What changed in this filing

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Item 1. Financial Statements

2021-12-14 compared with 2021-06-14 · 314 added, 904 removed, 263 unchanged (82% of the section changed)

Financial Statements

BALANCE SHEETS

thousands, except par value data)

CONSOLIDATED BALANCE SHEETS

(in thousands, except par value data)

Current assets:

Cash and cash equivalents

Trade accounts receivable, net of allowance for doubtful accounts of $0 at April 30, 2021 and July 31, 2020

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

Prepaid expenses

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Property and equipment, net

Liabilities and stockholders’

Intangible assets, net

Deferred tax assets, net

Liabilities and stockholders’ equity

Current liabilities:

Trade accounts payable

Insurance premium loan payable

Due to seller of Emojipedia

Accrued expenses and other current liabilities

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Total current liabilities

Loans Payable

Other liabilities

Total liabilities

Commitments and contingencies (Notes 8 and 11)

Stockholders’

Commitments and contingencies (Note 8)

Stockholders’ equity:

Preferred stock, $ .01 par value;

authorized shares—2,400;

authorized shares— 2,400 ;

no shares issued

Class A common stock, $ .01 par value;

authorized shares—2,600;

525 shares issued and outstanding at April 30, 2021 and July 31, 2020

authorized shares— 2,600 ;

525 shares issued and outstanding at October 31, 2021 and July 31, 2021

Class B common stock, $ .01 par value;

authorized shares—40,000;

13,683 shares issued and 13,625 shares outstanding at April 30, 2021, and 11,788 shares issued and 11,749 shares outstanding at July 31, 2020

authorized shares— 40,000 ;

13,935 shares issued and 13,861 shares outstanding at October 31, 2021, and 13,923 shares issued and 13,865 ouststanding at July 31, 2021

Additional paid-in capital

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Accumulated deficit

Treasury stock, 58 shares at April 30, 2021 and 40 shares at July 31, 2020, at cost

Total stockholders’

Total liabilities and stockholders’

accompanying notes to consolidated financial statements.

STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

thousands, except per share data)

Treasury stock, 74 shares at October 31, 2021 and 58 shares at July 31, 2021, at cost

Total stockholders’ equity

Total liabilities and stockholders’ equity

See accompanying notes to consolidated financial

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands, except per share data)

Three Months Ended

Nine Months Ended

Costs and expenses:

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Depreciation and amortization

Income (loss) from operations

Income from operations

Interest and other income, net

Net gain (loss) resulting from foreign exchange transactions

Income (loss) before income taxes

Net loss resulting from foreign exchange transactions

Income before income taxes

Provision for income taxes

Net Income (loss)

Other comprehensive income (loss):

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Total other comprehensive income (loss)

Total comprehensive income (loss)

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

Total comprehensive income

Income per share attributable to Zedge, Inc.

common stockholders:

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

accompanying notes to consolidated financial statements.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’

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

See accompanying notes to consolidated financial

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’

(in thousands)

Class A Common Stock

Class B Common Stock

Comprehensive

Stockholders’

Balance –

July 31, 2020

Stockholders’

Balance – July 31, 2021

Stock-based compensation

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Foreign currency translation adjustment

Balance -Oct.

Exercise of stock options

Stock-based compensation

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

Proceeds from sales of Class B Common Stock

Foreign currency translation adjustment

Balance –

Exercise of stock options

Stock-based compensation

Proceeds from sales of Class B Common Stock

Foreign currency translation adjustment

Balance –

See accompanying notes to consolidated financial

Class A Common Stock

Class B Common Stock

Balance -October 31, 2021

B Common Stock

Comprehensive

Stockholders’

Balance –

July 31, 2019

Stock-based compensation

Purchase of treasury stock

Foreign currency translation adjustment

Balance –

Exercise of stock options

Stockholders’

Balance – July 31, 2020

Stock-based compensation

Purchase of treasury stock

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

Proceeds from sales of Class B Common Stock

Foreign currency translation adjustment

Balance –

Net proceeds from sales of Class B Common Stock

Stock-based compensation

Foreign currency translation adjustment

Balance sheet-Apr.

Tied out to balance sheet-April 30, 2020

Balance -October 31, 2020

See accompanying notes to consolidated financial

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(in thousands)

Nine Months Ended

Three Months Ended

Operating activities

Net income (loss)

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

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

Depreciation and amortization

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Capitalized software and technology development costs and purchase of equipment

Investment in private company

Net cash used in investing activities

Financing activities

Proceeds from sales of Class B Common Stock

Payment of issuance costs

Proceeds from PPP loan payable

Repayment of insurance premium loan payable

Proceeds from exercise of stock options

Purchase of treasury stock in connection with restricted stock and deferred stock units vesting

Net cash provided by financing activities

Purchase of treasury stock in connection with restricted stock vesting

Net cash used in financing activities

Effect of exchange rate changes on cash and cash equivalents

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SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES

Acquisition of Emojipedia through release of escrow fund of $ 4,776 , due to seller of $ 2,118 and legal fee of $ 12

Accounts receivable from certain Emojipedia websites collected by Seller

Note payable issued for insurance premium financing

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1—Basis of Presentation and Recently Adopted Accounting

Pronouncements

Note 1—Summary of Significant Accounting Policies

Basis of Presentation

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statements of Zedge, Inc.

and its subsidiary, Zedge Europe AS (the “Company”) have been prepared in accordance with accounting

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

GAAP”) for interim financial information and with the

and its subsidiary, Zedge Europe AS (the “Company”) have been prepared in accordance with accounting

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

GAAP”) for interim financial information and with the

instructions to Form 10-Q and Article 10 of Regulation S-X.

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considered necessary for a fair presentation have been included.

Operating results for the three and nine months ended April 30, 2021

are not necessarily indicative of the results that may be expected for the fiscal year ending July 31, 2021 or any other period.

The balance sheet at July 31, 2020 has been derived from the Company’s audited financial statements at that date but does not include

all of the information and footnotes required by U.S.

Operating results for the three months ended October 31, 2021 are not

necessarily indicative of the results that may be expected for the fiscal year ending July 31, 2022 or any other period.

sheet at July 31, 2021 has been derived from the Company’s audited financial statements at that date but does not include all of

the information and footnotes required by U.S.

GAAP for complete financial statements.

For further information, please refer

to the consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year

ended July 31, 2020, as filed with the U.S.

Securities and Exchange Commission (the “SEC”).

The Company’s fiscal year ends on July 31

For further information, please refer to the

consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended

July 31, 2021, as filed with the U.S.

Securities and Exchange Commission (the “SEC”).

The Company’s fiscal year ends on July 31

of each calendar year.

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2022 refers to the fiscal year ending July 31, 2022).

COVID-19 Impacts on Financial and Operational Results

The COVID-19 pandemic has caused widespread economic

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

quarter of fiscal 2020, followed by a rebound in the following four 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 April 30, 2021, the Company had $24.9 million

of cash and cash equivalents, including a net of $11.9 million raised from the previously announced “at-the-market”

of shares of the Company’s Class B common stock (see Note 15).

