What changed in this filing

/stocks — the workspaceLOADING

Item 9A. Controls and Procedures

2021-11-09 compared with 2020-10-28 · 1057 added, 1091 removed, 382 unchanged (85% of the section changed)

Controls and Procedures.

of Disclosure Controls and Procedures

Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of our disclosure controls and procedures

(as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended), as of the end of the period

covered by this Annual Report on Form 10-K.

Based on this evaluation, our Chief Executive Officer and Chief Financial Officer

have concluded that our disclosure controls and procedures were effective as of July 31, 2020.

of Management on Internal Control over Financial Reporting

the management of Zedge, Inc.

and subsidiaries (the “Company”), are responsible for establishing and maintaining adequate

internal control over financial reporting of the Company.

Company’s internal control over financial reporting is defined in Rule 13a-15(f) and 15d-15(f) promulgated under the Securities

Exchange Act of 1934 as a process designed by, or under the supervision of, the Company’s principal executive and principal

financial officers and effected by the Company’s board of directors, management and other personnel, to provide reasonable

assurance regarding the reliability of financial reporting and the preparation of the Company’s financial statements for

external purposes in accordance with generally accepted accounting principles in the United States and includes those policies

and procedures that:

to the maintenance of records that in reasonable detail accurately and fairly reflect

the transactions and dispositions of assets of the Company;

reasonable assurance that transactions are recorded as necessary to permit preparation

of financial statements in accordance with generally accepted accounting principles,

and that receipts and expenditures of the Company are being made only in accordance with

authorizations of management and directors of the Company;

reasonable assurance regarding prevention or timely detection of unauthorized acquisition,

use or disposition of the Company’s assets that could have a material effect on

the financial statements.

has assessed the effectiveness of the Company’s internal control over financial reporting as of July 31, 2020.

this assessment, the Company’s management used the criteria established in Internal Control —

Integrated Framework

(2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

the supervision and with the participation of our management, including our principal executive officer and principal financial

officer, we conducted an evaluation of our internal control over financial reporting, as prescribed above, as of July 31, 2020.

Based on our evaluation, our principal executive officer and principal financial officer concluded that the Company’s internal

control over financial reporting was effective as of July 31, 2020.

Accordingly, management believes the consolidated financial

statements included in this Form 10-K fairly present, in all material respects, the Company’s financial condition, results

of operations and cash flows for the periods presented.

Annual Report on Form 10-K does not include an attestation report of our independent registered public accounting firm regarding

internal control over financial reporting because as a smaller reporting company we are not subject to attestation by our independent

registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit us to provide only management’s

report in this Annual Report.

in Internal Control over Financial Reporting

were no changes in our internal control over financial reporting during the fourth quarter of fiscal 2020 that have materially

affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Evaluation of Disclosure Controls and Procedures

Our Chief Executive Officer and Chief Financial Officer have evaluated

the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act

of 1934, as amended), as of the end of the period covered by this Annual Report on Form 10-K.

Based on this evaluation, our Chief Executive

Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective as of July 31, 2021

other than the restatement as disclosed below.

Consideration of Restatement

In light of the restatement discussed in Note 1 to the consolidated

financial statements included in Item 1 to Part I of the Quarterly Report on Form 10-Q/A filed on November 5, 2021, our principal

executive and principal financial officers reevaluated the effectiveness of our disclosure controls and procedures as of July 31, 2021,

including whether the error identified was the result of a material weakness in our internal control over financial reporting.

of this assessment, we reconsidered whether our existing disclosure controls and procedures over the evaluation of the valuation allowance

against deferred tax assets, which has been outsourced to an outside accounting firm since fiscal 2018, were operating effectively.

on this assessment, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures

related to the valuation allowance were not effective as of July 31, 2021.

We are considering remedial actions and expect to implement

them in the near future.

Report of Management on Internal Control over Financial Reporting

We, the management of Zedge, Inc.

and subsidiaries (the “Company”),

are responsible for establishing and maintaining adequate internal control over financial reporting of the Company.

The Company’s internal control over financial reporting is defined

in Rule 13a-15(f) and 15d-15(f) promulgated under the Securities Exchange Act of 1934 as a process designed by, or under the supervision

of, the Company’s principal executive and principal financial officers and effected by the Company’s board of directors, management

and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the Company’s

financial statements for external purposes in accordance with generally accepted accounting principles in the United States and includes

those policies and procedures that:

Pertain to the maintenance of records that in reasonable

detail accurately and fairly reflect the transactions and dispositions of assets of the Company;

Provide reasonable assurance that transactions are recorded

as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts

and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company;

Provide reasonable assurance regarding prevention or timely

detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial

Management has assessed the effectiveness of the Company’s internal

control over financial reporting as of July 31, 2021.

In making this assessment, the Company’s management used the criteria established

in Internal Control —

Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

Under the supervision and with the participation of our management,

including our principal executive officer and principal financial officer, we conducted an evaluation of our internal control over financial

reporting, as prescribed above, as of July 31, 2021.

Based on our evaluation, our principal executive officer and principal financial

officer concluded that the Company’s internal control over financial reporting was not effective due to the existence of the material

weakness as described below.

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial

reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial

statements will not be prevented or detected on a timely basis.

Notwithstanding the material weakness described below, we have performed

additional analyses and other procedures to enable management to conclude that our consolidated financial statements included in this

Form 10-K fairly present, in all material respects, the Company’s financial condition, results of operations and cash flows for

the periods presented.

Deficiency in our Internal Control Over Financial Reporting

Based on an evaluation of the effectiveness of the design and operation

of its controls and procedures conducted by the Company’s management, including the Company’s Chief Executive Officer and

Chief Financial Officer, the Company has concluded that, due to the below material weakness in financial reporting, these controls and

procedures were not effective as of July 31, 2021.

We have identified the following material weakness in our controls:

Management review controls related to the valuation allowance

against deferred tax assets were not effective.

The Company’s management plans to take steps to remediate the

material weakness identified above and improve internal control over financial reporting.

Remediation of these weaknesses had not yet

been completed, and therefore these deficiencies continued to exist as of November 5, 2021.

Management and our Audit Committee will monitor

remedial measures and the effectiveness of our internal controls and procedures.

Notwithstanding the material weakness described above,

we have performed additional analyses and other procedures to enable management to conclude that our financial statements included in

this Form 10-K fairly present, in all material respects, our financial condition and results of operations as of and for the year ended

July 31, 2021.

This Annual Report on Form 10-K does not include an attestation report

of our independent registered public accounting firm regarding internal control over financial reporting because as a smaller reporting

company we are not subject to attestation by our independent registered public accounting firm pursuant to rules of the Securities and

Exchange Commission that permit us to provide only management’s report in this Annual Report.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting

during the fourth quarter of fiscal 2021 that have materially affected, or are reasonably likely to materially affect, our internal control

over financial reporting.

Other Information.

Directors and Executive Officers of the Registrant, and Corporate Governance

following is a list of our directors and executive officers along with the specific information required by Rule 14a-3 of the

Securities Exchange Act of 1934:

Reich –

Directors and Executive Officers of the Registrant, and

Corporate Governance

The following is a list of our directors and executive officers along

with the specific information required by Rule 14a-3 of the Securities Exchange Act of 1934:

Executive Officers

Jonathan Reich –

Chief Executive Officer and President

Yi Tsai –

Chief Financial Officer and Treasurer

Jonas –Executive Chairman

Jonas, Chairman of the Board

Jonas, Vice Chairman of the Board

remaining information required by this Item will be contained in our Proxy Statement for our Annual Stockholders Meeting, which

will be filed with the Securities and Exchange Commission within 120 days after July 31, 2020, and which is incorporated

by reference herein.

have included as exhibits to this Annual Report on Form 10-K certificates of our Chief Executive Officer and Chief Financial Officer

certifying the quality of our public disclosure.

make available free of charge through the investor relations page of our web site ( investor.zedge.net ) our Annual Reports

on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and all amendments to those reports, and all beneficial

ownership reports on Forms 3, 4 and 5 filed by directors, officers and beneficial owners of more than 10% of our equity, as soon

as reasonably practicable after such reports are electronically filed with the Securities and Exchange Commission.

We have adopted

codes of business conduct and ethics for all of our employees, including our principal executive officer, principal financial

officer and principal accounting officer.

Copies of the codes of business conduct and ethics are available on our web site.

web site and the information contained therein or incorporated therein are not intended to be incorporated into this Annual Report

on Form 10-K or our other filings with the Securities and Exchange Commission.

Michael Jonas –Executive Chairman

Michael Jonas, Chairman of the Board

Howard Jonas, Vice Chairman of the Board

Mark Ghermezian

Elliot Gibber

Gregory Suess

The remaining information required by this Item will be contained in

our Proxy Statement for our Annual Stockholders Meeting, which will be filed with the Securities and Exchange Commission within 120 days

after July 31, 2021, and which is incorporated by reference herein.

Corporate Governance

We have included as exhibits to this Annual Report on Form 10-K certificates

of our Chief Executive Officer and Chief Financial Officer certifying the quality of our public disclosure.

We make available free of charge through the investor relations page

of our web site ( investor.zedge.net ) our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form

8-K and all amendments to those reports, and all beneficial ownership reports on Forms 3, 4 and 5 filed by directors, officers and beneficial

owners of more than 10% of our equity, as soon as reasonably practicable after such reports are electronically filed with the Securities

and Exchange Commission.

We have adopted codes of business conduct and ethics for all of our employees, including our principal executive

officer, principal financial officer and principal accounting officer.

Copies of the codes of business conduct and ethics are available

on our web site.

Our web site and the information contained therein or incorporated

therein are not intended to be incorporated into this Annual Report on Form 10-K or our other filings with the Securities and Exchange

Executive Compensation

information required by this Item will be contained in our Proxy Statement for our Annual Stockholders Meeting, which will be

filed with the Securities and Exchange Commission within 120 days after July 31, 2020, and which is incorporated by reference

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

information required by this Item will be contained in our Proxy Statement for our Annual Stockholders Meeting, which will be

filed with the Securities and Exchange Commission within 120 days after July 31, 2020, and which is incorporated by reference

Certain Relationships and Related Transactions, and Director Independence

information required by this Item will be contained in our Proxy Statement for our Annual Stockholders Meeting, which will be

filed with the Securities and Exchange Commission within 120 days after July 31, 2020, and which is incorporated by reference

The information required by this Item will be contained in our Proxy

Statement for our Annual Stockholders Meeting, which will be filed with the Securities and Exchange Commission within 120 days after July

31, 2021, and which is incorporated by reference herein.

Security Ownership of Certain Beneficial Owners and Management

and Related Stockholder Matters

The information required by this Item will be contained in our Proxy

Statement for our Annual Stockholders Meeting, which will be filed with the Securities and Exchange Commission within 120 days after July

31, 2021, and which is incorporated by reference herein.

Certain Relationships and Related Transactions, and Director

The information required by this Item will be contained in our Proxy

Statement for our Annual Stockholders Meeting, which will be filed with the Securities and Exchange Commission within 120 days after July

31, 2021, and which is incorporated by reference herein.

Principal Accounting Fees and Services

information required by this Item will be contained in our Proxy Statement for our Annual Stockholders Meeting, which will be

filed with the Securities and Exchange Commission within 120 days after July 31, 2020, and which is incorporated by reference

The information required by this Item will be contained in our Proxy

Statement for our Annual Stockholders Meeting, which will be filed with the Securities and Exchange Commission within 120 days after July

31, 2021, and which is incorporated by reference herein.

Exhibits, Financial Statement Schedules.

following documents are filed as part of this Report:

Report of Independent Registered Public Accounting Firm on Consolidated Financial Statements

Consolidated Financial Statements covered by Report of Independent Registered Public Accounting Firm

(a) The following documents are filed as part of this Report:

Report of Independent Registered Public Accounting Firm on

Consolidated Financial Statements

Consolidated Financial Statements covered

by Report of Independent Registered Public Accounting Firm

Financial Statement Schedule.

All schedules have been omitted since they are either included in the Notes to Consolidated Financial Statements or not required or not applicable.

Exhibit Numbers 10.1, 10.6, 10.7, 10.8 and 10.9 are management contracts or compensatory plans or arrangements.

The exhibits listed in paragraph (b) of this item are filed, furnished, or incorporated by reference as part of this Form 10-K.

Certain of the agreements filed as exhibits to this Form 10-K contain representations and warranties by the parties to the agreements that have been made solely for the benefit of the parties to the agreement.

All schedules have been omitted since

they are either included in the Notes to Consolidated Financial Statements or not required or not applicable.

