Zedge, Inc. 10-K

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. This Annual Report 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 this Annual Report. The forward-looking statements are made as of the date of this Annual 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 Securities and Exchange Commission pursuant to the Securities Act of 1933 and the Securities Exchange Act of 1934, including our reports on Forms 10-Q and 8-K. The following discussion should be read in conjunction with the Consolidated Financial Statements and Notes thereto included in Item 8 of this Annual Report. Overview Zedge, Inc. (“Zedge”) builds digital marketplaces and friendly competitive games around content that people use to express themselves. Our leading products include Zedge Ringtones and Wallpapers, a freemium digital content marketplace offering mobile phone wallpapers, video wallpapers, ringtones, and notification sounds as well as pAInt, a generative AI wallpaper maker, GuruShots, a skill-based photo challenge game, and Emojipedia, the #1 trusted source for ‘all things emoji’. Our vision is to enable and connect creators who enjoy friendly competitions with a community of prospective consumers in order to drive commerce. 43 We are part of the ‘Creator Economy,’ where over 1 billion people create and share their content across social platforms, mobile, and video games, and content marketplaces. According to Linktree, over 200 million identify as creators, people who use their influence, skill, and creativity to amass an audience and monetize it. Furthermore, TechCrunch reports that 12% of full-time creators earn more than $50,000 per year, while Influencer Hub reports 10% of influencers earn more than $100,000 per year. We view the Creator Economy as an opportunity for Zedge to expand its business, especially as we execute by connecting our gamers with our marketplace. The Zedge Ringtones and Wallpapers app (which is named “Zedge Wallpapers” in the App Store), which we refer to as our “Zedge App,” offers a wide array of mobile personalization content including wallpapers, video wallpapers, ringtones, and notification sounds, and is available both in Google Play and the App Store. As of July 31, 2023, our Zedge App has been installed nearly 621 million times since inception and, over the past two fiscal years, has had between 30.8 and 36.3 million monthly active users (“MAU”), ending with 30.9 million MAU as of July 31, 2023. MAU is a key performance indicator (“KPI”) that captures the number of unique users that used our Zedge App during the final 30 days of the relevant period. Our platform allows creators to upload content to our marketplace and avail it to our users either for free or for a price, via ‘Zedge Premium,’ the section of our marketplace where we offer premium content (i.e., for purchase). In turn, our users utilize the content to personalize their phones and express their individuality. In fiscal 2023, we introduced pAInt, a generative AI wallpaper maker in the Zedge App. A generative AI wallpaper maker is an implementation of artificial intelligence software that can create images from text descriptions. To interface with a generative AI image maker, a user enters a text description of the image they want to create, and the software generates an image based on that description. In addition, we upgraded Zedge+, our paid subscription offering, by bundling together an ad-free experience with value adds making the offering more compelling. In fiscal 2022, we introduced several new customer facing product features and social and community features, all meant to improve customer engagement, MAU, and revenue growth over the long term. The Zedge Marketplace monetization stack consists of advertising revenue generated when users view advertisements when using the Zedge App (and the related functionality under the Zedge.net website), the in-app (or web-based) sale of Zedge Credits, our virtual currency, that is used to purchase Zedge Premium content, and a paid-subscription offering that provides an ad-free experience to users that purchase a monthly or annual subscription. In April 2023, we introduced a subscription tier in the iOS version of the app. As of July 31, 2023, we had approximately 638,000 active paying subscribers. In late 2021, we introduced ‘NFTs Made Easy’ to a limited number of Zedge Premium creators. All NFT Made Easy transactions are made using Zedge Credits. We often refer to our freemium ringtones and wallpapers, our subscription offering, the functionality for creators to market their products and ancillary offering and features both in our Zedge App and website, as our Zedge Marketplace. In April 2022, we acquired GuruShots, a recognized category leader focused on gamifying the photography vertical. GuruShots offers a platform spanning iOS, Android, and the web that provides a fun, educational and structured way for amateur photographers to compete in a wide variety of contests showcasing their photos while gaining recognition with votes, badges, and awards. We estimate that the total addressable market of amateur photographers using their smartphones to take and publicly share artistic photos is 30-40 million people per month and that the market is still in its infancy. Every month, GuruShots stages more than 300 competitions that result in players uploading in excess of 750,000 photographs and casting close to 4 billion “perceived votes”, which are calculated by multiplying the number of votes that each player casts by a weighting factor based on various factors related to that user. To improve engagement, GuruShots has adopted a set of retention dynamics focused on individual, team and community dynamics that create a sense of belonging, inspiration, recognition, improvement, and competition. Today, GuruShots utilizes a ‘Free-to-Play’ business model that leads to strong monetization with the purchase of resources that are used to give paying players an edge while still maintaining a fair and competitive experience for all participants. Over the past seven years, the monthly average paying player spend has increased in excess of 11.6% annually to more than $51.3 per player. 44 As we look to the future, we are advancing several initiatives that we expect will drive user growth, increase engagement, drive in-app purchases, and advance our in-game economy. Some of these include: ● New Gameplay Experiences . Introducing a new hybrid-casual gameplay experience that enables users to compete in short-duration photo and image competitions that are limited in size. ● On-Boarding . Revamping the customer onboarding experience in order to maximize first time purchasers by immediately drawing new players into simplified photo competitions that are limited to a small audience taking place in a short time duration. ● Economy . Evolving the game economy by maturing the game’s progression mechanics and features, earn and spend dynamics, and introducing soft and premium currencies tied to resources and benefits. Furthermore, we have started preliminary testing of advertising on web and expect to extend that to the mobile apps during the summer. We market GuruShots to prospective players, primarily via paid user acquisition channels, and utilize a host of creative formats including static and video ads in order to promote the game. Our marketing team invests material resources in analyzing all attributes of a campaign ranging from the creative assets, offer acquisition channel, and platform (i.e., iOS, Android, and web), just to name a few, with the goal of determining whether a specific campaign is likely to yield a profitable customer. When we unearth a successful combination of these variables we scale up until we experience diminishing returns. Ultimately, we believe that the efforts we are making to advance the product coupled with the investment in user acquisition can significantly increase GuruShots’ player base. Beyond our commitment to growing both the Zedge App and GuruShots on a standalone basis, we believe that there are many potential synergies that we can capitalize on that exist between the two businesses. Specifically, we plan to enable the ability for GuruShots players to become Zedge Premium artists and sell their photos to our audience of 30+ million MAU as standard digital images or NFTs. In addition, we look to benefit from the experience that the GuruShots team possesses and test gamifying the Zedge App. We believe that successful gamification can contribute to increasing engagement, retention, and lifetime value, all critical KPIs for our business. Longer term, we believe that there are complementary content verticals that lend themselves to gamification. To this end we have been developing a new hybrid casual title, ‘AI Art Master,’ which enables players to create generative AI images and compete in themed based competitions with these images. AI Art Master is currently in soft-launch in the Philippines, Poland, and India with the goal of commercial launch in late 2023 or early 2024. In August 2021, we acquired the assets of Emojipedia Pty Ltd (“Emojipedia”), including Emojipedia.org the world’s leading authority dedicated to providing up-to-date and well-researched emoji definitions, information, and news as well as World Emoji Day and the annual World Emoji Awards. In July 2023, Emojipedia received approximately 45 million monthly page views and has approximately 9.7 million monthly active users as of July 31, 2023 of which approximately 50.3% are located in well-developed markets. It is the top resource for all things emoji, offering insights into data and cultural trends. As a member of the Unicode Consortium, the standards body responsible for approving new emojis, Emojipedia works alongside major emoji creators including Apple, Google, Meta, and X, formally known as Twitter. We believe that Emojipedia provides growth potential to the Zedge App, and it was immediately accretive to earnings. In the past year, we have made many changes to Emojipedia including migrating to a new ad mediation platform, overhauling its backend, and redesigning the Emojipedia website. We will continue to enhance this offering and are exploring new features including a native mobile offering as well as additional monetization opportunities. Reportable Segments Our business consists of two reportable segments. 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. GAAP. The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses as well as the disclosure of contingent assets and liabilities. Critical accounting policies are those that require application of management’s most subjective or complex judgments, often as a result of matters that are inherently uncertain and may change in subsequent periods. Our critical accounting policies include those related to revenue recognition, business combination, intangible and goodwill, capitalized software and technology development costs and stock-based compensation. Management bases its estimates and judgments on historical experience and other factors that are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions. See Note 1, Description of Business and Summary of Significant Accounting Policies, to the Consolidated Financial Statements in Item 8 of this Annual Report on Form 10-K for a complete discussion of our significant accounting policies. 45 Revenue Recognition We generate revenue from the following sources: (1) Advertising; (2) Paid Subscription; (3) Other revenues including primarily Zedge Premium, the section of our marketplace where we offer premium content (i.e., for purchase), and (4) Digital Goods and Services (from the GuruShots acquisition). The substantial majority of our revenue is generated from selling our advertising inventory (“Advertising Revenue”) to advertising networks, advertising exchanges, and direct arrangements with advertisers. Our monthly and yearly subscriptions allow users to prepay a fixed fee to remove unsolicited advertisements from the Android Zedge App in January 2019 and the iOS Zedge App users that began in April 2023. In Zedge Premium, we receive 30% as a fee when users purchase licensed content using Zedge Credits or unlock licensed content by watching a video or taking a survey on Zedge Premium. Sales and other similar taxes are excluded from revenues. Advertising Revenue : We generate the bulk of our revenue from selling the Zedge Marketplace’s advertising inventory to advertising networks and advertising exchanges and direct sales to advertisers. ● Advertising Networks. An advertising network is a third-party relationship where buyers of advertising inventory go to purchase either specific targeted inventory or a large scale of inventory at a set price. Advertising Networks serve as an indirect source of advertising fill to a variety of branded ad campaigns and performance-based ad campaigns. ● Advertising Exchanges. An advertising exchange is similar to an advertising network, except that the exchange typically bids in real-time for inventory. Advertisers may utilize an exchange when looking for scale or specific audiences, and accept that the price will vary based on when and how much volume of inventory they wish to buy. ● Direct Sales to Advertisers. In prior periods, sold, and currently retain the ability to sell, advertising directly to advertisers through contractual relationships. These relationships historically offered higher than average pricing than realized from sales via advertising networks or advertising exchanges. We had no direct sales of advertising during fiscal 2023 and 2022 and have no current expectation that this will represent a material portion of its sales in the near term. We recognize advertising revenue as advertisements are delivered to users through impressions or ad views (depending on the terms agreed upon with the advertiser). For in-app display ads, in-app offers, engagement advertisements and other advertisements, our performance obligations are satisfied over the life of the relevant contract (i.e., over time), with revenue being recognized as advertising units are delivered, which is Zedge’s performance obligation. The advertiser may compensate us on a cost-per-impression, cost-per-click, cost-per-action basis. Paid Subscription Revenue: Beginning in January 2019 and April 2023, we started offering monthly and yearly paid subscription services sold through Google Play and the App Store, respectively. When a customer subscribes, they execute a clickthrough agreement with Zedge outlining the terms and conditions between Zedge and the subscriber. Google Play and the App Store process subscription prepayment on Zedge’s behalf, and retain up to 30% as a fee. Both monthly and yearly subscriptions are nonrefundable after a period of seven days. Paid subscriptions are automatically renewed at expiration unless cancelled by subscribers. While the customer can cancel at any time, he or she will not receive any refund but will remain entitled to receive the ad free service until the end of the subscription period. revenue for these contracts is recognized on a daily ratable basis. The payment terms for subscriptions sold through Google Play is net 30 days after month-end. The payment terms for subscriptions sold through the App Store is net 45 days after month-end. 46 Zedge Premium : Zedge Premium is our marketplace where artists and brands can market, distribute and sell their digital content to Zedge’s users. The content owner sets the price and the end user can purchase the content by paying for it with Zedge Credits, our closed virtual currency. A user can earn Zedge Credits when taking specific actions such as watching rewarded videos or completing electronic surveys. Alternatively, users can buy Zedge Credits with an in-app purchase. If a user purchases Zedge Credits (ranging from 500 credits for $0.99 to 700,000 credits for $999.99), Google Play or App Store retains 30% of the purchase price as its fee. When a user purchases Zedge Premium content using Zedge credits, the artist or brand receives 70% of the actual revenue after the Google Play or iTunes fee (“Royalty Payment”) and we receive the remaining 30%, which is recognized as revenue. Digital Goods and Services : GuruShots generates substantially all of its revenues by selling virtual goods (ex. power-ups, in-game resources) to its users. GuruShots distributes its game to end customers through mobile platforms such as Apple’s App Store and Google Play as well as via the web. Through these platforms, users can download the free-to-play game and can purchase virtual goods which are redeemed in the game to enhance their game-playing experience. Players can pay for their virtual item purchases through various widely accepted payment methods offered in the game. Payments from players for virtual goods are required at the time of purchase, are non-cancellable and relate to non-cancellable contracts that specify GuruShots’ obligations and cannot be redeemed for cash nor exchanged for anything other than virtual goods within the GuruShots’ game. The purchase price is a fixed amount which reflects the consideration that GuruShots expects to be entitled to receive in exchange for use of virtual goods by its customers. The platform providers collect proceeds from the game players and remit the proceeds to GuruShots after deducting their respective platform fees. Sales and other taxes collected from customers on behalf of governmental authorities are accounted for on a net basis and are not included in revenues or operating expenses. GuruShots’ performance obligation is to display the virtual goods in game play based upon the nature of the virtual item. GuruShots categorizes its virtual goods as consumable. GuruShots’ game sells only consumable virtual goods. Consumable virtual goods represent items that can be consumed by a specific player action and do not provide the player any continuing benefit following consumption. GuruShots has determined through a review of game play behavior that players generally do not purchase additional virtual goods until their existing virtual goods balances have been substantially consumed. This review includes an analysis of game players’ historical play behavior, purchase behavior, and the amounts of virtual goods outstanding. Revenue is recognized once the virtual goods are sold. GuruShots monitors its analysis of customer play behavior on a quarterly basis. As discussed above, GuruShots concluded that revenue related to the promise of enhancing users’ gaming experience through in-game resources purchases should be recognized ratably over the period of benefit period (i.e., the period over which the enhanced gaming experience is provided). However, for practical reasons, GuruShots does not defer the portion of revenue attributable to future uses of Resources as of any given balance sheet date. This is due to the duration of the enhanced gaming experience that is provided being, in substantially all of the cases, and applying the portfolio approach (as GuruShots reasonably expects that the effects on the financial statements of applying ASC 606 guidance to the portfolio would not differ materially from applying ASC 606 guidance to the individual contracts), a very short time frame ranging from a few hours to less than two weeks. Therefore, the result of recognizing the related revenues at the point in time which user first consumes the respective Resource would yield a result that is not substantially different then ratable recognition over the period of benefit. Accordingly, revenue is recognized once the virtual goods are sold. Gross Versus Net Revenue Recognition We report revenue on a gross or net basis based on management’s assessment of whether we act as a principal or agent in the transaction. To the extent we act as the principal, revenue is reported on a gross basis. To the extent we act as the agent, revenue is reported on a net basis. The determination of whether we act as a principal or an agent in a transaction is based on an evaluation of whether we control the good or service prior to transfer to the customer. 47 We generally report our advertising revenue net of amounts due to agencies and brokers because we are not the primary obligor in the relevant arrangements, we do not finalize the pricing, and we do not establish or maintain a direct relationship with the advertiser. Certain advertising arrangements that are directly between us and advertisers are recognized on a gross basis equal to the price paid to us by the customer since we are the primary obligor and we determine the price. Any third-party costs related to such direct relationships are recognized as direct cost of revenues. GuruShots is primarily responsible for providing the virtual goods, has control over the content and functionality of games and has the discretion to establish the virtual goods’ prices. Therefore, GuruShots is the principal and, accordingly revenues are recorded on a gross basis. Payment processing fees paid to platform providers are recorded within selling, general and administrative expenses. We report subscription revenue gross of the fee retained by Google Play and the App Store, as the subscriber is our customer in the contract and we control the service prior to the transfer to the subscriber. With respect to Zedge Premium, Zedge, as provider of the platform, is effectively operating as a broker or intermediary connecting online content providers with the end user. While we use gross revenue (net of the 30% fee retained by Google Play or AppStore when a user purchases Zedge Credits) as a performance metric, we record net revenue from Zedge Premium which consists of a 30% platform fee, in-app purchases profit and breakage. Content providers are paid their portion of revenue which is a 70% share of the gross revenue calculated. Business Combinations and Contingent Considerations We account for business combinations using the acquisition method of accounting. We allocate the purchase price of an acquisition to the tangible and intangible assets acquired and liabilities assumed and contingent considerations based on their estimated fair values at the relevant acquisition date. The excess of the purchase price over those fair values is recorded as goodwill. During the measurement period, which may be up to one year from the acquisition date, we may record adjustments to the assets acquired and liabilities assumed with a corresponding offset to goodwill. Upon the conclusion of the measurement period or final determination of the values of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded to the consolidated statements of (loss) income and comprehensive (loss) income. Acquisition-related costs are recognized separately from the acquisition and are expensed as incurred. The fair value of contingent consideration includes estimates and judgments made by management regarding the probability that future contingent payments will be made. For contingent consideration, we update these estimates and the related fair value of contingent consideration using a Monte Carlo simulation at each reporting period based on the estimated probability of achieving the earn-out targets and applying a discount rate that measures the risk associated with the expected contingent payments. Changes in the fair value can result from changes pertaining to the achievement of the defined milestones and changes in assumed discount rates. Changes in the fair value of contingent consideration are recorded in our consolidated statements of (loss) income and comprehensive (loss) income. To the extent our estimates change in the future regarding the likelihood of achieving these targets, we would need to record adjustments to our contingent consideration liabilities. The inputs used to calculate the fair value of the contingent consideration liabilities are considered to be Level 3 inputs due to the lack of relevant market activity and significant management judgment. See Note 3, Fair Value Measurement, to the Consolidated Financial Statements in Item 8 of this Annual Report on Form 10-K, for additional disclosure regarding fair value of financial instruments. Intangible Assets-Net We test the recoverability of its intangible assets with finite useful lives whenever events or changes in circumstances indicate that the carrying value of the asset may not be recoverable. We test for recoverability based on the projected undiscounted cash flows to be derived from such asset. If the projected undiscounted future cash flows are less than the carrying value of the asset, we will record an impairment loss, if any, based on the difference between the estimated fair value and the carrying value of the asset. We generally measure fair value by considering sale prices for similar assets or by discounting estimated future cash flows from such asset using an appropriate discount rate. Cash flow projections and fair value estimates require significant estimates and assumptions by management. Should the estimates and assumptions prove to be incorrect, we may be required to record impairments in future periods and such impairments could be material. 48 Intangible assets are carried at cost, less accumulated amortization, unless a determination has been made that their value has been impaired. Intangible assets are amortized on a straight-line basis over their estimated useful lives of between five to fifteen years. We review identifiable amortizable intangible assets to be held and used for impairment whenever events or changes in circumstances indicate that the carrying value of the assets may not be recoverable. Determination of recoverability is based on the lowest level of identifiable estimated undiscounted cash flows resulting from use of the asset and its eventual disposition. Measurement of any impairment loss is based on the excess of the carrying value of the asset over its fair value. There were no impairment charges recorded in the fiscal years ended July 31, 2023 and 2022 presented in the accompanying consolidated financial statements. Goodwill Goodwill represents the excess of purchase price and related costs over the fair value of assets acquired and liabilities assumed of the business acquired. Under ASC 350, Intangibles-Goodwill and Other , goodwill is not amortized, but instead is tested for impairment annually, or if certain circumstances indicate a possible impairment may exist. We test goodwill for impairment on the first day of the fourth fiscal quarter or upon the occurrence of events or changes in circumstances that indicate that the asset might be impaired. Goodwill is assigned to our reporting units, which are our operating segments, or components of an operating segment, that constitute a business for which discrete financial information is available, and for which segment management regularly reviews the operating results. During the annual impairment review process we have the option to first perform a qualitative assessment (commonly referred to as “step zero”) over relative events and circumstances to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value or to perform a quantitative assessment (“step one”) where we estimate the fair value of each reporting unit using primarily a market capitalization approach. We would recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized would not exceed the total amount of goodwill allocated to that reporting unit. Additionally, we consider income tax effects from any tax-deductible goodwill on the carrying amount of its reporting unit when measuring the goodwill impairment loss, if applicable. We performed an interim impairment test during the third quarter of fiscal 2023 and concluded that the carrying value of the GuruShots reporting unit exceeded its fair value. Accordingly, we recorded a non-cash goodwill impairment charge of $8.7 million during the third quarter of fiscal 2023. See Note 7, Intangible Assets-Net and Goodwill , for additional information) to the Consolidated Financial Statements in Item 8 of this Annual Report on Form 10-K. Capitalized software and technology development costs Software and technology development activities generally fall into three stages: 1 Planning Stage activities include developing a project or business plan that outlines the goals for the content distribution platform or new product or service; determining the functionality; identifying hardware and software applications that will achieve functionality, security, and traffic flows; and selecting the internal resources that will be assigned to the project as well as the external vendors where applicable. 2 Application and Infrastructure Development Stage activities focus on acquiring or developing hardware and software to operate a content distribution platform or new product and service; and 3 Post-Implementation/Operating Stage activities address training, administration, maintenance, and all other activities to operate an existing content distribution platform or new product or service. During the Planning Stage, we charge all costs to expense as incurred. During the Application and Infrastructure Development Stage, we begin to capitalize costs when the project has been properly authorized and we determine that completion is probable. If a project is subsequently cancelled prior to placement in service, costs that have been capitalized to date will be reviewed for potential impairment. Capitalization ceases no later than the point at which a computer software project is substantially complete and ready for its intended use. Amortization, which is generally over three years, begins for each project when the code is ready for use, whether or not it is actually placed in service at that time (an exception being if the project’s functionality completely depends on the completion of another project, in which case, amortization begins when that other project is ready for use). 49 During the Post-Implementation/Operating Stage, we expense training costs and maintenance costs as incurred. However, upgrades and enhancements, defined as modifications to existing internal-use software that result in additional functionality (modifications to enable the software to perform tasks that it was previously incapable of performing, normally requiring new software specifications and perhaps a change to all or part of the existing software specifications) are treated as though they were new projects, and are assessed utilizing the same stages and criteria on a project-by-project basis. As such, internal costs incurred for upgrades and enhancements are expensed or capitalized based on the requirements noted above, while costs incurred for maintenance are expensed as incurred. These projects are tracked individually, such that the beginning and ending of the capitalization can be appropriately established, as well as the amounts capitalized therein. Amortization of these costs is included in depreciation and amortization in the statement of comprehensive income. Stock-Based Compensation We account for our share-based compensation arrangements in accordance with ASC 718, “Compensation-Stock Compensation” (“ASC 718”) which requires the measurement and recognition of compensation expense for all share-based payment awards to employees and directors based on estimated fair values on the grant date. Compensation cost for awards is recognized using the straight-line method over the vesting period or the graded vesting method if awards with market or performance conditions include graded vesting features or if an award includes both a service condition and a market or performance condition. Stock-based compensation is included in selling, general and administrative expense in the consolidated statements of (loss) income and comprehensive (loss) income. See Note 1, Description of Business and Summary of Significant Accounting Policies, to the Consolidated Financial Statements in Part II, Item 8 of this Annual Report, for discussion of new accounting pronouncements. Geo-Political and Macroeconomic Conditions and the COVID-19 Pandemic We are subject to risks and uncertainties caused by events with significant macroeconomic impacts, including but not limited to, Russia’s invasion of Ukraine, rising interest rates, actions taken to counter inflation, reduced consumer confidence, supply side disruptions, and the COVID-19 pandemic. The future and full impact that these factors may have on our business, financial condition, and results of operations is unclear. The risks related to our business are further described in the section titled “Risk Factors” in Part II, Item 1A of this Quarterly Report on Form 10-Q and those discussed under Item 1A to Part I “Risk Factors” in the Form 10-K. Impact of Russia’s Invasion of Ukraine We are closely monitoring the current and potential impact on our business, our people, and our users/customers as Russia’s war with Ukraine evolves. We have taken steps to comply with applicable domestic and international regulatory restrictions on international trade and financial transactions. Revenues associated with our users/customers in Russia and Belarus are not material to our consolidated financial results, and we anticipate that blocking Russian and Belarus users/customers’ access to our mobile app and web platforms will not have a material impact on our business. Management and our Board of Directors are monitoring the regional and global ramifications of the continuing events. Impact of Israel-Hamas War Given our operations in Israel, the impact of economic, political, geopolitical, and military conditions in the region directly affects us, including conflicts involving missile strikes, infiltrations, and terrorism. Notably, on October 7, 2023, Hamas launched attacks in southern Israel, resulting in casualties and military engagement. In addition, Hezbollah, another terrorist organization based in Lebanon has been indiscriminately shelling Israel. The extent and duration of this conflict remain uncertain, potentially involving other groups. Israel’s response led to the mobilization of reservists, affecting our workforce. Prior to this, changes in Israel’s judicial system had already raised concerns about the business environment, compounded by recent events, potentially impacting foreign investment, currency fluctuations, credit ratings, interest rates, and security markets. Furthermore, regional political unrest and threats from extremist groups, notably Iran, pose additional risks. Management and our Board of Directors are closely monitoring the situation in Israel to address potential business disruptions and implications. 50 COVID-19 Update Although the World Health Organization declared in early May of 2023 that COVID-19 no longer constitutes a public health emergency we continue to actively monitor the COVID-19 developments and potential impact on our employees, business and operations. The effects of COVID-19 did not have a material impact on our result of operations or financial condition for the fiscal year ended July 31, 2023. However, given the evolution of the COVID-19 situation, and the global responses to curb its spread, we are not able to estimate the effects COVID-19 may have on our future results of operations or financial condition. Key Performance Indicators Our results of operations discussion includes disclosure of two key performance indicators - Monthly Active Users (MAU) and Average Revenue Per Monthly Active User (ARPMAU). MAU is a key performance indicator that captures the number of unique users that used our Zedge App in the last thirty days of the relevant period, which is important to understanding the size of the user base for our Zedge App which is a significant driver of revenue. Changes and trends in MAU are useful for measuring the general health of our business, gauging both present and potential customers’ experience, assessing the efficacy of product improvements and marketing campaigns and overall user engagement. ARPMAU is valuable because it provides insight into how well we monetize our users and the changes and trends in ARPMAU are indications of how effective our monetization investments are. As of July 31, 2023 MAU declined 3.4% year over year primarily to attrition in both developed markets and emerging markets. Additionally, we have experienced a continuing shift in the regional customer make-up with MAU in emerging markets (particularly India) representing an increasing portion of our user base. As of July 31, 2023, users in emerging markets represented 78% of our MAU compared to 77% a year prior. This shift has negatively impacted revenue because advertising rates in emerging markets are materially lower than in well-developed markets. ARPMAU declined 5.5% for the three months ended July 31, 2023 when compared to the same period a year ago, primarily due to macroeconomic condition that impacted our advertising revenue and subscription revenue. The following tables present the MAU – Zedge App and ARPMAU – Zedge App for the three months ended July 31, 2023 as compared to the same period a year ago: Three Months Ended July 31, (in millions, except ARPMAU - Zedge App) 2023 2022 % Change MAU- Zedge App 30.9 32.0 -3.4 % Developed Markets MAU - Zedge App 6.8 7.3 -6.8 % Emerging Markets MAU - Zedge App 24.1 24.7 -2.4 % Emerging Markets MAU - Zedge App/Total MAU - Zedge App 78 % 77 % 1.0 % ARPMAU - Zedge App $ 0.0552 $ 0.0584 -5.5 % 51 The following charts present the MAU – Zedge App and ARPMAU – Zedge App for the consecutive eight fiscal quarters ended July 31, 2023: GuruShots-MAPs and ARPMAP Monthly Active Payers (“MAPs”). We define a MAP as a unique active user on the GuruShots app or GuruShots.com in a month that completed at least one in-app purchase (“IAP”) during that time period. MAPs for a time period longer than one month are the average MAPs for each month during that period. We estimate the number of MAPs by aggregating certain data from third-party attribution platforms. Average Revenue Per Monthly Active Payer (“ARPMAP”). We define ARPMAP as (i) the total revenue from IAPs derived from GuruShots and GuruShots.com in a monthly period, divided by (ii) MAPs in that same period. ARPMAP for a particular time period longer than one month is the average ARPMAP for each month during that period. ARPMAP shows how efficiently we are monetizing each MAP. The following table shows our MAP and ARPMAP for the three months ended July 31, 2023 and 2022. Three Months Ended July 31, (in thousands, except ARPMAP) 2023 2022 % Change Monthly Active Payers 6,444 8,204 -21.5 % Average Revenue per Monthly Active Payer $ 50.3 $ 56.1 -10.3 % The following charts present the MAP and ARPMAP – GuruShots for the consecutive eight quarters ended July 31, 2023: Our KPIs related to GuruShots are not based on any standardized industry methodology and are not necessarily calculated in the same manner that other companies or third parties may use to calculate these or similarly titled measures. The numbers that we use to calculate MAP and ARPMAP are derived from data that we generate internally. While these numbers are based on what we believe to be reasonable judgments and estimates for the applicable period of measurement, there are inherent challenges in measuring usage and engagement. We regularly review and may adjust our processes for calculating our internal metrics to improve their accuracy. 52 RESULTS OF OPERATIONS The following table sets forth certain of our consolidated results of operations data for the fiscal year ended July 31, 2023 compared to the fiscal year ended July 31, 2022: Fiscal Year Ended July 31, Change 2023 2022 $ % (in thousands) Revenues $ 27,241 $ 26,545 $ 696 2.6 % Direct cost of revenues 2,242 1,641 601 36.6 % Selling, general and administrative 21,857 15,061 6,796 45.1 % Depreciation and amortization 3,269 1,966 1,303 66.3 % Goodwill impairment 8,727 - 8,727 nm Change in fair value of contingent consideration (1,943 ) (3,961 ) 2,018 -50.9 % (Loss) income from operations (6,911 ) 11,838 (18,749 ) nm Interest and other income, net 311 49 262 534.7 % Net income (loss) resulting from foreign exchange transactions 36 (281 ) 317 nm (Benefit from) provision for income taxes (462 ) 1,892 (2,354 ) nm Net (loss) income $ (6,102 ) $ 9,714 $ (15,816 ) nm nm-not meaningful The following table sets forth the composition of our revenues for the fiscal years ended July 31, 2023 and 2022: Fiscal Years Ended July 31, 2023 2022 % Changes (in thousands) Zedge App Advertising revenue $ 18,273 $ 20,296 -10.0 % Paid subscription revenue 3,488 3,741 -6.8 % Other revenues 833 835 -0.2 % Total Zedge App revenue 22,594 24,872 -9.2 % GuruShots Digital goods and services* 4,647 1,673 nm Total revenue $ 27,241 $ 26,545 2.6 % * Year over year percentage change is not meaningful due to the stub period from April 13, 2022 to July 31, 2022. Advertising revenue . Advertising revenue decreased 10% from $20.3 million in fiscal 2022 to $18.3 million in fiscal 2023 primarily due to lower media advertising spending caused by negative macroeconomic conditions, including related to rising interest rate and recession concerns. Paid subscription revenue . Gross subscription revenue on the Android platform decreased 8% to $3.3 million in fiscal 2023 from $3.6 million in fiscal 2022. Subscription revenue recognized on the Android platform also decreased 8% to $3.4 million in fiscal 2023 from $3.7 million in fiscal 2022. Our active subscriptions decreased by 65,000 or 9% from 692,000 as of July 31, 2022 to 627,000 as of July 31, 2023 primarily due to the new subscriptions not offsetting churn, and our average active subscribers decreased by 11% during the same period. Our average monthly revenue per active subscription increased 4.8% to $0.44 in fiscal 2023 from $0.42 in fiscal 2022 due to revenue mix (more monthly subscriptions in fiscal 2023 compared to fiscal 2022). Beginning in August 2023, we rolled out lifetime subscriptions for Android users and the initial results were quite encouraging, although there can be no assurance that the trend will continue. 53 The following table summarizes subscriptions and subscription revenue from the Android platform for the fiscal years ended July 31, 2023 and 2022. We began our subscription offering on the iOS platform in late April 2023 and the associated revenue for the three months ended July 31, 2023 was not material. Fiscal Year Ended July 31, 2023 2022 % Change (in thousands, except revenue per subscriber and percentages) Revenues* $ 3,440 $ 3,741 $ -8.0 % Active subscriptions net decrease* (65 ) (60 ) 7.2 % Active subscriptions at end of period * 627 692 -9.3 % Average active subscriptions during the period* 654 736 -11.1 % Average monthly revenue per active subscription* $ 0.44 $ 0.42 $ 4.8 % * Android Only Digital Goods and Services . Digital Goods and Services revenue were $4.6 million for the twelve months ended July 31, 2023 as compared to $1.7 million for the period from April 13, 2022 to July 31, 2022. Since the closing of the acquisition, GuruShots has experienced downward trajectory in both MAP and ARPMAP. As shown in the table above under the discussion of Key Performance Indicators, MAP and ARPMAP declined 22% and 10% respectively for the three months ended July 31, 2023 when compared to the same period a year ago. The decline in MAP can be attributed primarily to Apple’s App Tracking Transparence (“ATT”) framework which impeded our ability to invest in paid user acquisition (“PUA”) campaigns profitably in terms of return on ad spend or (“ROAS”). As such, we scaled back our PUA spend for GuruShots in fiscal 2023 while continuously testing with new campaigns and creatives in order to unearth attractive ROAS scaling opportunities. The decline in ARPMAP was primarily due to the negative macroeconomic conditions caused by the rising interest rate and recession fear throughout fiscal 2023. Other Revenue . Other revenue consists primarily of Zedge Premium revenue. Zedge Premium gross revenue increased 2.3% while net revenue was flat year over year. The following table summarizes Zedge Premium gross and net revenue for the fiscal year ended July 31, 2023 and 2022. Fiscal Year Ended July 31, 2023 2022 % Changes (in thousands) Zedge Premium-gross revenue (“GTV”) $ 1,544 $ 1,509 2.3 % Zedge Premium-net revenue $ 826 $ 827 -0.1 % Gross margin 53 % 55 % Direct cost of revenues . Direct cost of revenues consists primarily of content hosting, content serving and filtering, and data analytic tools. Fiscal Year Ended July 31, (in thousands) 2023 2022 % Change Direct cost of revenues $ 2,242 $ 1,641 36.6 % As a percentage of revenues 8.2 % 6.2 % Direct cost of revenues increased 37% in fiscal 2023 to $2.2 million from $1.6 million in fiscal 2022, primarily attributable to the full year effect of the cloud hosting costs related to GuruShots. As a percentage of revenue, direct cost of revenues in fiscal 2023 were 8.2% as compared to 6.2% in fiscal 2022. The higher percentage in fiscal 2023 can be attributed to GuruShots’ lower revenue base and relatively high direct cost of revenues. 54 Selling, general and administrative expense . Selling, general and administrative expense (“SG&A”) consists mainly of payroll, benefits, facilities, marketing (primarily PUA), consulting, professional fees, software licensing (“SaaS”) and public company related expenses. Fiscal Year Ended July 31, (in thousands) 2023     2022 % Change Selling, general and administrative $ 21,857 $ 15,061 45.1 % As a percentage of revenues 80.2 % 56.7 % SG&A expense increased 45%, or $6.8 million in fiscal 2023 to $21.9 million from $15.1 million in fiscal 2022. This increase was primarily attributable to the effect of consolidating GuruShots’ operating results for twelve months in fiscal 2023 versus the period from April 13, 2022 to July 31, 2022. Stock-based compensation as discussed below, PUA, higher professional and consulting fees also contributed in part to the increase in SG&A year over year. We started investing in PUA during fiscal 2023 to counter the decline in organic installs of our Zedge App. We expect to increase our PUA spend in fiscal 2024 provided the ROAS remains compelling. As a percentage of our total revenue, SG&A expense in fiscal 2023 was 80.2% as compared to 56.7% in fiscal 2022. The higher percentage in fiscal 2023 can be attributed to the full year effect of consolidating GuruShots’ operations in fiscal 2023 as compared to a short year period in fiscal 2022 (April 13, 2022 to July 31, 2022). Our headcount totaled 94 as of July 31, 2023, relatively stable from the staffing level as of July 31, 2022. The majority of our employees are based in Lithuania and Israel. SG&A expense also included stock-based compensation expense including equity grants to employees and consultants, as well as stock issuances to pay for board compensations and 401(k) matching contributions. Certain stock options, deferred stock unit and restricted stock grants are more fully described in Note 13, Stock-Based Compensation , to the Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K. The following table summarizes stock-based compensation expense for the fiscal year ended July 31, 2023 and 2022. Fiscal Year Ended July 31, (in thousands) 2023 2022 % Change Stock-based compensation expense $ 2,519 $ 1,936 30.1 % Stock-based compensation expense increased $0.6 million or 30% in fiscal 2023 to $2.5 million from $1.9 million in fiscal 2022 primarily due to the equity-based compensation expenses related to the restricted stock issued in connection with the GuruShots acquisition. Depreciation and amortization . Depreciation and amortization expense consists mainly of amortization of intangible assets related to the GuruShots and Emojipedia acquisitions, 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 mobile app service. Fiscal Year Ended July 31, (in thousands) 2023 2022 % Change Depreciation and amortization $ 3,269 $ 1,966 66.3 % As a percentage of revenues 12.0 % 7.4 % Depreciation and amortization expense increased $1.3 million or 66 % in fiscal 2023 to $3.2 million from $2.0 million in fiscal 2022, primarily due to the amortization of intangible assets acquired in connection with the GuruShots acquisition. 55 Goodwill impairment. We performed an interim impairment assessment during the Q3 of fiscal 2023 and determined that the fair value of the GuruShots reporting unit exceeded its carrying value and recorded a $8.7 million goodwill impairment charge in the three months ended April 30, 2023. Please see Note 7, Intangible Assets, Net and Goodwill , to the Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K for additional information. Contingent Consideration Fair Value Change. During fiscal 2023, we recorded a $1.9 million net benefit related to the change in fair value of our contingent consideration payable (related to the GuruShots acquisition) in addition to the $4.0 million net benefit recorded in fiscal 2022. In effect, we reduced the amount payable from $5.9 million to $0, due to the decrease in the likelihood that certain contingent milestones would be achieved. Interest and other income, net. The increase in interest and other income, net in fiscal 2023 when compared to fiscal 2022 was primarily due to higher interest rates earned on our cash balances in fiscal 2023 compared to fiscal 2022. Fiscal Year Ended July 31, (in thousands) 2023 2022 % Change Interest and other income, net $ 311 $ 49 534.7 % As a percentage of revenues 1.1 % 0.2 % Net income (loss) resulting from foreign exchange transactions . Net income (loss) resulting from foreign exchange transactions is comprised of gains and losses generated from movements in Norwegian Krone (“NOK”) and Euros (“EUR”) relative to the U.S. Dollar, including gains or losses from our currency hedging activities. Fiscal Year Ended July 31, (in thousands) 2023 2022 % Change Net income (loss) resulting from foreign exchange transactions $ 36 $ (281 ) nm As a percentage of revenues 0.1 % -1.1 % nm-not meaningful In fiscal 2023 and 2022, we incurred income of $14,000 and losses of $368,000, respectively, from NOK and EUR hedging activities. (Benefit from) provision for income taxes . During fiscal 2023, we had pretax loss of about $6.6 million in respect of which we accrued $0.5 million in income tax benefit, an effective tax rate of 7.0% which is lower than the statutory rate primarily due to the $8.7 million goodwill impairment charge and $1.9 million change in fair value of contingent consideration. During fiscal 2022, we had pretax income of about $11.6 million in respect of which we accrued $1.9 million in income tax expenses, an effective tax rate of 16.3% which is lower than the statutory rate primarily due to the $4.0 million change in fair value of contingent consideration. See Note 12, Income Taxes , to the Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K, for information regarding income taxes. Fiscal Year Ended July 31, (in thousands) 2023 2022 % Change (Benefit from) provision for income taxes $ (462 ) $ 1,892 nm As a percentage of revenues -1.7 % 7.1 % nm-not meaningful 56 Comparison of our Segment Results of Operations The following table presents the results for our Zedge Marketplace and GuruShots segment income (loss) from operations for the fiscal years ended July 31, 2023 and 2022: Fiscal Year Ended July 31, 2023 2022 % Change (in thousands) Segment income (loss) from operations: Zedge Marketplace $ 6,321 $ 9,582 -34.0 % GuruShots (13,232 ) 2,256 nm Total $ (6,911 ) $ 11,838 nm nm-not meaningful Our income from operations related to the Zedge Marketplace decreased 34.0% to $6.3 million in fiscal 2023 from $9.6 million in fiscal 2022, primarily due to 1) lower advertising revenue resulting from MAU decline in well-developed countries and lower eCPMs, 2) lower subscription revenue as discussed earlier, and 3) higher operating expenses attributable to higher compensation costs (including stock-based compensation), PUA expenses, and professional fees. Our loss from operations related to GuruShots was $13.2 million for the fiscal year ended July 31, 2023, including goodwill impairment charge of $8.7 million and changes in fair value of contingent consideration of $1.9 million. Excluding these two items loss from operations related to GuruShots would have been $6.4 million for fiscal 2023. GuruShots continued to underperform due primarily to lower revenue from existing users and adding fewer new users to the platform which resulted in lower MAP and lower ARPMAP when compared to prior periods. Our income from operations related to GuruShots was $2.3 million for the period from April 13, 2022 to July 31, 2022, including changes in fair value of contingent consideration of $4.0 million. Excluding this item loss from operations related to GuruShots would have been $1.7 million for that period in fiscal 2022. GuruShots’ operating results are consolidated with our operating results beginning on April 13, 2022. Therefore, our consolidated results of operations for the fiscal year ended July 31, 2023 may not be comparable to the corresponding periods in fiscal 2022. Please refer to the unaudited pro forma consolidated financial information contained in Note 6, Business Combination and Assets Acquisition , to the Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K. LIQUIDITY AND CAPITAL RESOURCES General At July 31, 2023, we had cash and cash equivalents of $18.1 million and working capital (current assets less current liabilities) of $16.0 million. We currently 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 following issuance of this annual report on Form 10-K. 57 The following tables present selected financial information for the fiscal years ended July 31, 2023 and 2022: Fiscal Year Ended July 31, (in thousands) 2023 2022 $ Changes Cash flows provided by (used in): Operating activities $ 3,162 $ 11,492 $ (8,330 ) Investing activities (2,422 ) (18,950 ) 16,527 Financing activities 387 (223 ) 611 Effect of exchange rate changes on cash and cash equivalents (87 ) (142 ) 55 Increase (decrease) in cash and cash equivalents $ 1,040 $ (7,823 ) $ 8,863 Operating Activities Our cash flow from operating activities 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 decreased $8.3 million to $3.2 million in fiscal 2023 from $11.5 million in fiscal 2022, primarily attributable to the operating losses from GuruShots in fiscal 2023, see Note 15, Segment and Geographic Information , to the consolidated financial statements in Part II, Item 8 of this Annual Report on Form 10-K. Changes in Trade Accounts Receivable Gross trade accounts receivables were $2.9 million and $2.4 million at July 31, 2023 and 2022 respectively. Our cash collections in fiscal 2023 and fiscal 2022 were $24.8 million and $26.0 million, respectively. Investing Activities On April 12, 2022, we acquired 100% of the outstanding equity securities of GuruShots. The purchase price consists of $18 million in cash paid at closing and contingent payments (the “Earnout”) of up to a maximum of $16.8 million, payable either in cash or Class B common stock of the Company or a combination thereof (in the Company’s discretion) payable over two years from closing subject to GuruShots achieving certain financial targets set forth in the Share Purchase Agreement (“SPA”). In connection therewith, we agreed to make certain minimum investments in user acquisition for GuruShots in the period covered by the Earnout, subject to GuruShots maintaining agreed upon levels of return on ad spend (ROAS) and other conditions. In addition, we committed to a retention pool of $4 million in cash and 626,242 shares of the Company Class B common stock with a fair value of $4 million or $6.39 per share for GuruShots’ founders and other employees that will be payable or vest, as applicable, over three years from closing based on the beneficiaries thereof remaining employed by the Company or a subsidiary. On August 1, 2021, we acquired substantially all of the assets of Emojipedia Pty Ltd, a proprietary company organized under the laws of Australia. The final purchase price of the assets was determined to be $6.7 million of which $4.8 million was paid on August 2, 2021 with the remaining $1.9 million to be paid out on the six-month and twelve-month anniversary of the Closing. We paid approximately half of the $1.9 million on February 1, 2022 and the remaining amount was paid on August 1, 2022. Business combination and assets acquisition are more fully described in Note 6, Business Combination and Asset Acquisition , to the Consolidated Financial Statements in Item 8 of this annual report on Form 10-K. Cash used in investing activities in the fiscal years ended July 31, 2023 and 2022 also consisted of capitalized software and technology development costs related to various projects that we invested in specific to the various platforms on which we operate our service. 58 Financing Activities On October 28, 2022, we entered into an Amended Loan Agreement with Western Alliance Bank. Pursuant to the Amended Loan Agreement, Western Alliance Bank agreed to provide the Company with a new term loan facility in the maximum principal amount of $7,000,000 for a four-year term and a $4,000,000 revolving credit facility for a two-year term. At our request, the maximum principal amount of the term loan was reduced to $2 million as of May 11, 2023. Pursuant to the Amended Loan Agreement, $2,000,000 was advanced in a single-cash advance on the closing date on October 28, 2022. As of July 31, 2023, there were no availability under the term loan facility. We discontinued the existing $2,000,000 revolving credit facility under the existing Loan and Security Agreement, dated as of September 26, 2016. At both July 31, 2022 and the time of the discontinuance on October 28, 2022, there was no outstanding balance on the revolving credit facility. In connection with the share repurchase program as in Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities , we bought back 752,687 shares for approximately $1.6 million in fiscal 2023, including commission and banking fees of approximately $15,000. In fiscal 2023, we received proceeds of $1,785 from the exercise of stock options for which the Company issued 1,500 shares of its Class B common stock. In fiscal 2022, the Company received proceeds of $8,631 from the exercise of stock options for which the Company issued 5,166 shares of its Class B common stock. In fiscal 2023 and 2022, we purchased 6,310 shares and 16,115 shares respectively of Class B Stock from certain employees for $17,000 and $232,000 respectively, to satisfy tax withholding obligations in connection with the vesting of restricted stock and DSUs. 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. 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 X, formerly known as Twitter, and sold to AppLovin in January 2022), Google and Meta, 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 fiscal year ended July 31, 2023, two customers represented 26% and 16% of our revenue. In the fiscal year ended July 31, 2022, two customers represented 28% and 15% of our revenue. At July 31, 2023, two customers represented 36% and 18% of our accounts receivable balance and at July 31, 2022, three customers represented 41%, 17% and 16% of our accounts receivable balance. All of these significant customers are advertising exchanges operated by leading companies, and the receivables represent many smaller amounts due from advertisers. CONTRACTUAL OBLIGATIONS AND OTHER COMMERCIAL COMMITMENTS In connection with the acquisition of GuruShots, the Company has (i) committed to a retention pool of $4 million in cash to be paid to the founders and employees of GuruShots that will be payable over three years from April 1, 2022 based on the beneficiaries thereof remaining employed by the Company or a subsidiary; and (ii) agreed to make certain minimum investments in user acquisition for GuruShots in the period covered by the earnout to be contingently paid to the prior owners of GuruShots subject to the acquired users generating minimum levels of ROAS. The Company was prepared to make the minimum investment, however, GuruShots was unable to achieve those minimum ROAS target conditions. GuruShots’ financial performance during the period from the April 2022 acquisition through July 31, 2023, was materially impacted by a combination of industry specific, macroeconomic, and geopolitical challenges that contributed to negatively impacting ROAS. The conditions for payment of the Earnout for the first year following the acquisition were not met and no Earnout payment was made or accrued. 59 OFF-BALANCE SHEET ARRANGEMENTS At July 31, 2023, we did not have any “off-balance sheet arrangements,” as defined in relevant SEC regulations that are reasonably likely to have a current or future effect on our financial condition, results of operations, liquidity, capital expenditures or capital resources, other than the following: In connection with our Spin-Off on June 1, 2016, we and IDT entered into various agreements prior to the Spin-Off including a Separation and Distribution Agreement to effect the separation and provide a framework for our relationship with IDT after the Spin-Off, and a Tax Separation Agreement, which sets forth the responsibilities of us and IDT with respect to, among other things, liabilities for federal, state, local and foreign taxes for periods before and including the Spin-Off, the preparation and filing of tax returns for such periods and disputes with taxing authorities regarding taxes for such periods. Pursuant to the Separation and Distribution Agreement, among other things, we indemnify IDT and IDT indemnifies us for losses related to the failure of the other to pay, perform or otherwise discharge, any of the liabilities and obligations set forth in the agreement. Pursuant to the Tax Separation Agreement, among other things, IDT indemnifies us from all liability for taxes of ours and any of our subsidiaries or relating to our business with respect to taxable periods ending on or before the Spin-Off, and we indemnify IDT from all liability for taxes of ours and any of our subsidiaries or relating to our business accruing after the Spin-Off. Notwithstanding the foregoing, we are responsible for, and IDT has no obligation to indemnify us for, any tax liability of ours resulting from an audit, examination or other proceeding related to any tax returns that relate solely to us and our subsidiaries regardless of whether such tax return relates to a period prior to or following the Spin-Off. Item 7A. Quantitative and Qualitative Disclosures about Market Risks. Smaller reporting companies are not required to provide the information required by this item. Item 8. Financial Statements and Supplementary Data. The Consolidated Financial Statements of the Company and the report of the independent registered public accounting firm thereon starting on page F-1 are included herein. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. None.