The Company has developed certain contingency plans to preserve liquidity

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

At the current

time, the Company does not believe taking such actions would be prudent nor, does it expect to need to take such actions based on its

current forecasts.

The Company believes that its existing cash and cash equivalents, together with cash generated by operations will be

sufficient to meet its working capital and capital expenditure requirements for the foreseeable future when accounting for the ill effects

of the COVID-19 pandemic.

The Company considered the impacts of the COVID-19

pandemic on its significant estimates and judgments used in applying its accounting policies in the nine months ended April 30, 2021.

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.

Use of Estimates

The preparation of the Company’s consolidated

financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of

assets, liabilities, revenue and expenses, as well as related disclosure of contingent assets and liabilities.

Actual results could differ

materially from the Company’s estimates due to risks and uncertainties, including uncertainty in the current economic environment

due to the global impact of the COVID-19 pandemic.

To the extent that there are material differences between these estimates and actual

results, the Company’s financial condition or operating results will be affected.

The Company bases its estimates on past experience

and other assumptions that the Company believes are reasonable under the circumstances, and the Company evaluates these estimates on an

ongoing basis.

Recently Adopted Accounting Pronouncements

In June 2016, Financial Accounting Standards Board

(“FASB”) issued Accounting Standards Update No.

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

Measurement of

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

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

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

For available-for-sale debt securities with unrealized

losses, entities will measure credit losses in a manner similar to current practice, except the losses will be recognized as allowances

instead of reductions in the amortized cost of the securities.

In addition, an entity will have to disclose significantly more information

about allowances, credit quality indicators and past due securities.

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

and the adoption did not have a material impact on the Company’s financial statements and related disclosures.

In August 2018, the FASB issued Accounting Standard

2018-13, Changes to Disclosure Requirements for Fair Value Measurements (Topic 820) (ASU 2018-13), which improved

the effectiveness of disclosure requirements for recurring and nonrecurring fair value measurements.

The standard removes, modifies, and

adds certain disclosure requirements.

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

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

In August 2018, the FASB issued Accounting Standard

2018-15, Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service

Contract (ASU 2018-15) , which aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement

that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software.

The Company adopted this new accounting standard on August 1, 2020, using the prospective method, and the adoption did not have a material

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

Note 2—Revenue

Disaggregation of Revenue

In December 2019, the Financial Accounting Standards

Board (“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.

The Company adopted this new accounting standard

on August 1, 2021, and the adoption did not have a material impact on the Company’s financial statements and related disclosures.

With the exception of the accounting standard discussed

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

October 31, 2021, as compared to the recent accounting pronouncements described in the Company’s Annual Report on Form 10-K for

the fiscal year ended July 31, 2021, that are of significance or potential significance to the Company.

Significant Accounting Policies

Other than intangible assets described below,

there have been no material changes to the Company’s significant accounting policies from its Annual Report on Form 10-K for the fiscal

year ended July 31, 2021.

Intangible Assets

Intangible assets (see Note 16) are carried at

cost and amortized on a straight-line basis over their estimated useful lives of fifteen years.

The Company reviews identifiable amortizable

intangible assets to be held and used for impairment whenever events or changes in circumstances indicate that the carrying value of the

assets may not be recoverable.

Determination of recoverability is based on the lowest level of identifiable estimated undiscounted cash

flows resulting from use of the asset and its eventual disposition.

Measurement of any impairment loss is based on the excess of the carrying

value of the asset over its fair value.

There have been no impairment charges recorded in the three months ended October 31, 2021 presented

in the accompanying consolidated financial statements.

Note 2—Revenue Disaggregation of Revenue

The following table summarizes revenue by type of

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Three Months Ended

Nine Months Ended

(in thousands)

Advertising revenue

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to the unsatisfied performance obligations with respect to subscription revenue.

As of April 30, 2021, the Company’s deferred revenue

balance related to paid subscriptions was approximately $1,607,000, representing approximately 753,000 active subscribers including those

under the account hold designation implemented by Google Play on November 1, 2020.

Account hold is a subscription state that begins

when a user's form of payment fails and the three-day grace period has ended without payment resolution.

The account hold period

lasts for up to 30 days.

As of July 31, 2020, the Company’s deferred revenue balance related to paid subscriptions was approximately

As of October 31, 2021, the Company’s deferred

revenue balance related to paid subscriptions was approximately $1,562,000, representing approximately 763,000 active subscribers including

those under the account hold designation implemented by Google Play on November 1, 2020.

Account hold is a subscription state that

begins when a user’s form of payment fails and the three-day grace period has ended without payment resolution.

The account hold

period lasts for up to 30 days.

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

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

The amount of revenue recognized in the nine months ended April 30,

The amount of revenue recognized in the three months ended October

31, 2021 that was included in the deferred balance at July 31, 2021 was $ 717,000 .

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users purchase or earn Zedge Credits.

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

to its users.

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Zedge Credits upon 180 days of account inactivity.

As of April 30, 2021, and July 31, 2020, the Company’s deferred revenue balance

As of October 31, 2021, and July 31, 2021, the Company’s deferred revenue balance

related to Zedge Premium was approximately $ 241,000 and $ 218,000 , respectively.

Total deferred revenues increased $486,000 from

$1,338,000 at July 31, 2020 to $1,824,000 at April 30, 2021, primarily attributed to new paid subscriptions and renewals sold in the nine

months ended April 30, 2021.

Total deferred revenues decreased by $ 18,000 from

$ 1,821,000 at July 31, 2021 to $ 1,803,000 at October 31, 2021, primarily attributed to the decline in new subscriptions sales in the three

months ended October 31, 2021 when compared to the prior period.

Significant Judgments

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

of Comprehensive Income (Loss).

Note 3—Fair Value Measurements

of Comprehensive Income.

Note 3—Fair Value Measurements

The following tables present the balance of assets

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(in thousands)

April 30, 2021

October 31, 2021

Foreign exchange forward contracts

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Foreign exchange forward contracts

quoted prices in active markets for identical assets or liabilities

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

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

(2) – observable inputs other than quoted prices in active markets

for identical assets and liabilities

(3) – no observable pricing inputs in the market

Fair Value of Other Financial Instruments

The Company’s other financial instruments

at April 30, 2021 and July 31, 2020 included trade accounts receivable, trade accounts payable, and loans payable.

The carrying amounts

of the trade accounts receivable, trade accounts payable, and loan payables approximated fair value due to their short-term nature.

Note 4—Derivative Instruments

The Company’s other financial instruments

at October 31, 2021 and July 31, 2021 included trade accounts receivable, trade accounts payable, and due to seller of Emojipedia.

carrying amounts of the trade accounts receivable, trade accounts payable, and due to seller of Emojipedia approximated fair value due

to their short-term nature.

Note 4—Derivative Instruments

The primary risk managed by the Company using

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

in consolidated statements of comprehensive income (loss).

By using derivative instruments to mitigate exposures to changes in foreign

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

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

The outstanding contracts at April 30, 2021, are as follows:

in consolidated statements of comprehensive income.