Exhibit Numbers 10.1, 10.6, 10.7, 10.8 and 10.9

are management contracts or compensatory plans or arrangements.

The exhibits listed in paragraph (b) of

this item are filed, furnished, or incorporated by reference as part of this Form 10-K.

Certain of the agreements filed as

exhibits to this Form 10-K contain representations and warranties by the parties to the agreements that have been made solely for the

benefit of the parties to the agreement.

These representations and warranties:

have been qualified by disclosures that were made to the other parties in connection

with the negotiation of the agreements, which disclosures are not necessarily reflected

in the agreements;

apply standards of materiality that differ from those of a reasonable investor;

made only as of specified dates contained in the agreements and are subject to subsequent

developments and changed circumstances.

these representations and warranties may not describe the actual state of affairs as of the date that these representations and

warranties were made or at any other time.

may have been qualified by disclosures that were made to the other parties in connection with the negotiation of the agreements, which

disclosures are not necessarily reflected in the agreements;

may apply standards of materiality that differ from those of a reasonable investor;

were made only as of specified dates contained in the agreements and are subject to subsequent developments and changed circumstances.

Accordingly, these representations and

warranties may not describe the actual state of affairs as of the date that these representations and warranties were made or at any other

Investors should not rely on them as statements of fact.

(b) Exhibits.

Exhibit Number

Description of Exhibits

Third Amended and Restated Certificate of Incorporation of Zedge, Inc.

Second Amended and Restated By-Laws of Zedge, Inc.

of the Registrant’s Securities Registered Pursuant to Section 12 of the Securities Exchange Act of 1934.

2016 Stock Option and Incentive Plan, as Amended and Restated

10 unchanged sentences

Form of Restricted Stock Agreement

At Market Issuance Sales Agreement among Zedge, Inc.

and National Securities Corporation and H.C.

Wainwright & Co., LLC, dated December 9, 2020.

Subsidiaries of the Registrant

4 unchanged sentences

Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Instance Document

Taxonomy Extension Schema Document

Taxonomy Extension Calculation Linkbase Document

Taxonomy Extension Definition Linkbase Document

Taxonomy Extension Label Linkbase Document

Taxonomy Extension Presentation Linkbase Document

(1) Incorporated

by reference to Form 10-12G/A, filed June 1, 2016.

(2) Incorporated

by reference to Form 10-K, filed October 28, 2019

(3) Incorporated

by reference to the Schedule 14A, filed November 21, 2019.

(4) Incorporated

by reference to Form 10-12G/A, filed April 25, 2016.

(5) Incorporated

by reference to Form 10-12G/A, filed May 20, 2016.

XBRL Instance Document.

XBRL Taxonomy Extension Schema Document.

XBRL Taxonomy Extension Calculation Linkbase Document.

XBRL Taxonomy Extension Definition Linkbase Document.

XBRL Taxonomy Extension Label Linkbase Document.

XBRL Taxonomy Extension Presentation Linkbase Document.

* filed herewith.

(1) Incorporated by reference to Form 10-12G/A, filed June 1, 2016.

(2) Incorporated by reference to Form 10-K, filed October 28, 2019

(3) Incorporated by reference to Form 10-K/A, filed December 9, 2020.

(4) Incorporated by reference to the Schedule 14A, filed November 21, 2019.

(5) Incorporated by reference to Form 10-12G/A, filed April 25, 2016.

(6) Incorporated by reference to Form 10-12G/A, filed May 20, 2016.

(7) Incorporated by reference to Form 8-k, filed December 9, 2020.

Form 10-K Summary.

to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this Annual

Report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized.

Pursuant to the requirements of Section 13 or 15(d) of the Securities

Exchange Act of 1934, the registrant has duly caused this Annual Report on Form 10-K to be signed on its behalf by the undersigned, thereunto

duly authorized.

/s/ Jonathan Reich

Jonathan Reich

Chief Executive Officer

October 28, 2020

to the requirements of the Securities Exchange Act of 1934, this Annual Report on Form 10-K has been signed by the following persons

on behalf of the Registrant and in the capacities and on the dates indicated.

November 9, 2021

Pursuant to the requirements of the Securities Exchange Act of 1934,

this Annual Report on Form 10-K has been signed by the following persons on behalf of the Registrant and in the capacities and on the

dates indicated.

/s/ Jonathan Reich

Chief Executive Officer

November 9, 2021

Jonathan Reich

Executive Officer

Executive Officer)

Financial Officer

Financial Officer and Principal

(Principal Executive Officer)

Chief Financial Officer

November 9, 2021

(Principal Financial Officer and Principal

Accounting Officer)

/s/ Michael Jonas

November 9, 2021

Michael Jonas

/s/ Howard S.

November 9, 2021

/s/ Mark Ghermezian

November 9, 2021

Mark Ghermezian

/s/ Elliot Gibber

November 9, 2021

Elliot Gibber

/s/ Paul Packer

November 9, 2021

/s/ Gregory Suess

November 9, 2021

Gregory Suess

2 unchanged sentences

Consolidated Balance Sheets as of July 31, 2021 and 2020

Consolidated Statements of Comprehensive Loss for the Years Ended July 31, 2020 and 2019

Consolidated Statements of Comprehensive Income (Loss) for the Years Ended July 31, 2021 and 2020

Consolidated Statements of Stockholders’

2 unchanged sentences

Notes to Consolidated Financial Statements

REPORT OF INDEPENDENT REGISTERED PUBLIC

ACCOUNTING FIRM

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING

To the Board of Directors and

3 unchanged sentences

balance sheets of Zedge, Inc.

(the “Company”) as of July 31, 2020 and 2019, the related consolidated statements of

comprehensive loss, stockholders’

equity, and cash flows for the years then ended, and the related notes (collectively referred

to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly,

in all material respects, the financial position of the Company as of July 31, 2020 and 2019, and the results of its operations

and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of

Adoption of New Accounting Standard

As discussed in Note 1 to the consolidated

financial statements, the Company changed its method of accounting for leases effective August 1, 2019 due to the adoption of Accounting

Standards Update No.

2016-02, Leases (Topic 842) under the modified retrospective method.

(the “Company”) as of July 31, 2021 and 2020, the related consolidated statements of comprehensive

income (loss), stockholders’

equity, and cash flows for the years then ended, and the related notes (collectively referred to as

the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material

respects, the financial position of the Company as of July 31, 2021 and 2020, and the results of its operations and its cash flows for

the years then ended, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These consolidated financial statements

are the responsibility of the Company’s management.

Our responsibility is to express an opinion on the Company’s consolidated financial

statements based on our audits.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United

States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S.

securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with

the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether

the consolidated financial statements are free of material misstatement, whether due to error or fraud.

The Company is not required

to have, nor were we engaged to perform, an audit of its internal control over financial reporting.

As part of our audits we are

required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion

on the effectiveness of the entity’s internal control over financial reporting.

These consolidated financial statements are the

responsibility of the Company’s management.

Our responsibility is to express an opinion on the Company’s consolidated financial statements

based on our audits.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”)

and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable

rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the

standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated

financial statements are free of material misstatement, whether due to error or fraud.

The Company is not required to have, nor were we

engaged to perform, an audit of its internal control over financial reporting.

As part of our audits we are required to obtain an understanding

of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal

control over financial reporting.

Accordingly, we express no such opinion.

Our audits included performing procedures

to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing

procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and

disclosures in the consolidated financial statements.

Our audits also included evaluating the accounting principles used and significant

estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

that our audits provide a reasonable basis for our opinion.

Our audits included performing procedures to assess

the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures

that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the

consolidated financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by

management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that our audits provide

a reasonable basis for our opinion.

/s/ Mayer Hoffman McCann CPAs

2 unchanged sentences

New York, New York

October 28, 2020

November 9, 2021

CONSOLIDATED BALANCE SHEETS

2 unchanged sentences

Cash and cash equivalents

Trade accounts receivable, net of allowance for doubtful accounts of $0

at July 31, 2020 and 2019

Trade accounts receivable, net of allowance of $0 at July 31, 2021 and 2020

Prepaid expenses

2 unchanged sentences

Property and equipment, net

Deferred tax assets, net

Liabilities and stockholders’

1 unchanged sentence

Trade accounts payable

Insurance premium loan payable

Accrued expenses and other current liabilities

14 unchanged sentences

authorized shares—40,000;

11,789 shares issued and 11,749 shares outstanding at July 31, 2020, and 9,876 shares issued and 9,854 outstanding at July 31, 2019

13,923 shares issued and 13,865 shares outstanding at July 31, 2021, and 11,788 shares issued and 11,749 ouststanding at July 31, 2020

Additional paid-in capital

5 unchanged sentences

See accompanying notes to consolidated financial statements.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(in thousands, except per share data)

1 unchanged sentence

Costs and expenses:

Direct cost of revenues (exclusive of amortization of capitalized

software and technology development costs included below)

Direct cost of revenues (exclusive of amortization of capitalized software and technology development costs included below)

Selling, general and administrative

Depreciation and amortization

Loss from operations

Interest and other income (expense), net

Income (loss) from operations

Interest and other income, net

Net loss resulting from foreign exchange transactions

Loss before income taxes

Provision for income taxes

Other comprehensive loss:

Income (loss) before income taxes

Provision for (benefit from) income taxes

Net income (loss)

Other comprehensive income (loss):

Changes in foreign currency translation adjustment

Total other comprehensive loss

Total comprehensive loss

Loss per share attributable to Zedge, Inc.

Total other comprehensive income (loss)

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 statements.

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

See accompanying notes to consolidated financial

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’

(in thousands)

A Common Stock

B Common Stock

Comprehensive

Stockholders’

July 31, 2018

of stock options

issued for matching contributions to the 401(k) Plan

of treasury stock

currency translation adjustment

July 31, 2019

proceeds from sales of Class B Common Stock

of stock options

issued for matching contributions to the 401(k) Plan

of treasury stock

currency translation adjustment

July 31, 2020

See accompanying notes to consolidated

financial statements.

Additional Paid-in

Accumulated Other Comprehensive

Total Stockholders’

Balance - July 31, 2019

Net proceeds from sales of Class B Common Stock

Exercise of stock options

Stock-based compensation

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

Purchase of treasury stock

Foreign currency translation adjustment

Balance - July 31, 2020

Net proceeds from sales of Class B Common Stock

Exercise of stock options

Stock-based compensation

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

Purchase of treasury stock

Foreign currency translation adjustment

Balance - July 31, 2021

See accompanying notes to consolidated financial statements.

CONSOLIDATED STATEMENTS OF CASH FLOWS

2 unchanged sentences

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

Impairment of investment in privately-held company

Loss on disposal of furniture and fixtures

Stock-based compensation

Deferred income taxes

PPP loan forgiveness

Change in assets and liabilities:

5 unchanged sentences

Investing activities

Deposit made to escrow account related to the Emojipedia acquisition

Capitalized software and technology development costs and purchase of equipment

Investment in privately-held company

Investment in SAFE

Net cash used in investing activities

6 unchanged sentences

Purchase of treasury stock in connection with restricted stock vesting

Net cash provided by (used in) financing activities

Net cash provided by 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 year

10 unchanged sentences

Description of Business

(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 iTunes, 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 secures its content from artists,

both amateurs and professionals as well as emerging and major brands.

(the “Company”) operates a state-of-the-art

digital publishing platform that powers Zedge Ringtones and Wallpapers, 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, ringtones,

notification sounds on Android and wallpapers, video wallpapers, ringtones and custom icon packs on iOS.

The Company secures its content

from amateur and professional artists, and also from emerging and major brands.

Artists have the ability to easily launch a virtual storefront

in the Zedge app where they can market and sell their content to the Company’s user base.

Zedge app has been installed approximately

450 million times, boasts approximately 32 million monthly active users, or MAU, and has consistently averaged in the ‘Top 100’

most popular free apps in the Google Play store in the United States.

in the Company’s Zedge app where they can market and sell their content to the Company’s user base.

That same platform powers

an entertainment app called “Shortz –

Chat Stories by Zedge”, which is focused on serialized, short-form, fiction stories,

as a beta that runs on the Company’s publishing platform.

Over the past year, the Company has been expanding its content catalogue,

started testing audio versions of a selected number of stories, materially improved its ability to measure all types of engagement within

the app, and invested a modest budget in paid user acquisition.

In August of 2021, the Company acquired Emojipedia, the leading source

of all things emoji.

The Company conducts business as a single operating segment.

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 ended July 31, 2020).

The Company was formerly a majority-owned subsidiary of IDT

Corporation (“IDT”).

On June 1, 2016, IDT’s interest in the Company was spun-off by IDT to IDT’s stockholders

and the Company became an independent public company through a pro rata distribution of the Company’s common stock held by

IDT to IDT’s stockholders (the “Spin-Off”).

The Company’s fiscal year ends on July 31 of each calendar

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 ended July 31, 2021).

The Company was formerly a majority-owned subsidiary of IDT Corporation

(“IDT”).

On June 1, 2016, IDT’s interest in the Company was spun-off by IDT to IDT’s stockholders and the Company

became an independent public company through a pro rata distribution of the Company’s common stock held by IDT to IDT’s stockholders

(the “Spin-Off”).

COVID-19 Impact on Financial and Operational Results

The COVID-19 pandemic has caused, and continues to cause, widespread

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

spend and a decline in mobile handset sales.

However, the Company lacks clarity about how the pandemic will influence its future

financial and operational results.

In light of the uncertainty brough about by the pandemic-impacted

operating and economic environment, the Company initially 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.

More recently we have selectively started investing in our products

by hiring several software developers and consultants in Lithuania.

As of July 31, 2020, the Company had $5.1 million of cash and

cash equivalents.

The Company has developed 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 fiscal year ended July 31, 2020.

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

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.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS —

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 five consecutive quarters.

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 - a driver of new installs of the Company’s flagship app.

As of July 31, 2021, the Company had $24.9 million of cash and cash

equivalents, including a net of $14.4 million raised from the previously announced “at-the-market”

offering of shares of the

Company’s Class B common stock (see Note 18).

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

actions become necessary due to worsening economic conditions, including, among others, those related to the COVID-19 pandemic.

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.

The Company considered the impacts of the COVID-19 pandemic on its

significant estimates and judgments used in applying its accounting policies in fiscal 2021 and 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.

Principles of Consolidation

The consolidated financial statements include the accounts of

the Company and its wholly-owned subsidiaries.

The consolidated financial statements include the accounts of the Company

and its wholly owned subsidiary.

All significant intercompany accounts and transactions have been eliminated in consolidation.

2 unchanged sentences

principles generally accepted in the United States of America (“U.S.

GAAP”) requires management to make estimates and

assumptions that affect the amounts reported in the financial statements and accompanying notes.

Actual results may differ from

those estimates.

GAAP”) requires management to make estimates and assumptions

that affect the amounts reported in the financial statements and accompanying notes.

Actual results may differ from those estimates.

Revenue Recognition

On August 1, 2018, the Company adopted Financial Accounting

Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 606, applying the modified retrospective

method to those contracts not yet substantially completed as of August 1, 2018.

The impact of adopting the new revenue standard

was not material to the Company’s consolidated financial statements and there was no adjustment to beginning retained earnings

on August 1, 2018.

The Company generates revenue from four sources:

The Company generates revenue from three sources:

(1) Advertising;

(2) Paid Subscriptions;

(3) Zedge Premium and Others and (4) Service.

The substantial majority 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’s monthly and yearly subscriptions allow users to prepay a fixed fee

to remove unsolicited advertisements from its Android Zedge app although the Company is working on adding additional capabilities

to subscriptions including offering subscriptions to iOS Zedge App users.

In Zedge Premium, the Company retains 30% as fee when

users purchase licensed content using Zedge Credits or unlock licensed content by watching a video or taking a survey on Zedge

In fiscal 2019 the Company also generated revenue 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

(“Service Revenue”).

The contract with this publisher was terminated effective May 31, 2019.

(2) Paid Subscriptions and (3) Zedge Premium and Others.

The substantial majority 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’s monthly and yearly subscriptions allow users to prepay a fixed fee to remove unsolicited advertisements

from its Android Zedge app although the Company is working on adding additional capabilities to subscriptions including offering subscriptions

to iOS Zedge App users.

In Zedge Premium, the Company retains 30% as fee when users purchase licensed content using Zedge Credits or unlock

licensed content by watching a video or taking a survey on Zedge Premium.

Advertising Revenue :

The Company generates the bulk of its revenue from selling its Zedge app’s advertising inventory to advertising networks

and advertising exchanges and direct sales to advertisers.

The Company also generate revenue from app publish ers

that pay the Company for installations of their app.

● Advertising

An advertising network is a third-party relationship where buyers of advertising

inventory go to purchase either specific targeted inventory or a large scale of inventory

at a set price.

Advertising Networks serve as an indirect source of advertising fill

to a variety of branded ad campaigns and performance-based ad campaigns.

● Advertising

An advertising exchange is similar to an advertising network, except that

the exchange typically bids in real-time for inventory.

Advertisers may utilize an exchange

when looking for scale or specific audiences, and accept that the price will vary based

The Company generates the bulk of

its revenue from selling its Zedge app’s advertising inventory to advertising networks and advertising exchanges and direct sales

to advertisers.

Advertising Networks.

An advertising network is a third-party relationship where buyers of advertising inventory go to purchase either

specific targeted inventory or a large scale of inventory at a set price.

Advertising Networks serve as an indirect source of advertising

fill to a variety of branded ad campaigns and performance-based ad campaigns.

Advertising Exchanges.

An advertising exchange is similar to an advertising network, except that the exchange typically bids in real-time

for inventory.

Advertisers may utilize an exchange when looking for scale or specific audiences, and accept that the price will vary based

on when and how much volume of inventory they wish to buy.

Sales to Advertisers.

The Company sell advertising directly to advertisers through a

contractual relationship.

These relationships typically offer higher than average pricing

than realized from sales via advertising networks or advertising exchanges.

The Company earns revenue when a Zedge user installs an app offered by a publisher

in the Game Channel that pays the Company a pre-negotiated fee for the installation (referred

to as Cost Per Install or CPI).

In October 2018, the Company replaced the Game Channel

with a game wall which offers Zedge users with a mix of interactive playable ads and

HTML5 games which, if installed by the user, generate revenue for Zedge.

discontinued game wall in the second quarter of fiscal 2020.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS —

The Company recognize advertising revenue as advertisements

are delivered to users through impressions, ad views or app installs (depending on the terms agreed upon with the advertiser).

For in-app display ads, in-app offers, engagement advertisements and other advertisements, The Company’s performance obligation

is satisfied over the life of the relevant contract (i.e., over time), with revenue being recognized as advertising units are delivered.

The advertiser may compensate the Company on a cost-per-impression, cost-per-click, cost-per-action or cost-per-install basis.

Direct Sales to Advertisers.

In prior periods, we sold, and we currently retain the ability to sell, advertising directly to advertisers

through contractual relationships.

These relationships historically offered higher than average pricing than realized from sales via advertising

networks or advertising exchanges.

We had no direct sales of advertising during fiscal 2021 and have no current expectation that this

will represent a material portion of our sales in the near term.

The Company recognize advertising revenue as advertisements are delivered

to users through impressions or ad views (depending on the terms agreed upon with the advertiser).

For in-app display ads, in-app offers,

engagement advertisements and other advertisements, the Company’s performance obligation is satisfied over the life of the relevant

contract (i.e., over time), with revenue being recognized as advertising units are delivered.

The advertiser may compensate the Company

on a cost-per-impression, cost-per-click, cost-per-action basis.

Paid Subscription Revenue :

Beginning in January 2019, the Company started offering monthly and yearly paid subscription services sold through Google Play.

When a customer subscribes, they execute a clickthrough agreement with Zedge outlining the terms and conditions between Zedge and

the subscriber.

Google Play processes subscription prepayment on Zedge’s behalf, and retains up to 30% as its fee.

Paid subscription

revenue is a series type performance obligation and is recognized net of sales tax amounts collected from subscribers.

and yearly subscriptions are nonrefundable after a period of 7 days.

Paid subscriptions are automatically renewed at expiration

unless cancelled by subscribers.

The enforceable rights in monthly and yearly subscription contracts are the service period.

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 basis.

The payment terms for subscriptions sold through Google Play is net 30 days after month-end.

Zedge Premium :

Premium is the Company’s marketplace where artists and brands can market, distribute and sell their digital content to Zedge’s

The content owner sets the price and the end user can purchase the content by paying for it with Zedge Credits, the Company’s

closed virtual currency.

A user can earn Zedge Credits when taking specific actions such as watching rewarded videos or completing

electronic surveys.

Beginning in January 2019,

the Company started offering monthly and yearly paid subscription services sold through Google Play.

When a customer subscribes, they

execute a clickthrough agreement with Zedge outlining the terms and conditions between Zedge and the subscriber.

Google Play processes

subscription prepayment on Zedge’s behalf, and retains up to 30% as its fee.

Paid 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 a period of 7 days.

Paid subscriptions are automatically renewed at expiration unless cancelled by subscribers.

The enforceable

rights in monthly and yearly subscription contracts are the service period.

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 basis.

The payment terms for

subscriptions sold through Google Play is net 30 days after month-end.

Zedge Premium is the Company’s marketplace where artists and brands can market, distribute and sell their digital

content to Zedge’s users.

The content owner sets the price and the end user can purchase the content by paying for it with Zedge

Credits, the Company’s 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 with an in-app purchase.

If a user purchases Zedge Credits (ranging

from 500 credits for $0.99 to 14,000 credits for $19.99), Google Play or iTunes retains 30% of the purchase price as its fee.

a user purchases Zedge Premium content, the artist or brand receives 70% of the actual revenue (“Royalty Payment”)

If a user purchases Zedge

Credits (ranging from 500 credits for $0.99 to 14,000 credits for $19.99), Google Play or iTunes retains 30% of the purchase price as

When a user purchases Zedge Premium content, the artist or brand receives 70% of the actual revenue (“Royalty Payment”)

and the Company receives the remaining 30%, which is recognized as revenue.

Service Revenue :

Through May 2019, the Company managed and optimized 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.

In exchange for these management

and optimization services, Zedge shared a portion the advertising revenues from this publisher whose revenue is also derived from

sales of advertising.

The contract with this publisher was terminated effective May 31, 2019.

Gross Versus Net Revenue Recognition

The Company reports revenue on a gross or net basis based on

management’s assessment of whether the Company acts as a principal or agent in the transaction.

To the extent the Company

acts as the principal, revenue is reported on a gross basis unless the Company is unable to determine the amount on a gross basis,

in which case the Company reports revenue on a net basis.

The determination of whether the Company act as a principal or an agent

in a transaction is based on an evaluation of whether the Company control the good or service prior to transfer to the customer.

The Company generally reports its advertising revenue net of

amounts due to agencies and brokers because the Company is not the primary obligor in the relevant arrangements, the Company does

not finalize the pricing, and the Company does not establish or maintain a direct relationship with the advertiser.

Certain advertising

arrangements that are directly between us and advertisers are recognized on a gross basis equal to the price paid to us by the

customer since the Company is the primary obligor and the Company determines the price.

Any third-party costs related to such direct

relationships are recognized as direct cost of revenues.

The Company reports revenue on a gross or net basis based on management’s

assessment of whether the Company acts as a principal or agent in the transaction.

To the extent the Company acts as the principal, revenue

is reported on a gross basis unless the Company is unable to determine the amount on a gross basis, in which case the Company reports

revenue on a net basis.

The determination of whether the Company act as a principal or an agent in a transaction is based on an evaluation

of whether the Company control the good or service prior to transfer to the customer.

The Company generally reports its advertising revenue net of amounts

due to agencies and brokers because the Company is not the primary obligor in the relevant arrangements, the Company does not finalize

the pricing, and the Company does not establish or maintain a direct relationship with the advertiser.

Certain advertising arrangements

that are directly between the Company and advertisers are recognized on a gross basis equal to the price paid to the Company by the customer

since the Company is the primary obligor and the Company determines the price.

Any third-party costs related to such direct relationships

are recognized as direct cost of revenues.

The Company reports subscription revenue gross of the fee retained

by Google Play, as the subscriber is the Company’s customer in the contract and the Company controls the service prior to

the transfer to the subscriber.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS —

by Google Play, as the subscriber is the Company’s customer in the contract and the Company controls the service prior to the transfer

to the subscriber.

Concentration of Credit Risk and Significant Customers

Financial instruments that potentially subject the Company to

concentration of credit risk consist principally of cash, cash equivalents and trade accounts receivable.

The Company holds cash

and cash equivalents at several major financial institutions, which may exceed FDIC insured limits.

Historically, the Company has

not experienced any losses due to such concentration of credit risk.

The Company’s temporary cash investments policy is to

limit the dollar amount of investments with any one financial institution and monitor the credit ratings of those institutions.

While the Company may be exposed to credit losses due to the nonperformance of the holders of its deposits, the Company does not

expect the settlement of these transactions to have a material effect on its results of operations, cash flows or financial condition.

The Company routinely assesses the financial strength of its

As a result, the Company believes that its accounts receivable credit risk exposure is limited and has not experienced

significant write-downs in its accounts receivable balances.

In the fiscal year ended July 31, 2020, two customers represented

29% and 26% of the Company’s revenue, and in the fiscal year ended July 31,2019, three customers represented 28%, 28% and

10% of the Company’s revenue.

At July 31, 2020, two customers represented 35% and 32% of the Company’s accounts receivable

balance and at July 31, 2019, three customers represented 32%, 17% and 17% of the Company’s accounts receivable balance.

All of these significant customers are advertising exchanges operated by leading companies, and the receivables represent many

smaller amounts due from advertisers.

Financial instruments that potentially subject the Company to concentration

of credit risk consist principally of cash, cash equivalents and trade accounts receivable.

The Company holds cash and cash equivalents

at several major financial institutions, which may exceed FDIC insured limits.

Historically, the Company has not experienced any losses

due to such concentration of credit risk.

The Company’s temporary cash investments policy is to limit the dollar amount of investments

with any one financial institution and monitor the credit ratings of those institutions.

While the Company may be exposed to credit losses

due to the nonperformance of the holders of its deposits, the Company does not expect the settlement of these transactions to have a material

effect on its results of operations, cash flows or financial condition.

The Company routinely assesses the financial strength of its customers.

As a result, the Company believes that its accounts receivable credit risk exposure is limited and has not experienced significant write-downs

in its accounts receivable balances.

In the fiscal year ended July 31, 2021, three customers represented 30%, 22% and 12% of the Company’s

revenue, and in the fiscal year ended July 31, 2020, two customers represented 29% and 26% of the Company’s revenue.

2021, two customers represented 37% and 28% of the Company’s accounts receivable balance and at July 31, 2020, two customers represented

35% and 32% of the Company’s accounts receivable balance.

All of these significant customers are advertising exchanges operated

by leading companies, and the receivables represent many smaller amounts due from advertisers.

Direct Cost of Revenues

Direct cost of revenues for the Company consists of fees paid

to third parties that provide the Company with internet hosting, content serving and filtering, and marketing automation services.

Such costs are charged to expense as incurred.

Direct cost of revenues for the Company consists of fees paid to third

parties that provide the Company with internet hosting, content serving and filtering, and marketing automation services.

Such costs are

charged to expense as incurred.

Long-Lived Assets

Property and equipment is recorded at cost and depreciated on

a straight-line basis over its estimated useful lives, which range as follows:

capitalized software and technology development

costs—3 years;

and other—3, 5, 7, 10 or 20 years.

Other is comprised of furniture and fixtures, office equipment, video

conference equipment, computer hardware and computer software.

The Company tests the recoverability of its long-lived assets

with finite useful lives whenever events or changes in circumstances indicate that the carrying value of the asset may not be recoverable.

Property and equipment is recorded at cost and depreciated on a straight-line

basis over its estimated useful lives, which range as follows:

capitalized software and technology development costs—3 years;

other—5 years.

Other is comprised of furniture and fixtures, office equipment, video conference equipment, computer hardware and

computer software.

The Company tests the recoverability of its long-lived assets with

finite useful lives whenever events or changes in circumstances indicate that the carrying value of the asset may not be recoverable.

The Company tests for recoverability based on the projected undiscounted cash flows to be derived from such asset.

If the projected

undiscounted future cash flows are less than the carrying value of the asset, the Company will record an impairment loss, if any,

based on the difference between the estimated fair value and the carrying value of the asset.

The Company generally measures fair

value by considering sale prices for similar assets or by discounting estimated future cash flows from such asset using an appropriate

discount rate.

Cash flow projections and fair value estimates require significant estimates and assumptions by management.

the estimates and assumptions prove to be incorrect, the Company may be required to record impairments in future periods and such

impairments could be material.

If the projected undiscounted

future cash flows are less than the carrying value of the asset, the Company will record an impairment loss, if any, based on the difference

between the estimated fair value and the carrying value of the asset.

The Company generally measures fair value by considering sale prices

for similar assets or by discounting estimated future cash flows from such asset using an appropriate discount rate.

Cash flow projections

and fair value estimates require significant estimates and assumptions by management.

Should the estimates and assumptions prove to be

incorrect, the Company may be required to record impairments in future periods and such impairments could be material.

Capitalized Software and Technology Development Costs

The Company accounts for capitalized software and technology

development costs in accordance with FASB ASC 350-40.

These costs consist of internal development costs on various projects

that the Company invested in specific to the various platforms on which the Company operates its service that are capitalized during

the application development stage.

Capitalized software and technology development costs are included in property and equipment,

net and are amortized over the estimated useful life of the software, generally three years.

All ordinary maintenance costs are

expensed as incurred.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS —

Goodwill represents the excess of purchase price and related

costs over the value assigned to the net tangible and identifiable intangible assets of the business acquired.

The Company accounts for capitalized software and technology development

costs in accordance with Financial Accounting Standards Board (“FASB”) issued Accounting Standards Codification (“ASC”)

These costs consist of internal development costs on various projects that the Company invested in specific to the various

platforms on which the Company operates its service that are capitalized during the application development stage.

Capitalized software

and technology development costs are included in property and equipment, net and are amortized over the estimated useful life of the software,

generally three years.

All ordinary maintenance costs are expensed as incurred.

Goodwill represents the excess of purchase price and related costs

over the value assigned to the net tangible and identifiable intangible assets of the business acquired.

Under ASC 350, Intangibles-Goodwill

and Other , goodwill is not amortized, but instead is tested for impairment annually, or if certain circumstances indicate a

possible impairment may exist.

and Other , goodwill is not amortized, but instead is tested for impairment annually, or if certain circumstances indicate a possible

impairment may exist.

The Company determined that it is a single reporting unit for its annual impairment test.

The Company performs its annual, or interim, goodwill impairment

test by comparing the fair value of its reporting unit with its carrying amount.

The Company would recognize an impairment charge

for the amount by which the carrying amount exceeds the reporting unit’s fair value;

however, the loss recognized would not

exceed the total amount of goodwill allocated to that reporting unit.

Additionally, the Company considers income tax effects from

any tax-deductible goodwill on the carrying amount of its reporting unit when measuring the goodwill impairment loss, if applicable.

The Company’s estimated fair value exceeded its carrying

value in Step 1 of the Company’s annual impairment tests as of May 1st for the fiscal years ended July 31, 2020 and 2019.

The Company concluded that no goodwill impairment existed in the fiscal years ended July 31, 2020 and 2019.

The Company uses the

market approach (guideline company method) for its Step 1 analysis.

Investment in Privately-Held Company

The Company’s investment in privately-held company is

a non-marketable equity security without readily determinable fair value.

On August 1, 2018, the Company adopted a new accounting

standard and 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).

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

net in the consolidated statements of comprehensive loss.

The Company periodically evaluates the carrying value of the

investment in a 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 investment to assess whether impairment losses shall be recorded using

Level 3 inputs.

This investment includes the Company’s holdings in a privately-held company that is not exchange traded and

therefore not supported with observable market prices;

hence, the Company may determine the fair value by reviewing equity valuation

reports, current financial results, long-term plans of the private company, the amount of cash that the privately-held company

has on-hand, the ability to obtain additional financing and overall market conditions in which the private company operates or

based on the price observed from the most recent completed financing.

The Company performs its annual, or interim, goodwill impairment test

by comparing the fair value of its reporting unit with its carrying amount.

The Company would recognize an impairment charge for the amount

by which the carrying amount exceeds the reporting unit’s fair value;

however, the loss recognized would not exceed the total amount

of goodwill allocated to that reporting unit.

Additionally, the Company considers income tax effects from any tax-deductible goodwill

on the carrying amount of its reporting unit when measuring the goodwill impairment loss, if applicable.

The Company’s estimated fair value exceeded its carrying value

in Step 1 of the Company’s annual impairment tests as of May 1st for the fiscal years ended July 31, 2021 and 2020.

concluded that no goodwill impairment existed in the fiscal years ended July 31, 2021 and 2020.

The Company uses the market approach for

its Step 1 analysis.

From time to time, when opportunities present themselves, the Company

considers strategic investments in privately-held companies.

The Company’s investment at July 31, 2021, is a simple agreement for

future equity (SAFE) in which the Company receives the right to receive equity at some later date.

Investments in SAFE’s are carried

at cost due to insufficient observable market inputs to determine fair value.

The Company adjusts the carrying value of its investments

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 investments, realized and unrealized, are recognized in interest and other income,

net in the consolidated statements of Comprehensive Income (Loss).

The Company periodically evaluates the carrying value of the investments,

when events and circumstances indicate that the carrying amount of the investment may not be recovered.

The Company estimates the fair

value of the investment to assess whether impairment losses shall be recorded using Level 3 inputs.

This investment includes the Company’s

holding that is not exchange traded and therefore not supported with observable market prices;

hence, the Company may determine the fair

value by reviewing equity valuation reports, current financial results, long-term plans of the private company, the amount of cash that

the privately-held company has on-hand, the ability to obtain additional financing and overall market conditions in which the private

company operates or based on the price observed from the most recent completed financing.

Cash and Cash Equivalents

The Company considers all highly liquid investments with an

original maturity of three months or less when purchased to be cash equivalents.

The accompanying financial statements include provisions for

federal, state and foreign income taxes.

The Company recognizes deferred tax assets and liabilities for the future tax consequences

attributable to temporary differences between the financial statements carrying amounts of existing assets and liabilities and

their respective tax bases.

A valuation allowance is provided when it is more likely than not that some portion or all of a deferred

tax asset will not be realized.

The ultimate realization of deferred tax assets depends on the generation of future taxable income

during the period in which related temporary differences become deductible.

The Company considers the scheduled reversal of deferred

tax liabilities, projected future taxable income and tax planning strategies in its assessment of a valuation allowance.

tax assets and liabilities are measured using the enacted tax rates expected to apply to taxable income in the years in which those

temporary differences are expected to be recovered or settled.

The effect on deferred tax assets and liabilities of a change in

tax rates is recognized in income in the period that includes the enactment date of such change.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS —

The Company considers all highly liquid investments with an original

maturity of three months or less when purchased to be cash equivalents.

The accompanying financial statements include provisions for federal,

state and foreign income taxes.

The Company recognizes deferred tax assets and liabilities for the future tax consequences attributable

to temporary differences between the financial statements carrying amounts of existing assets and liabilities and their respective tax

A valuation allowance is provided when it is more likely than not that some portion or all of a deferred tax asset will not be

The ultimate realization of deferred tax assets depends on the generation of future taxable income during the period in which

related temporary differences become deductible.

The Company considers the scheduled reversal of deferred tax liabilities, projected future

taxable income and tax planning strategies in its assessment of a valuation allowance.

Deferred tax assets and liabilities are measured

using the enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered

The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes

the enactment date of such change.

The Company uses a two-step approach for recognizing and measuring

tax benefits taken or expected to be taken in a tax return.

The Company determines whether it is more-likely-than-not that a tax

position will be sustained upon examination, including resolution of any related appeals or litigation processes, based on the

technical merits of the position.

In evaluating whether a tax position has met the more-likely-than-not recognition threshold,

the Company presumes that the position will be examined by the appropriate taxing authority that has full knowledge of all relevant

Tax positions that meet the more-likely-than-not recognition threshold are measured to determine the amount of tax

benefit to recognize in the financial statements.

The tax position is measured at the largest amount of benefit that is greater

than 50 percent likely of being realized upon ultimate settlement.

Differences between tax positions taken in a tax return and

amounts recognized in the financial statements will generally result in one or more of the following:

an increase in a liability

for income taxes payable, a reduction of an income tax refund receivable, a reduction in a deferred tax asset, or an increase in

a deferred tax liability.

The Company classifies interest and penalties on income taxes

as a component of income tax expense.

The Company determines whether it is more-likely-than-not that a tax position

will be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits

of the position.

In evaluating whether a tax position has met the more-likely-than-not recognition threshold, the Company presumes that

the position will be examined by the appropriate taxing authority that has full knowledge of all relevant information.

Tax positions that

meet the more-likely-than-not recognition threshold are measured to determine the amount of tax benefit to recognize in the financial

The tax position is measured at the largest amount of benefit that is greater than 50 percent likely of being realized upon

ultimate settlement.

Differences between tax positions taken in a tax return and amounts recognized in the financial statements will generally

result in one or more of the following:

an increase in a liability for income taxes payable, a reduction of an income tax refund receivable,

a reduction in a deferred tax asset, or an increase in a deferred tax liability.

The Company classifies interest and penalties on income taxes as a

component of income tax expense.

Contingencies

The Company accrues for loss contingencies when both (a) information

available prior to issuance of the financial statements indicates that it is probable that a liability had been incurred at the

date of the financial statements and (b) the amount of loss can reasonably be estimated.

When the Company accrues for loss

contingencies and the reasonable estimate of the loss is within a range, the Company records its best estimate within the range.

When no amount within the range is a better estimate than any other amount, the Company accrues the minimum amount in the range.

The Company discloses an estimated possible loss or a range of loss when it is at least reasonably possible that a loss may have

been incurred.

available prior to issuance of the financial statements indicates that it is probable that a liability had been incurred at the date of

the financial statements and (b) the amount of loss can reasonably be estimated.

When the Company accrues for loss contingencies

and the reasonable estimate of the loss is within a range, the Company records its best estimate within the range.

When no amount within

the range is a better estimate than any other amount, the Company accrues the minimum amount in the range.

The Company discloses an estimated

possible loss or a range of loss when it is at least reasonably possible that a loss may have been incurred.

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 and to assume

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:

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 and to assume 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:

Fiscal Year Ended July 31,

7 unchanged sentences

Diluted weighted-average number of shares

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS —

The following shares were excluded from the diluted earnings

per share computation because their inclusion would have been anti-dilutive:

The following shares were excluded from the diluted earnings per share

computation because their inclusion would have been anti-dilutive:

Fiscal Year Ended July 31,

4 unchanged sentences

Shares excluded from the calculation of diluted earnings per share

For both fiscal 2020 and fiscal 2019, the diluted earnings per

share equals basic earnings per share because the Company had a net loss and the impact of the assumed exercise of stock options

and vesting of restricted stock and deferred stock units would have been anti-dilutive.

For fiscal 2020, the diluted earnings per share equals basic earnings

per share because the Company had a net loss and the impact of the assumed exercise of stock options and vesting of restricted stock

and deferred stock units would have been anti-dilutive.

Stock-Based Compensation

The Company recognizes compensation expense for all of

its grants of stock-based awards based on the estimated fair value on the grant date.

Compensation cost for awards is recognized

using the straight-line method over the vesting period.

Stock-based compensation is included in selling, general and administrative

The Company recognizes compensation expense for all of its grants

of stock-based awards based on the estimated fair value on the grant date.

Compensation cost for awards is recognized using the straight-line

method over the vesting period.

Stock-based compensation is included in selling, general and administrative expense.

Fair Value Measurements

Fair value of financial and non-financial assets and liabilities

is defined as an exit price, which is the price that would be received to sell an asset or paid to transfer a liability in an orderly

transaction between market participants at the measurement date.

The three-tier hierarchy for inputs used to measure fair value,

which prioritizes the inputs to valuation techniques used to measure fair value, is as follows:

Level 1 –

quoted prices (unadjusted) in active markets for identical assets or liabilities.

Level 2 –

quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the financial instrument.

Level 3 –

unobservable inputs based on the Company’s assumptions used to measure assets and liabilities at fair value.

A financial asset or liability’s classification within

the hierarchy is determined based on the lowest level input that is significant to the fair value measurement.

The assessment of

the significance of a particular input to the fair value measurement requires judgment, and may affect the valuation of the assets

and liabilities being measured and their placement within the fair value hierarchy.

Fair value of financial and non-financial assets and liabilities is

defined as an exit price, which is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction

between market participants at the measurement date.

The three-tier hierarchy for inputs used to measure fair value, which prioritizes

the inputs to valuation techniques used to measure fair value, is as follows:

quoted prices

(unadjusted) in active markets for identical assets or liabilities.

quoted prices for similar

assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly

through market corroboration, for substantially the full term of the financial instrument.

unobservable inputs

based on the Company’s assumptions used to measure assets and liabilities at fair value.

A financial asset or liability’s classification within the hierarchy

is determined based on the lowest level input that is significant to the fair value measurement.

The assessment of the significance of

a particular input to the fair value measurement requires judgment, and may affect the valuation of the assets and liabilities being measured

and their placement within the fair value hierarchy.

Derivative Instruments –

Foreign Exchange Forward

Foreign Exchange Forward Contracts

The Company’s earnings and cash flows are subject to fluctuations

1 unchanged sentence

Dollar –

Norwegian Krone (“NOK”) exchange rate and Euro (“EUR”).

The Company’s risk management policy allows

for the use of derivative financial instruments to prudently manage foreign currency exchange rate exposure.

Foreign currency derivative

activities are subject to the management, direction and control of the executive management.

Foreign exchange forward contracts

are recognized on the consolidated balance sheet at their fair value in “Other current assets”

or “Accrued expenses

and other current liabilities”, and changes in fair value are recognized in “Net loss resulting from foreign exchange

transactions”

in the consolidated statements of comprehensive loss.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS —

Krone (“NOK”) and Euro (“EUR”) exchange rates.

The Company’s risk management policy allows for the use of

derivative financial instruments to prudently manage foreign currency exchange rate exposure.

Foreign currency derivative activities are

subject to the management, direction and control of the executive management.

Foreign exchange forward contracts are recognized on the

consolidated balance sheet at their fair value in “Other current assets”

or “Accrued expenses and other current liabilities”,

and changes in fair value are recognized in “Net loss resulting from foreign exchange transactions”

in the consolidated statements

of Comprehensive Income (Loss).

Functional Currency

Dollar is the

Company’s functional currency.

The functional currencies for the Company’s subsidiaries that operate outside of the

United States are NOK for Zedge Europe AS and EUR for Zedge Lithuania UAB which is a wholly-owned subsidiary of Zedge Europe AS,

which are the currencies of the primary economic environments in which they primarily expend cash.

The Company translates assets

and liabilities denominated in foreign currencies to U.S.

Dollars at the exchange rate in effect as of the financial statement

date, and translates accounts from the statements of comprehensive loss using the

weighted average exchange rate for the period.

Gains or losses resulting from foreign currency translations are recorded in “Accumulated

other comprehensive loss”

Dollar is the Company’s

functional currency.

The functional currencies for the Company’s subsidiaries that operate outside of the United States are NOK

for Zedge Europe AS and EUR for Zedge Lithuania UAB which is a wholly-owned subsidiary of Zedge Europe AS, which are the currencies of

the primary economic environments in which they primarily expend cash.

The Company translates assets and liabilities denominated in foreign

currencies to U.S.

Dollars at the exchange rate in effect as of the financial statement date, and translates accounts from the statements

of Comprehensive Income (Loss) using the weighted average exchange rate for the period.

Gains or losses resulting from foreign currency

translations are recorded in “Accumulated other Comprehensive Income (Loss)”

in the accompanying consolidated balance sheets.

Foreign currency transaction gains and losses

including gains and losses from currency exchange rate changes related to intercompany receivables and payables are reported in

“Net loss resulting from foreign exchange transactions”

in the accompanying consolidated statements of comprehensive

Allowance for Doubtful Accounts

The allowance for doubtful accounts reflects the Company’s

best estimate of probable losses inherent in the accounts receivable balance.

The allowance is determined based on known troubled

accounts, historical experience and other currently available evidence.

Doubtful accounts are written-off upon final determination

that the trade accounts will not be collected.

Foreign currency transaction gains and losses including gains and losses from currency exchange rate changes related to intercompany receivables

and payables are reported in “Net loss resulting from foreign exchange transactions”

in the accompanying consolidated

statements of Comprehensive Income (Loss).

Allowance for Credit Losses

The allowance for credit losses reflects the Company’s best estimate

of probable losses inherent in the accounts receivable balance.

The allowance is determined based on known troubled accounts, historical

experience and other currently available evidence.

Bad debts are written-off upon final determination that the trade accounts will not

be collected.

Comprehensive Income (Loss)

Comprehensive income (loss) consists of two components, net

income (loss) and other comprehensive income (loss).

Other comprehensive income (loss) refers to gains and losses that are recorded

as an element of stockholders’

Comprehensive income (loss) consists of two components, net income

(loss) and other comprehensive income (loss).

Other comprehensive income (loss) refers to gains and losses that are recorded as an element

of stockholders’

equity and are excluded from net income (loss).

The Company’s other comprehensive income

(loss) and accumulated other comprehensive loss are comprised principally of foreign currency translation adjustments.

The Company leases office spaces and equipment in multiple locations

under non-cancelable lease agreements.

The leases are reviewed for classification as operating and capital leases.

For operating

leases, rent is recognized on a straight-line basis over the lease period.

For capital leases, the Company records the leased asset

with a corresponding liability.

Payments are recorded as reductions to the liability with an appropriate interest charge recorded

based on the then-outstanding remaining liability.

Upon adoption of Accounting Standards Update (“ASU”) 2016-02 —

on August 1, 2019, the Company recognized additional operating liabilities and corresponding right-of-use assets based on the present

value of the remaining minimum rental payments under current leasing standards for existing operating leases.

See “Recently

Adopted Accounting Standard”

below and Note 10 for additional information on the impact of ASU 2016-02 —

The Company’s other comprehensive income (loss) and accumulated

other Comprehensive Income (Loss) are comprised principally of foreign currency translation adjustments.

Operating and Finance Leases

The Company has operating leases primarily for office space.

The determination

of whether an arrangement is a lease or contains a lease is made at inception by evaluating whether the arrangement conveys the right

to use (“ROU”) an identified asset and whether the Company obtains substantially all of the economic benefits from and has

the ability to direct the use of the asset.

Operating 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 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.

Recently Adopted Accounting Standards

In February 2016, the FASB issued 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.

There was no adjustment to beginning retained

earnings on August 1, 2019.

The Company elected the short-term lease recognition exemption for all leases that qualify.

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.

The Company 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 10 –

Lease for further

In August 2017, the FASB issued ASU 2017-12 –

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.

Entities were to apply the

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

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 details.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS —

Recently Issued Accounting Standards Not Yet Adopted

In June 2016, the FASB issued ASU 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 new provisions will be applied as a cumulative-effect adjustment to retained earnings.

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

The Company does not expect that the new standard will have a significant

impact on its consolidated financial statements.

In June 2016, FASB issued Accounting Standards Update No.

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 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.

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.

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.

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.

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.

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

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 2022 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.

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.

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.

Recently Issued Accounting Standards Not Yet Adopted

In 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.

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.

Note 2—Revenue

Disaggregation of Revenue

The following table summarizes revenue by type of monetization

mechanisms of the Zedge app for the periods presented:

The following table summarizes revenue by type of monetization mechanisms

of the Zedge app for the periods presented:

Fiscal Year Ended

2 unchanged sentences

Paid subscription revenue

Zedge Premium and Shortz revenues

Service revenue

Other revenues

Total Revenues

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS —

Contract Balances

Deferred revenues

The Company records deferred revenues when users purchase or

earn Zedge Credits.

The Company records deferred revenues related to the unsatisfied performance

obligations with respect to subscription revenue.

As of July 31, 2021, the Company’s deferred revenue balance related to subscriptions

was approximately $1,603,000, representing approximately 752,000 active subscribers.

As of July 31, 2020, the Company’s deferred

revenue balance related to subscriptions was approximately $1,169,000, representing approximately 504,000 active subscribers which was

recognized during fiscal 2021.

The Company also records deferred revenues when users purchase or earn

Zedge Credits.

Unused Zedge Credits represent the value of the Company’s unsatisfied performance obligation to its users.

Revenue is recognized when Zedge App users redeem Zedge Credits to acquire Zedge Premium content or upon expiration of the Zedge

Credits upon 180 days of account inactivity.

As of July 31, 2020, and 2019, the Company’s deferred revenue balance related

to Zedge Premium was approximately $169,000 and $155,000, respectively.

The Company also records deferred revenues related to the unsatisfied

performance obligations with respect to subscription revenue.

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

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

As of July 31, 2019,

the Company’s deferred revenue balance related to paid subscriptions was approximately $362,000, representing approximately

134,000 active subscribers which was recognized during fiscal 2020.

Total deferred revenues increased $821,000 from $517,000 at

July 31, 2019 to $1,338,000 at July 31, 2020, primarily due to the Company’s new revenue streams from subscriptions and Zedge

Premium as discussed above.

is recognized when Zedge App users redeem Zedge Credits to acquire Zedge Premium content or upon expiration of the Zedge Credits upon

180 days of account inactivity.

As of July 31, 2021, and 2020, the Company’s deferred revenue balance related to Zedge Premium was

approximately $218,000 and $169,000, respectively.

Total deferred revenues increased $483,000 from $1,338,000 at July

31, 2020 to $1,821,000 at July 31, 2021, primarily due to the Company’s increased subscriptions sales as discussed above.

Significant Judgments

The 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.

The advertising networks and advertising exchanges to which the Company

sell its inventory track and report the impressions 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 delivered by the advertising networks and advertising exchanges is determined

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

Practical Expedients

The Company expenses the fees retained by Google Play related

to the subscriptions revenue when incurred 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

The Company expenses the fees retained by Google Play related to the

subscriptions revenue when incurred 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 Income (Loss).

Note 3—Fair Value Measurements

8 unchanged sentences

Foreign exchange forward contracts

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS —

Fair Value of Other Financial Instruments

The Company’s other financial instruments at July 31,

2020 and 2019 included trade accounts receivable, trade accounts payable, insurance premium and other loan payable.

amounts of the trade accounts receivable, trade accounts payable, insurance premium and other loan payable approximated fair value

due to their short-term nature.

The Company’s other financial instruments at July 31, 2021 and

2020 included trade accounts receivable, trade accounts payable, and other loan payable.

The carrying amounts of the trade accounts receivable,

trade accounts payable, and other loans payable approximated fair value due to their short-term nature.

Note 4—Derivative Instruments

1 unchanged sentence

is foreign exchange risk.

Foreign exchange forward contracts are entered into as hedges against unfavorable fluctuations in the

Dollar to NOK and 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 15).

does not apply hedge accounting to these contracts;

Foreign exchange forward contracts are entered into as hedges against unfavorable fluctuations in the U.S.

to NOK and 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 15).

The Company does not apply hedge

accounting to these contracts;

therefore the changes in fair value are recorded in earnings.

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.

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 July 31, 2021 were as follows:

Settlement Date

Dollar Amount

Settlement Date

Dollar Amount

The fair value of outstanding derivative instruments recorded

in the accompanying consolidated balance sheets were as follows:

The fair value of outstanding derivative instruments recorded in the

accompanying consolidated balance sheets were as follows:

(in thousands)

6 unchanged sentences

Accrued expenses and other current liabilities

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS —

The effects of derivative instruments on the consolidated statements

of comprehensive loss were as follows:

of Comprehensive Income (Loss) were as follows:

Amount of Loss Recognized on Derivatives

10 unchanged sentences

Less accumulated depreciation and amortization

Depreciation and amortization expense pertaining to property

and equipment was $1.6 million and $1.4 million for the fiscal years ended July 31, 2020 and 2019, respectively.

Depreciation and amortization expense pertaining to property and equipment

was $1.3 million and $1.6 million for the fiscal years ended July 31, 2021 and 2020, respectively.

Note 6—Goodwill

The Company’s goodwill related to an acquisition made

in a prior period and is carried on the balance sheet of Zedge Europe AS.

The table below reconciles the change in the carrying amount

of goodwill for the period from July 31, 2018 to July 31, 2020:

The Company’s goodwill related to an acquisition made in a prior

period and is carried on the balance sheet of Zedge Europe AS.

The table below reconciles the change in the carrying amount of goodwill

for the period from July 31, 2019 to July 31, 2021:

(in thousands)

4 unchanged sentences

Balance at July 31, 2021

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS —

Note 7—Accrued Expenses and Other Current Liabilities

2 unchanged sentences

Accrued vacation

Accrued income taxes payable

Accrued payroll taxes

2 unchanged sentences

Derivative liability

Accrued professional fees

Due to artists

2 unchanged sentences

Class A Common Stock and Class B Common Stock

The rights of holders of Class A common stock and Class B common

stock are identical except for certain voting and conversion rights and restrictions on transferability.

The holders of Class A

common stock and Class B common stock have the right to receive identical dividends per share if and when declared by the Company’s

Board of Directors.

In addition, the holders of Class A common stock and Class B common stock have identical and equal priority

rights per share in liquidation.

The Class A common stock and Class B common stock do not have any other contractual participation

The holders of Class A common stock are entitled to three votes per share and the holders of Class B common stock are entitled

to one-tenth of a vote per share.

Each share of Class A common stock may be converted into one share of Class B common stock, at

any time, at the option of the holder.

Shares of Class A common stock are subject to certain limitations on transferability that

do not apply to shares of Class B common stock.

The rights of holders of Class A common stock and Class B common stock

are identical except for certain voting and conversion rights and restrictions on transferability.

The holders of Class A common stock

and Class B common stock have the right to receive identical dividends per share if and when declared by the Company’s Board of

In addition, the holders of Class A common stock and Class B common stock have identical and equal priority rights per share

in liquidation.

The Class A common stock and Class B common stock do not have any other contractual participation rights.

of Class A common stock are entitled to three votes per share and the holders of Class B common stock are entitled to one-tenth of a vote

Each share of Class A common stock may be converted into one share of Class B common stock, at any time, at the option of the

Shares of Class A common stock are subject to certain limitations on transferability that do not apply to shares of Class B common

Note 9—Commitments and 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.

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 10—

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.

Operating leases are included

in other assets, accrued expenses and other current liabilities, and other liabilities on the Company’s Consolidated Balance

The Company does not have any finance leases.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS —

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 in 2021.

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

Additionally, the Company also has or had short-term

leases for its offices in 1) New York City (which lease was terminated on July 15, 2020), 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.

leases include one or more options to renew, and the exercise of these options is at the Company’s sole discretion.

determined that its options to 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 liabilities.

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

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):

Fiscal Year 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.

Rental expense under operating leases was $354,000 for the years

ended July 31, 2019.

The Company has operating leases primarily for office space.

April 1, 2021, the Company moved its main office in Trondheim, Norway with 11,600 square feet of office space to a 4,900 square foot facility.

There were nine months left on the lease agreement for the old office space and the Company recognized $14,000 gain as a result of the

lease termination.

As of March 31, 2021 the Company recorded $281,000 in ROU assets and the same amount for the lease liabilities for

the new lease which has a three year term.

The following table presents the lease-related assets and liabilities

recorded on the Consolidated Balance Sheet (in thousands):

for leases recorded on the Consolidated Balance Sheet (in thousands) as of July 31, 2021 and 2020:

As of July 31,

Operating leases:

2 unchanged sentences

Total operating lease liabilities

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS —

The following table summarizes the weighted average remaining

lease term and weighted average discount rate as of July 31, 2020:

The following table summarizes the weighted average remaining lease

term and weighted average discount rate as of July 31, 2021 and 2020:

As of July 31,

Weighted average remaining lease term:

2 unchanged sentences

Operating leases

Supplemental cash flow information related to leases was as

follows (in thousands):

Fiscal Year Ended

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, 2021 and 2022 are as follows (in thousands):

Future minimum lease payments under non-cancellable leases at July

31, 2021 are as follows (in thousands):

Years ending July 31,

Total future minimum lease payments

Less imputed interest

As of July 31, 2020, the Company did not have any leases that

have not yet commenced that create significant rights and obligations.

As of July 31, 2021, the Company did not have

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

Note 11—Income Taxes

The components of loss before income taxes are as follows:

The components of income (loss) before income taxes are as follows:

Fiscal year ended July 31,

(in thousands)

Loss before income taxes

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS —

Provision for income taxes consisted of the following:

Income (loss) before income taxes

Provision for (benefit from) income taxes consisted of the following:

Fiscal year ended July 31,

2 unchanged sentences

Total deferred expense

Provision for income taxes

Provision for (benefit from) income taxes

The differences between income taxes expected at the U.S.

statutory income tax rate and income taxes reported were as follows:

federal statutory

income tax rate and income taxes reported were as follows:

Fiscal year ended July 31,

4 unchanged sentences

Foreign tax rate differential

Stock based compensation and employement credits

Provision for income taxes

Provision for (benefit from) income taxes

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

1 unchanged sentence

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.

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.

of these provisions are either not applicable or have no material effect on the Company.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS —

Significant components of the Company’s deferred tax assets

and deferred tax liabilities are as follows:

The Tax Cuts and Jobs Act of 2017 (the “Tax Act”) contains

a provision which subjects a U.S parent of a foreign subsidiary to current U.S.

tax on its global intangible low-taxed income (“GILTI”).

The GILTI income is eligible for a deduction, which lowers to effective tax.

The Company will report the tax impact of GILTI as a period

cost when incurred.

Accordingly, the Company is not providing deferred taxes for basis differences expected to reverse as GILTI.

U.S Companies are eligible for a deduction that lowers the effective

tax rate on certain foreign income.

This regime is referred to as the Foreign-Derived Intangible Income deduction (“FDII”).

Significant components of the Company’s deferred tax

assets and deferred tax liabilities are as follows:

(in thousands)

6 unchanged sentences

Total deferred tax assets

At July 31, 2020, the Company had available U.S.

state net operating loss (“NOL”) carryforwards from domestic operations of approximately $5.6 million and $5.9 million,

respectively, to offset future taxable income.

Approximately $3.3 million federal NOLs can be carried forward indefinitely but

it is limited to 80% of future taxable income.

The federal and state NOL carryforwards will begin to expire in 2036.

As of July 31, 2020, the Company has available NOL carryforwards of approximately $433,000 to offset future foreign taxable income.

Due to its history of losses, the Company believes that it is

more-likely-than-not that substantially all of the deferred tax assets will not be realized.

Therefore, the Company has a full

valuation allowance on all U.S.

and foreign deferred tax assets.

At July 31, 2021 and 2020, the Company had available U.S.

operating loss (“NOL”) carryforwards from domestic operations of approximately $0 and $5.6 million, respectively, to offset

future taxable income.

At July 31, 2021 and 2020, the Company had available U.S.

state NOL carryforwards from domestic operations of approximately

$5.3 and $5.9 million, respectively, to offset future taxable income.

The state NOL carryforwards will begin to expire in 2036.

31, 2021 and 2020, the Company had available Norwegian NOL carryforwards of approximately $201,000 and $433,000, respectively, to offset

future taxable income.

Due to its recent and projected financial performance, the Company

believes that it is more-likely-than-not that substantially all of the deferred tax assets except certain state net operating losses and

capital loss carryforward will be realized.

Therefore, the Company has released the valuation allowance on deferred tax assets other than

those stated above.

The change in the valuation allowance is as follows:

1 unchanged sentence

(in thousand)

Balance at beginning of year

Additions charged to costs and expenses

Balance at end of year

Reserves deducted from deferred income taxes, net:

3 unchanged sentences

At July 31, 2021 and 2020, the Company did not have any unrecognized

tax benefits and did not anticipate any significant changes to the unrecognized tax benefits within twelve months of this reporting

tax benefits and did not anticipate any significant changes to the unrecognized tax benefits within twelve months of this reporting date.

In the fiscal years ended July 31, 2021 and 2020, the Company recorded no interest and penalties on income taxes.

31, 2020 and 2019, there was no accrued interest included in income taxes payable.

The Company currently remains subject to examinations of its

At July 31, 2021 and

2020, there was no accrued interest included in income taxes payable.

The Company currently remains subject to examinations of

tax returns as follows:

federal tax returns for fiscal 2017 to fiscal 2019, state and local tax returns generally for

fiscal 2017 to fiscal 2019 and foreign tax returns generally for fiscal 2018 to fiscal 2019.

federal tax return for fiscal 2018 to fiscal 2020, state and local tax returns generally for fiscal

2018 to fiscal 2020 and foreign tax returns generally for fiscal 2019 to fiscal 2020.

In connection with the Spin-Off, the Company and IDT entered

into various agreements prior to the Spin-Off including a Separation and Distribution Agreement to effect the separation and provide

a framework for the Company’s relationship with IDT after the Spin-Off, and a Tax Separation Agreement, which sets forth

the responsibilities of the Company and IDT with respect to, among other things, liabilities for federal, state, local and foreign

taxes for periods before and including the Spin-Off, the preparation and filing of tax returns for such periods and disputes with

taxing authorities regarding taxes for such periods.

Pursuant to Separation and Distribution Agreement, among other things, the

Company indemnifies IDT and IDT indemnifies the Company for losses related to the failure of the other to pay, perform or otherwise

discharge, any of the liabilities and obligations set forth in the agreement.

Pursuant to the Tax Separation Agreement, among other

things, IDT indemnifies the Company from all liability for taxes of the Company and any of its subsidiaries or relating to its

business with respect to taxable periods ending on or before the Spin-Off, and the Company indemnifies IDT from all liability for

taxes of the Company and any of its subsidiaries or relating to its business accruing after the Spin-Off.

Notwithstanding the foregoing,

the Company is responsible for, and IDT has no obligation to indemnify the Company for, any tax liability of the Company resulting

from an audit, examination or other proceeding related to any tax returns that relate solely to it and its subsidiaries regardless

of whether such tax return relates to a period prior to or following the Spin-Off.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS —

Research and Development Credits

As of July 31, 2020 and 2019, the balance of the Company’s

receivable from Norway’s SkatteFUNN government program designed to stimulate research and development in Norwegian trade

and industry was $0 and $35,000, respectively, which was included in “Other current assets”

in the consolidated balance

The Company has not worked on SkatteFUNN approved projects since January 2018.

into various agreements prior to the Spin-Off including a Separation and Distribution Agreement to effect the separation and provide a

framework for the Company’s relationship with IDT after the Spin-Off, and a Tax Separation Agreement, which sets forth the responsibilities

of the Company and IDT with respect to, among other things, liabilities for federal, state, local and foreign taxes for periods before

and including the Spin-Off, the preparation and filing of tax returns for such periods and disputes with taxing authorities regarding

taxes for such periods.

Pursuant to Separation and Distribution Agreement, among other things, the Company indemnifies IDT and IDT indemnifies

the Company for losses related to the failure of the other to pay, perform or otherwise discharge, any of the liabilities and obligations

set forth in the agreement.

Pursuant to the Tax Separation Agreement, among other things, IDT indemnifies the Company from all liability

for taxes of the Company and any of its subsidiaries or relating to its business with respect to taxable periods ending on or before the

Spin-Off, and the Company indemnifies IDT from all liability for taxes of the Company and any of its subsidiaries or relating to its business

accruing after the Spin-Off.

Notwithstanding the foregoing, the Company is responsible for, and IDT has no obligation to indemnify the

Company for, any tax liability of the Company resulting from an audit, examination or other proceeding related to any tax returns that

relate solely to it and its subsidiaries regardless of whether such tax return relates to a period prior to or following the Spin-Off.

Note 12—Stock-Based Compensation

2 unchanged sentences

2016 Stock Option and Incentive

Plan (as amended to date, the “2016 Incentive Plan”), which became effective upon the consummation of the Spin-Off.

The 2016 Incentive Plan is intended to provide incentives to executive officers, employees, directors and consultants of the Company.

Incentives available under the 2016 Incentive Plan include restricted stock, deferred stock unit, stock options and stock appreciation

The 2016 Incentive Plan is administered by the Compensation Committee of the Company’s Board of Directors.

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

This amendment was ratified by the Company’s

stockholders during Annual Meeting held on January 13, 2020.

At July 31, 2020, there were 262,000 shares of the Company’s

Class B common stock available for awards under the 2016 Incentive Plan.

Pursuant 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 fiscal years ended July 31, 2020 and 2019 there was no

income tax benefit resulting from tax deductions in excess of the compensation cost recognized for the Company’s stock-based

compensation.

Plan (as amended to date, the “2016 Incentive Plan”).

The 2016 Incentive Plan is intended to provide incentives to executive

officers, employees, directors and consultants of the Company.

Incentives available under the 2016 Incentive Plan include restricted stock,

deferred stock unit, stock options and stock appreciation rights.

The 2016 Incentive Plan is administered by the Compensation Committee

of the Company’s Board of Directors.

In November, 2020, the Company’s Board of Directors amended the

Company’s the 2016 Incentive Plan to increase the number of shares of the Company’s Class B common stock available for

the grant of awards thereunder by an additional 250,000 shares to an aggregate of 1,521,000 shares.

This amendment was ratified by the

Company’s stockholders at the Annual Meeting of Stockholders held on January 11, 2021.

At July 31, 2021, there were 212,000 shares

of Class B Stock available for awards under the 2016 Incentive Plan.

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

This amendment was ratified by the Company’s stockholders

during Annual Meeting held on January 13, 2020.

Pursuant 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 fiscal years ended July 31, 2021 and 2020 there were $105,000

and $0, respectively, income tax benefit resulting from tax deductions in excess of the compensation cost recognized for the Company’s

stock-based compensation.

Stock Options

The Company’s option awards generally have a maximum term

of 10 years from grant date, are exercisable upon vesting unless otherwise designated for early exercise by the Board of Directors

at the time of grant and are pursuant to individual written agreements.

Grants generally vest over a three-year period.

option agreements provide for accelerated vesting of options upon the effective date of an initial public offering or a change

in control of the Company.

The Company’s option awards generally have a maximum term of

10 years from grant date, are exercisable upon vesting unless otherwise designated for early exercise by the Board of Directors at the

time of grant and are pursuant to individual written agreements.

Grants generally vest over a three-year or four -year period.

option agreements provide for accelerated vesting of options upon the effective date of an initial public offering or a change in control

of the Company.

In fiscal years 2021 and 2020, the Compensation Committee approved

equity grants of options to purchase 207,996 and 27,493 shares respectively of the Company’s Class B common stock to various

executives, consultants and employees, vesting mostly over a three-year period.

Unrecognized compensation expense related to these

grants were $265,000 and $33,000 in fiscal 2020 and 2019 respectively based on the estimated fair value of the options on the grant

In fiscal 2020, the Company received proceeds of $11,571 from

the exercise of stock options for which the Company issued 86,197 shares of its Class B common stock.

In fiscal 2019, the

Company received proceeds of $5,291 from the exercise of stock options for which the Company issued 40,700 shares of its Class

B common stock.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS —

The Company cancelled or forfeited options grants of 126,000

shares and 69,000 shares in fiscal 2020 and fiscal 2019 respectively primarily due to employee resignations or layoffs.

The fair value of stock options was estimated on the date of

the grant using a Black-Scholes valuation model (“BSM”) and the assumptions in the following table.

Expected volatility

is based on historical volatility of the Company’s Class B common stock and other factors.

The Company uses historical data

on exercise of stock options, post vesting forfeitures and other factors to estimate the expected term of the stock-based payments

equity grants of options to purchase 188,849 and 207,996 shares respectively of the Company’s Class B common stock to various executives,

consultants and employees, vesting mostly over a three-year or four-year period.

Unrecognized compensation expense related to these grants

were $774,000 and $265,000 in fiscal 2021 and 2020 respectively based on the estimated fair value of the options on the grant dates.

In fiscal 2021, the Company received proceeds of $873,261 from the

exercise of stock options for which the Company issued 559,840 shares of its Class B common stock.

In fiscal 2020, the Company received

proceeds of $11,571 from the exercise of stock options for which the Company issued 86,197 shares of its Class B common stock.

The Company cancelled or forfeited options grants of 13,000 shares

and 126,000 shares in fiscal 2021 and fiscal 2020 respectively primarily due to employee resignations or layoffs.

The fair value of stock options was estimated on the date of the grant

using a Black-Scholes valuation model (“BSM”) and the assumptions in the following table.

Expected volatility is based on

historical volatility of the Company’s Class B common stock.

The Company uses the simplified method to estimate the expected term

of the stock-based payments granted due to the limited history of the Company.

The risk-free rate is based on the U.S.

Treasury yield curve in effect at the time of grant.

The Company used the following weighted average assumptions

in its BSM pricing model:

Treasury yield

curve in effect at the time of grant.

The Company used the following weighted average assumptions in its

BSM pricing model:

Fiscal year ended July 31,

1 unchanged sentence

Risk free interest rate

The following represents option activity for the fiscal years

ended July 31, 2020 and 2019, including options granted prior to the spin-off on June 1, 2016 and options granted under the 2016

Incentive Plan adopted on June 2, 2016:

The following represents option activity for the fiscal years ended

July 31, 2021 and 2020, including options granted prior to our separation from our former parent in a spin-off on June 1, 2016 and options

granted under the 2016 Incentive Plan adopted on June 2, 2016:

(in thousands)

Exercise Price

Average Remaining Contractual

Aggregate Intrinsic Value

Term (in years)

(in thousands)

5 unchanged sentences

Exercisable at July 31, 2021

The following table summarizes the weighted average grant date

fair value of options granted, intrinsic value of options exercised and fair value of awards vested in the periods indicated:

The following table summarizes the weighted average grant date fair

value of options granted, intrinsic value of options exercised and fair value of awards vested in the periods indicated:

(in thousands except per share amounts)

2 unchanged sentences

Fair value of awards vested

At July 31, 2020, there was $217,000 of total unrecognized compensation

cost related to non-vested stock options, which is expected to be recognized over a weighted-average period of 2.4 years.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS —

At July 31, 2021, there was $774,000 of total unrecognized

compensation cost related to non-vested stock options, which is expected to be recognized over a weighted-average period of 3.2 years.

Restricted Stock

In fiscal 2020, the Company granted 30,534 restricted shares

of its Class B common stock, which vested over a six-month period, to its interim Chief Executive Officer at a grant date fair

In fiscal 2021, the Compensation Committee and the

Corporate Governance Committee of our Board of Directors approved a grant of 92,593 restricted shares of the Company’s Class B

Common Stock to our Executive Chairman Michael Jonas.

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

Chairman during fiscal 2021 in the form of equity in the Company and to make receipt of such equity compensation contingent on the Company

achieving certain milestones relative to its fiscal 2021 budget.

The grant was made at that time because the milestones previously set

were achieved.

These shares shall vest in equal amounts on February 7, 2022, 2023 and 2024.These shares had an aggregate grant date fair

value of $350,000 which is being amortized on a straight-line basis over the vesting period.

In fiscal 2021, the Compensation Committee approved

a grant of 10,619 restricted shares of Class B Common Stock to each of Mr.

Elliot Gibber and Mr.

Howard Jonas which were fully vested

These shares had an aggregate grant date fair value of $30,000 and have been fully amortized accordingly.

In fiscal 2020, the Company granted 30,534 restricted

shares of its Class B common stock, which vested over a six-month period, to its interim Chief Executive Officer at a grant date fair

value of $1.97 per share.

The Company also granted 1,411 restricted shares of its Class B common stock, which vested over

three year, to Chairman of the Board at a grant date fair value of $1.97 per share.

In fiscal 2020, the Company granted 34,066 restricted shares

of its Class B common stock, which vested immediately, to its non-employee Board of Directors at an average grant date fair value

The Company also granted 1,411 restricted shares of its Class B common stock, which vested over three

years, to Chairman of the Board at a grant date fair value of $1.97 per share.

In fiscal 2021, the Company granted 10,869 restricted

shares of its Class B common stock, which vested immediately, to its non-employee Board of Directors at an average grant date fair value

of $8.22 per share.

1 unchanged sentence

to its non-employee Board of Directors at an average grant date fair value of $1.41 per share.

These shares were awarded pursuant

to the non-employee Board of Director’s semi-annual grant.

At July 31, 2020, there were 105,128 non-vested restricted shares

of the Company’s Class B common stock.

At July 31, 2020, there was $132,000 of total unrecognized compensation cost related

to these non-vested restricted shares, which is expected to be recognized over a weighted-average period of 0.9 years.

The following represents restricted shares activity for the

fiscal years ended July 31, 2020 and 2019:

Number of Shares

Weighted Average Grant Date Fair Value

These shares were awarded pursuant to

the non-employee Board of Director’s semi-annual grant.

At July 31, 2021, there were 127,300 non-vested

restricted shares of the Company’s Class B common stock.

At July 31, 2021, there was $288,000 of total unrecognized compensation

cost related to these non-vested restricted shares, which is expected to be recognized over a weighted-average period of 2.4 years.

In fiscal 2021 and fiscal 2020, the Company purchased

12,005 shares and 18,441 shares respectively of Class B Stock from certain employees for $18,000 and $29,000 respectively, to satisfy

tax withholding obligations in connection with the vesting of restricted stock

The following represents restricted shares activity for the fiscal

years ended July 31, 2021 and 2020:

Non-vested stock award as of July 31, 2019

2 unchanged sentences

Deferred Stock Units

In fiscal 2020, the Compensation Committee approved the grant

of 92,544 Deferred Stock Units (DSUs) to 13 of its non-executive employees based in Norway and Lithuania.

Each DSU represents a

right to receive one share of Class B Common Stock.

In fiscal 2020, the Compensation Committee approved the grant of 92,544

Deferred Stock Units (DSUs) to 13 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 primarily vest over a four-year period from grant.

On the grant date,

unrecognized compensation expense related to this grant was an aggregate of $144,000 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 July 31, 2020, unrecognized compensation expense related to unvested DSUs was an aggregate of $69,000 which is expected to be

recognized over a weighted-average period of 3.0 years.

The following represents restricted shares activity for the

fiscal years ended July 31, 2020:

Date Fair Value

On the grant date, unrecognized compensation

expense related to this grant was an aggregate of $144,000 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 July 31, 2021, unrecognized compensation

expense related to unvested DSUs was an aggregate of $39,000 which is expected to be recognized over a weighted-average period of 2.0

In fiscal 2021, 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.

The following represents restricted shares activity for the fiscal

years ended July 31, 2021 and 2020:

Non-vested DSU award as of July 31, 2019

Non-vested DSU award as of July 31, 2020

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS —

Non-vested DSU award as of July 31, 2021

Note 13—Related Party Transactions

Following the Spin-Off, IDT charges the Company for services

it provides pursuant to the Transition Services Agreement (“TSA”).

In fiscal 2020 the Company was charged by IDT a

total of $107,000 for legal services.

In addition, the Company charged IDT $148,000 for consulting services provided to IDT

by a Zedge employee.

As of July 31, 2020, IDT owed the Company $39,000.

Following the Spin-Off, IDT charges the Company for services it provides

pursuant to the Transition Services Agreement (“TSA”).

In fiscal 2021 and 2020 the Company was charged by IDT a total of $113,000

and $107,000, respectively, for legal services.

In addition, the Company charged IDT $144,000 and $148,000, respectively, for consulting

services provided to IDT by a Zedge employee.

As of July 31, 2021 and 2020, IDT owed the Company $6,000 and $39,000, respectively.

The activities between the Company and IDT were as follows:

6 unchanged sentences

Cash payments made to IDT

Due (from) to IDT*

* Due from IDT is included in other current assets.

IDT is included in accrued expenses and other current liabilities.

In the fiscal years ended July 31, 2020 and 2019, the Company

paid $143,000 and $171,000, respectively, to Braze Inc.

(formerly “Appboy, Inc.”) for use of its customer relationship

management and lifecycle marketing platform.

Due from IDT*

* Due from IDT is included

in other current assets.

In the fiscal years ended July 31, 2021 and 2020, the Company paid

$0 and $143,000, respectively, to Braze Inc.

(formerly “Appboy, Inc.”) for use of its customer relationship management and

lifecycle marketing platform.

The former Chief Executive Officer and Co-Founder of Braze, Inc.

is a member of the

Company’s Board of Directors.

In the fiscal years ended July 31, 2020 and 2019, the Company

paid $35,000 and $57,500, respectively, to Activist Artists Management, LLC pursuant to certain referral agreement.

the Company’s Board of Directors owns 33.4% of Activist Artist with which the Company entered into an amended retainer agreement

on August 1, 2020, pursuant to which the Company pays Activist Artists $3,750 per month, plus possible commissions.

is a member of the Company’s Board

of Directors.

In the fiscal years ended July 31, 2021 and 2020, the Company paid

$41,000 and $35,000 respectively, to Activist Artists Management, LLC pursuant to certain referral agreement.

A member of the Company’s

Board of Directors owns 33.4% of Activist Artist with which the Company entered into an amended retainer agreement on August 1, 2020,

pursuant to which the Company pays Activist Artists $3,750 per month, plus possible commissions.

Note 14—Business Segment and Geographic Information

The Company provides a

content platform, worldwide, centered on self-expression, attracting both creators looking to promote their content and consumers

who utilize such content to express their identity, feelings, tastes and interests.

The Company’s platform enables consumers

to personalize their mobile devices with mostly free, high-quality ringtones, wallpapers, home screen app icons, widgets and notification

In March 2018, the Company completed its rollout of Zedge Premium, a marketplace where artists and brands can monetize

their licensed content by making it available to the Company’s existing user base The Company conducts business as one operating

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS —

The Company provides a content platform, worldwide, centered on self-expression,

attracting both creators looking to promote their content and consumers who utilize such content to express their identity, feelings,

tastes and interests.

The Company’s platform enables consumers to personalize their mobile devices with mostly free, high-quality

ringtones, wallpapers, home screen app icons, widgets and notification sounds.

The Company conducts business as one operating segment.

Net long-lived assets and total assets held outside of the United

9 unchanged sentences

Note 15—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 limits.

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.

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 July 31, 2020, there were

no amounts outstanding under the revolving credit facility and the Company was in compliance with all of the covenants.

September 25, 2020, this agreement was extended for another two-year term at substantially comparable terms except for the minimum

interest rate which was reduced from 5.0% to 3.5%, and the facility was reduced from $2.5 million to $2.0 million at the Company’s

As of November 16, 2016, the Company entered into a Foreign

Exchange Agreement with Western Alliance Bank to allow the Company to enter into foreign exchange contracts not to exceed $5.0

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

This limit was raised to approximately $6.5

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

The available borrowing under the revolving

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

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

in effect at the relevant time.

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

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

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

At July 31, 2020, there were $2.6 million of outstanding foreign exchange contracts under the credit facility, which

reduced the available borrowing under the revolving credit facility by $269,000 see Note 4 above.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS —

As of September 27, 2016, the Company entered into a loan and security

agreement with Western Alliance Bank for a revolving credit facility of up to $2.5 million for an initial two-year term which was extended

twice for another two two-year term expiring September 26, 2022.

At the Company’s request in September 2020, advances under this

facility have been reduced to the lesser of $2.0 million or 80% of the Company’s eligible accounts receivable, subject to certain

concentration limits.

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

with the September 2020 extension, the outstanding principal amount bears interest per annum at the greater of 3.5% or the prime rate

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 July 31, 2021 and 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 six months tenor is set at 10% of the nominal amount of the foreign exchange contracts, and for contracts over

six months tenor, 12.5% of the nominal amount of the foreign exchange contracts.

At July 31, 2021, there were $1.8 million of outstanding

foreign exchange contracts under the credit facility, which reduced the available borrowing under the revolving credit facility by $180,000

see Note 4 above.

Note 16—Defined Contribution Plan

In September 2016, the Company adopted a 401(k) Plan, effective

August 1, 2016, available to all employees meeting certain eligibility criteria.

The Plan permits participants to elect pre-tax

or after-tax salary deferrals that will be contributed to the Plan, not to exceed the limits established by the Internal Revenue

The Plan provides for enhanced safe harbor employer matching contributions.

All contributions made by participants and safe

harbor matching contributions by the Company will be fully vested.

The Company’s Class A common stock and Class B common

stock are not investment options for elective deferrals by the Plan’s participants.

However, matching contributions may be

made in shares of the Company.

The Company’s cost for matching contributions to the Plan

were $41,000 and $48,000 for the fiscal years ended July 31, 2020 and 2019, respectively.

In lieu of making cash contributions,

the Company opted to contribute 26,193 shares and 19,479 shares of the Company’s Class B common stock to the Plan for fiscal

2020 and fiscal 2019, respectively.

Note 17—

Investment in Privately-Held Company

In August 2018, the Company made a $250,000 investment in TreSensa,

(“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;

hence, the 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 round.

TreSensa has incurred

quarterly operating losses for several consecutive quarters which was funded in large part through short-term borrowings.

Company recorded an impairment charges of $250,000 in July 2019 which was included in interest and other income (expense),

net in the consolidated statements of comprehensive loss, and reduced the carrying value of the Company’s non-marketable

equity securities to $0 as of July 31, 2020.

On June 30, 2020, TreSensa

agreed to transfer substantially all of its assets to its lender in full satisfaction of its obligations under certain loan agreement

dated March 27, 2020.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS —

In September 2016, the Company adopted a 401(k) Plan, effective August

1, 2016, available to all employees meeting certain eligibility criteria.

The Plan permits participants to elect pre-tax or after-tax

salary deferrals that will be contributed to the Plan, not to exceed the limits established by the Internal Revenue Code.

The Plan provides

for enhanced safe harbor employer matching contributions.

All contributions made by participants and safe harbor matching contributions

by the Company will be fully vested.

The Company’s Class A common stock and Class B common stock are not investment options for

elective deferrals by the Plan’s participants.

However, matching contributions may be made in shares of the Company.

The Company’s cost for matching contributions to the Plan were

$39,000 and $41,000 for the fiscal years ended July 31, 2021 and 2020, respectively.

In lieu of making cash contributions, the Company

opted to contribute 6,572 shares and 26,193 shares of the Company’s Class B common stock to the Plan for fiscal 2021 and fiscal

2020, respectively.

Note 17—Loans Payable

On July 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, 2019 which represented

a 4.79% annual percentage interest rate.

On July 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, 2019 which represented a 4.79% annual

percentage interest rate.

Effective August 1, 2020, the Company obtained a loan of $181,462

1 unchanged sentence

a 3.89% annual percentage interest rate.

On March 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.

Under the PPP, eligible small businesses can apply to an SBA-approved

lender for a loan that doesn’t require collateral or personal guarantees.

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

For loans (or parts of loans) that are forgiven, the lender will collect the forgiven amount from the U.S.

The Company 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 15), on April

The Company is using these proceeds primarily for payroll purposes for U.S.

The Company obtained a loan under the Payroll Protection Program (PPP)

of the CARES Act in the amount of $218,000 loan from Western Alliance Bank, a loan servicer and the Company’s lender (see Note

15), 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 (which was 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 be due two years after inception of the loan.

under the PPP (which was extended to 24 weeks).

Any portion of the loan that is not forgiven would have been due two years after inception

On November 25, 2020, the Company submitted the PPP Loan Forgiveness

Application Form 3508EZ and on May 21, 2021, the Company was notified that such application for the loan forgiveness has been approved

and the loan, including accrued interest, has been deemed satisfied in full by the Small Business Administration to Western Alliance

The Company therefore recorded a gain of forgiveness of debt of $218,000 which is included in interest and other income, net on

the Consolidated Statements of Comprehensive Income (Loss)

Note 18—Sales of Class B Common Stock

On 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.

The Company filed with the SEC a Registration Statement on Form S-3

(the “Form S-3”) on November 30, 2020 which became effective on December 4, 2020 to facilitate capital raising.

The Registration

Statement registered the issuance and sale by the Company of Class B common stock or related securities for gross proceeds to the Company

of up to $20 million.

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

Wainwright & Co, LLC (the “Sales

Agents”) to act as the Company’s exclusive co-Sales Agents in connection with the Company’s “at-the-market”

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

The Company filed a Prospectus Supplement (supplementing

the Prospectus included in the Form S-3) on December 9, 2020 and contemporaneously entered into an At The Market Offering Agreement with

the Sales Agents (the “ATM Sales Agreement”), pursuant to which the Company sold 761,906 shares at an average price of $6.5625

per share for total proceeds of $5 million as of January 28, 2021.

In connection with this offering, the Company incurred a total issuance

costs of $215,000.

The Company intends to use the net proceeds from this offering for working capital and other general corporate purposes.

On March 16, 2021, the Company filed a prospectus supplement with

the SEC which contemplates the sale, for a gross aggregate sale price of up to $10,000,000, of shares of the Company’s Class B

common stock, from time to time in “at the market offerings”

pursuant to an At Market Issuance Sales Agreement with National

Securities Corporation and Maxim Group LLC (the “New Sales Agents”), dated as of March 16, 2021 (the “New ATM Sales

Agreement”), pursuant to which we sold 663,686 shares at an average price of $15.0674 per share for total proceeds of $10 million.

In connection with this offering, we incurred a total issuance costs of $350,000.

We intend to use the net proceeds from this offering

for working capital and other general corporate purposes.

On 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

In connection with this offering, the Company incurred a total issuance costs of $141,000.

Company intends to use the net proceeds from the offering for working capital and other general corporate purposes.

The Company intends to use the net

proceeds from the offering for working capital and other general corporate purposes.

Note 19—Subsequent Events

Pursuant to an Asset Purchase Agreement, on August 1, 2021, the Company

consummated the acquisition of substantially all of the assets of Emojipedia Pty Ltd, a proprietary company organized under the laws of

The total purchase price of the assets is not expected to exceed $7 million.

$4.8 million was funded into an escrow account

on July 30, 2021 which is classified in other assets on the Consolidated Balance Sheet at July 31, 2021 and was paid at closing.

will be determined based on an incentive structure linked to EBITDA generated from emojipedia.org during the first four month period following

the closing and paid out on the six-month and twelve month anniversary of the Closing.

The assets purchased include emojipeida.org, a set of smaller websites,

a bank of emoji related URLs and other assets related to the Seller’s business, including World Emoji Day, the annual World Emoji

Awards, and Emojitracker.

Although the Company has not finalized its analysis, the Company anticipates

that this acquisition does not qualify as a business combination under FASB ASC 805, Business Combinations , and anticipates it

will be accounted for it as asset acquisition.

Additionally, the Company does not believe this acquisition meets the new prescribed significance

tests under Rule 1-02(w) of Regulation S-X which took effect on January 1, 2021 and regards this acquisition as an insignificant business.

Foreign Exchange Forward Contracts

On August 26, 2021, the Company entered into the following foreign

exchange forward contracts with Western Alliance Bank:

Settlement Date

Dollar Amount

Settlement Date

Dollar Amount

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-K

Item 9A. Controls and Procedures