Zedge, Inc. 10-Q

Item 1A. Risk Factors Other than the risk factors described below, there are no other material changes from the risk factors previously disclosed in Item 1A to Part I of our Annual Report on Form 10-K for the fiscal year ended July 31, 2021. We may not be successful in acquiring a sufficient number of users that convert into paying players that generate profits for GuruShots We invest in paid user acquisition and in other marketing activities in order to secure new users and we dedicate resources to convert free users into paying users as well as to prompt existing paying users to increase their spend with us. If our user acquisition and monetization strategies do not yield the desired results we may fail to attract, retain or monetize users and experience a decrease in spending levels which would result in lower revenues and could have a material adverse effect on our business and financial results. We may not be successful converting free users into paying players to generate profits for GuruShots Revenues of free-to-play games typically rely on a small percentage of players who convert into paying users by purchasing game resources that yield additional advantages and features. The vast majority of users play for free or only occasionally spend money on the game. Accordingly, only a small percentage of users who play GuruShots’ games in any period are paying users. In addition, even among the paying users, a small portion of those users generate a large percentage of GuruShots’ revenues. Because of this, it is imperative for us to retain the small percentage of paying users and to maintain or increase their spending. Over the past six years, GuruShots has successfully increased the compounded annual growth rate of monthly spending per paying player by around 18%. There can be no assurance that we will be able to continue to retain paying users or that paying users will maintain or increase their spending. We may experience a net decline in paying players resulting in a decrease in revenue resulting in a materially adverse outcome for our business and financial results. We may not manage our game economy properly and as a result, disincentivize players from purchasing game resources GuruShots is available to players for free, and GuruShots generates nearly all of its revenues from the sale of game resources that users can purchase to secure additional advantages and features that can be utilized to increase the visibility of their photos in a competition. The perceived value of these resources can be impacted by how much we charge for them, how much we discount them, and what resources can be earned by taking specific actions during gameplay. If we fail to manage our economy well we risk confusing or upsetting paying players to the point that they reduce their purchases which could negatively hurt the business. In addition, there are players that share strategies about how to win the competitions across various social media platforms which could reduce the paying player spend or provide advantages to players negating the need for them to purchase in-game resources. We may not accurately track key performance indicators needed to run our business profitably accurately We track certain key performance indicators, including the number of active and paying players using both internal and third-party tracking tools. Our analytical tools have certain limitations, and our ability to access and monitor this data may change, which would adversely impact our ability to track these KPIs. If the internal or external tools we use to track data contain bugs we may make poor decisions based on flawed and inaccurate data which hurt our reputation and financial position. Zedge may experience a material downturn in its business making it impossible to meet the user acquisition spend obligations that we have made to GuruShots In connection with the purchase of GuruShots, we made commitments on user acquisition spend at GuruShots. In the event that there is a material economic setback or another catastrophic event that negatively impacts advertising spend we may be unable to meet our user acquisition obligations to GuruShots which would expose us to liability to the prior owners of GuruShots. 31 Zedge may be unable to successfully integrate GuruShots into Zedge Zedge and GuruShots will need to integrate their operations which will require coordination between management, marketing, technology, product development, and operations. Zedge may not execute the integration successfully resulting in higher costs, product delays, employee resignations, and overall underperformance. The GuruShots acquisition may fail to yield growth opportunities and achieve beneficial synergies Zedge acquired GuruShots with the expectation that the transaction will yield growth on a standalone basis as well as strategic synergies on a combined basis. Our success in realizing these growth opportunities and strategic synergies, and their associated timing depends, amongst other things, on the successful integration of the respective businesses. Even if we are successful with the integration, there is no guarantee that the strategic synergies that we envisioned will bear fruit. We may cause additional dilution to investors In the event that GuruShots meets or exceeds the target thresholds associated with the earnout Zedge may need to issue stock to make the earnout payments resulting in additional dilution to you. Russia's recent invasion of Ukraine, and the international community's response, have created substantial political and economic disruption, uncertainty, and risk. In February 2022, Russia's military action in Ukraine resulted in wide-ranging sanctions and international protests, creating significant political and economic uncertainty at a global level. These and related actions, responses, and consequences may contribute to world-wide economic downturns. We have no way to predict the progress or outcome of the situation, as the conflict and government reactions are rapidly developing and beyond our control. Prolonged unrest, military activities, or broad-based sanctions could have a material adverse effect on our operations and business outlook. We track certain key performance indicators with internal and third-party tools and do not independently verify all of these metrics. Certain of these indicators may have challenges in being tracked accurately which could negatively impact our business. We track certain key performance indicators, including the number of active and paying players using a both internal and third-party tracking tools. Our analytical tools have certain limitations, including those from third-party providers, and our ability to access and monitor this data may change adversely impacting our ability to track these KPIs. If the internal or external tools we use to track data contain bugs we may make poor decisions based on flawed and inaccurate data which hurt our reputation and financial position. Item 2. Unregistered Sales of Equity Securities and Use of Proceeds None Item 3. Defaults Upon Senior Securities None Item 4. Mine Safety Disclosures Not applicable