By using derivative instruments to mitigate exposures to changes in foreign exchange

rates, the Company is exposed to credit risk from the failure of the counterparty to perform under the terms of the contract.

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

The outstanding contracts at October 31, 2021, are as follows:

Settlement Date

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Balance Sheet Location

(in thousands)

Derivatives not designated or not qualifying as hedging instruments

(in thousands)

Foreign exchange forward contracts

Other current assets

Accrued expenses and other current liabilities

The effects of derivative instruments on the

consolidated statements of comprehensive income (loss) were as follows:

consolidated statements of comprehensive income were as follows:

Amount of Gain (Loss) Recognized on Derivatives

Three Months Ended

Nine Months Ended

Amount of Gain (Loss) Recognized on Derivatives

(in thousands)

Derivatives not designated or not qualifying as hedging instruments

Location of Gain (Loss) Recognized on Derivatives

(in thousands)

Foreign exchange forward contracts

Net gain (loss) resulting from foreign exchange transactions

Note 5—Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities

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Accrued vacation

Accrued income taxes

Accrued income taxes payable

Accrued payroll taxes

Accrued payroll and bonuses

Withholding taxes payable (option exercise gains)

Operating lease liability

Derivative liability

Due to artists

Total accrued expenses and other current liabilities

Note 6—Stock-Based Compensation

2016 Stock Option and Incentive Plan

On November 18, 2020, the Company’s

Board of Directors amended the Company’s 2016 Stock Option and Incentive Plan (as amended to date, the “2016 Incentive Plan”)

to increase the number of shares of the Company’s Class B common stock available for the grant of awards thereunder by an additional

On November 18, 2020, the Company’s

Board of Directors amended the Company’s 2016 Stock Option and Incentive Plan (as amended to date, the “2016 Incentive Plan”)

to increase the number of shares of the Company’s Class B common stock available for the grant of awards thereunder by an additional

250,000 shares to an aggregate of 1,521,000 shares.

This amendment was ratified by the Company’s stockholders at the Annual Meeting

of Stockholders held on January 11, 2021.

At April 30, 2021, there were 233,000 shares of Class B Stock available for awards under the

2016 Incentive Plan.

On November 7, 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

On November 10, 2021, the Company’s

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

for the grant of awards thereunder by an additional 325,000 shares to an aggregate of 1,846,000 shares.

This amendment was ratified by

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

This amendment is subject to ratification

by the Company’s stockholders during the Annual Meeting of Stockholders to be held on January 12, 2022.

At October 31, 2021, there

were 425,000 shares of Class B Stock available for awards under the 2016 Incentive Plan before accounting for the 204,000 contingently

issuable shares related to the DSUs with both service and market conditions discussed below.

Stock Options

In August and October 2020, the Compensation

Committee of the Company’s Board of Directors approved grants of options to purchase an aggregate of 90,849 shares of Class B Stock

to various individuals including company executives, employees and consultants.

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

Also in October 2020, the Compensation

Committee extended the expiration date of options to purchase approximately 182,000 shares of the Company’s Class B Common Stock

held by one of the Company’s executive officers, from October 31, 2021 to May 31, 2026.

Such options are fully vested and were granted

under the Company’s 2008 Stock Option and Incentive Plan.

As of October 31, 2021, the unrecognized compensation expense related to

the unvested portion of this grant was $42,500.

In October 2020, the Compensation Committee

extended the expiration date of options to purchase approximately 182,000 shares of the Company’s Class B Common Stock held by one

of the Company’s executive officers, from October 31, 2021 to May 31, 2026.

Such options are fully vested and were granted under

the Company’s 2008 Stock Option and Incentive Plan.

The options have an exercise price of $1.73 per share.

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related to this modification was $78,000 and was fully expensed on the modification date.

In December 2020 and January 2021, the

Compensation Committee of the Company’s Board of Directors approved grants of options to purchase an aggregate of 37,000 shares

of Class B Stock to four individuals including company executives and employees, vesting over a three-year period with respect to 15,000

options grants with the remaining 22,000 options grants vesting over a four-year period.

Unrecognized compensation expense related to

the 37,000 options grants was an aggregate of $141,000 based on the estimated fair value of the options on the grant date.

The unrecognized

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

In March 2021, the Compensation Committee

of the Company’s Board of Directors approved grants of options to purchase an aggregate of 42,000 shares of Class B Stock to eight

In October 2021, the Compensation Committee

of the Company’s Board of Directors approved grants of options to purchase an aggregate of 15,250 shares of Class B Stock to three

of its non-executive employees based in Lithuania and one consultant, vesting over a four-year period.

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

In November 2019 and January 2020, the

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

and one consultant.

The options vest over a three-year period.

Unrecognized compensation expense related to these grants was an aggregate

of $242,000 based on the estimated fair value of the options on the grant dates.

At October 31, 2021, unrecognized compensation

expense related to unvested stock options was an aggregate of $ 841,000 .

Deferred Stock Units (DSUs)

On September 7, 2021, the Company granted

a total of 291,320 DSUs to 64 of its employees and consultants.

Each DSU represents the right to receive one share of the Company’s

Class B common stock.

Vesting of 30% (87,396) of the DSUs is based on the grantee remaining

in service to the Company and will take place as to 25% on such DSUs on September 7, 2022, as to an additional 33% of such DSUs on September

7, 2023, and as to the remaining DSUs on September 7, 2024.

Vesting of 70% (203,924) of the DSUs

is subject to continued service as well as a market condition.

Those DSUs will only vest if the grantee remains in service to the Company

and only if the aggregate market capitalization of the Company’s equity securities has reached or exceeded $451 million for five

consecutive trading days between the grant date and the vest date.

Subject to satisfaction of both of those conditions, 25% of such DSUs

will vest on September 7, 2022, up to 58% (the 25% eligible to vest in 2022 and an additional 33%) of such DSUs will vest on September

7, 2023, and up to 100% will vest on September 7, 2024.

In the event the market capitalization condition has not been met prior to a vesting

date, but is met by a subsequent vesting date, all DSUs eligible for vesting prior to that date shall vest.

In the event that the market

capitalization condition has not been met by September 7, 2024, these 70% of the DSUs shall expire.

These 70% DSUs or 203,924 DSUs with market condition have been valued

by an outside valuation firm using a Monte Carlo simulation model.

The Monte Carlo simulation methodology estimates the future equity

value of Zedge on a risk-neutral basis.

The outside valuation firm’s mean value indication for a single DSU was $7.19 and their

mean standard of error was less than 1%.

Total grant date fair value for these 70% DSUs with both time and market condition was approximately

$1.5 million.

The unrecognized compensation expense is being recognized on a graded vesting method over the vesting period.

Total grant date fair value for the

remaining 30 % DSUs without market-based condition was approximately $ 1.3 million.

The unrecognized compensation expense is being recognized

on a straight-line basis over the vesting period.

In the nine months ended April 30, 2021

and 2020, the Company issued 497,252 shares and 29,917 shares respectively of Class B Stock and received $819,000 and $4,000 respectively,

in connection with options exercised during the period.

At April 30, 2021, unrecognized compensation expense

related to unvested stock options was an aggregate of $622,000.

Deferred Stock Units

In August 2019, the Compensation Committee

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

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

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

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

of the DSUs on the grant date.

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

At April 30, 2021, unrecognized compensation expense related to unvested DSUs was an aggregate of $44,000.

In the nine months ended April 30, 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.

At October 31, 2021, unrecognized compensation

expense related to unvested DSUs was an aggregate of $ 2.6 million.

In the three months ended October 31,

2021 and 2020, the Company purchased 4,450 shares and 5,625 shares of Class B Stock from various employees for $ 72,000 and $ 8,000 , respectively,

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

Restricted Stock Awards

In November 2020, the Compensation Committee and

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

B Common Stock to our Executive Chairman Michael Jonas.

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

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

achieving certain milestones relative to its fiscal 2021 budget.

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

were achieved.

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

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

In October 2020, the Compensation Committee approved

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Elliot Gibber and Mr.

Howard Jonas which vest immediately.

Howard Jonas which were fully vested

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

On November 7, 2019, the Compensation Committee

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

Elliot Gibber, our Interim Chief Executive Officer in respect

of his service in that capacity through the end of Fiscal 2020 (or such shorter period as he shall serve in that capacity).

vested on February 7, 2020 and May 7, 2020.

These shares had an aggregate grant date fair value of $60,000 which was amortized on a straight-line

basis over the vesting period.

At April 30, 2021, unrecognized compensation expense

related to unvested restricted stock awards was an aggregate of $332,000.

In the nine months ended April 30, 2021 and 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.

Note 7—Earnings Per Share

At October 31, 2021, unrecognized compensation

expense related to unvested restricted stock awards was an aggregate of $ 250,000 .

In the three months ended October 31, 2021 and

2020, the Company purchased 11,665 shares and 12,005 shares respectively of Class B Stock from certain employees for $ 160,000 and $ 18,000

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

Note 7—Earnings Per Share

Basic earnings per share is computed by dividing

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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:

Three Months Ended

Nine Months Ended

(in thousands)

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Three Months Ended

Nine Months Ended

(in thousands)

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Shares excluded from the calculation of diluted earnings per share

For the nine months ended April 30, 2020, the

diluted earnings per share equals basic earnings per share because the Company incurred a net loss during that period and the impact of

the assumed exercise of stock options and vesting of restricted stock and DSUs would have been anti-dilutive.

Note 8—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

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Although there can be no assurance in this regard, the Company

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

or financial condition.

Note 9—Revolving Credit Facility

As of September 27, 2016, the Company entered

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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,

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

Effective with the September 2020 extension, the outstanding principal amount bears interest per annum at the greater of 3.5%

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it pays down any outstanding principal, accrued interest and bank expenses.

At April 30, 2021 and July 31, 2020, there were no amounts

At October 31, 2021 and July 31, 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.

December 2016, the applicable foreign exchange reserve percentage was changed so that the reduction of available borrowing for major currency

forward contracts of less than six months tenor is set at 10% of the nominal amount of the foreign exchange contracts, and for contracts

over six months tenor, 12.5% of the nominal amount of the foreign exchange contracts.

At April 30, 2021, there were $3.1 million of outstanding

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 October 31, 2021, there were approximately $3.2 million of outstanding

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

under the revolving credit facility by $326,250.

Note 10—Business Segment and Geographic Information

The Company is a leading app developer focusing

on mobile phone personalization and entertainment.

“Zedge Wallpapers and Ringtones,”

the Company’s flagship app, is

a hub for self-expression used by millions for mobile phone personalization, social content and fandom art.

The app enables consumers

to showcase who they are, what they like, and amplify their persona.

Zedge Premium, the Company’s in-app marketplace, enables content

creators, ranging the gamut from world class celebrities to emerging artists, to display their talent and sell their content to the Company’s

flagship app users.

“Shortz –

Chat Stories by Zedge”

offers serialized, short-form fiction stories delivered as text-messaging

conversations and soon to be available as mini-podcasts.

The Company conducts business as a single operating segment.

Note 10—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 sounds.

The Company conducts business

as one operating segment.

Net long-lived assets and total assets held outside

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Long-lived assets, net:

April 30, 2021

October 31, 2021

July 31, 2021

Total assets:

April 30, 2021

October 31, 2021

July 31, 2021

Note 11—

Operating Leases

Note 11—Operating Leases

The Company has operating

leases primarily for office space.

Effective 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 feet 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 the right-of-use

assets and the same amount for the lease liabilities for the new lease which has a three years term.

The following table presents

the lease-related assets and liabilities for the new lease recorded on the Consolidated Balance Sheet (in thousands) as of April 30, 2021:

Operating leases:

Other current liabilities

Other liabilities

Total operating lease liabilities

The following table summarizes

the weighted average remaining lease term and weighted average discount rate as of April 30, 2021:

Weighted average remaining lease term:

Operating leases

Weighted average discount rate:

Operating leases

Operating lease right-of-use assets recorded and included in other assets were $ 230,000 and $ 243,000

at October 31, 2021 and July 31, 2021, respectively.

Future minimum lease

payments under non-cancellable leases at April 30, 2021 are as follows (in thousands):

payments under non-cancellable leases at October 31, 2021 are as follows (in thousands):

Years ending July 31,

Remainder of 2021

Operating Leases

Total future minimum lease payments

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There were no other material

changes in the Company's operating and finance leases in the nine months ended April 30, 2021, as compared to the disclosure in the Company's

Annual Report on Form 10-K for the fiscal year ended July 31, 2020.

Note 12—Provision for Income taxes

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

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

million, respectively, to offset future taxable income, the Company also had available NOL carryforwards of approximately $433,000 to

offset future foreign taxable income.

The Company expects to utilize these NOL carryforwards to offset the taxable income for the nine

months ended April 30, 2021 and for the fiscal year ending July 31, 2021, and reduce its effective tax rate to 6.6% for those periods.

The tax expense consists of federal and state taxes based on taxable income and allocated net worth and certain income taxes payable in

foreign jurisdictions where our subsidiaries reside.

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

The Act contains several new or changed income tax provisions, including but not limited to the following:

increased limitation

threshold for determining deductible interest expense, class life changes to qualified improvements (in general, from 39 years to 15 years),

and the ability to carry back net operating losses incurred from tax years 2018 through 2020 up to the five preceding tax years.

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

Note 13—Recently Issued Accounting Standards Not Yet Adopted

Recently Issued Accounting Standards Not Yet Adopted

In December 2019, the FASB issued Accounting Standard

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 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.

With the exception of the accounting standards

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

ended April 30, 2021 that are of significance or potential significance to the Company.

Note 14—Loans Payable

On August 1, 2020,

the Company obtained a loan of $181,000 to pay for certain insurance coverage, repayable in nine equal installments of $20,490 starting

from September 1, 2020 which represented a 3.89% annual percentage interest rate.

On July 16, 2019,

the Company obtained a loan of $140,000 to pay for certain insurance coverage, repayable in nine equal installments of $15,976 starting

from September 1, 2019 which represented a 4.79% annual percentage interest rate.

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

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

The Company used these proceeds in full for payroll purposes

employees during the covered period provided under the PPP and therefore expects that all or most of this loan will be forgiven.

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

The loan has a 1% fixed interest rate

and does not require collateral or personal guarantees.

The Company submitted

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

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 Bank.

The Company will record a gain of forgiveness of debt in the 4 th quarter of fiscal

Note 15—Sales of Class B Common Stock

changes in the Company’s operating and finance leases in the three months ended October 31, 2021, as compared to the disclosure in the

Company’s Annual Report on Form 10-K for the fiscal year ended July 31, 2021.

Note 12—Provision for Income taxes

The Company’s tax provision or benefit for

income taxes for interim periods has generally been determined using an estimate of its annual effective tax rate, adjusted for discrete

items, if any.

Under certain circumstances where the Company is unable to make a reliable estimate of the annual effective tax rate, the

accounting guidance permits the use of the actual effective tax rate for the year-to-date period.

The Company expects its overall effective tax rate for fiscal year

ending July 31, 2022 to be approximately 23.1 %.

During the three months ended October 31, 2021, the Company accounted for a discrete item

related to shares of restricted stock vested during the three months period ended October 31, 2021 with a vesting date fair market value

above the grant date fair market value which resulted in a net effective tax rate of 20.7 %.

As of October 31, 2021, the Company had $ 477,000

of deferred tax assets for which it has not established a valuation allowance, related to the U.S.

federal states and certain international

The Company completed its reassessment of the ability to realize these assets and concluded that a valuation allowance was

not required.

The Company is subject to taxation in the United

States and certain foreign jurisdictions.

Earnings from non-U.S.

activities are subject to local country income tax.

The material jurisdictions

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

Note 13—Loans Payable

Effective August 1, 2020, the Company obtained

a loan of $ 181,462 to pay for its insurance coverages, repayable in nine equal installments of $ 20,491 starting from September 1, 2020

which represented a 3.89 % annual percentage interest rate.

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 9), on April 22, 2020.

The Company used these proceeds in full for payroll purposes for U.S.

employees during the covered

period provided under the PPP (which was extended to 24 weeks).

Any portion of the loan that is not forgiven would have been due two years

after inception of the loan.

On November 25, 2020, the Company submitted the PPP Loan Forgiveness

Application Form 3508EZ and on May 21, 2021, the Company was notified that such application for the loan forgiveness has been approved

and the loan, including accrued interest, has been deemed satisfied in full by the Small Business Administration to Western Alliance Bank.

The Company therefore recorded a gain on forgiveness of debt of $ 218,000 in the three months ended July 31, 2021.

Note 14—Sales of Class B Common Stock

The Company filed with the SEC a Registration

Statement on Form S-3 (the “Form S-3”) on November 30, 2020 which became effective on December 4, 2020 to facilitate capital

The Registration Statement registered the issuance and sale by the Company of Class B common stock or related securities for

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

& 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.

& 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.

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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 the Company sold 489,303 shares at an average price of

$15.0334 per share for total proceeds of $7.4 million as of April 30, 2021.

In connection with this offering, the Company incurred a

total issuance costs of $254,000.

The Company intends to use the net proceeds from this offering for working capital and other

general corporate purposes.

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

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.

In connection with this offering, the Company incurred a total issuance

costs of $141,000.

The Company intends to use the net proceeds from this offering for working capital and other general corporate purposes.

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

The following information should be read in conjunction

with the accompanying consolidated financial statements and the associated notes thereto of this Quarterly Report, and the audited consolidated

financial statements and the notes thereto and our Management’s Discussion and Analysis of Financial Condition and Results of Operations

contained in our Annual Report on Form 10-K for the fiscal year ended July 31, 2020 (the “Form 10-K”), as filed with the U.S.

Securities and Exchange Commission (the “SEC”).

As used below, unless the context otherwise requires,

the terms “the Company,”

“Zedge,”

“we,”

“us,”

and “our”

refer to Zedge, Inc.,

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

Forward-Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking

statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of

1934, including statements that contain the words “believes,”

“anticipates,”

“expects,”

“plans,”

“intends,”

and similar words and phrases.

These forward-looking statements are subject to risks and uncertainties that could

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

In addition to the factors specifically

noted in the forward-looking statements, other important factors, risks and uncertainties that could result in those differences include,

but are not limited to, those discussed under Item 1A to Part I “Risk Factors”

in the Form 10-K.

The forward-looking statements

are made as of the date of this report and we assume no obligation to update the forward-looking statements, or to update the reasons

why actual results could differ from those projected in the forward-looking statements.

Investors should consult all of the information

set forth in this report and the other information set forth from time to time in our reports filed with the SEC pursuant to the Securities

Act of 1933 and the Securities Exchange Act of 1934, including the Form 10-K.

Zedge is a leading app developer focusing on mobile

phone personalization and entertainment.

“Zedge Wallpapers and Ringtones”

our flagship app is all about personal identity.

We’re the hub for self-expression used by millions for mobile phone personalization, social content and fandom art.

Our app enables

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

Zedge Premium, our marketplace, enables content creators,

ranging the gamut from world class celebrities to emerging artists, to display their talent and sell their content to our users.

“Shortz

Chat Stories by Zedge,”

which has been launched in beta, offers serialized, short-form fiction stories delivered as text-messaging

conversations and more recently as mini-podcasts.

Our Zedge app has been installed approximately 497

million times, and at April 30, 2021, boasted approximately 34.5 million monthly active users, or MAU.

MAU is a key performance indicator

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

Our Zedge app has

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

Historically, we have not made

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

Our Zedge app’s success stems from its ability

to meet consumer demand for a rich and diverse catalogue of both long-tail and popular content in a fun, intuitive and user-friendly fashion

that aligns with their interest in expressing their essence in a bespoke manner, to offer reliable search and discovery capabilities and

to make relevant content recommendations to our users.

To this end, we invest heavily in both product design and development and the underlying

technology required to satisfy both our Zedge app’s users’

and content contributors’

expectations.

Our Zedge app utilizes

both user-generated and licensed, third-party content to achieve these goals.

In March 2018, we launched Zedge Premium, a marketplace

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

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

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

Over time, we expect that Zedge Premium will contribute

to a virtuous cycle whereby it drives new consumers into our Zedge app resulting in more artist payouts, which in turn makes the platform

more attractive for artists and brands looking to expand their reach and increase their income.

In January 2019, we started offering paid subscriptions

which, amongst other things, removed unsolicited advertisements from our Zedge app.

As of April 30, 2021, we had approximately 753,000

active subscribers.

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

as introduce new subscription enhancements like content bundles and rewards.

In December 2019, we completed the beta launch of

‘Shortz’

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

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

Over the past several years, our Zedge app has experienced

a decline in its MAU, with modest increases in certain periods, as well as a shift in the regional customer make-up with MAU in emerging

markets representing an increasing portion of our user base.

As of April 30, 2021, users in emerging markets represented 74% of our MAU

compared to 69% a year prior.

This shift impacts our business because emerging markets do not monetize as well as well-developed markets

due to lower eCPMs and lower monthly and annual subscription rates in these regions coupled with lower priced subscriptions SKUs (Stock

Keeping Unit).

In the third quarter of fiscal 2021, users in emerging markets grew by 29.3% while users in well-developed economies declined

1.2% when compared to the same period in fiscal 2020.

As of April 30, 2021, approximately 43% of our Zedge app’s user base was located

in North America and Europe (including Eastern Europe) with a split of 21% and 22%, respectively, compared with 51% as of April 30, 2020

with a split of 25% and 26%, respectively.

MAU growth is tightly coupled with securing new

Historically, our relatively high ranking in the Google Play store has been one of the primary drivers new user acquisition.

still an important factor, we now also dedicate resources to growth initiatives, both organic and paid.

With time, we believe that we

can change our growth dynamic in well-developed markets.

Aside from targeted growth initiatives, we need to continually improve the core

user experience, test different mechanisms and content verticals that may spur growth and capitalize on the role that Zedge Premium artists

can have on driving new users into the Zedge platform.

The COVID-19 pandemic has impacted our Zedge app’s

new user growth.

According to Gartner, a leading research and advisory company, new smartphone sales declined 10.5% in calendar year 2020

as a result of the pandemic, negatively impacting new user growth, especially in well-developed markets.

Gartner forecasts smartphone

sales are expected to rebound in 2021 and there have been reports of a partial recovery, with sales still below 2019 levels.

During the quarters ended April 30, 2021 and 2020,

we generated approximately 80% and 72%, respectively, of our revenues from selling our Zedge app’s advertising inventory to advertising

networks, advertising exchanges, and direct arrangements with advertisers.

Advertising networks and advertising exchanges are third-party

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

The price of advertising

inventory is fixed on an advertising network whereas the price for inventory is determined through real-time bidding on an advertising

Advertisers are attracted to our Zedge app because of its sizable user base.

In our Zedge Premium marketplace, the content owner

sets the price and the user can purchase the content by paying for it with Zedge Credits, our closed virtual currency.

A user can earn

Zedge Credits when taking specific actions such as watching a rewarded video.

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

If a user purchases Zedge Credits, Google Play or App Store keeps 30% of the purchase price with the remaining 70% being paid

When a user purchases Zedge Premium content, the artist or brand receives 70% of the actual value of the Zedge Credits used to

buy the content item as a royalty and we retain the remaining 30% as our fee, which we recognize as revenue.

As Zedge Premium matures

and expands, we expect to also diversify our revenue source mix.

In January 2019, we started offering paid subscriptions

which amongst other things removed unsolicited advertisements from our Zedge app.

During the first 12 months after a customer’s

sign up for the subscription-based product, Google retains up to 30% as a fee, which decreases to 15% from month 13 and beyond.

April 30, 2021, we had approximately 753,000 active subscribers, 90% of which had subscribed on an annual basis.

Since inception in January

2019, subscriptions have generated approximately $5.7 million in gross revenue.

Critical Accounting Policies

Our consolidated financial statements and accompanying

notes are prepared in accordance with accounting principles generally accepted in the United States of America, or U.S.

Our significant

accounting policies are described in Note 1 to the consolidated financial statements included in the Form 10-K.

The preparation of financial

statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and

expenses as well as the disclosure of contingent assets and liabilities.

Critical accounting policies are those that require application

of management’s most subjective or complex judgments, often as a result of matters that are inherently uncertain and may change

in subsequent periods.

Our critical accounting policies include those related to capitalized software and technology development costs,

revenue recognition and goodwill.

Management bases its estimates and judgments on historical experience and other factors that are believed

to be reasonable under the circumstances.

Actual results may differ from these estimates under different assumptions or conditions.

additional discussion of our critical accounting policies, see our Management’s Discussion and Analysis of Financial Condition

and Results of Operations in the Form 10-K.

Recently Issued Accounting Standards Not Yet Adopted

Recently issued

accounting standards not yet adopted by us are more fully described in Note 13 to the Consolidated Financial Statements included in Item 1

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

The COVID-19 pandemic has resulted in public health

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

our business, operations and financial performance.

While we saw a significant decrease in advertising spend when the pandemic became

global in March 2020, our daily advertising revenue has experienced a strong recovery since July 2020 through April 2021.

We responded quickly and decisively to the challenges

presented by the pandemic in order to ensure the long-term continuity of our service.

Initially, we shifted resources and priorities and

focused on streamlining our back-end infrastructure and specifically redesigning our content management system in order to better control

costs while simultaneously establishing a scalable foundation for new growth initiatives, even at the expense of new product initiatives.

At the outset of the pandemic, we instituted a hiring freeze which has subsequently been relaxed and we are starting to invest in new

products, features, and enhancements.

We expect to grow headcount by between 15% to 20% in calendar 2021, mostly in engineering, product

and design to execute on our product development roadmap.

Given the unprecedented uncertainty and rapidly

shifting market conditions of the business environment, we cannot reasonably estimate the full impact of the COVID-19 pandemic on our

future financial and operational results.

At this point it is unclear whether variables including the economy, unemployment, retail sales,

and advertising budgets, or capital markets, including volatility of our stock price will impact our business.

We continue to monitor

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

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

The risks related to the COVID-19 pandemic on

our business are further described in Part I, Item 1A - Risk Factors of the Company’s Annual Report on Form 10-K for the year ended

July 31, 2020, as filed with the SEC.

Key Performance Indicators

The presentation of our results of operations

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

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

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

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

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

ARPMAU is valuable because it provides

insight into how well we monetize our users and, changes and trends in ARPMAU are indications of how effective our monetization investments

MAU increased 19.8% in the third quarter of fiscal

2021 when compared to the same period a year ago and decreased 2.6% on a sequential basis.

Over the past several years, we have experienced

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

As of April 30, 2021, users in emerging markets represented 74% of our MAU compared to 69% a year prior.

This shift impacts our business

because emerging markets do not monetize as well as well-developed markets due to lower eCPMs and lower monthly and annual subscription

rates in these regions coupled with lower priced subscriptions SKUs.

However, ARPMAU for the three months ended April 30, 2021 was up

121% when compared to the same period a year ago, pointing to progress we have made in extracting more value from our users, particularly

from paid subscriptions sales and improvement in ad optimization.

ARPMAU decreased slightly on a sequential basis.

Three Months Ended

(in millions, except ARPMAU)

Developed Markets MAU

Emerging Markets MAU

Emerging Markets MAU/Total MAU

Three Months Ended

(in millions, except ARPMAU)

Developed Markets MAU

Emerging Markets MAU

Emerging Markets MAU/Total MAU

Results of Operations

Three and Nine months Ended April 30, 2021 Compared to Three and

Nine months Ended April 30, 2020

Three months ended

Nine Months Ended

(in thousands)

Direct cost of revenues

Selling, general and administrative

Depreciation and amortization

Income (loss) from operations

Interest and other income, net

Net gain (loss) resulting from foreign exchange transactions

Provision for income taxes

Net Income (loss)

not measurable

The following table sets forth the composition

of our revenues for the three and nine months ended April 30, 2021 and 2020:

Three Months Ended

Nine Months Ended

(in thousands)

Advertising revenue

Paid subscription revenue

Other revenues

Total Revenues

Advertising revenue .

Advertising revenue increased

182% and 114% in the three and nine months ended April 30, 2021, respectively, compared to the three and nine months ended April 30, 2020,

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

Paid subscription revenue .

We rolled out a subscription-based

product on Android in January 2019, whereby users of our Zedge app could pay a monthly or annual fee to remove unsolicited ads when using

our Zedge app.

We employ a regional pricing strategy in order to improve conversions.

constitutes our largest subscriber base

and we generally charge $0.99 per month or $4.99 per year.

We generated $990,000 and $2,806,000 in gross prepaid subscription in the three

and nine months ended April 30, 2021, respectively, compared to $684,000 and $1,522,000 in the three and nine months ended April 30, 2020.

We expect that, based on research and testing we undertake, from time to time, the prices of our subscription in each country/region may

change and we may test other plan and price variations.

The following table summarizes subscription revenue for the three and

nine months ended April 30, 2021 and 2020.

Three Months Ended

Nine Months Ended

(in thousands, except revenue per subscriber and percentages)

Active subscriptions net additions

Active subscriptions at end of period

Average active subscriptions

Average monthly revenue per active subscription

Zedge Premium .

We completed the

initial rollout of Zedge Premium in March 2018 to a segment of our Android user base and we expanded it to 100% of our Android user base

in January 2019.

In the three and nine months ended April 30, 2021, gross transaction value (the total sales volume transacting through

the platform), or “GTV,”

generated from Zedge Premium were $252,000 and $671,000, respectively, compared to $150,000 and $539,000

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

In the three and nine months ended April 30, 2021 net revenue generated from Zedge

Premium were $124,000 and $352,000, respectively, compared to $123,000 and $343,000 in the three and nine months ended April 30, 2020.

Revenue from Zedge Premium, as well as revenues

generated by Shortz, are reported under Other Revenues, and those offerings constitute potential growth drivers in the quarters to come.

Direct cost of revenues .

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

Three Months Ended

Nine Months Ended

(in thousands)

Direct cost of revenues

As a percentage of revenues

Direct cost of revenues increased 0.3% and decreased

1.9% in the three and nine months ended April 30, 2021, respectively, compared to three and nine months ended April 30, 2020.

As a percentage of revenue, direct cost of revenues

in three and nine months ended April 30, 2021 were 5.5% and 6.3%, respectively, compared to 13.9% and 13.7% in the three and nine months

ended April 30, 2020, primarily due to significantly higher revenue in the current periods and the fixed nature of many of our direct

cost of revenues.

Selling, general and administrative expense .

general and administrative expense (“SG&A”) consists mainly of payroll, benefits, recruiting fees, facilities, marketing,

content acquisition costs, consulting, professional fees, software licensing (“SaaS”) and public company related expenses.

Three Months Ended

Nine Months Ended

(in thousands)

Selling, general and administrative

As a percentage of revenues

SG&A expense increased 71.7% and 26.8% in

the three and nine months ended April 30, 2021, respectively, compared to three and nine months ended April 30, 2020.

This increase was

primarily attributable to higher compensation costs resulting from additional headcount and bonus accrual, higher payroll taxes resulting

from option exercise activities as discussed below, higher professional fees and higher marketing costs associated with the approximately

23.4% average fee we pay to Google for subscription sales, offset by reductions in discretionary expenses.

Norwegian NOK declined significantly

to a historical low following the outbreak of Covid-19 in the three months ended April 30, 2020, as a result, SG&A expenses related

to our Norwegian operations for that period were lower when expressed in US dollar term and contributed in part to the overall year over

year increases in our SG&A expenses.

As a percentage of revenue, SG&A expense in

the three and nine months ended April 30, 2021 were 51.3% and 47.9%, respectively, compared to 75.5% and 80.0% in the three and nine months

ended April 30, 2020, primarily due to significantly higher revenue in the current periods.

Our headcount totaled 52 as of April 30, 2021

compared to 39 as of April 30, 2020 with the majority of our employees currently based in Lithuania.

SG&A expense also included stock-based compensation

expense which was $98,000 and $487,000 for the three and nine months ended April 30, 2021, respectively, compared to $102,000 and $397,000

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

Stock-based compensation includes equity grants to employees and consultants, as well

as stock issuances to pay for board compensations and 401(k) matching contributions.

Certain stock options, deferred stock unit and restricted

stock grants are more fully described in Note 6 to the Consolidated Financial Statements included in Item 1 to Part I of this Quarterly

Report on Form 10-Q.

Holders exercised option to purchase 312,287 and

497,252 shares of Class B common stock, respectively, in the three and nine months ended April 30, 2021 as compared to 0 and 29,917 shares

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

In connection with these option exercises and the resulting net gains, we incurred

approximately $258,000 and $382,000 in payroll taxes in the three and nine months ended April 30, 2021 as compared to $0 and $6,000 in

the three and nine months ended April 30, 2020.

Depreciation and amortization .

and amortization consist mainly of amortization of capitalized software and technology development costs of our internal developers on

various projects that we invested in specific to the various platforms on which we operate our service.

We start amortizing these capitalized

software and technology development costs once these projects were completed.

Three Months Ended

Nine Months Ended

(in thousands)

Depreciation and amortization

As a percentage of revenues

The comparison of depreciation and amortization

expenses in any given periods can be attributed to the number of projects being amortized during those periods, as we removed fully amortized

projects and added newly completed projects in the amortization pool.

Interest and other income, net.

Interest and other income, net in the three and nine months ended April 30, 2021 increased $7,000 and $7,000, respectively, when compared

to the same periods in fiscal 2020 due to higher cash balance resulting from cash flows provided by operating activities and financing

activities in the current periods.

Three Months Ended

Nine Months Ended

(in thousands)

Interest and other income, net

As a percentage of revenues

Net gain (loss) resulting from foreign exchange

transactions .

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

movements in NOK and EUR relative to the U.S.

Dollar, including gains or losses from our hedging activities.

Three Months Ended

Nine Months Ended

(in thousands)

Net gain (loss) resulting from foreign exchange transactions

As a percentage of revenues

In the three and nine months ended April 30, 2021,

we realized gains of $16,000 and $67,000, respectively, from NOK and EUR hedging activities, compared to losses of $273,000 and $327,000

in the three and nine months ended April 30, 2020 for the reason stated above.

Provision for income taxes .

The tax expense consists of federal and state taxes based on taxable income and allocated net worth and certain income taxes payable in

foreign jurisdictions where our subsidiaries reside.

Three Months Ended

Nine Months Ended

(in thousands)

Provision for income taxes

As a percentage of revenues

At July 31, 2020,

we had available U.S.

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

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

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

We expect to utilize these NOL carryforwards to offset

the taxable income for the nine months ended April 30, 2021 and for the fiscal year ending July 31, 2021, and reduce our effective tax

rate to 6.6% for those periods.

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

The Act contains several new or changed income tax provisions, including but not limited to the following:

increased limitation

threshold for determining deductible interest expense, class life changes to qualified improvements (in general, from 39 years to 15 years),

and the ability to carry back net operating losses incurred from tax years 2018 through 2020 up to the five preceding tax years.

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

Liquidity and Capital Resources

At April 30, 2021, we had cash and cash equivalents

of $24.9 million and working capital (current assets less current liabilities) of $22.9 million, compared to $5.1 million and $3.9 million,

respectively, at July 31, 2020.

We expect that our cash and cash equivalents on hand and our cash flow from operations will be sufficient

to meet our anticipated cash requirements for the twelve months period ending April 30, 2022.

We also maintain a revolving line of credit

of up to $2.0 million and a foreign exchange contract facility of up to $6.5 million with Western Alliance Bank, as discussed below in

Financing Activities.

The following tables

present selected financial information for the nine months ended April 30, 2021 and 2020:

Nine Months Ended

(in thousands)

Cash flows provided by (used in):

Operating activities

Investing activities

Financing activities

Effect of exchange rate changes on cash and cash equivalents

Increase in cash and cash equivalents

Operating Activities

Our cash flow from operations varies significantly

from quarter to quarter and from year to year, depending on our operating results and the timing of operating cash receipts and payments,

specifically trade accounts receivable and trade accounts payable.

Cash provided by operating activities in the nine months ended April

30, 2021 was $6.1 million higher when compared to the same period a year ago, primarily attributable to the higher revenues generated

from our service offerings, including primarily advertising and paid subscription revenue.

Investing Activities

Cash used in investing activities in the nine

months ended April 30, 2021 and 2020 consisted mostly of capitalized software and technology development costs related to various projects

that we invested in specific to the various platforms on which we operate our service.

Financing Activities

We filed with the SEC a Registration Statement

on 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, we engaged National Securities Corp.

Wainwright & Co, LLC (the “Sales Agents”)

to act as our 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.

We filed a Prospectus Supplement on December 9, 2020 and contemporaneously entered into an At The

Market Offering Agreement with the Sales Agents, pursuant to which we 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, we incurred a total issuance costs of $215,000.

We intend to use the net proceeds from this offering for working capital and other general corporate purposes.

On March 16, 2021, we 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 our 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 dated as of March 16, 2021, pursuant to which we sold 489,303 shares at an average price of $15.0334 per

share for total proceeds of $7.4 million as of April 30, 2021.

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

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.

In August 2020, we obtained a loan of $181,000

to finance about 82% of our directors’

and officers’

liability and cyber liability insurance policies, at an annual percentage

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

We repaid approximately

$161,000 in principal in the nine months ended April 30, 2021.

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

to finance about 85% of our directors’

and officers’

liability and cyber liability insurance policies, at an annual percentage

interest rate of 4.79% to be repaid over nine equal monthly installments of $15,976 starting from September 1, 2019.

We repaid approximately

$125,000 in principal in the nine months ended April 30, 2020.

In the nine months ended April 30, 2021

and 2020, we issued 497,252 shares and 29,917 shares respectively of Class B Stock and received $819,000 and $4,000 respectively, in connection

with options exercised during the period.

In the nine months ended April 30, 2021 and 2020,

we purchased 17,630 shares and 18,441shares, respectively, of Class B Stock from employees for $26,000 and $29,000 respectively, to satisfy

tax withholding obligations in connection with the vesting of restricted stock and DSUs.

We maintain a credit facility of up to $2.0 million

provided by Western Alliance Bank which is more fully described in Note 9 to the Consolidated Financial Statements included in Item 1

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

We do not anticipate paying dividends on our common

stock until we achieve sustainable profitability and retain certain minimum cash reserves.

The payment of dividends in any specific period

will be at the sole discretion of our Board of Directors.

Changes in Trade Accounts Receivable

Gross trade accounts receivable increased $1.33

million to $2.74 million at April 30, 2021 from $1.41 million at July 31, 2020, primarily due to higher revenue in the nine months ended

April 30, 2021.

Concentration of Credit Risk and Significant Customers

Historically, we have had very little or no bad

debt, which is common with other platforms of our size that derive their revenue from digital advertising, as we aggressively manage our

collections and perform due diligence on our customers.

In addition, the majority of our revenue is derived from large, credit-worthy

customers, e.g.

MoPub (owned by Twitter), Google, Facebook and Ogury, and we terminate our services with smaller customers immediately

upon balances becoming past due.

Since these smaller customers rely on us to derive their own revenue, they generally pay their outstanding

balances on a timely basis.

In the nine months ended April 30, 2021, three

customers represented 31%, 22% and 12% of our revenue.

In the nine months ended April 30, 2020, two customers represented 31% and 28%

of our revenue.

At April 30, 2021, two customers represented 44% and 25% of our accounts receivable balance, and at July 31, 2020, two

customers represented 35% and 32% of our accounts receivable balance.

All of these significant customers were advertising exchanges operated

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

Contractual Obligations and Other Commercial Commitments

Smaller reporting companies are not required

to provide the information required by this item.

Off-Balance Sheet Arrangements

At April 30, 2021, we did not have any “off-balance

sheet arrangements,”

as defined in relevant SEC regulations that are reasonably likely to have a current or future effect on our

financial condition, results of operations, liquidity, capital expenditures or capital resources.

Quantitative and Qualitative Disclosures About Market Risks

Smaller reporting companies are not required

to provide the information required by this item.

We intend to use the net proceeds from this

offering for working capital and other general corporate purposes.

Note 15—Acquisition

Pursuant to an Asset Purchase Agreement, on August 1, 2021 (“Closing”),

the Company consummated the acquisition of substantially all of the assets of Emojipedia Pty Ltd, a proprietary company organized under

the laws of Australia.

The total purchase price of the assets is estimated to be approximately $ 6.9 million of which $ 4.8 million was

paid on August 2, 2021 with the remaining $ 2.1 million to be paid out in two equal installments on the six-month and twelve-month anniversary

of the Closing.

The final determination of the purchase price will be made in the 2 nd quarter of fiscal 2022 and is currently

not expected to be materially different than what has been recorded at October 31, 2021.

The assets purchased include emojipedia.org, a set

of smaller websites, a bank of emoji related URLs and other assets related to the seller’s business, including World Emoji Day,

the annual World Emoji Awards, and Emojitracker.

The transaction does not qualify as a business combination under FASB ASC 805, Business

Combinations , and has therefore been accounted for as an asset acquisition.

The total purchase price for this acquisition was allocated

to intangible assets and is being amortized on a straight-line basis over their estimated useful lives of fifteen years .

of operations for this acquisition are included in the Company’s consolidated statements of operations since the date of the acquisition.

Actual and pro forma revenue and results of operations for this acquisition have not been presented because they do not have a material

impact on the consolidated results of operations.

Note 16—Intangible Assets

The following

table presents the detail of intangible assets for the three months ended October 31, 2021 (in thousands):

Balance at July 31, 2021

Emojipedia.org and other internet domains acquired

Balance at October 31, 2021

Estimated future

amortization expense as of October 31, 2021 is as follows (in thousands):

Remainder of fiscal 2022

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements