements

and related disclosures.

August 2018, the FASB issued Accounting Standard Update No.

2018-15, Customer’s Accounting for Implementation Costs Incurred

in a Cloud Computing Arrangement That Is a Service Contract (ASU 2018-15) , which aligns the requirements for capitalizing

implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation

costs incurred to develop or obtain internal-use software.

The Company adopted this new accounting standard on August 1, 2020,

using the prospective method, and the adoption did not have a material impact on the Company’s financial statements and

related disclosures.

2—Revenue

Disaggregation

following table summarizes revenue by type of monetization mechanisms of the Zedge app for the periods presented:

Three Months Ended

Nine Months Ended

(in thousands)

Advertising revenue

Subscription and Zedge Premium revenue

Service revenue

Total Revenue

Contract Balances

Deferred revenues

The Company records deferred revenues when

users purchase or earn Zedge Credits.

Unused Zedge Credits represent the value of the Company’s unsatisfied performance obligation

to its users.

Revenue is recognized when Zedge App users use Zedge Credits to acquire Zedge Premium content or upon expiration

of the Zedge Credits upon 180 days of account inactivity.

As of April 30, 2020, and July 31, 2019, the Company’s deferred

revenue balance related to Zedge Premium was approximately $170,000 and $155,000, respectively.

In the three months and nine months

ended April 30, 2020, the Company recognized $62,000 and $124,000 in revenue from breakage upon expiration of Zedge Credits.

The Company also records deferred revenues

related to the unsatisfied performance obligations with respect to subscription revenue.

As of April 30, 2020, the Company’s

deferred revenue balance related to subscriptions was approximately $899,000, representing approximately 394,000 active subscribers.

As of July 31, 2019, the Company’s deferred revenue balance related to paid subscriptions was approximately $362,000, representing

approximately 129,000 active subscribers.

The amount of revenue recognized in the nine months ended April 30, 2020 that was included

in the deferred balance at July 31, 2019 was $329,000.

Practical Expedients

The Company expenses the fees retained

by Google Play related to subscription revenue when incurred as marketing expense because the duration of the contracts for which

the Company pay commissions are less than one year.

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

of the Consolidated Statements of Comprehensive Loss.

Note 3—Fair Value Measurements

The following tables present the balance

of assets and liabilities measured at fair value on a recurring basis:

Paid subscription revenue

Other revenues

Total Revenues

Company records deferred revenues when users purchase or earn Zedge Credits.

Unused Zedge Credits represent the value of the Company’s

unsatisfied performance obligation to its users.

Revenue is recognized when Zedge App users use Zedge Credits to acquire Zedge

Premium content or upon expiration of the Zedge Credits upon 180 days of account inactivity.

As of October 31, 2020, and July

31, 2020, the Company’s deferred revenue balance related to Zedge Premium was approximately $177,000 and $169,000, respectively.

Company also records deferred revenues related to the unsatisfied performance obligations with respect to subscription revenue.

As of October 31, 2020, the Company’s deferred revenue balance related to paid subscriptions was approximately $1,382,000,

representing approximately 609,000 active subscribers.

As of July 31, 2020, the Company’s deferred revenue balance related

to paid subscriptions was approximately $1,169,000, representing approximately 504,000 active subscribers.

The amount of revenue

recognized in the three months ended October 31, 2020 that was included in the deferred balance at July 31, 2020 was $429,000.

deferred revenues increased $221,000 from $1,338,000 at July 31, 2020 to $1,559,000 at October 31, 2020, primarily attributed

to new paid subscriptions sold in the three months ended October 31, 2020.

advertising networks and advertising exchanges to which we sell our inventory track and report the impressions and installs to

Zedge and Zedge recognizes revenues based on these reports.

The networks and exchanges base their payments off of those reports

and Zedge independently compares the data to each of the client sites to validate the imported data and identify any differences.

The number of impressions and installs delivered by the advertising networks and advertising exchanges is determined at the end

of each month, which resolves any uncertainty in the transaction price during the reporting period.

Company expenses the fees retained by Google Play related to subscription revenue when incurred as marketing expense because the

duration of the contracts for which the Company pays commissions are less than one year.

These costs are included in the selling,

general and administrative expenses of the Consolidated Statements of Comprehensive Income (Loss).

3—Fair Value Measurements

following tables present the balance of assets and liabilities measured at fair value on a recurring basis:

(in thousands)

October 31, 2020

Foreign exchange forward contracts

July 31, 2020

Foreign exchange forward contracts

quoted prices in active markets for identical assets

or liabilities

observable inputs other than quoted prices in active

markets for identical assets and liabilities

quoted prices in active markets for identical assets or liabilities

observable inputs other than quoted prices in active markets for identical assets and liabilities

no observable pricing inputs in the market

Fair Value of Other Financial Instruments

The Company’s other financial instruments

at April 30, 2020 and July 31, 2019 included trade accounts receivable, trade accounts payable, loans payable, and lease liabilities.

The carrying amounts of the trade accounts receivable, trade accounts payable, loan payables, and lease liabilities approximated

Value of Other Financial Instruments

Company’s other financial instruments at October 31, 2020 and July 31, 2020 included trade accounts receivable, trade accounts

payable, and loans payable.

The carrying amounts of the trade accounts receivable, trade accounts payable, and loan payables 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 –

Norwegian Kroner (NOK) exchange rate.

The Company is party to a Foreign Exchange Agreement

with Western Alliance Bank allowing the Company to enter into foreign exchange contracts under its revolving credit facility with

the bank (see Note 9).

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

are recorded in consolidated statements of comprehensive loss.

By using derivative instruments to mitigate exposures to changes

in foreign exchange rates, the Company is exposed to credit risk from the failure of the counterparty to perform under the terms

of the contract.

The credit or repayment risk is minimized by entering into transactions with high-quality counterparties.

The outstanding contracts at April 30, 2020, are as follows:

4—Derivative Instruments

primary risk managed by the Company using derivative instruments is foreign exchange risk.

Foreign exchange forward contracts

are entered into as hedges against unfavorable fluctuations in the U.S.

Dollar (USD) to Norwegian Kroner (NOK) and USD to Euro

(EUR) exchange rates.

The Company is party to a Foreign Exchange Agreement with Western Alliance Bank allowing the Company to

enter into foreign exchange contracts under its revolving credit facility with the bank (see Note 9).

The Company does not apply

hedge accounting to these contracts, and therefore the changes in fair value are recorded in consolidated statements of comprehensive

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.

outstanding contracts at October 31, 2020, are as follows:

Settlement Date

Dollar Amount

The fair value of outstanding derivative

instruments recorded as liabilities in the accompanying consolidated balance sheets were as follows:

Derivatives Instruments

Settlement Date

Dollar Amount

fair value of outstanding derivative instruments recorded in the accompanying consolidated balance sheets were as follows:

Assets and Liabilities Derivatives:

Balance Sheet Location

2 unchanged sentences

Foreign exchange forward contracts

Other current assets

Foreign exchange forward contracts

Accrued expenses and other current liabilities

The effects of derivative instruments

on the consolidated statements of comprehensive loss were as follows:

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

Amount of Loss Recognized on Derivatives

Three Months Ended

Nine Months Ended

Derivatives not designated or not qualifying as hedging instruments

Statement of Comprehensive Loss Location

(in thousands)

Amount of Loss Recognized on Derivatives

(in thousands)

Derivatives not designated or not qualifying as hedging instruments

Location of Loss Recognized on Derivatives

Foreign exchange forward contracts

1 unchanged sentence

Note 5—Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities

consist of the following:

expenses and other current liabilities consist of the following:

(in thousands)

7 unchanged sentences

Total accrued expenses and other current liabilities

Note 6—Stock-Based Compensation

6—Stock-Based Compensation

Stock Option and Incentive Plan

On November 7, 2019, our 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 230,000 shares, to an aggregate of 1,271,000 shares.

This amendment was ratified by the Company’s stockholders

at the Annual Meeting of Stockholders held on January 13, 2020.

At April 30, 2020, there were 295,000 shares of Class B Stock available

for awards under the 2016 Incentive Plan.

The exercise prices of options

granted pursuant to the 2016 Incentive Plan must not equal to or greater than the Fair Market Value of the shares of Class B Stock

covered by the option award on the date of grant.

In general, Fair Market Value means the closing sale price per share of Class

B Stock on the exchange on which the Class B Stock is principally traded for the last preceding date on which there was a sale

of Class B Stock on such exchange.

Stock Options

On October 18, 2017, the Compensation

Committee of our Board of Directors approved the grant of options to purchase an aggregate of 124,435 shares of Class B Stock to

55 non-executive employees.

The options vest over a three-year period from December 8, 2017.

On the grant date, unrecognized compensation

expense related to this grant was an aggregate of $159,000 based on the estimated fair value of the options on the grant date.

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

In fiscal 2019, the Compensation

Committee approved two equity grants of options to purchase an aggregate of 27,493 shares of Class B Stock to 6 non-executive employees.

The options vest over a three-year period.

Unrecognized compensation expense related to this grant was an aggregate of $33,000

based on the estimated fair value of the options on the grant dates.

The unrecognized compensation expense is being recognized

on a straight-line basis over the vesting period.

On November 7, 2019 and January 13, 2020,

the Compensation Committee approved two equity grants of options to purchase an aggregate of 180,996 shares of Class B Stock to

four employees and one consultant.

The options vest over a three-year period.

Unrecognized compensation expense related to these

grants was an aggregate of $242,000 based on the estimated fair value of the options on the grant dates.

November 7, 2019, 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 230,000 shares, to an aggregate of 1,271,000 shares.

amendment was ratified by the Company’s stockholders at the Annual Meeting of Stockholders held on January 13, 2020.

October 31, 2020, there were 162,000 shares of Class B Stock available for awards under the 2016 Incentive Plan.

November 18, 2020, 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 250,000 shares to

an aggregate of 1,521,000 shares.

This amendment is subject to ratification by the Company’s stockholders during the Annual

Meeting of Stockholders to be held on January 11, 2021.

to the 2016 Incentive Plan, the option exercise price for all stock option awards that are designated as “Incentive Stock

Options”

must not be less than the Fair Market Value of the shares of Class B Common Stock covered by the option award on

the date of grant.

In general, Fair Market Value means the closing sale price per share of Class B Common Stock on the exchange

on which the Class B Common Stock is principally traded for the last preceding date on which there was a sale of Class B Common

Stock on such exchange.

In the three months

ended October 31, 2020, the Compensation Committee of the Company’s Board of Directors approved grants of options to

purchase an aggregate of 90,849 shares of Class B Stock to twenty individuals including company executives, employees and consultants.

Options with respect to 30,000 shares vested upon grant with the remaining options with respect to 60,849 shares vesting over a

three-year period.

Grant date fair value related to the 30,000 vested options was $32,000 which was expensed immediately.

compensation expense related to the 60,849 options grants was an aggregate of $64,000 based on the estimated fair value of the

options on the grant date.

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

October 19, 2020, the Compensation Committee extended the expiration date of options to purchase approximately 182,000 shares

of the Company’s Class B Common Stock held by one of the Company’s executive officers, from October 31, 2021 to May

Such options are fully vested and were granted under the Company’s 2008 Stock Option and Incentive Plan.

have an exercise price of $1.73 per share.

Compensation expense related to this modification was $78,000 and was fully expensed

on the modification date.

October 31, 2020, unrecognized compensation expense related to unvested stock options was an aggregate of $255,000.

August 28, 2019, the Compensation Committee approved the grant of 90,000 Deferred Stock Units (DSUs) to 11 of its non-executive

employees based in Norway and Lithuania.

Each DSU represents a right to receive one share of Class B Common Stock upon vesting.

The DSUs vest over a four-year period from August 1, 2019.

On the grant date, unrecognized compensation expense related to this

grant was an aggregate of $139,000 based on the estimated fair value of the DSUs on the grant date.

The unrecognized compensation

expense is being recognized on a straight-line basis over the vesting period.

At April 30, 2020, unrecognized compensation

expense related to unvested stock options was an aggregate of $221,000.

Deferred Stock Units

On August 28, 2019, the Compensation

Committee approved the grant of 90,000 Deferred Stock Units (DSUs) to 11 of its non-executive employees based in Norway and Lithuania.

Each DSU represents a right to receive one share of Class B Common Stock.

The DSUs vest over a four-year period from August 1,

On the grant date, unrecognized compensation expense related to this grant was an aggregate of $139,000 based on the estimated

fair value of the DSUs on the grant date.

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

the vesting period.

At April 30, 2020, unrecognized compensation expense related to unvested DSUs was an aggregate of $86,000.

Restricted Stock Awards

On February 7, 2018, the Compensation Committee

and the Corporate Governance Committee of our Board of Directors approved a grant of 108,553 restricted shares of Class B Common

Stock to our Executive Chairman Michael Jonas.

Jonas agreed to accept all of his compensation for his service as Executive

Chairman during fiscal 2018 in the form of equity in the Company and to make receipt of such equity compensation contingent on

the Company achieving certain milestones relative to its fiscal 2018 budget.

The grant was made at the time that the milestones

previously set were achieved.

Two-thirds of the shares have vested and the remaining shares vest on February 7, 2021.

had an aggregate grant date fair value of $330,000 which is being amortized on a straight-line basis over the vesting period.

Additionally,

on November 7, 2019, Mr.

Jonas received 1,411 restricted shares of the Company’s Class B common stock to vest in substantially

equal amounts on November 7, 2020, 2021 2022.

At April 30, 2020, unrecognized compensation expense related to unvested restricted

stock was an aggregate of $85,000.

On November 7, 2019, the Compensation Committee

approved a grant of 30,534 restricted shares of Class B Common Stock to Mr.

Elliot Gibber, our Interim Chief Executive Officer

in respect of his service in that capacity through the remainder of Fiscal 2020 (or such shorter period as he shall serve in that

capacity), 15,267 shares of which vested on February 7, 2020 and the remainder will vest on May 7, 2020.

These shares had an aggregate

grant date fair value of $60,000 which is fully amortized as of April 30, 2020.

In connection with the Freeform acquihire

in September 2017, the Company granted a total of 192,953 restricted shares of Class B Common Stock to former Freeform employees,

which vest over a four-year period subject to continued employment.

These shares had an aggregate grant date fair value of $369,000

which is being amortized on a straight-line basis over the vesting period.

At April 30, 2020, unrecognized compensation expense

related to unvested restricted stock was an aggregate of $91,000.

For the nine months ended April 30, 2020

and 2019, we purchased 18,441 shares and 14,137 shares respectively of Class B Stock from former Freeform employees for $29,072

and $30,543 respectively, to satisfy tax withholding obligations in connection with the vesting of restricted stock.

Note 7—Earnings Per Share

Basic earnings per share is computed by

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

of all classes of common stock outstanding during the applicable period.

Diluted earnings per share is computed in the same manner

as basic earnings per share, except that the number of shares is increased to include restricted stock still subject to risk of

forfeiture, issuances to be made on the vesting of unvested DSUs and the exercise of potentially dilutive stock options using the

treasury stock method, unless the effect of such increase is anti-dilutive.

The 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:

At October 31, 2020, unrecognized compensation expense

related to unvested DSUs was an aggregate of $54,000.

the three months ended October 31, 2020, the Company purchased 5,625 shares of Class B Stock from various employees for $8,000

to satisfy tax withholding obligations in connection with the vesting of DSUs.

October 19, 2020, the Compensation Committee approved a grant of 10,619 restricted shares of Class B Common Stock to each of Mr.

Elliot Gibber and Mr.

Howard Jonas which vest immediately.

These shares had an aggregate grant date fair value of $30,000 and

have been fully amortized accordingly.

October 31, 2020, unrecognized compensation expense related to unvested restricted stock awards was an aggregate of $88,000.

the three months ended October 31, 2020 and 2019, the Company purchased 12,005 shares and 14,114 shares respectively of Class

B Stock from former Freeform employees for $18,000 and $22,000 respectively, to satisfy tax withholding obligations in connection

with the vesting of restricted stock.

7—Earnings Per Share

earnings per share is computed by dividing net income attributable to all classes of common stockholders of the Company by the

weighted average number of shares of all classes of common stock outstanding during the applicable period.

Diluted earnings per

share is computed in the same manner as basic earnings per share, except that the number of shares is increased to include restricted

stock still subject to risk of forfeiture, issuances to be made on the vesting of unvested DSUs and the exercise of potentially

dilutive stock options using the treasury stock method, unless the effect of such increase is anti-dilutive.

weighted-average number of shares used in the calculation of basic and diluted earnings per share attributable to the Company’s

common stockholders consists of the following:

Three Months Ended

Nine Months Ended

(in thousands)

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Diluted weighted-average number of shares

The following shares were excluded from

the dilutive earnings per share computations because their inclusion would have been anti-dilutive:

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

Three Months Ended

Nine Months Ended

(in thousands)

3 unchanged sentences

Shares excluded from the calculation of diluted earnings per share

For the three and nine months ended April

30, 2020 and 2019, 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 would have been anti-dilutive.

Note 8—Contingencies

Legal Proceedings

In March 2014, Saregama India, Limited

filed a lawsuit against the Company before the Barasat District Court, seeking approximately $1.6 million as damages and an injunction

for copyright infringement.

Saregama India alleged that the Company made available Saregama India’s sound recordings through

the Company’s platform with full knowledge that the sound recordings had been uploaded and were being communicated to the

public without obtaining any license from Saregama India.

On August 20, 2019, the Court lifted the injunction and, subsequently,

Saregama India executed a consent pursuant to which the case against the Company was dismissed.

The Company may from time to time be subject

to other legal proceedings that arise in the ordinary course of business.

Although there can be no assurance in this regard, the

Company does not expect any of those legal proceedings to have a material adverse effect on the Company’s results of operations,

cash flows or financial condition.

Note 9—Revolving Credit Facility

As of September 27, 2016, the Company entered

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

two years term which was extended for another two years term expiring September 26, 2020.

Advances under this facility may not

exceed the lesser of $2.5 million or 80% of the Company’s eligible accounts receivable, subject to certain concentration

The revolving credit facility is secured by a lien on substantially all of the Company’s assets.

The outstanding

principal amount bears interest per annum at the greater of 5.0% or the prime rate plus 1.25%.

Interest is payable monthly and

all outstanding principal and any accrued and unpaid interest is due on the maturity date of September 26, 2020.

The Company is

required to pay an annual facility fee of $12,500 to Western Alliance Bank.

The Company is also required to comply with various

affirmative and negative covenants and to maintain certain financial ratios during the term of the revolving credit facility.

covenants include 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, 2020, there were no amounts outstanding under the revolving credit facility and the Company was in compliance with

all of the covenants.

As of November 16, 2016, the Company entered

into a Foreign Exchange Agreement with Western Alliance Bank to allow the Company to enter into foreign exchange contracts not

to exceed $5.0 million in the aggregate at any point in time under its revolving credit facility.

This limit was raised to approximately

$6.5 million pursuant to the Loan and Security Modification Agreement dated May 30, 2018.

The available borrowing under the revolving

credit facility is reduced by an applicable foreign exchange reserve percentage as determined by Western Alliance Bank, in its

reasonable discretion from time to time, which was initially set at 10% of the nominal amount of the foreign exchange contracts

in effect at the relevant time.

In December 2016, the applicable foreign exchange reserve percentage was changed so that the reduction

of available borrowing for major currency forward contracts of less than nine 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

At April 30, 2020, there were $1.4 million of outstanding foreign exchange contracts with less than six months tenor

under the credit facility, which reduced the available borrowing under the revolving credit facility by $140,000.

Note 10—Investment in Privately-held Company

In August 2018, the Company made a $250,000

investment in TreSensa, Inc.

(“TreSensa”), representing a less than 1% equity ownership interest on a fully-diluted

basis, and concurrently entered into a playable ad distribution agreement with TreSensa under which the Company shall be paid a

higher percentage (when compared to industry norms) of revenue derived from all playable ads provided by TreSensa, from its available

catalogue for distribution through the Zedge App.

This distribution agreement was terminated in April 2019.

The Company’s ownership interest

in TreSensa, a privately held company, is comprised of non-marketable equity securities without a readily determinable fair value.

On August 1, 2018, the Company adopted ASU 2016-01, a new standard on the classification and measurement for non-marketable securities.

The Company adjusts the carrying value of its non-marketable equity securities to fair value upon observable transactions for identical

or similar investments of the same issuer or upon impairment (referred to as the measurement alternative).

All gains and losses

on non-marketable equity securities, realized and unrealized, are recognized in interest and other income (expense), net.

The Company periodically evaluates the

carrying value of the investments in privately held company when events and circumstances indicate that the carrying

amount of the investment may not be recovered.

The Company estimates the fair value of the investments to assess

whether impairment losses shall be recorded using Level 3 inputs.

These investments include the Company’s holdings in privately

held company that are not exchange traded and therefore not supported with observable market prices;

Company may determine the fair value by reviewing equity valuation reports, current financial results, long-term plans of the privately

held company, the amount of cash that the privately held company have on-hand, the ability to obtain additional financing and overall

market conditions in which the privately held company operate or based on the price observed from the most recent completed financing

In the fourth quarter of fiscal 2019, management

performed its qualitative assessment using the above factors, which indicated the investment's fair value was below its carrying

value, and therefore recorded an impairment charges of $250,000 in July 2019 and reduced the carrying value of the Company’s

non-marketable equity securities to $0 as of July 31, 2019.

Note 11—Business Segment and Geographic Information

The Company offers a state-of-the-art digital

publishing platform.

The Company use this platform to power its consumer-facing mobile personalization app, called Zedge, available

in the Google Play store and the App Store, which offers an easy, entertaining and immersive way for end-users to engage with its

rich and diverse catalogue of wallpapers, stickers, ringtones, notification sounds and video wallpapers.

The Company is evolving

by developing new, entertainment-focused apps, that will run on its publishing platform.

The Company conducts business as a single

operating segment.

Net long-lived assets and total assets

held outside of the United States, which are located primarily in Norway, were as follows:

the three months ended October 31, 2019, the diluted earnings per share equals basic earnings per share because the Company incurred

a net loss during that period and the impact of the assumed exercise of stock options and vesting of restricted stock would have

been anti-dilutive.

8—Contingencies

March 2014, Saregama India, Limited filed a lawsuit against the Company before the Barasat District Court, seeking approximately

$1.6 million as damages and an injunction for copyright infringement.

Saregama India alleged that the Company made available Saregama

India’s sound recordings through the Company’s platform with full knowledge that the sound recordings had been uploaded

and were being communicated to the public without obtaining any license from Saregama India.

On August 20, 2019, the Court lifted

the injunction and, subsequently, Saregama India executed a consent pursuant to which the case against the Company was dismissed.

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.

9—Revolving Credit Facility

of September 27, 2016, the Company entered into a loan and security agreement with Western Alliance Bank for a revolving credit

facility of up to $2.5 million for an initial two year term which was extended twice for another two years term expiring September

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.

The revolving credit

facility is secured by a lien on substantially all of the Company’s assets.

Effective with the September 2020 extension,

the outstanding principal amount bears 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 is payable monthly and all outstanding principal and any accrued and unpaid interest

is due on the maturity date of September 26, 2022.

The Company is required to pay an annual facility fee of $10,000 to Western

Alliance Bank.

The Company is 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 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 October 31, 2020, there were no amounts outstanding

under the revolving credit facility and the Company was in compliance with all of the covenants.

of November 16, 2016, the Company entered into a Foreign Exchange Agreement with Western Alliance Bank to allow the Company to

enter into foreign exchange contracts not to exceed $5.0 million in the aggregate at any point in time under its revolving credit

This limit was raised to approximately $6.5 million pursuant to the Loan and Security Modification Agreement dated May

The available borrowing under the revolving credit facility is reduced by an applicable foreign exchange reserve percentage

as determined by Western Alliance Bank, in its reasonable discretion from time to time, which was initially set at 10% of the

nominal amount of the foreign exchange contracts in effect at the relevant time.

In December 2016, the applicable foreign exchange

reserve percentage was changed so that the reduction of available borrowing for major currency forward contracts of less than

nine 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 October 31, 2020, there were $1.5 million of outstanding foreign

exchange contracts with less than six months tenor under the credit facility, which reduced the available borrowing under the

revolving credit facility by $150,000.

10—Business Segment and Geographic Information

Company is a leading app developer focusing on mobile phone personalization and entertainment.

“Zedge Wallpapers and Ringtones,”

the Company’s flagship app, is a hub for self-expression used by millions for mobile phone personalization, social content

and fandom art.

The app enables consumers to showcase who they are, what they like, and amplify their persona.

Zedge Premium,

the Company’s in-app marketplace, enables content creators, ranging the gamut from world class celebrities to emerging artists,

to display their talent and sell their content to our users.

“Shortz –

Chat Stories by Zedge”

offers serialized,

short-form fiction stories delivered as text-messaging conversations and soon to be available as mini-podcasts.

The Company’s

apps run on its flexible and proven state-of-the-art digital publishing platform.

The Company conducts business as a single operating

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

United States

Long-lived assets, net:

(in thousands)

Long-lived assets, net:

October 31, 2020

July 31, 2020

Total assets:

Note 12—

At the inception of certain arrangements,

the Company determines whether the arrangement is or contains a lease based on the unique facts and circumstances present.

leases are included in other assets, accrued expenses and other current liabilities, and other liabilities on the Company’s

Consolidated Balance Sheets.

The Company does not have any finance leases.

Leases with a term greater than one year

are recognized on the Consolidated Balance Sheet as right-of-use (“ROU”) assets, lease obligations and, if applicable,

long-term lease obligations in the line items cited above.

The Company has elected not to recognize leases with terms of one year

or less on the Consolidated Balance Sheets.

Lease obligations and their corresponding ROU assets are recorded based on the present

value of lease payments over the expected lease term.

As the interest rate implicit in lease contracts is typically not readily

determinable, the Company utilizes the appropriate incremental borrowing rate, which is the rate incurred to borrow on a collateralized

basis over a similar term an amount equal to the lease payments in a similar economic environment.

The lease term may include options

to extend or terminate the lease when it is reasonably certain that the Company will exercise that option.

The Company has elected to combine lease

components (including land, building or other similar items) and non-lease components (including common area maintenance, maintenance,

consumables, or other similar items) as a single component and therefore the non-lease components are included the calculation

of the present value of lease payments.

The lease expense is recognized over the expected term on a straight-line basis.

The Company currently leases 11,578 square

feet of office space for its technology development center located in Trondheim, Norway, under a noncancelable lease that expires

The Company uses these facilities to accommodate its product, design and technology team.

Additionally, the Company also

has short-term leases for its offices in 1) New York to house its commercial operations including sales, accounting and finance,

and business development, 2) Vilnius, Lithuania, a satellite development center and 3) Bodo, Norway that meet short-term lease

criteria and are not recognized on the Consolidated Balance Sheets.

Most leases include one or more options to renew, and the exercise

of these options is at the Company’s sole discretion.

The Company determined that its options to break or renew would not

be reasonably certain in determining the expected lease term, and therefore are not included as part of its ROU assets and lease

In calculating the present value of the

lease payments, the Company has elected to utilize its estimated incremental borrowing rate based on the remaining lease term and

not the original lease term.

The depreciable life of assets and leasehold improvements are limited by the expected lease term.

The elements of lease expense were as follows

(in thousands):

Three Months Ended

Nine Months Ended

Operating lease cost

Other lease cost, net (1)

Total lease cost

(1) Other lease cost, net includes

short-term lease costs and variable lease costs, which are immaterial.

The following table presents the lease-related assets and liabilities

recorded on the Consolidated Balance Sheet (in thousands):

Operating leases:

Other current liabilities

Other liabilities

Total operating lease liabilities

The following table summarizes the weighted average remaining

lease term and weighted average discount rate as of April 30, 2020:

Weighted average remaining lease term:

Operating leases

Weighted average discount rate:

Operating leases

Supplemental cash flow information related to leases was as

follows (in thousands):

Cash paid for amounts included in the measurement of lease liabilities:

Operating cash flows used in operating leases

Future minimum lease payments under non-cancelable leases for

the years ending July 31, 2020, 2021, 2022, and thereafter are as follows (in thousands):

October 31, 2020

July 31, 2020

Operating Leases

Company has operating leases primarily for office space.

Operating lease right-of-use assets recorded and included in other assets

were $250,000 and $317,000 at October 31, 2020 and July 31, 2020, respectively.

lease payments under operating leases as of October 31, 2020 were as follows (in thousands):

Total future minimum lease payments

Less imputed interest

As of April 30, 2020, the Company did

not have any leases that have not yet commenced that create significant rights and obligations.

Note 13—Provision for Income taxes

The provision for income consists of minimum

state taxes based on allocated net worth.

As part of the Tax Cuts and Jobs Act of

2017, Global Intangible Low-Taxed Income inclusion (GILTI) and Foreign Derived Intangible Income (FDII) deduction became effective

on January 1, 2018.

There was no impact to income tax expense resulting from the GILTI and FDII in light of the Company’s

available NOL carry forward and its full valuation allowance.

On March 27, 2020, the Coronavirus Aid,

Relief, and Economic Security (CARES) Act was signed into law.

The CARES Act contains several new or changed income tax provisions,

including but not limited to the following:

increased limitation threshold for determining deductible interest expense, class life

changes to qualified improvements (in general, from 39 years to 15 years), and the ability to carry back net operating losses incurred

from tax years 2018 through 2020 up to the five preceding years.

The Company has evaluated the tax provisions related to the CARES

Act and determined them as being immaterial.

Note 14—Recently Issued Accounting Standards Not

Recently Issued Accounting Standards Not Yet Adopted

In June 2016, the Financial Accounting

Standards Board (FASB) issued Accounting Standard Update No.

2016-13, Financial Instruments-Credit Losses (Topic 326):

of Credit Losses on Financial Instruments (ASU 2016-13) which changes the impairment model for most financial assets and certain

other instruments.

For receivables, loans and other instruments, entities will be required to use a new forward-looking “expected

model that generally will result in the earlier recognition of allowance for losses.

For available-for-sale debt securities

with unrealized losses, entities will measure credit losses in a manner similar to current practice, except the losses will be

recognized as allowances instead of reductions in the amortized cost of the securities.

In addition, an entity will have to disclose

significantly more information about allowances, credit quality indicators and past due securities.

The new provisions will be

applied as a cumulative-effect adjustment to retained earnings.

The Company will adopt the new standard on August 1, 2020.

Company does not expect that the new standard will have a significant impact on its consolidated financial statements.

In August 2018, the

FASB issued Accounting Standard Update No.

2018-13, Changes to Disclosure Requirements for Fair Value Measurements (Topic

820) (ASU 2018-13), which improved the effectiveness of disclosure requirements for recurring and nonrecurring fair value measurements.

The standard removes, modifies, and adds certain disclosure requirements.

The Company will adopt the new standard effective August

1, 2020 and does not expect the adoption of this guidance to have a material impact on its consolidated financial statements.

In August 2018, the FASB issued Accounting

Standard Update No.

2018-15, Customer’s Accounting for Implementation Costs Incurred

in a Cloud Computing Arrangement That Is a Service Contract, which aligns the requirements for capitalizing implementation

costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs

incurred to develop or obtain internal-use software.

The Company will adopt the new standard effective August 1, 2020 and does

not expect the adoption of this guidance to have a material impact on its consolidated financial statements.

In December 2019, the

FASB issued Accounting Standard Update No.

Reconciliation of lease liabilities as shown in the consolidated balance sheets

Operating lease liabilities, short-term

Other liabilities

Total lease liabilities

were no material changes in the Company’s operating and finance leases in the three months ended October 31, 2020, as compared

to the disclosure in the Company’s Annual Report on Form 10-K for the fiscal year ended July 31, 2020.

12—Provision for Income taxes

At July 31, 2020, the

Company had available U.S.

federal and state net operating loss (“NOL”) carryforwards from domestic operations of approximately

$5.6 million and $5.9 million, respectively, to offset future taxable income, the Company also had available NOL carryforwards

of approximately $433,000 to offset future foreign taxable income.

The Company expects to utilize these NOL carryforwards to offset

the taxable income for the three months ended October 31, 2020 and for the fiscal year ending July 31, 2021, and reduced its

effective tax rate to 0% for those periods.

The tax expense consists of minimum state taxes based on allocated net worth and certain

income taxes payable in foreign jurisdictions where the Company’s subsidiary resides.

March 27, 2020, the CARES Act was signed into law.

The Act contains several new or changed income tax provisions, including

but not limited to the following:

increased limitation threshold for determining deductible interest expense, class life changes

to qualified improvements (in general, from 39 years to 15 years), and the ability to carry back net operating losses incurred

from tax years 2018 through 2020 up to the five preceding tax years.

Most of these provisions are either not applicable

or have no material effect on the Company.

13—Recently Issued Accounting Standards Not Yet Adopted

Issued Accounting Standards Not Yet Adopted

December 2019, the FASB issued Accounting Standard Update No.

2019-12, Income Taxes (Topic 740):

Simplifying the Accounting for Income Taxes

(ASU 2019-12), which simplifies the accounting for income taxes.

This guidance will be effective for the Company in the first quarter

of fiscal 2021 on a prospective basis, and early adoption is permitted.

The Company is currently evaluating the impact of the new

guidance on its consolidated financial statements.

With the exception of the accounting standards

discussed above, there have been no other recent accounting pronouncements or changes in accounting pronouncements during the three

months ended April 30, 2020 that are of significance or potential significance to the Company.

Note 15—Loans Payable

16, 2019, the Company obtained a loan of $140,000 to pay for its insurance coverages, repayable in nine equal installments of $15,976

starting from September 1, 2020 which represented a 4.79% annual percentage interest rate.

27, 2020, Congress passed CARES Act to provide an estimated $2.2 trillion to fight the COVID-19 pandemic and stimulate the U.S.

economy, including $349 billion that was earmarked for the Paycheck Protection Program (PPP) to provide certain small businesses

with liquidity to support their operations, to be administered by the Small Business Administration (SBA).

An additional $310 billion

was later authorized for the PPP.

PPP, eligible small businesses can apply to an SBA-approved lender for a loan that doesn’t require collateral or personal

The loans have a 1% fixed interest rate and are due in two years.

However, they are eligible for forgiveness (in full

or in part, including any accrued interest) under certain conditions.

For loans (or parts of loans) that are forgiven, the lender

will collect the forgiven amount from the U.S.

believes it qualified for a PPP loan and applied for and received a $218,000 loan from Western Alliance Bank, a loan servicer and

the Company’s lender (see Note 9), on April 22, 2020.

The Company is using these proceeds primarily for payroll purposes

employees during the covered period provided under the PPP (which was recently extended to 24 weeks) and therefore expects

that most of this loan will be forgiven.

Any portion of the loan that is not forgiven will due five years after inception of the

Note 16—Sales of Class B Common Stock

5, 2020, the Company closed on its registered direct offering of 1,734,459 shares of its Class B common stock for gross proceeds

of $2.25 million.

The Company sold 1,657,813 shares at a purchase price of $1.28 per share which represented a 20% discount from

the 10 Day Volume Weighted Average Price (VWAP) through January 31, 2020, and certain Company insiders purchased an additional

Simplifying the Accounting

for Income Taxes (ASU 2019-12), which simplifies the accounting for income taxes.

This guidance will be effective for the

Company in the first quarter of fiscal 2022 on a prospective basis, and early adoption is permitted.

The Company will adopt the

new standard effective August 1, 2021 and does not expect the adoption of this guidance to have a material impact on its consolidated

financial statements.

the exception of the accounting standards discussed above, there have been no other recent accounting pronouncements or changes

in accounting pronouncements during the three months ended October 31, 2020 that are of significance or potential significance

to the Company.

14—Loans Payable

August 1, 2020, the Company obtained a loan of $181,000 to pay for certain insurance coverage, repayable in nine equal installments

of $20,490 starting from September 1, 2020 which represented a 3.89% annual percentage interest rate.

July 16, 2019, the Company obtained a loan of $140,000 to pay for certain insurance coverage, repayable in nine equal installments

of $15,976 starting from September 1, 2019 which represented a 4.79% annual percentage interest rate.

Company obtained a loan under the Paycheck Protection Program (PPP) of the CARES Act in the amount of $218,000 from Western Alliance

Bank, a loan servicer and the Company’s lender (see Note 9), on April 22, 2020.

The Company used these proceeds in full

for payroll purposes for U.S.

employees during the covered period provided under the PPP and therefore expects that all or most

of this loan will be forgiven.

Any portion of the loan that is not forgiven will be due two years after inception of the loan.

The loan has a 1% fixed interest rate and does not require collateral or personal guarantees.

Company submitted the PPP Loan Forgiveness Application Form 3508EZ on November 25, 2020.

15—Sales of Class B Common Stock

February 5, 2020, the Company closed on its registered direct offering of 1,734,459 shares of its Class B common stock for gross

proceeds of $2.25 million.

The Company sold 1,657,813 shares at a purchase price of $1.28 per share which represented a 20% discount

from the 10 Day Volume Weighted Average Price (VWAP) through January 31, 2020, and certain Company insiders purchased an additional

76,646 shares at a purchase price of $1.67 per share, the closing price on February 3, 2020.

3 unchanged sentences

capital and other general corporate purposes.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following information should be read

in conjunction with the accompanying 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, 2019 (the “Form

10-K”), as filed with the U.S.

Company filed a Form S-3 on November 30, 2020 which became effective on December 4, 2020 to facilitate additional capital raising.

On November 30, 2020, the Company engaged National Securities Corp.

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”

of shares of the Company’s Class B common stock up to $5 million.

Company filed a Prospectus Supplement on December 9, 2020 and contemporaneously entered into an At Market Issuance Sales Agreement

with the Sales Agents (the “ATM Sales Agreement”), pursuant to which sales will be made only upon instructions by

the Company to the Sales Agents, and the Company cannot provide any assurances that it will issue any shares pursuant to the ATM

Sales Agreement.

Management’s

Discussion and Analysis of Financial Condition and Results of Operations

following information should be read in conjunction with the accompanying 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, 2020 (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,”

used below, unless the context otherwise requires, the terms “the Company,”

“Zedge,”

2 unchanged sentences

and “our”

to Zedge, Inc., a Delaware corporation and its subsidiary Zedge Europe AS, collectively.

Forward-Looking Statements

This Quarterly Report on Form 10-Q contains

forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities

Exchange Act of 1934, including statements that contain the words “believes,”

refer to Zedge, Inc., a Delaware corporation and its subsidiary Zedge Europe AS, collectively.

Forward-Looking

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,”

3 unchanged sentences

and similar words and phrases.

These forward-looking statements are subject to risks

and uncertainties that could cause actual results to differ materially from the results projected in any forward-looking statement.

In addition to the factors specifically noted in the forward-looking statements, other important factors, risks and uncertainties

that could result in those differences include, but are not limited to, those discussed under Item 1A to Part I “Risk Factors”

These forward-looking statements

are subject to risks and uncertainties that could cause actual results to differ materially from the results projected in any

forward-looking statement.

In addition to the factors specifically noted in the forward-looking statements, other important factors,

risks and uncertainties that could result in those differences include, but are not limited to, 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

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.

We offer a state-of-the-art digital publishing

We use this platform to power our consumer-facing mobile personalization app, called Zedge, available in the Google Play

store and App Store, which offers an easy, entertaining and immersive way for end-users to engage with our rich and diverse catalogue

of wallpapers, video wallpapers, stickers, ringtones, notification sounds on Android and wallpapers, video wallpapers and ringtones,

We are evolving by developing new, entertainment-focused apps, that will run on our publishing platform.

We secure our

content from artists, both amateurs and professionals as well as emerging and major brands.

Artists have the ability to easily

launch a virtual storefront in our Zedge app where they can market and sell their content to our user base.

Our Zedge app has been installed more than

436 million times, and at April 30, 2020, boasted approximately 29 million monthly active users, or MAU.

MAU is a key performance

indicator that captures the number of unique users that used our Zedge app during the previous 30-day period.

Our Zedge app has

consistently ranked as one of the most popular free apps in the Google Play store in the United States.

Historically, we have not

made a material investment in paid user acquisition for our Zedge app.

Our legacy Zedge app’s success stems

from its ability to meet consumer demand 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 to our users.

To this end, we invest heavily in both product

design and development and the underlying technology required to satisfy both our Zedge app’s users’

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.

is a leading app developer focusing on mobile phone personalization and entertainment.

“Zedge Wallpapers and Ringtones”

our flagship app is all about personal identity.

We’re the hub for self-expression used by millions for mobile phone personalization,

social content and fandom art.

Our app enables consumers to showcase who they are, what they like, and amplify their persona.

Zedge Premium, our marketplace, enables content creators, ranging the gamut from world class celebrities to emerging artists,

to display their talent and sell their content to our users.

“Shortz –

Chat Stories by Zedge”

offers serialized,

short-form fiction stories delivered as text-messaging conversations and soon to be available as mini-podcasts.

Our apps run on

our flexible and proven state-of-the-art digital publishing platform.

Zedge app has been installed approximately 465 million times, and at October 31, 2020, boasted approximately 32.4 million monthly

active users, or MAU.

MAU is a key performance indicator that captures the number of unique users that used our Zedge app during

the previous 30-day of the relevant period.

Our Zedge app has consistently ranked as one of the most popular 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’s success stems from its ability to meet consumer demand 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 to our users.

To this end, we invest heavily in both product design and development and the underlying technology required to satisfy both our

Zedge app’s users’

and content contributors’

expectations.

Our Zedge app utilizes both user-generated and licensed, third-party content to achieve these goals.

In March 2018, we launched Zedge Premium,

a marketplace within our Zedge app where professional creators and brands market, distribute and sell their digital content to

our consumers.

Since launching Zedge Premium, we have made and continue making material investments in optimizing our app’s

homepage design in order to maximize exposure to premium content with the goal of driving sales.

Over time, 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

In January 2019, we started offering freemium

Zedge app users the ability to convert into paying subscribers for amongst other things the ability to remove unsolicited advertisements

from our Zedge app.

As of April 30, 2020, we amassed 394,000 active subscribers.

In fiscal 2020, we hope to further optimize the

offer based on user type, geography and price point as well as introduce new subscription enhancements like content bundles and

In December 2019, we completed the beta launch

of ‘Shortz’

our new entertainment app offering serialized, short-form fiction delivered in a text-message format across

both Android and iOS, focusing on users in the United States, the United Kingdom and Canada and is now available globally.

As of April 30, 2020, approximately 51% of

our Zedge app’s user base was located in North America and Europe with a split of 25% and 26%, respectively.

Over the past several years, we have experienced

a continuing decline in our MAU as well as a shift in the regional customer make-up with MAU in emerging markets representing an

increasing portion of our user base.

As of April 30, 2020, users in emerging markets represented 69% of our MAU compared to 63%

a year prior.

This shift has negatively impacted revenue because advertising rates in emerging markets are materially lower than

in well-developed markets.

MAU growth is tightly coupled with securing

Historically, our relatively high ranking in the Google Play store has been one of the primary drivers for securing

Although still an important factor, we have started dedicating resources to growth initiatives, both organic and paid.

Our Zedge app utilizes both user-generated and licensed,

third-party content to achieve these goals.

March 2018, we launched Zedge Premium, a marketplace within our Zedge app where professional creators and brands market, distribute

and sell their digital content to our consumers.

Since launching Zedge Premium, we have made and continue making material investments

in optimizing our Zedge app’s homepage design in order to maximize exposure to premium content with the goal of driving

Over time, 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.

January 2019, we started offering freemium Zedge app users the ability to convert into paying subscribers for amongst other things

the ability to remove unsolicited advertisements from our Zedge app.

As of October 31, 2020, we had approximately 609,000 active

paid subscribers.

In fiscal 2021, we hope to further optimize the offer based on user type, geography and price point as well

as introduce new subscription enhancements like content bundles and rewards.

December 2019, we completed the beta launch of ’Shortz’

our new entertainment app offering serialized, short-form

fiction delivered in a text-message format across both Android and iOS, focusing on users in the United States, the United Kingdom

and Canada and it is now available globally.

the past several years, our Zedge app has experienced a decline in its MAU, with modest increases in certain periods, as well

as a shift in the regional customer make-up with MAU in emerging markets representing an increasing portion of our user base.

As of October 31, 2020, users in emerging markets represented 72% of our MAU compared to 66% a year prior.

This shift has negatively

impacted revenue because advertising rates in emerging markets are materially lower than in well-developed markets.

quarter of fiscal 2021, users in emerging markets grew by 17.8% while users in well-developed economies declined 8.0% when compared

to the same period in fiscal 2020.

As of October 31, 2020, approximately 48% of our Zedge app’s user base was located in

North America and Europe (including Eastern Europe) with a split of 23% and 25%, respectively, compared with 53% as of October

31, 2019 evenly split between North America and Europe (including Eastern Europe).

growth is tightly coupled with securing new users.

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.

With time, we believe that we can change our growth dynamic in well-developed 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 platform.

Covid-19 has negatively impacted

new user growth due to a decline in new phone sales resulting from retail business closures, with a greater impact on growth of

users in well developed markets.

As business rebounds we expect that new user growth will benefit.

During the most recent quarter ended April

30, 2020, we generated approximately 72% of our revenues from selling our Zedge app’s advertising inventory to advertising

networks, advertising exchanges, and direct arrangements with advertisers.

Advertising networks and advertising exchanges are third-party

technology platforms that facilitate the buying and selling of media advertising inventory from multiple ad networks.

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.

Zedge Premium is our marketplace in the Zedge

app where artists and brands can market, distribute and sell their digital content to our users.

The content owner sets the price

and the end 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 rewarded videos or completing electronic surveys.

Alternatively, users can

buy Zedge Credits via an in-app purchase.

If a user purchases Zedge Credits, Google Play or App Store keeps 30% of the purchase

price with the remaining 70% being paid to us.

When a user purchases Zedge Premium content, the artist or brand receives 70% of

the actual value of the Zedge Credits used to buy the content item as royalty and we retain the remaining 30% as our fee, which

we recognize as Other Revenue.

As Zedge Premium matures and expands, we expect it to also diversify our revenue source mix.

In January 2019, we started testing a subscription-based

product on Android, whereby users of our Zedge app could pay a monthly or yearly fee to amongst other things remove unsolicited

ads when using our Zedge app.

The initial results were positive and, in the third quarter of fiscal 2019, we availed it to our

entire Android user base.

We offer our Zedge users a choice of a monthly or yearly subscription sold through Google Play.

a user subscribes, they execute a clickthrough agreement with us outlining the terms and conditions between us and them upon purchase

of the subscription.

Google Play processes payments for subscriptions.

During the first 12 months from sign up Google retains up

to 30% as a fee, which falls to 15% from month 13 and onward.

Subscription revenue is a series type performance obligation and

is recognized net of sales tax amounts collected from subscribers.

Both monthly and yearly subscriptions are nonrefundable after

seven days, and are automatically renewed at expiration date unless cancelled by subscribers.

Because of the cancellation clauses

for these subscriptions, the duration of these contracts is daily, and revenue for these contracts is recognized on a daily ratable

As of April 30, 2020, there were close to 394,000 active paid subscribers, consisting of mostly annual subscriptions.

launch in January 2019 through April 30, 2020, subscriptions have generated approximately $2 million in gross revenue.

Prior to May 31, 2019, the remainder of

our revenues were primarily generated from managing and optimizing the advertising inventory of a third-party mobile application

publisher, as well as overseeing the billing, collections and reporting related to advertising for this publisher.

The agreement

with this mobile application publisher was terminated effective May 31, 2019, and we are no longer providing these services.

Critical Accounting Policies

Our consolidated financial statements

and accompanying notes are prepared in accordance with accounting principles generally accepted in the United States of America,

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.

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 capitalized software and technology development costs, revenue recognition and goodwill.

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

Recently Issued Accounting Standards Not

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

The COVID-19 pandemic

has impacted our Zedge app’s new user growth.

We believe that new smartphone sales have suffered as a result of retail business

closures, negatively impacting new user growth, especially in well-developed markets.

Assuming the retail business rebounds from

the COVID-19 pandemic, we expect that our Zedge app’s new user growth will also recover and we will benefit accordingly.

We believes, that, due to restrictions on social activities related to the pandemic, users may increase engagement with our Zedge

app which may bode well for new user growth partially offsetting the negative impacts discussed.

the quarters ended October 31, 2020 and 2019, we generated approximately 79% and 82%, respectively, of our revenues from selling

our Zedge app’s advertising inventory to advertising networks, advertising exchanges, and direct arrangements with advertisers.

Advertising networks and advertising exchanges are third-party technology platforms that facilitate the buying and selling of

media advertising inventory from multiple ad networks.

The price of advertising inventory is fixed on an advertising network whereas

the price for inventory is determined through real-time bidding on an advertising exchange.

Advertisers are attracted to our Zedge

app because of its sizable user base.

our Zedge Premium marketplace, the content owner sets the price and the user can purchase the content by paying for it with Zedge

Credits, our closed virtual currency.

A user can earn Zedge Credits when taking specific actions such as watching a rewarded video.

Alternatively, users can buy Zedge Credits via an in-app purchase.

If a user purchases Zedge Credits, Google Play or App Store

keeps 30% of the purchase price with the remaining 70% being paid to us.

When a user purchases Zedge Premium content, the artist

or brand receives 70% of the actual value of the Zedge Credits used to buy the content item as a royalty and we retain the remaining

30% as our fee, which we recognize as revenue.

As Zedge Premium matures and expands, we expect to also diversify our revenue source

January 2019, we started offering a subscription-based product to Android users of our Zedge app in which the payment of a monthly

or annual fee would remove unsolicited ads when using 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.

of October 31, 2020, we had approximately 609,000 active paid subscribers, 90% of which had subscribed on an annual basis.

inception in January 2019, subscriptions have generated approximately $3.8 million in gross revenue.

Accounting Policies

consolidated financial statements and accompanying notes are prepared in accordance with accounting principles generally accepted

in the United States of America, or U.S.

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.

accounting policies include those related to capitalized software and technology development costs, revenue recognition and goodwill.

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.

Issued Accounting Standards Not Yet Adopted

issued accounting standards not yet adopted by us are more fully described in Note 13 to the Consolidated Financial Statements

included in Item 1 to Part I of this Quarterly Report on Form 10-Q.

The COVID-19 pandemic has resulted in public

health responses including travel bans, restrictions, social distancing requirements, and shelter-in place orders, which have negatively

impacted our business, operations and financial performance.

While we saw a significant decrease in advertising spend when the

pandemic became global in March, we have experienced a stabilizing daily advertising revenue and continuing improvement in our

subscriptions sales in May 2020.

In light of the current operating and economic

environment, the Company has shifted resources and priorities to increase focus on generating incremental revenue at the expense

of delivering new product.

We imposed a temporary hiring freeze and lowered our discretionary spend to preserve cash for mission

critical projects.

We have responded quickly and decisively to the challenges presented by the pandemic in order to ensure the

continuity of our service.

Given the unprecedented uncertainty and

rapidly shifting market conditions of the business environment, we cannot reasonably estimate the full impacts of the COVID-19

pandemic on our future financial and operational results.

Our past results may not be indicative of our future performance, and

historical trends in revenue, income (loss) from operations, net income (loss), and net income (loss) per share may differ materially.

For example, to the extent the pandemic continues to disrupt economic activity globally, it could continue to adversely affect

our business, operations and financial results through prolonged decreases in advertising spend, credit deterioration of our customers,

depressed economic activity, or declines in capital markets, including volatility of our stock price.

We continue to monitor the

rapidly evolving situation and guidance from international and domestic authorities, including federal, state and local public

health authorities, and there may be developments outside our control requiring us to adjust our operating plan.

As such, given

the unprecedented uncertainty around the duration and severity of the impact on market conditions and the business environment,

we cannot reasonably estimate the full impacts of the COVID-19 pandemic on our operating results in the future.

Key Performance Indicators

Our results of operations discussion includes

disclosure of two key performance indicators - Monthly Active Users (MAU) and Average Revenue Per Monthly Active User (ARPMAU).

MAU is a key performance indicator that captures the number of unique users that used our Zedge app during the previous 30-day

period, which is important to understanding the size of the user base for the Company’s Zedge app which is a driver of revenue.

Changes and trends in MAU are useful for measuring the general health of our business, gauging both present and potential customers'

experience, assessing the efficacy of product improvements and marketing campaigns and overall user engagement.

ARPMAU is 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 was down in the third quarter of fiscal

2020 when compared to the same period a year ago and the sequential second quarter.

A portion of this decline was likely a consequence

of a drop in new phone sales resulting from retail business closures.

This negatively impacted app installs and engagement which

are typical user behavior patterns when consumers purchase a new handset.

Over the past several years, we have experienced a continuing

shift in the regional customer make-up with MAU in emerging markets representing an increasing portion of our user base.

April 30, 2020, users in emerging markets represented 69% of our MAU compared to 63% a year prior.

This shift has negatively impacted

revenue because advertising rates in emerging markets are materially lower than in well-developed markets.

Conversely, ARPMAU for

the same periods was up 32.8% when compared to the same period a year ago, pointing to progress we have made in extracting more

value from our users, particularly from subscriptions.

ARPMAU declined 16.2% on a sequential basis due to higher advertising spend

during the holiday season in second quarter coupled with the impact from COVID-19 in third quarter.

Results of Operations

Three Months and Nine months Ended April 30, 2020 Compared

to Three Months and Nine months Ended April 30, 2019

COVID-19 pandemic has resulted in public health responses including travel bans, restrictions, social distancing requirements,

and shelter-in place orders, which have negatively impacted our business, operations and financial performance.

While we saw a

significant decrease in advertising spend when the pandemic became global in March, our daily advertising revenue has experienced

a strong recovery since July 2020.

responded quickly and decisively to the challenges presented by the pandemic in order to ensure the long-term continuity of our

Initially, we shifted resources and priorities and focused on streamlining our back-end infrastructure and specifically

redesigning our content management system in order to better control costs while simultaneously establishing a scalable foundation

for new growth initiatives, even at the expense of new product initiatives.

At the outset of the pandemic, we instituted a hiring

freeze which has subsequently been relaxed and we are starting to invest in new products, features, and enhancements.

the unprecedented uncertainty and rapidly shifting market conditions of the business environment, we cannot reasonably estimate

the full impact of the COVID-19 pandemic on our future financial and operational results.

At this point it is unclear whether

variables including the economy, unemployment, retail sales, and advertising budgets, or capital markets, including volatility

of our stock price will impact our business.

We continue to monitor the rapidly evolving situation and guidance from international

and domestic authorities, including federal, state and local public health authorities, and there may be developments outside

our control requiring us to adjust our operating plan.

Performance Indicators

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).

MAU is a key performance indicator that captures the number of unique users

that used our Zedge app during the previous 30-day period, which is important to understanding the size of the user base for the

Company’s Zedge app which is a driver of revenue.

Changes and trends in MAU are useful for measuring the general health

of our business, gauging both present and potential customers’

experience, assessing the efficacy of product improvements

and marketing campaigns and overall user engagement.

ARPMAU is 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.

increased 9.1% in the first quarter of fiscal 2021 when compared to the same period a year ago and increased slightly on a sequential

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 October 31, 2020, users in emerging markets represented 72%

of our MAU compared to 66% a year prior.

This shift has negatively impacted revenue because advertising rates in emerging markets

are materially lower than in well-developed markets.

However, ARPMAU for the three months ended October 31, 2020 was up 73.3%

when compared to the same period a year ago, pointing to progress we have made in extracting more value from our users, particularly

from paid subscriptions sales and improvement in ad optimization.

For the same reasons, ARPMAU also increased 28.2% on a sequential

Three Months Ended

Nine months ended

(in millions, except ARPMAU)

Developed Markets MAU

Emerging Markets MAU

Emerging Markets MAU/Total MAU

Three Months Ended

(in millions, except ARPMAU)

Developed Markets MAU

Emerging Markets MAU

Emerging Markets MAU/Total MAU

of Operations

Months Ended October 31, 2020 Compared to Three Months Ended October 31, 2019

Three months ended October 31,

(in thousands)

Direct cost of revenues

1 unchanged sentence

Depreciation and amortization

Loss from operations

Interest and other income

Income (loss) from operations

Interest and other income (expense), net

Net loss resulting from foreign exchange transactions

Provision for income taxes

nm—not meaningful

increased 8.7% from $1.91 million to $2.08 million in the three months ended April 30, 2020 compared to the same period in fiscal

2019, primarily due to an almost six-fold increase in paid subscribers, partially offset by the loss of $179,000 in service revenue

associated with managing ad operations for a third-party mobile app publisher, which was discontinued effective May 31, 2019.

a sequential basis, revenue decreased 21.4% compared to the second fiscal quarter due to the impact that COVID-19 had on advertising

budgets, lower new handset sales in the third quarter and the benefit of strong ad spend during the 2019 holiday season in second

Revenues decreased 1.6% from $6.87 million

to $6.76 million in the nine months ended April 30, 2020 compared to the same period in fiscal 2019.

The slight decline in revenues

was primarily due to the combination of a shift in the makeup of our user base from well-developed markets that command relatively

higher advertising rates to emerging markets, and the loss of service revenue discussed above, partially offset by the strong growth

in subscriptions.

In the three months ended April 30, 2020,

MAU declined by 28.7 and 7.6% % in well-developed economies and emerging markets, respectively, when compared to the same period

in fiscal 2019.

Overall, MAU fell 15.4% to 28.8 million at April 30, 2020 from 34.0 million at April 30, 2019, primarily as a result

of lower new handsets sales globally due to COVID-19 impact.

Notwithstanding the geographical shift and

the decline in our overall MAU, revenue per monthly active user or ARPMAU, from our apps increased 32.8% to $0.0220 in the three

months ended April 30, 2020 from $0.0166 in the same period in fiscal 2019.

This can be attributable to the higher margin subscription

revenue which has been our focus for growth in fiscal 2020 and, to a lesser extent, the decline in MAU which increases the impact

of certain revenue on this metric.

as well as other growth initiatives under way including, among other things, unlocking more

value from our users in emerging markets.

We completed the rollout of Zedge Premium

in March 2018 to a segment of our Android user base and we expanded it to 100% of our Android user base in January 2019.

three months ended April 30, 2020 gross transaction value (the total sales volume transacting through the platform, or “GTV”)

and net revenue generated from Zedge Premium were $150,000 and $123,000 respectively.

In the nine months ended April 30, 2020,

GTV and net revenue generated from Zedge Premium were $538,000 and $342,000 respectively.

The high margin can be attributed to

Zedge Credits expirations.

In the three months and nine months ended April 30, 2020, we recognized $62,000 and $124,000 in revenue

from breakage upon expiration of Zedge Credits.

We are likely

going to see a short-term to medium-term decline in GTV and associated Zedge Premium revenue due to our promotion of Shortz ahead

of Zedge Premium and the redesign of our app’s homepage which will enable improvements in content discovery and recommendations,

social and community features and the potential for new content genres.

Until this effort is completed, Zedge Premium GTV and associated

revenue will likely face pressure.

However, we have been able to offset some of the revenue impact by enabling better optimization

of our advertising inventory and associated revenue.

In January 2019, we started offering an

option by which users can remove unsolicited advertisements from our Zedge app by paying a fee.

In the three months and nine months

ended April 30, 2020, we generated gross subscription revenue of $684,000 and $1.5 million, respectively and recognized as subscription

revenue of $455,000 and $ 984,000 respectively.

We had close to 394,000 active subscription accounts as of April 30, 2020.

In December 2019, we completed the beta launch

of ‘Shortz’

our new entertainment app offering serialized, short-form fiction delivered in a text-message format across

both Android and iOS, focusing on users in the United States, the United Kingdom and Canada.

Revenue from Shortz were immaterial

during the three months and nine months ended April 30, 2020.

We continue to focus on topline growth

strategy by testing new monetization drivers including a variety of ad units, continuing our investment in driving subscriptions

in our flagship app, coin sales as well as certain growth initiatives such as improved content recommendations in order to increase

Our install count, that is the total number

of times the Zedge app has been installed on devices, increased to 436.3 million at April 30, 2020 from 382.3 million a year ago.

Net Income (loss)

following table sets forth the composition of our revenues for the three months ended October 31, 2020 and 2019:

Three Months Ended

% of total Revenue

(in thousands)

Advertising revenue

Paid subscription revenue

Other revenues

Total Revenues

Advertising revenue increased 79.1% in the three months ended October 31, 2020 compared to the same period

in fiscal 2020 primarily due to improvement in our ad optimizations and higher advertising rates.

subscription revenue .

We rolled out a subscription-based product on Android in January 2019, whereby users of our Zedge

app could 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.

constitutes our largest subscriber base and we generally charge $0.99 per month and

$4.99 per year.

We generated $862,000 and $342,000 in gross prepaid subscription sales consisting of both monthly and annual subscriptions

for the three months ended October 31, 2020 and 2019, respectively.

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.

from Shortz and Zedge Premium are included under Other Revenue, and those offerings constitute potential growth drivers in the

quarters to come.

following table summarizes subscription revenue for the three months ended October 31, 2020 and 2019.

As of Three Months Ended

Q1’21 vs.

(in thousands, except revenue per subscriber and percentages)

Paid net subscriber additions

Paid subscriber at end of period

Average paid subscribers

Average monthly revenue per paid subscriber

We completed the initial rollout of Zedge Premium in March 2018 to a segment of our Android user base and

we expanded it to 100% of our Android user base in January 2019.

In the three months ended October 31, 2020, gross transaction

value (the total sales volume transacting through the platform), or “GTV,”

and net revenue generated from Zedge Premium

were $208,000 and $125,000, respectively.

In the three months ended October 31, 2019, GTV and net revenue generated from Zedge

Premium were $192,000 and $159,000, respectively.

Net revenue includes breakage related to expired Zedge Credits.

cost of revenues .

Direct cost of revenues consists primarily of content hosting and content delivery costs.

Three Months Ended

(in thousands)

Q1’21 vs.

Direct cost of revenues

Direct cost of revenues consists primarily of content hosting and content delivery costs which decreased by $64,000 and $106,000

in the three months and nine months ended April 30, 2020, respectively when compared to the same periods in fiscal 2019, primarily

attributable to the migration of our backend infrastructure to cloud-based providers.

As a percentage of revenue, direct costs

in the three months and nine months ended April 30, 2020 were 13.9% and 13.7%, respectively, compared to 18.5% and 15.0% for the

same corresponding periods in fiscal 2019.

Due to the fixed cost nature of many elements of our direct cost of revenues, the increase

in revenue in the three months ended April 30, 2020 compared to the year ago period resulted in a decrease in direct cost as a

percentage of revenue in the three months ended April 30, 2020 when compared to the same period in fiscal 2019.

In the nine months

ended April 30, 2020, direct costs as a percentage of revenue went down slightly when compared to the same period in fiscal 2019.

As a percentage of revenues

cost of revenues decreased by $24,000 or 7.3% in the three months ended October 31, 2020 when compared to the same period in fiscal

2020, primarily attributable to the migration of our backend infrastructure to cloud-based providers.

a percentage of revenue, direct cost of revenues in three months ended October 31, 2020 declined to 8.1% from 16.1% in the same

period in fiscal 2020, primarily due to the combination of significantly higher revenue and lower direct costs.

general and administrative expense .

Selling, general and administrative expense (“SG&A”) consists mainly

of payroll, benefits, recruiting fees, facilities, marketing, content acquisition costs, consulting, professional fees, software

licensing (“SaaS”) and public company related expenses.

Three Months Ended

(in thousands)

Q1’21 vs.

Selling, general and administrative

Selling, general and administrative expense (“SG&A”) consists mainly of payroll, benefits,

facilities, marketing, content acquisition and consulting, professional fees, software licensing (“SaaS”) and cost

related to being a public company.

SG&A expenses decreased by $720,000 or 31.5% in the three months ended April 30, 2020 compared

to the same period in fiscal 2019.

SG&A expenses decreased by $1.4 million or 20.0% in the nine months ended April 30, 2020

compared to the same period in fiscal 2019.

These decreases were primarily attributable to reductions in net compensation costs

and discretionary expenses offset by higher marketing costs associated with the approximately 26% weighted fee we pay to Google

for each subscriber, severance payments and content acquisition expense associated with the ‘Shortz’

beta which was

launched in December 2019.

As the majority of our employees are based in Norway a stronger U.S.

Dollar against NOK also contributed

to the overall decline of SG&A in the three months and nine months ended April 30, 2020 when compared to the same periods in

Our headcount totaled 39 as of April 30,

2020 compared to 61 as of April 30, 2019, representing a 36% decline.

The decrease in headcount can be attributable the workforce

reduction plan we implemented in May 2019 and subsequent natural attritions.

Stock-based compensation expense was $102,000

and $118,000 for the three months ended April 30, 2020 and 2019, respectively.

Stock-based compensation expense was $397,000 and

$449,000 for the nine months ended April 30, 2020 and 2019, respectively.

Stock-based compensation includes equity grants to employees

and consultants, as well as stock issuances to pay for board compensations and 401-K matching contributions.

Certain stock options,

deferred stock unit and restricted stock grants are more fully described in Note 6 to the Consolidated Financial Statements included

in Item 1 to Part I of this Quarterly Report on Form 10-Q.

As a percentage of revenues

expenses increased by $61,000 or 3.1% in the three months ended October 31, 2020 compared to the same period in fiscal 2020.

increase was primarily attributable to higher stock-based compensation (see discussion below), higher professional fees and higher

marketing costs associated with the approximately 26% average fee we pay to Google for each subscriber, offset by reductions in

net compensation costs and discretionary expenses.

a percentage of revenue, SG&A expenses declined to 53.3% in the three months ended October 31, 2020 from 95.7% in the same

period in fiscal 2020, primarily resulting from 85% year over year revenue growth.

headcount totaled 42 as of October 31, 2020 compared to 45 as of October 31, 2019 with the majority of our employees now based

in Lithuania.

expenses also included stock-based compensation expense which was $237,000 and $98,000 for the three months ended October 31,

2020 and 2019, respectively.

This increase was primarily related to the extension of the expiration date of options to purchase

approximately182,000 shares of Class B Common Stock held by one of our executive officers, from October 31, 2021 to May 31, 2026

and certain other equity grants as more fully described in Note 6 to the Consolidated Financial Statements included in Item 1

to Part I of this Quarterly Report on Form 10-Q.

and amortization .

Depreciation and amortization consist mainly of amortization of 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.

We started amortizing these capitalized software and technology development costs once these projects

were completed.

Three Months Ended

(in thousands)

Q1’21 vs.

Depreciation and amortization

and amortization consist mainly of amortization of 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.

We started amortizing

these capitalized software and technology development costs once these projects were completed.

The fluctuation in depreciation

and amortization expenses in any given periods can be attributed to the numbers of projects being amortized during those periods,

as we removed fully amortized projects and added newly completed projects in the amortization pool.

Net loss resulting from foreign exchange

transactions .

Net loss resulting from foreign exchange transactions is comprised of gains and losses generated from

movements in NOK relative to the U.S.

Dollar, including gains or losses from our hedging activities.

In the three months ended

April 30, 2020 and 2019, we had losses of $200,000 and $72,000 respectively, including losses from hedging activities.

months ended April 30, 2020 and 2019, we had losses of $239,000 and $236,000 respectively, including losses from hedging activities.

Dollar surged to a historic high against NOK in March 2020 primarily due to the plunging oil price caused by the economic

slowdown associated with COVID-19.

As a result, we suffered significant loss on our foreign currency exchange contracts including

an unrealized loss of $148,000 as of April 30, 2020.

As one of the world’s largest oil exporters, oil has become an important

element of the economy of Norway and as such Norwegian NOK is strongly tied to oil prices which dropped significantly in March

As a percentage of revenues

comparison of depreciation and amortization expenses in any given periods can be attributed to the number of projects being amortized

during those periods, as we removed fully amortized projects and added newly completed projects in the amortization pool.

and other income (expense), net.

The increase in interest and other income (expenses), net in the three months ended October

31, 2020 when compared to the same period in fiscal 2020 was primarily due to the increase in our cash and cash equivalents position

during the period.

Three Months Ended

(in thousands)

Q1’21 vs.

Interest and other income (expense), net

As a percentage of revenues

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

Three Months Ended

(in thousands)

Q1’21 vs.

Net loss resulting from foreign exchange transactions

As a percentage of revenues

the three months ended October 31, 2020 and 2019, we incurred losses of $41,000 and $74,000, respectively, from NOK and EUR hedging

activities due to U.S.

Dollar’s strength during these periods.

Provision for

income taxes .

The tax expense consists of minimum state taxes based on allocated net worth and certain income taxes

payable in foreign jurisdictions where our subsidiary resides.

Three Months Ended

(in thousands)

Q1’21 vs.

Provision for income taxes

The tax expense consists of minimum state taxes based on allocated net worth.

As part of the Tax Cuts and Jobs Act of

2017, Global Intangible Low-Taxed Income inclusion (GILTI) and Foreign Derived Intangible Income (FDII) deduction became effective

on January 1, 2018.

There was no impact to income tax expense resulting from the GILTI and FDII in light of the Company’s

available NOL carry forward and its full valuation allowance.

On March 27, 2020, the Coronavirus Aid, Relief,

and Economic Security (CARES) Act was signed into law.

The Act contains several new or changed income tax provisions, including

but not limited to the following:

increased limitation threshold for determining deductible interest expense, class life changes

to qualified improvements (in general, from 39 years to 15 years), and the ability to carry back net operating losses incurred

from tax years 2018 through 2020 up to the five preceding years.

The Company has evaluated the new tax provisions of related to

the CARES Act and determined them as being immaterial.

Liquidity and Capital Resources

At April 30, 2020, we had cash and cash

equivalents of $4.6 million and working capital (current assets less current liabilities) of $3.1 million, compared to $1.6 million

and $1.2 million, respectively at July 31, 2019.

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 months ending April 30, 2021.

We also maintain a revolving

line of credit of up to $2.5 million and a foreign exchange contract facility of up to $6.5 million with Western Alliance Bank,

as discussed below in Financing Activities.

The following

tables present selected financial information for the nine months ended April 30, 2020 and 2019:

Nine months ended

As a percentage of revenues

July 31, 2020, we had available U.S.

federal and state net operating loss (“NOL”) carryforwards from domestic operations

of approximately $5.6 million and $5.9 million, respectively, to offset future taxable income, we also had available NOL carryforwards

of approximately $433,000 to offset future foreign taxable income.

We expect to utilize these NOL carryforwards to offset the

taxable income for the three months ended October 31, 2020 and for the fiscal year ending July 31, 2021, and reduced its effective

tax rate to 0% for those periods.

March 27, 2020, the CARES Act was signed into law.

The Act contains several new or changed income tax provisions, including but

not limited to the following:

increased limitation threshold for determining deductible interest expense, class life changes to

qualified improvements (in general, from 39 years to 15 years), and the ability to carry back net operating losses incurred from

tax years 2018 through 2020 up to the five preceding tax years.

Most of these provisions are either not applicable or have no

material effect on the Company.

and Capital Resources

October 31, 2020, we had cash and cash equivalents of $6.3 million and working capital (current assets less current liabilities)

of $5.3 million, compared to $5.1 million and $3.9 million, respectively at July 31, 2020.

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 months ending

October 31, 2021.

We also maintain a revolving line of credit of up to $2.0 million and a foreign exchange contract facility of

up to $6.5 million with Western Alliance Bank, as discussed below in Financing Activities.

following tables present selected financial information for the three months ended October 31, 2020 and 2019:

Three Months Ended

(in thousands)

4 unchanged sentences

Effect of exchange rate changes on cash and cash equivalents

Increase (decrease) in cash and cash equivalents

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 in the nine

months ended April 30, 2020 and 2019 was primarily attributable to the revenues generated from our service offerings, including

primarily advertising and subscription revenue.

Investing Activities

Cash used in investing activities in the

nine months ended April 30, 2020 and 2019 consisted mostly of capitalized software and technology development costs related to

various projects that we invested in specific to the various platforms on which we operate our service as well as an investment

in TreSensa, Inc.

In August 2018, we made a $250,000 investment

in a privately-held company which is more fully described in Note 10 to the Consolidated Financial Statements included in Item 1

to Part I of this Quarterly Report on Form 10-Q.

Financing Activities

5, 2020, we closed a registered direct offering of 1,734,459 shares of its Class B common stock for net proceeds of $2.1 million

from both new and existing investors.

22, 2020, we received $218,000 in proceeds from a PPP loan from Western Alliance Bank, which was administered by the Small Business

Administration and established under the CARES Act, as more fully described in Note 15 to the Consolidated Financial Statements

included in Item 1 to Part I of this Quarterly Report on Form 10-Q.

In July 2019, we obtained a loan of $140,000

to finance about 85% of various insurance policies, at an annual percentage interest rate of 4.79% to be repaid over nine equal

monthly installments of $15,976.20 starting from September 1, 2019.

We repaid approximately $125,000 in principal in the nine

months ended April 30, 2020.

In the nine months ended April 30, 2020

and 2019, we purchased 18,441 shares and 14,137 shares, respectively, of Class B Stock from employees for $29,072 and $30,543 respectively,

to satisfy tax withholding obligations in connection with the vesting of restricted stock.

As of September 27, 2016, we entered into

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

26, 2018, we extended this agreement for another two years term expiring September 26, 2020.

Advances under this facility may not

exceed the lesser of $2.5 million or 80% of our eligible accounts receivable subject to certain concentration limits.

The revolving

credit facility is secured by a lien on substantially all of our assets.

The outstanding principal amount bears interest per annum

at the greater of 5.0% or the prime rate plus 1.25%.

Interest is payable monthly and all outstanding principal and any accrued

and unpaid interest is due on the maturity date of September 26, 2020.

We are required to pay an annual facility fee of $12,500

to Western Alliance Bank.

We are also required to comply with various affirmative and negative covenants as well as maintain certain

financial ratios during the term of the revolving credit facility.

The covenants include a prohibition on us not paying any dividend

on our capital stock.

We may terminate this agreement at any time without penalty or premium provided that we pay down any outstanding

principal, accrued interest and bank expenses.

At April 30, 2020, there were no amounts outstanding under the revolving credit

facility and we were in compliance with all of the covenants.

As of November 16, 2016, we entered into

a Foreign Exchange Agreement with Western Alliance Bank to allow us to enter into foreign exchange contracts not to exceed $5.0

million in the aggregate at any point in time under our revolving credit facility.

This limit was raised to approximately $6.5

million pursuant to the Loan and Security Modification Agreement dated May 30, 2018.

The available borrowing under the revolving

credit facility is reduced by an applicable foreign exchange reserve percentage as determined by Western Alliance Bank, in its

reasonable discretion from time to time, which was initially set at 10% of the nominal amount of the foreign exchange contracts

in effect at the relevant time.

In December 2016, the applicable foreign exchange reserve percentage was changed so that the reduction

of available borrowing for major currency forward contracts of less than nine months tenor is set at 10% of the nominal amount

of the foreign exchange contracts, and for contracts over nine months tenor, 12.5% of the nominal amount of the foreign exchange

At April 30, 2020, there were $1.4 million of outstanding foreign exchange contracts with less than six months tenor

under the credit facility, and no outstanding foreign exchange contracts with greater than six months tenor, which reduced the

available borrowing under the revolving credit facility by $140,000.

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 decreased

slightly to $935,000 at April 30, 2020 from $1.13 million at July 31, 2019.

Concentration of Credit Risk and Significant Customers

Historically, we have had very little or

no bad debt, which is common with other platforms of our size that derive their revenue from digital 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), Google, Facebook and Ogury, 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, 2020,

two customers represented 31% and 28% of our revenue.

In the nine months ended April 30, 2019, three customers represented 28%,

27% and 10% of our revenue.

At April 30, 2020, three customers represented 37%, 32% and 11% of our accounts receivable balance,

and at July 31, 2019, three customers represented 32%, 17% and 17% 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, 2020, 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.

Quantitative and Qualitative Disclosures About Market Risks

Smaller reporting companies are not required

to provide the information required by this item.

Increase in cash and cash equivalents

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.

provided by operating activities in the three months ended October 31, 2020 was $1.1 million higher when compared to the same

period a year ago, primarily attributable to the higher revenues generated from our service offerings, including primarily advertising

and paid subscription revenue.

used in investing activities in the three months ended October 31, 2020 and 2019 consisted mostly of capitalized software and

technology development costs related to various projects that we invested in specific to the various platforms on which we operate

August 2020, we obtained a loan of $181,000 to finance about 82% of various insurance policies, at an annual percentage interest

rate of 3.89% to be repaid over nine equal monthly installments of $20,490 starting from September 1, 2020.

We repaid approximately

$40,000 in principal in the three months ended October 31, 2020.

August 2019, we obtained a loan of $140,000 to finance about 85% of our directors’

and officers’

and Techguard insurance

policies, at an annual percentage interest rate of 4.79% to be repaid over nine equal monthly installments of $15,976 starting

from September 1, 2019.

We repaid approximately $31,000 in principal in three months ended October 31, 2019.

the three months ended October 31, 2020 and 2019, we purchased 17,630 shares and 14,114 shares, respectively, of Class B Stock

from employees for $25,571 and $22,300 respectively, to satisfy tax withholding obligations in connection with the vesting of

restricted stock and DSUs.

maintain a credit facility of up to $2.0 million provided by Western Alliance Bank which is more fully described in Note 9 to

the Consolidated Financial Statements included in Item 1 to Part I of this Quarterly Report on Form 10-Q.

do not anticipate paying dividends on our common stock until we achieve sustainable profitability and retain certain minimum cash

The payment of dividends in any specific period will be at the sole discretion of our Board of Directors.

in Trade Accounts Receivable

trade accounts receivable increased $554,000 to $1.96 million at October 31, 2020 from $1.41 million at July 31, 2020, primarily

due to higher revenue in the current period.

Concentration

of Credit Risk and Significant Customers

Historically,

we have had very little or no bad debt, which is common with other platforms of our size that derive their revenue from digital

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), Google, Facebook and Ogury, 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.

the three months ended October 31, 2020, three customers represented 25%, 20% and 12% of our revenue.

In the three months ended

October 31, 2019, the same three customers represented 30%, 25% and 13% of our revenue.

At October 31, 2020, three customers represented

35%, 28% and 10% of our accounts receivable balance, and at July 31, 2020, two customers represented 35% and 32% 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.

Obligations and Other Commercial Commitments

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

Sheet Arrangements

October 31, 2020, 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.

and Qualitative Disclosures About Market Risks

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

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements