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, which we refer to as our “Zedge App,” 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. We are part of the ‘Creator Economy,’ which Goldman Sachs estimates is worth $250 billion globally. 5 According to Linktree, over 200 million individuals identify as creators, people who use their influence, skill, and creativity to amass an audience and monetize it. 6 Furthermore, Influencer Marketing Hub reports that out of 2,000 surveyed creators, 44.9% identify as full-time creators, 7 and Exploding Topics reports that 10% of influencers earn more than $100,000 per year. 8 We view the Creator Economy as an opportunity for Zedge to expand our business, especially as we execute by connecting our gamers with our marketplace. 5 https://www.latimes.com/business/story/2024-01-08/creator-influencer-economy-2024-predictions-social-media-stars 6 https://linktr.ee/creator-report 7 https://influencermarketinghub.com/creator-earnings-benchmark-report 8 https://explodingtopics.com/blog/creator-economy-stats# 46 Our Zedge app (which is named “Zedge Wallpapers” in the App Store) 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, 2024, our Zedge App had been installed nearly 674 million times since inception and, over the past two fiscal years, has had between 26.1 million and 32.2 million monthly active users (“MAU”), ending with 26.1 million MAU as of July 31, 2024. MAU is a key performance indicator (“KPI”) for our Zedge app 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, via ‘Zedge Premium,’ the section of our marketplace where we offer premium content 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. 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. The Zedge Marketplace’s 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 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, 2024, we had approximately 669,0000 active subscribers. In April 2022, we acquired GuruShots Ltd, 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 670,000 photographs and casting close to 3.2 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. GuruShots utilizes a ‘Free-to-Play’ business model and generates revenue through in-app purchases of virtual currency. Players can use this currency to unlock competitions or gain an edge by purchasing resources and participating in additional gameplay. Over the past seven years, the monthly average paying player spend has increased in excess of 9.9% annually to more than $50.9 per player. 47 In fiscal 2024, we revamped GuruShots’ customer onboarding experience by guiding new players through simplified photo competitions of limited size and duration. The upgrade was designed to enhance the gaming experience for new players by increasing their potential for winning and providing immediate gratification. The new onboarding has shown improvements in engagement, retention, and revenue from new users. In addition, we migrated to a coin-based economy with multiple currencies in order to enable more players to earn and spend their currency on in-game resources. 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, among others, the creative assets, offer acquisition channel and platform (i.e., iOS, Android, and web), 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. Since the start of fiscal 2025 Cost per Install (CPI) have trended down considerably leading us to believe that our efforts are yielding fruit. It’s too early to say with conviction whether this trend is sustainable as we scale user acquisition and whether these users will provide sufficient long-term ROI; however, we believe that these early results are encouraging. 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 GuruShots players to become Zedge Premium artists and sell their photos to our audience of 25+ million MAU (as of July 31, 2024) as standard digital images. In addition, we are benefitting from the experience that the GuruShots team possesses in 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. One example is our hybrid casual title, ‘AI Art Master,’ which has been in soft-launch in the Philippines, Poland, and India, that enables players to create generative AI images and compete in themed-based competitions with these images. Based on analyzing user data and performing extensive user testing, we will determine whether to refine the user experience and scale or cease development of this title. In August 2021, we acquired Emojipedia Pty Ltd, 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 2024, Emojipedia received approximately 37.6 million monthly page views and has approximately 9.6 million monthly active users as of July 31, 2024 of which approximately 46.7% 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, formerly known as Twitter. We believe that Emojipedia provides growth potential to the Zedge App, and it was immediately accretive to earnings post acquisition in August 2021. In the past year, we have made many changes to Emojipedia including overhauling its backend, redesigning the Emojipedia website, and introducing new entertainment-focused features to the site. We will continue to enhance this offering and are exploring additional new features which use artificial intelligence, some of which will be released before the end of the calendar year. CRITICAL ACCOUNTING POLICIES AND ESTIMATES 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. 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. 48 The methods, estimates, interpretations, and judgments we use in applying our most critical accounting policies can have a significant impact on the results that we report in our consolidated financial statements. The SEC considers an entity’s most critical accounting policies to be those policies that are both most important to the portrayal of the entity’s financial condition and results of operations and those that require the entity’s most difficult, subjective, or complex judgments, often as a result of the need to make assumptions and estimates about matters that are inherently uncertain. We believe that the following critical accounting policies reflect the more significant judgments, estimates and assumptions used in the preparation of our consolidated financial statements. ● Revenue Recognition ● Intangible Assets-Net ● Goodwill ● Capitalized software and technology development costs ● Stock-Based Compensation ● Income Taxes 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. Revenue Recognition We generate revenue from the following sources: (1) Advertising; (2) Paid Subscriptions; (3) Other revenues (primarily from Zedge Premium) from the sale of premium content (i.e., for purchase), and (4) Digital Goods and Services. The substantial majority of our revenue is generated from selling our advertising inventory (“Advertising Revenue”) to advertising networks and advertising exchanges. Our weekly, monthly, yearly and life-time subscriptions allow users to prepay a fixed fee to remove unsolicited advertisements from our Zedge App. 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. 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. 49 Paid Subscription Revenue: Beginning in January 2019 and April 2023, we started offering paid subscription services sold through Google Play and 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 App Store process subscription prepayment on Zedge’s behalf, and retain a fee of up to 30%. 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. The duration of these contracts is daily, and revenue for these contracts is recognized on a daily ratable basis. The payment terms for subscriptions sold through Google Play is net 30 days after month-end. The payment terms for subscriptions sold through App Store is net 45 days after month-end. We recognize subscription revenue ratably over the subscription periods which range from weekly, monthly, yearly and lifetime with an estimated lifespan of 30 months. 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. Alternatively, the content owner may opt to place some items behind video ad gates, in which case the end user can acquire the content by watching a brief video ad. 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, Google Play or App Store retains a fee of 30% of the purchase price. When a user purchases Zedge Premium content using Zedge credits or watching a rewarded video, 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 the end customer 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 resource 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. 50 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. 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 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 App Store 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. 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. 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. We recorded $11.9 million impairment charges in Q2 of our fiscal year ended July 31, 2024. 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. 51 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 Capitalized Software and Technology Development Costs-Internal-Use Software 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). 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 consolidated statements of operations and comprehensive loss. 52 Capitalized Software and Technology Development Costs-Software to Be Sold, Leased, or Marketed We expense research and development costs incurred in the process of software development until technological feasibility has been established for the product. Once technological feasibility has been established, software costs are capitalized until the product is available for general release to customers. Costs incurred from the time that the product is available for general release to customers are expensed as incurred. Costs related to upgrades and enhancements are capitalized only if they result in added functionality or marketability of the original product. The amortization of these capitalized costs begins when a product is available for general release to customers and is computed on a product-by-product basis at a rate not less than straight-line basis over the product’s estimated economic life. At each balance sheet date, we compare the unamortized capitalized costs to the net realizable value of that product and write off the amount by which the unamortized capitalized costs of that product exceed its net realizable value. Amortization of these costs is included in depreciation and amortization in the consolidated statements of operations and comprehensive loss. Stock-Based Compensation We account for our share-based compensation arrangements in accordance with ASC 718, “Compensation-Stock Compensation”, 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 operations and comprehensive loss. Income Taxes We recognize deferred tax assets and liabilities for the future tax consequences attributable to temporary differences between the consolidated financial statements carrying amounts of existing assets and liabilities and their respective tax basis. A valuation allowance is provided when it is more likely than not that some portion or all of a deferred tax asset will not be realized. The ultimate realization of deferred tax assets depends on the generation of future taxable income during the period in which related temporary differences become deductible. We consider the scheduled reversal of deferred tax assets and liabilities, projected future taxable income and tax planning strategies in its assessment of a valuation allowance. Deferred tax assets and liabilities are measured using the enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date of such change. We use a two-step approach for recognizing and measuring tax benefits taken or expected to be taken in a tax return. We determine whether it is more-likely-than-not that a tax position will be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of the position. In evaluating whether a tax position has met the more-likely-than-not recognition threshold, We presume that the position will be examined by the appropriate taxing authority that has full knowledge of all relevant information. Tax positions that meet the more-likely-than-not recognition threshold are measured to determine the amount of tax benefit to recognize in the consolidated financial statements. The tax position is measured at the largest amount of benefit that is greater than 50 percent likely of being realized upon ultimate settlement. Differences between tax positions taken in a tax return and amounts recognized in the consolidated financial statements will generally result in one or more of the following: an increase in a liability for income taxes payable, a reduction of an income tax refund receivable, a reduction in a deferred tax asset, or an increase in a deferred tax liability. We classify interest and penalties on income taxes as a component of income tax expense included in the provision for (benefit from) income taxes line item in our consolidated statements of operations and comprehensive loss. 53 Trends and Uncertainties Current Economic Conditions As a majority of our users and our day-to-day operations including software developments and sales and marketings occurs outside of the United States, we are exposed to and impacted by global macroeconomic factors, U.S. and foreign government policies and foreign exchange fluctuations. There is uncertainty surrounding macroeconomic factors in the U.S., and globally, characterized by the supply chain environment, inflationary pressure, and workforce reductions. We believe these macroeconomic conditions coupled with the global political climate and unrest, including the ongoing Israel-Hamas war, will have a significant impact on advertising spend which accounts for approximately 70% of our revenue in fiscal 2024. In addition, although we currently do not believe inflation in the costs and expenses will have a material impact on our results of operations, it is possible that elevated inflation could increase our direct cost of revenues and/or operating expenses and reduce our gross profit and net income. The 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 since October 8, 2023. 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. Key Performance Indicators Our results of operations discussion includes disclosure of four key performance indicators - Monthly Active Users (MAU) and Average Revenue Per Monthly Active User (ARPMAU) for our Zedge App and Monthly Active Payers (MAP) and Average Revenue Per Monthly Active Payer (ARMAP) for GuruShots. Zedge App’s MAU and 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, 2024 MAU declined 15.5% year over year primarily due 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, 2024, users in emerging markets represented 78.9% of our MAU compared to 78.0% a year prior. This shift has negatively impacted revenue because advertising rates in emerging markets are materially lower than in well-developed markets. ARPMAU increased 43.3% for the three months ended July 31, 2023 when compared to the same period a year ago, primarily due to higher advertising rate and higher subscription revenue. 54 The following tables present the MAU – Zedge App and ARPMAU – Zedge App for the three months ended July 31, 2024 as compared to the same period a year ago: Three Months Ended July 31, (in millions, except percentages and ARPMAU - Zedge App) 2024 2023 % Change MAU- Zedge App 26.1 30.9 -15.5 % Developed Markets MAU - Zedge App 5.5 6.8 -19.1 % Emerging Markets MAU - Zedge App 20.6 24.1 -14.5 % Emerging Markets MAU - Zedge App/Total MAU - Zedge App 78.9 % 78.0 % 1.2 % ARPMAU - Zedge App $ 0.0791 $ 0.0552 43.3 % The following charts present the MAU – Zedge App and ARPMAU – Zedge App for the consecutive eight fiscal quarters ended July 31, 2024: 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, 2024 as compared to the same period a year ago: Three Months Ended July 31, 2024 2023 % Change Monthly Active Payers 4,521 6,444 -29.8 % Average Revenue per Monthly Active Payer $ 52.5 $ 50.3 4.4 % 55 The following charts present the MAP and ARPMAP – GuruShots for the consecutive eight quarters ended July 31, 2024: 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. Results of Operations The following table sets forth certain of our consolidated results of operations data for the fiscal year ended July 31, 2024 compared to the fiscal year ended July 31, 2023: Fiscal Year Ended July 31, Change 2024 2023 $ % (in thousands, except percentages) Revenues $ 30,091 $ 27,241 $ 2,850 10.5 % Direct cost of revenues 1,859 2,242 (383 ) -17.1 % Selling, general and administrative 25,625 21,857 3,768 17.2 % Depreciation and amortization 2,454 3,269 (815 ) -24.9 % Impairment of intangible assets 11,958 - 11,958 nm Impairment of goodwill - 8,727 (8,727 ) nm Change in fair value of contingent consideration - (1,943 ) 1,943 nm Loss from operations (11,805 ) (6,911 ) (4,894 ) 70.8 % Interest and other income, net 626 311 315 101.3 % Net (loss) income resulting from foreign exchange transactions (190 ) 36 (226 ) nm Income tax benefit (2,198 ) (462 ) (1,736 ) 375.8 % Net loss $ (9,171 ) $ (6,102 ) $ (3,069 ) 50.3 % nm-not meaningful 56 Comparison of Our Results of Operations for the fiscal years ended July 31, 2024 and 2023 Revenues The following table sets forth the composition of our revenues for the periods indicated: Fiscal Year Ended July 31, 2024 2023 % Changes (in thousands, except percentages) Zedge Marketplace Advertising revenue $ 21,042 $ 18,273 15.2 % Paid subscription revenue 4,349 3,488 24.7 % Other revenues 1,225 833 47.1 % Total Zedge Marketplace revenue 26,616 22,594 17.8 % GuruShots Digital goods and services 3,475 4,647 -25.2 % Total revenue $ 30,091 $ 27,241 10.5 % The following table summarizes our subscription revenue for the periods indicated: Fiscal Year Ended July 31, 2024 2023 % Change (in thousands, except revenue per subscriber and percentages) Subscription Revenue $ 4,349 $ 3,488 24.7 % Active subscriptions net increase (decrease) 22 (45 ) nm Active subscriptions at end of period 669 647 3.4 % Average active subscriptions during the period 654 657 -0.5 % Average monthly revenue per active subscription $ 0.55 $ 0.44 25.0 % nm-not meaningful The following table presents a reconciliation of subscription billings to the most directly comparable GAAP financial measures for the fiscal years ended July 31, 2024 and 2023. We calculate subscription billings by adding the change in subscription deferred revenue between the start and end of the period to subscription revenue recognized in the same period. Subscription billings is a performance measure that we believe provides useful information to our management and investors as it allows us to better track the growth of the subscription-based portion of our business, which is a critical part of our business plan. The $1.4 million increase in deferred revenue for the 12-month period ended July 31, 2024 was primarily attributable to the life-time subscription offering we introduced in fiscal 2024. Fiscal Year Ended July 31, 2024 2023 % Change (in thousands, except percentages) Subscription Revenue $ 4,349 $ 3,488 24.7 % Changes in subscription deferred revenue 1,356 16 nm Subscription Billings (Non-GAAP) $ 5,705 $ 3,504 62.8 % nm-not meaningful 57 The following table summarizes Zedge Premium gross and net revenue for the fiscal years ended July 31, 2024 and 2023. Fiscal Year Ended July 31, 2024 2023 % Changes (in thousands, except percentages) Zedge Premium-gross revenue (“GTV”) $ 2,148 $ 1,544 39.1 % Zedge Premium-net revenue $ 1,196 $ 826 44.8 % Gross margin 56 % 53 % For the twelve months ended July 31, 2024, our advertising revenue increased by $2.8 million, or 15.2%, from the prior 12-month period primarily due to the increase in price per advertising impression paid by the advertisers on our platform which was driven by increased competition for our ad inventory. For the twelve months ended July 31, 2024, our subscription revenue increased by $0.9 million, or 24.7%, from the prior 12-month period primarily due to a new iOS subscription offering we introduced in April 2023 and the lifetime subscriptions for Android we rolled out in August 2023. Both initiatives contributed to the $2.2 million increase in subscription billings for the twelve months ended July 31, 2024, or 62.8%, from the prior year period. For the twelve months ended July 31, 2024, our other revenue increased by $0.4 million, or 47.1%, from the prior year period. The increase in fiscal 2024 was primarily due to Zedge Premium net revenue growth which increased $0.4 million, or 44.8%, compared to fiscal 2023. Zedge Premium gross margin was 56% in fiscal 2024 compared to 53% in fiscal 2023. We introduced certain AI generative features in our Zedge App in fiscal 2024 which contributed in part to the higher gross margin in fiscal 2024 as we keep 100% of the associated revenue, i.e. no royalty payment owed to the content creators. For the twelve months ended July 31, 2024, Digital Goods and Services revenue decreased by $1.2 million, or 25.2% from the prior year period primarily due to the 26.3% decrease in GuruShots’ MAPs year over year. Direct cost of revenues . Direct cost of revenues consists primarily of content hosting, content serving and filtering, and data analytic tools, excluding amortization of capitalized software and technology development costs for both internal used software and software to be sold, leased, or marketed. Fiscal Year Ended July 31, 2024 2023 % Change (in thousands, except percentages) Direct cost of revenues $ 1,859 $ 2,242 -17.1 % As a percentage of revenues 6.2 % 8.2 % Direct cost of revenues in fiscal 2024 decreased by $0.4 million, or 17.1%, compared to fiscal 2023 primarily due to the revamping of our backend infrastructure as part of the cost reduction initiatives implemented during Q3 fiscal 2023. As a result, direct cost of revenues as percentage of revenue in fiscal 2024 declined to 6.2% from 8.2% in fiscal 2023. Selling, general and administrative expense . Selling, general and administrative expense (“SG&A”) consists mainly of payroll and benefits, user acquisition costs, stock-based compensation expense (as discussed below), third-party payment processing fee relate to in-app purchases, marketing, consulting, professional fees, software licensing fees, recruiting fees, facilities and public company related expenses. 58 Fiscal Year Ended July 31, 2024 2023 % Change (in thousands, except percentages) Selling, general and administrative $ 25,625 $ 21,857 17.2 % As a percentage of revenues 85.2 % 80.2 % SG&A expense in fiscal 2024 increased by $3.8 million, or 17.2%, compared to fiscal 2023. The increase was primarily due to an increase of $3.8 million in user acquisition costs offset by a decrease of $0.4 million in stock-based compensation. We ramped up paid user acquisition for the Zedge App significantly but scaled back paid user acquisition for GuruShots in fiscal 2024 when compared to fiscal 2023. As a percentage of revenue, SG&A expense was 85.2% in fiscal 2024 compared to 80.2% in fiscal 2023. Our headcount was 99 and 95 as of July 31, 2024 and 2023 respectively. 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, 2024 and 2023. Fiscal Year Ended July 31, 2024 2023 % Change (in thousands, except percentages) Stock-based compensation expense $ 2,141 $ 2,519 -15.0 % Stock-based compensation expense in fiscal 2024 decreased by $0.4 million, or 15.0%, compared to fiscal 2023. The decrease was primarily attributable to the lower compensation expense related to deferred stock unit (“DSU”) grants with both service and market conditions which are recognized based on the graded vesting method. Depreciation and amortization . Depreciation and amortization expense consists mainly of amortization of intangible assets related to the GuruShots (prior to the full impairment charge of $11.9 million recorded in Q2 of our fiscal 2024) 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 service. Fiscal Year Ended July 31, 2024 2023 % Change (in thousands, except percentages) Depreciation and amortization $ 2,454 $ 3,269 -24.9 % As a percentage of revenues 8.2 % 12.0 % Depreciation and amortization expense in fiscal 2024 decreased by $0.8 million, or 24.9%, compared to fiscal 2023, primarily due to the $11.9 million impairment charge of intangible assets recorded in Q2 of fiscal 2024 discussed below. Impairment of intangible assets . We performed an impairment assessment of intangible assets of our GuruShots reporting segment in Q2 of fiscal 2024 and determined that its fair value was approximately $0 and recorded a full impairment charge of $11.9 million, as more fully described in 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. 59 Impairment of goodwill. We performed an interim impairment assessment of goodwill during 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 Q3 of fiscal 2023, as more fully described in 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. Change in fair value of contingent consideration. 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 payment milestones would be achieved. Interest and other income, net. Fiscal Year Ended July 31, 2024 2023 % Change (in thousands, except percentages) Interest and other income, net $ 626 $ 311 101.3 % As a percentage of revenues 2.1 % 1.1 % The increase in interest and other income, net in fiscal 2024 when compared to fiscal 2023 was due primarily to higher interest income earned on our cash and cash equivalents and lower interest expense resulting from the $2 million prepayment of term loan in November 2023, offset by a $50,000 impairment charge related to our investment in a privately held company of which the carrying value was reduced to $0 as of October 30, 2023. Net (loss) income resulting from foreign exchange transactions . Net (loss) income 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, 2024 2023 % Change (in thousands, except percentages) Net (loss) income resulting from foreign exchange transactions $ (190 ) $ 36 nm As a percentage of revenues -0.6 % 0.1 % nm-not meaningful In fiscal 2024 and 2023, we incurred loss of $245,000 and gain of $14,000, respectively, from NOK and EUR hedging activities. We recognized a Mark to Market loss of $51,000 and a Mark to Market gain of $19,000 from NOK and EUR hedging activities, respectively, as of July 31, 2024 and July 31, 2023, as more fully described in Note 4, Derivative Instruments, to the Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K. Benefit from provision for income taxes . During fiscal 2024 we had a pretax loss of about $11.4 million in respect of which we accrued $2.2 million in income tax benefit, an effective tax rate of 19.3% which is lower than the statutory rate primarily due to the addition of $185,000 in valuation allowances related to certain stock-based compensation and the inclusion for U.S. tax purposes, of foreign earnings partially offset by state taxes and foreign tax differential. 60 During fiscal 2023, we had a 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 which had an associated $2.8 million in tax basis and the $1.9 million change in fair value of contingent consideration which had no tax basis. 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, 2024 2023 % Change (in thousands, except percentages) Income tax benefit $ (2,198 ) $ (462 ) 375.8 % As a percentage of revenues -7.3 % -1.7 % 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 period indicated: Fiscal Year Ended July 31, Change 2024 2023 $ % (in thousands, except percentages) Segment income (loss) from operations: Zedge Marketplace $ 5,667 $ 6,352 (685 ) -10.8 % GuruShots (17,472 ) (13,263 ) (4,209 ) 31.7 % Total loss from operations $ (11,805 ) $ (6,911 ) (4,894 ) 70.8 % For the twelve months ended July 31, 2024, our income from operations related to Zedge Marketplace decreased by $0.7 million, or 10.8%, from the prior year period. This decrease was primarily driven by an increase in SG&A of $5.2 million, mitigated by an increase in Zedge Marketplace revenue of $4.0 million coupled with a decrease of $0.2 million in our network infrastructure costs and a decrease of $0.3 million in depreciation and amortization expense. For the twelve months ended July 31, 2024, our loss from operations related to GuruShots increased by $4.0 million, or 30.3%, from the prior year period. This increase was primarily driven by an increase in the acquisition related charges of $5.2 million and a decrease in digital goods and service revenue of $1.2 million, partially offset by a decrease in SG&A of $1.7 million, a decrease of $0.2 million in the network infrastructure costs and a decrease of $0.5 million in depreciation and amortization expense. LIQUIDITY AND CAPITAL RESOURCES General At July 31, 2024, we had cash and cash equivalents of approximately $20.0 million and working capital (current assets less current liabilities) of $17.7 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 filing of this annual report on Form 10-K. 61 The following table presents selected cash flow information for the periods indicated: Fiscal Year Ended July 31, (in thousands) 2024 2023 $ Changes Cash flows provided by (used in): Operating activities $ 5,850 $ 3,162 $ 2,688 Investing activities (1,194 ) (2,422 ) 1,228 Financing activities (2,643 ) 387 (3,030 ) Effect of exchange rate changes on cash and cash equivalents (140 ) (87 ) (53 ) Increase in cash and cash equivalents $ 1,873 $ 1,040 $ 833 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 increased $2.9 million to $6.1 million in fiscal 2024 from $3.2 million in fiscal 2023 primarily due to the $1.2 million change in trade accounts payable and accrued expenses and the $1.7 million in the change in deferred revenue. Changes in Trade Accounts Receivable Gross trade accounts receivables were $3.4 million and $2.9 million at July 31, 2024 and 2023 respectively. Our cash collections in fiscal 2024 and fiscal 2023 were $29.2 million and $24.8 million, respectively. Investing Activities On August 1, 2021, we acquired substantially all of the assets of Emojipedia Pty Ltd for approximately $6.7 million. We made the final payment of about $1.0 million on August 1, 2022. Cash used in investing activities in the fiscal years ended July 31, 2024 and 2023 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. 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. Pursuant to the Amended Loan Agreement, $2,000,000 was advanced in a single-cash advance on the closing date on October 28, 2022. At our request, the maximum principal amount of the term loan was reduced to $2 million as of May 11, 2023. On November 15, 2023, the Company voluntarily prepaid the entire principal amount of $2 million in accordance with the terms of the Amended Loan Agreement without incurring any prepayment penalty. As of July 31, 2024 and 2023, there were no availability under the term loan facility. On October 28, 2024, the revolving credit facility was renewed for another four year term, please see Note 18, Subsequent Events , to the Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K. During fiscal 2024, we repurchased 211,495 shares of our Class B Common Stock outstanding for approximately $633,000 pursuant to the 2021 Share Repurchase Plan. During fiscal 2023 we repurchased 752,687 shares of our Class B Common Stock outstanding for approximately $1,579,000 pursuant to the 2021 Share Repurchase Plan. As of July 31, 2024, the Company had remaining authorization of approximately $788,000 for future share repurchases under the 2021 Repurchase Plan which was subsequently completed on August 28, 2024. On September 9, 2024, our Board approved a new $5 million share buyback program please see Note 18, Subsequent Events , to the Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K. 62 In fiscal 2024, the Company received proceeds of $2,975 from the exercise of stock options for which the Company issued 2,500 shares of its Class B common stock. 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 2024 and fiscal 2023, we purchased 6,328 shares and 6,310 shares respectively of Class B Stock from certain employees for $13,000 and $17,000 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. 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, 2024, two customers represented 31% and 9% of our revenue. In the fiscal year ended July 31, 2023, two customers represented 26% and 16% of our revenue. At July 31, 2024, three customers represented 37%, 15% and 10% of our accounts receivable balance and at July 31, 2023, two customers represented 36% and 18% 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 (i) committed to a retention pool of $4 million in cash (in addition to the $4 million portion of the retention pool to be paid in the Company’s Class B common stock) to be paid to the founders and employees of GuruShots 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 invest a minimum in user acquisition in the first 24 months following the closing subject to the acquired users generating minimum ROAS thresholds and payment of an earnout if certain growth targets were met. In the first quarter of fiscal 2024, the Company and the prior owners of GuruShots agreed to withdraw and settle claims related to the purchase agreement pursuant to which the Company purchased the equity of GuruShots, including any dispute about minimum user acquisition spend for GuruShots, any right of the prior owners to an earnout payment and the Company’s claim for indemnification related to alleged misrepresentations in the agreement. Reportable Segments Our business consists of two reportable segments. Recent Accounting Pronouncements 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. 63 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.