Zedge, Inc. 10-Q

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED APRIL 30, 2025 or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number: 1-37782 ZEDGE, INC. (Exact Name of Registrant as Specified in its Charter) Delaware 26-3199071 (State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification Number) 1178 Broadway , 3 rd Floor #1450 , New York , NY 10001 (Address of principal executive offices) (Zip Code) (330) 577-3424 (Registrant’s telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registered Class B common stock, par value $.01 per share NYSE American Trading symbol: ZDGE Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐ Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐ Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. Large accelerated filer ☐ Accelerated filer ☐ Non-accelerated filer ☒ Smaller reporting company ☒ Emerging growth company ☐ If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐ Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.): Yes ☐ No ☒ As of June 12, 2025, the registrant had the following shares outstanding: Class A common stock, $.01 par value: 524,775 shares Class B common stock, $.01 par value: 13,107,146 shares ZEDGE, INC. TABLE OF CONTENTS PART I. Financial Information Item 1. Financial Statements (Unaudited) 1 Condensed Consolidated Balance Sheets 1 Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) 2 Condensed Consolidated Statements of Changes in Stockholders’ Equity 3 Condensed Consolidated Statements of Cash Flows 4 Notes To Condensed Consolidated Financial Statements 5 Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 18 Item 3. Quantitative and Qualitative Disclosures About Market Risks 30 Item 4. Controls and Procedures 30 PART II. OTHER INFORMATION Item 1. Legal Proceedings 31 Item 1A. Risk Factors 31 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 32 Item 3. Defaults Upon Senior Securities 32 Item 4. Mine Safety Disclosures 32 Item 5. Other Information 32 Item 6. Exhibits 33 SIGNATURES 34 i PART I. FINANCIAL INFORMATION Item 1. Condensed Consolidated Financial Statements ZEDGE, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands, except par value data) April 30, July 31, 2025 2024 (Unaudited) Assets Current assets: Cash and cash equivalents $ 20,433 $ 19,998 Trade accounts receivable 3,319 3,406 Prepaid expenses and other current assets 946 593 Total Current assets 24,698 23,997 Property and equipment, net 1,277 2,306 Intangible assets, net 5,034 5,369 Goodwill 1,917 1,824 Deferred tax assets, net 4,528 4,344 Other assets 377 355 Total assets $ 37,831 $ 38,195 Liabilities and stockholders’ equity Current liabilities: Trade accounts payable $ 1,388 $ 1,113 Accrued expenses and other current liabilities 2,832 2,969 Deferred revenues 3,070 2,168 Total Current liabilities 7,290 6,250 Deferred revenues--non-current 1,826 931 Other liabilities 87 118 Total liabilities 9,203 7,299 Commitments and contingencies (Note 9) Stockholders’ equity: Preferred stock, $ .01 par value; authorized shares— 2,400 ; no shares issued and outstanding - - Class A common stock, $ .01 par value; authorized shares— 2,600 ; 525 shares issued and outstanding at April 30, 2025 and July 31, 2024 5 5 Class B common stock, $ .01 par value; authorized shares— 40,000 ; 14,969 shares issued and 13,228 shares outstanding at April 30, 2025, and 14,866 shares issued and 13,815 outstanding at July 31, 2024 150 149 Additional paid-in capital 49,570 48,263 Accumulated other comprehensive loss ( 1,545 ) ( 1,832 ) Accumulated deficit ( 14,946 ) ( 13,113 ) Treasury stock, 1,741 shares at April 30, 2025 and 1,051 shares at July 31, 2024, at cost ( 4,606 ) ( 2,576 ) Total stockholders’ equity 28,628 30,896 Total liabilities and stockholders’ equity $ 37,831 $ 38,195 See accompanying notes to unaudited condensed consolidated financial statements. 1 ZEDGE, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) (in thousands, except for per share data) (Unaudited) Three Months Ended Nine Months Ended April 30, April 30, 2025 2024 2025 2024 Revenues $ 7,757 $ 7,658 $ 21,930 $ 22,510 Costs and expenses: Direct cost of revenues (excluding amortization of capitalized software and technology development costs which is included below) 452 455 1,360 1,399 Selling, general and administrative 6,343 6,752 20,278 18,773 Depreciation and amortization 225 583 924 2,120 Impairment of intangible assets - - - 11,958 Restructuring charges 577 - 1,058 - Impairment of capitalized software and technology development costs - - 827 - Income (loss) from operations 160 ( 132 ) ( 2,517 ) ( 11,740 ) Interest and other income, net 154 188 507 434 Net loss resulting from foreign exchange transactions ( 41 ) ( 80 ) ( 141 ) ( 223 ) Income (loss) before income taxes 273 ( 24 ) ( 2,151 ) ( 11,529 ) Income taxes expense (benefit) 88 ( 137 ) ( 318 ) ( 2,397 ) Net income (loss) $ 185 $ 113 $ ( 1,833 ) $ ( 9,132 ) Other comprehensive income (loss): Changes in foreign currency translation adjustment 448 ( 224 ) 287 ( 341 ) Total other comprehensive income (loss) 448 ( 224 ) 287 ( 341 ) Total comprehensive income (loss) $ 633 $ ( 111 ) $ ( 1,546 ) $ ( 9,473 ) Income (loss) per share attributable to Zedge, Inc. common stockholders: Basic $ 0.01 $ 0.01 $ ( 0.13 ) $ ( 0.65 ) Diluted $ 0.01 $ 0.01 $ ( 0.13 ) $ ( 0.65 ) Weighted-average number of shares used in calculation of income (loss) per share: Basic 13,720 14,191 13,835 14,077 Diluted 13,940 14,542 13,835 14,077 See accompanying notes to unaudited condensed consolidated financial statements. 2 ZEDGE, INC. CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (in thousands) (Unaudited) Class A Common Stock Class B Common Stock Additional Paid-in Accumulated Other Comprehensive Accumulated Treasury Stock Total Stockholders’ Shares Amount Shares Amount Capital Loss Deficit Shares Amount Equity Balance – July 31, 2024 525 $ 5 14,866 $ 149 $ 48,263 $ ( 1,832 ) $ ( 13,113 ) 1,051 $ ( 2,576 ) $ 30,896 Stock-based compensation - - 30 - 379 - - - - 379 Purchase of treasury stock - - - - - - - 226 ( 804 ) ( 804 ) Foreign currency translation adjustment - - - - - ( 29 ) - - - ( 29 ) Net loss - - - - - - ( 339 ) - - ( 339 ) Balance – October 31, 2024 525 $ 5 14,896 $ 149 $ 48,642 $ ( 1,861 ) $ ( 13,452 ) 1,277 $ ( 3,380 ) $ 30,103 Stock-based compensation - - 73 1 602 - - - - 603 Purchase of treasury stock - - - - - - - 245 ( 690 ) ( 690 ) Foreign currency translation adjustment - - - - - ( 132 ) - - - ( 132 ) Net loss - - - - - - ( 1,679 ) - - ( 1,679 ) Balance – January 31, 2025 525 5 14,969 150 49,244 ( 1,993 ) ( 15,131 ) 1,522 ( 4,070 ) 28,205 Stock-based compensation - - - - 326 - - - - 326 Purchase of treasury stock - - - - - - - 219 ( 536 ) ( 536 ) Foreign currency translation adjustment - - - - - 448 - - - 448 Net income - - - - - - 185 - - 185 Balance – April 30, 2025 525 $ 5 14,969 $ 150 $ 49,570 $ ( 1,545 ) $ ( 14,946 ) 1,741 $ ( 4,606 ) $ 28,628 Class A Common Stock Class B Common Stock Additional Paid-in Accumulated Other Comprehensive Accumulated Treasury Stock Total Stockholders’ Shares Amount Shares Amount Capital Loss Deficit Shares Amount Equity Balance – July 31, 2023 525 $ 5 14,634 $ 146 $ 46,122 $ ( 1,537 ) $ ( 3,942 ) 833 $ ( 1,930 ) $ 38,864 Exercise of stock options - - 2 - 3 - - - - 3 Stock-based compensation - - 33 1 506 - - - - 507 Purchase of treasury stock - - - - - - - 6 ( 13 ) ( 13 ) Foreign currency translation adjustment - - - - - ( 367 ) - - - ( 367 ) Net loss - - - - - - ( 15 ) - - ( 15 ) Balance – October 31, 2023 525 5 14,669 147 46,631 ( 1,904 ) ( 3,957 ) 839 ( 1,943 ) 38,979 Stock-based compensation - - 87 1 682 - - - - 683 Foreign currency translation adjustment - - - - - 250 - - - 250 Net loss - - - - - - ( 9,230 ) - - ( 9,230 ) Balance – January 31, 2024 525 5 14,756 148 47,313 ( 1,654 ) ( 13,187 ) 839 ( 1,943 ) 30,682 Stock-based compensation - - 110 1 482 - - - - 483 Purchase of treasury stock - - - - - - - 60 ( 152 ) ( 152 ) Foreign currency translation adjustment - - - - - ( 224 ) - - - ( 224 ) Net income - - - - - - 113 - - 113 Balance – April 30, 2024 525 $ 5 14,866 $ 149 $ 47,795 $ ( 1,878 ) $ ( 13,074 ) 899 $ ( 2,095 ) $ 30,902 See accompanying notes to unaudited condensed consolidated financial statements. 3 ZEDGE, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (Unaudited) Nine Months Ended April 30, 2025 2024 Operating activities Net loss $ ( 1,833 ) $ ( 9,132 ) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation 48 42 Amortization of intangible assets 335 1,270 Amortization of capitalized software and technology development costs 541 808 Amortization of deferred financing costs - 15 Stock-based compensation 1,308 1,673 Impairment charge of capitalized software and technology development costs 827 - Impairment charge of intangible assets - 11,958 Impairment of investment in privately-held company - 50 Deferred income taxes ( 184 ) ( 2,650 ) Change in assets and liabilities: Trade accounts receivable 87 ( 442 ) Prepaid expenses and other current assets ( 353 ) 195 Other assets ( 54 ) 34 Trade accounts payable and accrued expenses 229 1,073 Deferred revenues 1,797 261 Net cash provided by operating activities 2,748 5,155 Investing activities Capitalized software and technology development costs ( 329 ) ( 993 ) Purchase of property and equipment ( 49 ) ( 35 ) Net cash used in investing activities ( 378 ) ( 1,028 ) Financing activities Prepayment of term loan - ( 2,000 ) Proceeds from exercise of stock options - 3 Purchase of treasury stock in connection with share buyback program and stock awards vesting ( 2,030 ) ( 165 ) Net cash used in financing activities ( 2,030 ) ( 2,162 ) Effect of exchange rate changes on cash and cash equivalents 95 ( 165 ) Net increase in cash and cash equivalents 435 1,800 Cash and cash equivalents at beginning of period 19,998 18,125 Cash and cash equivalents at end of period $ 20,433 $ 19,925 SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash payments made for income taxes $ 194 $ 80 Cash payments made for interest expenses $ - $ 66 See accompanying notes to unaudited condensed consolidated financial statements. 4 ZEDGE, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) Note 1—Basis of Presentation and Summary of Significant Accounting Policies Description of Business Zedge, Inc. 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 suite of tools that can be used to render images from text or image prompts powered by generative AI, 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. Except where the context clearly indicates otherwise, the terms the “Company,” “Zedge” “we,” “us” or “our” refer to Zedge, Inc. and its consolidated subsidiaries. Basis of Presentation The accompanying unaudited condensed consolidated financial statements of Zedge, Inc. and its wholly-owned subsidiaries: GuruShots Ltd. (“GuruShots”); Zedge Europe AS; and Zedge Lithuania UAB (the “Company”), have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and nine months ended April 30, 2025 are not necessarily indicative of the results that may be expected for the fiscal year ending July 31, 2025 or any other period. The balance sheet at July 31, 2024 has been derived from the Company’s audited financial statements at that date but does not include all of the information and footnotes required by U.S. GAAP for complete financial statements. For further information, please refer to the audited consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended July 31, 2024 (the “2024 Form 10-K”), as filed with the U.S. Securities and Exchange Commission (the “SEC”). The Company’s fiscal year ends on July 31 of each calendar year. Each reference below to a fiscal year refers to the fiscal year ending in the calendar year indicated (e.g., fiscal 2024 refers to the fiscal year ended July 31, 2024). Significant Accounting Policies and Estimates Restructuring Charges The restructuring charges incurred by the Company in fiscal 2025 consist primarily of cash expenditures for compensation and severance payments, employee benefits, payroll taxes and related facilities restructuring costs associated with the Company’s workforce reduction implemented in the second quarter of fiscal 2025. Employee termination benefits are recognized as a liability at estimated fair value, at the time of communication to employees, unless future service is required, in which case the costs are recognized ratably over the future service period. Ongoing termination benefits are recognized as a liability at estimated fair value when the amount of such benefits is probable and reasonably estimable. Charges related to facilities restructuring actions are comprised of costs related to early termination of the lease agreement and impairment of the right-of-use asset in connection with the abandonment of the property. These charges have not been determined as of April 30, 2025. There have been no other material changes to the Company’s significant accounting policies and critical accounting estimates described in the 2024 Form 10-K. 5 Use of Estimates The preparation of our unaudited condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, as well as related disclosure of contingent assets and liabilities. Actual results could differ materially from our estimates due to risks and uncertainties, including uncertainty in the economic environment due to various global events. To the extent that there are material differences between these estimates and actual results, our financial condition or operating results will be affected. We base our estimates on past experience and other assumptions that we believe are reasonable under the circumstances, and we evaluate these estimates on an ongoing basis. Recent Accounting Pronouncements (Issued Not Yet Adopted) Income Taxes: In December 2023, the FASB issued ASU 2023-09 Income Taxes (Topic 740): Improvements to Income Tax Disclosures . The guidance in this ASU enhances the transparency and decision functionality of income tax disclosures to provide investors information to better assess how an entity’s operations and related tax risks, tax planning and operational opportunities affect its tax rate and prospects for future cash flow. The amendments in this ASU require public entities to disclose the following specific categories in the rate reconciliation by both percentages and reporting currency amounts: the effect of state and local income tax, net of federal (national) income tax, foreign tax effects, effects of changes in tax laws or rates enacted in the current period, effects of cross-border tax laws, tax credits, changes in valuation allowances, nontaxable or nondeductible items and changes in unrecognized tax benefits. The amendments in ASU 2023-09 also require public entities to provide additional information for reconciling items that meet the qualitative threshold (if the effect of those reconciling items is equal to or greater than five percent of the amount computed by multiplying pre-tax income (loss) by the applicable statutory income tax rate). This ASU requires reporting entities to annually disclose the year-to-date amount of income taxes paid (net of refunds received) disaggregated by federal, state and foreign localities. The amendments in this ASU should be applied on a prospective basis and retrospective application is permitted. For public business entities, ASU 2023-09 is effective for annual periods beginning after December 15, 2024, with early adoption permitted. We plan to adopt the provisions of ASU 2023-09 in fiscal 2026 and we are evaluating the disclosure requirements related to the new standard. Income Statement-Reporting Comprehensive Income-Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses. In November 2024, the FASB issued ASU 2024-03, Income Statement (Subtopic 220-40): Disaggregation of Income Statement Expenses, which requires public entities to disclose, in the notes to the financial statements, specified information about certain costs and expenses at each interim and annual reporting period. This ASU is effective for fiscal years beginning after December 15, 2026, and interim periods within annual reporting periods beginning after December 15, 2027 (as amended by ASU 2025-01 Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Clarifying the Effective Date ), with early adoption permitted. We are currently evaluating the disclosure requirements related to the new standard. All other new accounting pronouncements that have been issued but not yet effective are currently being evaluated and at this time are not expected to have a material impact on our financial position or results of operations. Related Party Transactions The Company was formerly a majority-owned subsidiary of IDT Corporation (“IDT”). On June 1, 2016, IDT’s interest in the Company was spun-off by IDT to IDT’s stockholders and the Company became an independent public-held company. IDT charges the Company for services it provides, and the Company charges IDT for services it provides, pursuant to Services Agreements between the companies. The Company is party to a consulting agreement with Activist Artist Management, LLC (“Activist”), which assists the Company in strategic business development. A member of the Company’s Board of Directors owns a significant minority stake in Activist. The Company is party to a revenue sharing agreement with National Retail Services, Inc. (“NRS”), a subsidiary of IDT, under which Zedge and certain of its subsidiaries (Emojipedia and GuruShots) provide a selection of their digital content for display on NRS’ screens installed in bodegas and other retail locations across the United States and share in the revenue generated from the resulting advertisements. Transactions with these related parties did not have a material impact on the condensed consolidated balance sheets as of April 30, 2025 or July 31, 2024, or the condensed consolidated statements of operations and comprehensive income (loss) for the three and nine months ended April 30, 2025 or 2024. 6 Note 2—Revenue Disaggregation of Revenue The following table presents revenue disaggregated by segment and type (in thousands): Three Months Ended April 30, Nine Months Ended April 30, 2025 2024 2025 2024 Zedge Marketplace Advertising revenue $ 5,579 $ 5,461 $ 15,151 $ 15,882 Paid subscription revenue 1,272 1,122 3,687 3,186 Other revenues 431 206 1,357 710 Total Zedge Marketplace revenue 7,282 6,789 20,195 19,778 GuruShots Digital goods and services 475 869 1,735 2,732 Total revenue $ 7,757 $ 7,658 $ 21,930 $ 22,510 Contract Balances Contract liabilities consist of deferred revenue, which are recorded for payments received in advance of the satisfaction of performance obligations . The Company records deferred revenues related to the unsatisfied performance obligations with respect to subscription revenue. The Company’s deferred revenue balance for paid subscriptions was approximately $ 4.6 million related to approximately 896,000 active subscribers, and approximately $ 2.9 million, related to approximately 669,000 active subscribers, as of April 30, 2025 and July 31, 2024, respectively. Deferred revenue increased $ 1.8 million for the nine months ended April 30, 2025, primarily attributable to the significant growth in lifetime subscriptions sales. The Company also records deferred revenues when users purchase or earn Zedge Credits. Unused Zedge Credits represent the value of the Company’s unsatisfied performance obligation to its users. Revenue is recognized when Zedge App users use Zedge Credits to acquire Zedge Premium content or upon expiration of the Zedge Credits after 180 days of account inactivity (“Breakage”). As of April 30, 2025, and July 31, 2024, the Company’s deferred revenue balance related to Zedge Premium was approximately $ 250,000 and $ 251,000 , respectively. The amount of deferred revenue recognized in the nine months ended April 30, 2025 that was included in the deferred revenue balance at July 31, 2024 was $ 1.6 million. Unsatisfied Performance Obligations Substantially all of the Company’s unsatisfied performance obligations relate to contracts with an original expected length of 30 months or less. Significant Judgments The advertising networks and advertising exchanges to which the Company sells its inventory track and report the impressions and revenues to Zedge, and Zedge recognizes revenues based on these reports. The networks and exchanges base their payments off of those reports and Zedge independently compares the data to each of the client sites to validate the imported data and identify any differences. The number of impressions and revenues delivered by the advertising networks and advertising exchanges is determined at the end of each month, which resolves any uncertainty in the transaction price during the reporting period. 7 Note 3—Fair Value Measurements The following tables present the balance of assets and liabilities measured at fair value on a recurring basis (in thousands): Level 1 Level 2 Level 3 Total April 30, 2025 Assets: Foreign exchange forward contracts $ - $ 65 $ - $ 65 July 31, 2024 Liabilities: Foreign exchange forward contracts $ - $ 51 $ - $ 51 (1) – quoted prices in active markets for identical assets or liabilities (2) – observable inputs other than quoted prices in active markets for identical assets and liabilities (3) – no observable pricing inputs in the market Fair Value of Other Financial Instruments Fair value of the outstanding foreign exchange forward contracts are marked to market price at the end of each measurement period. The Company’s other financial instruments at April 30, 2025 and July 31, 2024 included trade accounts receivable and trade accounts payable. The carrying amounts of other assets and liabilities such as prepaid expenses, trade accounts receivable and trade accounts payable approximated fair value due to their short-term nature. Note 4—Derivative Instruments The primary risk managed by the Company using derivative instruments is foreign exchange risk. Foreign exchange forward contracts are entered into as hedges against unfavorable fluctuations in the U.S. Dollar (USD) to Norwegian Kroner (NOK) and USD to Euro (EUR) exchange rates. The Company is party to a Foreign Exchange Agreement with Western Alliance Bank (“WAB”) allowing the Company to enter into foreign exchange contracts under its revolving credit facility with the bank (see Note 10 Term Loan and Revolving Credit Facility ). The Company does not apply hedge accounting to these contracts, and therefore the changes in fair value are recorded in unaudited condensed consolidated statements of operations and comprehensive income (loss). By using derivative instruments to mitigate exposures to changes in foreign exchange rates, the Company is exposed to credit risk from the failure of the counterparty to perform under the terms of the contract. The credit or repayment risk is minimized by entering into transactions with high-quality counterparties. The outstanding contracts at April 30, 2025 were as follows: Settlement Date U.S. Dollar Amount NOK Amount May-25 1 225,000 2,410,245 Total 225,000 2,410,245 Settlement Date U.S. Dollar Amount EUR Amount May-25 275,000 248,307 Jun-25 425,000 388,874 Jul-25 425,000 388,163 Aug-25 425,000 387,456 Total 1,550,000 1,412,800 1. The last remaining USD to NOK forward contract in light of the closing of our Norwegian operations. 8 The fair value of outstanding derivative instruments recorded in the accompanying unaudited condensed consolidated balance sheets were as follows (in thousands): April 30, July 31, (in thousands) 2025 2024 Assets and Liabilities Derivatives: Balance Sheet Location Derivatives not designated or not qualifying as hedging instruments Foreign exchange forward contracts Prepaid expenses and other current assets $ 65 $ - Foreign exchange forward contracts Accrued expenses and other current liabilities $ - $ 51 The effects of derivative instruments on the condensed consolidated statements of operations and comprehensive income (loss) were as follows (in thousands): Three Months Ended April 30, Nine Months Ended April 30, Amount of Income (Loss) Recognized on Derivatives 2025 2024 2025 2024 Derivatives not designated or not qualifying as hedging instruments Location of income (loss) recognized on derivatives Foreign exchange forward contracts Net income (loss) resulting from foreign exchange transactions $ 164 $ ( 145 ) 15 $ ( 296 ) Note 5—Intangible Assets and Goodwill Intangible assets are initially recorded at fair value and stated net of accumulated amortization and impairments. The Company amortizes its intangible assets that have finite lives using either the straight-line method, or if reliably determinable, based on the pattern in which the economic benefit of the asset is expected to be utilized. Amortization is recorded over the estimated useful lives ranging from 5 to 15 years. The Company evaluates the recoverability of its definite lived intangible assets whenever events or changes in circumstances or business conditions indicate that the carrying value of these assets may not be recoverable based on expectations of future undiscounted cash flows for each asset group. If the carrying value of an asset or asset group exceeds its undiscounted cash flows, the Company estimates the fair value of the assets, generally utilizing a discounted cash flow analysis based on the present value of after-tax cash flows to be generated by the assets using a risk-adjusted discount rate. To estimate the fair value of the assets, the Company uses market participant assumptions pursuant to ASC 820, Fair Value Measurements . During the second quarter of fiscal 2024, in connection with its company-wide strategic planning process as well as evaluating the current operating performance of its GuruShots reporting unit, including product enhancement and marketing, the Company reassessed its short-term and long-term commercial plans for this business. The Company made certain operational and strategic decisions to invest in, and increase its focus on, the long-term success of this business, which resulted in the Company significantly reducing its forecasted revenues and operating results. As a result, the Company identified indicators of impairment and performed an undiscounted cash flow analysis pursuant to ASC 360, Property, Plant, and Equipment - Overall , to determine if the cash flows expected to be generated by the GuruShots business over the estimated remaining useful life of its primary assets were sufficient to recover the carrying value of the asset group. Based on this analysis, the undiscounted cash flows were not sufficient to recover the carrying value of the long-lived assets. As a result, the Company was required to perform Step 3 of the impairment test and determine the fair value of the asset group. To estimate the fair value of the asset group, the Company utilized the income approach, which is based on a discounted cash flow (DCF) analysis and calculates the fair value by estimating the after-tax cash flows attributable to the asset group and then discounting the after-tax cash flows to present value using a risk-adjusted discount rate. Assumptions used in the DCF require significant judgment, including judgment about appropriate discount rates, growth rates, and the amount and timing of expected future cash flows. The forecasted cash flows were based on the Company’s most recent strategic plan and for periods beyond the strategic plan, the Company’s estimates were based on assumed growth rates expected as of the measurement date. The Company believes its assumptions were consistent with the plans and estimates that a market participant would use to manage the business. The discount rate used was intended to reflect the risks inherent in future cash flow projections and was based on an estimate of the weighted average cost of capital (WACC) of market participants relative to the asset group. The Company used a discount rate of 30.5 %. Based on this analysis, the fair value of the GuruShots asset group was below its carrying value. The Company determined that the fair value of this asset group was approximately zero and the carrying value of the long-lived assets was fully impaired. 9 To record the adjustment of the carrying value of the asset group to fair value, the Company recorded an impairment charge of $ 11.9 million during the second quarter of fiscal 2024. The impairment charge was allocated to the long-lived assets on a pro-rata basis as follows: $ 2.5 million to acquired developed technology, $ 6.4 million to customer relationships, and $ 3.0 million to trade names. The Company believes its assumptions used to determine the fair value of the asset group were reasonable. The following table presents the detail of intangible assets, net as of April 30, 2025 and July 31, 2024 (in thousands): April 30, 2025 July 31, 2024 Gross Carrying Value Accumulated Amortization Allocation of Impairment Loss Net Carrying Value Gross Carrying Value Accumulated Amortization Allocation of Impairment Loss Net Carrying Value Emojipedia.org and other internet domains acquired $ 6,711 $ 1,677 $ - $ 5,034 $ 6,711 $ 1,342 $ - $ 5,369 Acquired developed technology - - - - 3,950 1,422 2,528 - Customer relationships - - - - 7,800 1,403 6,397 - Trade names - - - - 3,570 537 3,033 - Total intangible assets $ 6,711 $ 1,677 $ - $ 5,034 $ 22,031 $ 4,704 $ 11,958 $ 5,369 Estimated future amortization expense as of April 30, 2025 is as follows (in thousands): Fiscal 2025 $ 113 Fiscal 2026 447 Fiscal 2027 447 Fiscal 2028 447 Fiscal 2029 447 Thereafter 3,133 Total $ 5,034 The Company’s amortization expense for intangible assets were $ 335,000 and $ 1.3 million for the nine months ended April 30, 2025 and 2024, respectively. Goodwill The following table summarizes the changes in the carrying amount of goodwill for the nine months ended April 30, 2025 (in thousands). Carrying Amounts Balance as of July 31, 2024 $ 1,824 Impact of currency translation 93 Balance as of April 30, 2025 $ 1,917 The total accumulated impairment loss of the Company’s goodwill as of April 30, 2025 was $ 8.7 million. 10 Note 6—Accrued Expenses and Other Current Liabilities Accrued expenses and other current liabilities consist of the following (in thousands): April 30, July 31, 2025 2024 Accrued payroll and bonuses $ 1,223 $ 1,416 Accrued vacation 808 690 Accrued expenses 162 301 Restructuring accrual and related charges (1) 214 - Due to artists 162 242 Operating lease liability-current portion 137 85 Accrued payroll taxes 111 59 Derivative liability for foreign exchange contracts - 51 Accrued income taxes payable 14 123 Due to related party - IDT 1 2 Total accrued expenses and other current liabilities $ 2,832 $ 2,969 1) See Note 14 Restructuring and Other Related Charges for more details Note 7—Stock-Based Compensation 2016 Stock Incentive Plan In November 2024, the Company’s Board of Directors amended the Company’s 2016 Stock Option and Incentive Plan (as amended to date, the “2016 Incentive Plan”) to increase the number of shares of the Company’s Class B common stock available for the grant of awards thereunder by an additional 100,000 shares to an aggregate of 2,631,000 shares, including 626,000 shares for the GuruShots retention pool. This amendment was ratified by the Company’s stockholders at the Annual Meeting of Stockholders held on January 15, 2025. At April 30, 2025, there were 143,000 shares of Class B common stock available for awards under the 2016 Incentive Plan. The Company recognizes stock-based compensation for stock-based awards, including stock options, restricted stock and deferred stock units (“DSUs”) based on the estimated fair value of the awards and recognized over the relevant service period and/or market conditions. The Company estimates the fair value of stock options on the measurement date using the Black-Scholes option valuation model. The Company estimates the fair value of the restricted stock and DSU’s with service conditions only using the current market price of the stock. The Company estimates the fair value of the DSU’s with both service and market conditions using the Monte Carlo Simulation valuation model. The Black-Scholes and Monte Carlo Simulation valuation models incorporate assumptions as to stock price volatility, the expected life of options or awards, a risk-free interest rate and dividend yield. The Company recognizes stock-based compensation expense related to options and shares of restricted stock on a straight-line basis over the service period of the award, which is generally 4 years for options and 3 years for shares of restricted stock. Deferred Stock Units Equity Incentive Programs In November, 2024, the Company adopted an equity incentive program (under the 2016 Incentive Plan) in the form of grants of DSUs that, upon vesting, will entitle the grantees to receive shares of the Company’s Class B common stock. The number of shares that will be issuable on each vesting date will vary between 33 % to 300 % of the number of DSUs that vest on that vesting date, depending on the market price for the underlying Class B common stock on the vesting date relative to the grant price approved by the Compensation Committee of the Company’s Board of Directors of $ 2.76 per share. The Company estimated that the fair value of the DSUs on the date of grants was $ 388,000 in aggregate, which is being recognized on a graded vesting basis over the requisite service periods ending in September 2027. The Company used a risk neutral Monte Carlo simulation method in its valuation of the DSUs, which simulated the range of possible future values of the Company’s Class B common stock over the life of the DSUs. The Monte Carlo simulation model incorporates the likelihood of achieving the stock price targets and requires the input of assumptions including the underlying stock price, expected volatility, risk-free rate and dividend yield. 11 Stock Option Grants The Company’s option awards generally have a term of 10 years from grant date, are exercisable upon vesting unless otherwise designated for early exercise by the Board of Directors at the time of grant and are pursuant to individual written agreements. Grants generally vest over a three-year or four -year period. In January 2025 and 2024, the Compensation Committee approved grants of options to purchase 55,100 and 12,450 shares, respectively, of the Company’s Class B common stock to various executives, consultants and employees, vesting mostly over a three-year or four-year period. Unrecognized compensation expense related to these awards were $ 107,000 and $ 21,000 respectively based on the estimated fair value of the options on the grant dates. Stock-based Compensation Expense In our accompanying unaudited condensed consolidated statements of operations and comprehensive income (loss), the Company recognized stock-based compensation expense for our employees and non-employees as follows (in thousands): Three Months Ended April 30, Nine Months Ended April 30, 2025 2024 2025 2024 Stock-based compensation expense $ 603 $ 683 $ 1,308 $ 1,673 As of April 30, 2025, the Company’s unrecognized stock-based compensation expense was $ 206,000 for unvested stock options, $ 259,000 for unvested DSUs and $ 222,000 for unvested restricted stock. Vesting and Cancellation of Restricted Stock and DSUs In the nine months ended April 30, 2025 and 2024, awards of restricted stock and DSUs with respect to 250,000 shares and 246,000 shares, respectively, vested, and in connection with these vesting events, the Company purchased 6,903 shares and 6,328 shares respectively, of our Class B common stock from certain employees for $ 22,000 and $ 13,000 , respectively, to satisfy tax withholding obligations. On September 7, 2024, DSUs award with both service and market condition with respect to approximately 170,000 shares were canceled without the reversal of compensation expenses of approximately $ 1.2 million because the market condition was not achieved. Note 8—Earnings Per Share Basic earnings per share is computed by dividing net income attributable to all classes of common stockholders of the Company by the weighted average number of shares of all classes of common stock outstanding during the applicable period. Diluted earnings per share is computed in the same manner as basic earnings per share, except that the number of shares is increased to include restricted stock still subject to risk of forfeiture, issuances to be made on the vesting of unvested DSUs and the exercise of potentially dilutive stock options using the treasury stock method, unless the effect of such increase is anti-dilutive. The rights of holders of Class A common stock and Class B common stock are identical except for certain voting and conversion rights and restrictions on transferability. As such, the Company is not required to break out earnings per share by class. 12 The weighted-average number of shares used in the calculation of basic and diluted earnings per share attributable to the Company’s common stockholders consists of the following (in thousands): Three Months Ended Nine Months Ended April 30, April 30, 2025 2024 2025 2024 Basic weighted-average number of shares 13,720 14,191 13,835 14,077 Effect of dilutive securities: Stock options 220 349 - - Non-vested restricted Class B common stock - 1 - - Deferred stock units - 1 - - Diluted weighted-average number of shares 13,940 14,542 13,835 14,077 The following shares were excluded from the dilutive earnings per share computations because their inclusion would have been anti-dilutive (in thousands): Three Months Ended Nine Months Ended April 30, April 30, 2025 2024 2025 2024 Stock options 170 126 892 861 Non-vested restricted Class B common stock 77 181 78 216 Deferred stock units 90 201 54 203 Shares excluded from the calculation of diluted earnings per share 337 508 1,024 1,280 For the nine months ended April 30, 2025 and 2024, the diluted earnings per share equals basic earnings per share because the Company incurred a net loss during those periods and the impact of the assumed exercise of stock options and vesting of restricted stock and DSUs would have been anti-dilutive. Note 9—Commitments and Contingencies Legal Proceedings The Company may from time to time be subject to other legal proceedings that arise in the ordinary course of business. Although there can be no assurance in this regard, the Company does not expect any of those legal proceedings to have a material adverse effect on the Company’s results of operations, cash flows or financial condition. Note 10—Term Loan and Revolving Credit Facility On October 28, 2022, the Company entered into an Amended and Restated Loan and Security Agreement (“Amended Loan Agreement”) with WAB. Pursuant to the Amended Loan Agreement, WAB agreed to provide the Company with a new term loan facility in the maximum principal amount of $ 7 million for a four-year term and a $ 4 million revolving credit facility for a two-year term expiring October 28, 2024 . Amounts outstanding under the term loan and credit facility of the Amended Loan Agreement bear interest at a per annum rate equal to the Prime Rate (as published in The Wall Street Journal) plus 0.5 %, with a Prime “floor” rate of 4.00 %. Pursuant to the Amended Loan Agreement, $ 2 million was advanced in a single-cash advance on the closing date, with the remaining $ 5 million available for drawdown during twenty-four (24) months after closing. On May 11, 2023, the Company entered into a Modification Agreement pursuant to which the Company agreed to modify the Amended Loan Agreement to reduce the remaining $ 5 million availability to $ 0 . 13 On November 15, 2023, the Company elected to prepay the entire principal amount of $ 2 million. On October 28, 2024, the Company entered into an Amended and Restated Loan and Security Agreement Modification Agreement with WAB. Pursuant to the modification agreement, WAB agreed to renew the $ 4 million revolving credit facility for another four-year term through October 28, 2028 and remove certain provisions, including financial covenants, in respect of the $ 2 million term loan which has been repaid. The Amended Loan Agreement includes customary negative covenants, subject to exceptions, which limit transfers, capital expenditures, indebtedness, certain liens, investments, acquisitions, dispositions of assets, restricted payments and the business activities of the Company, as well as customary representations and warranties, affirmative covenants and events of default, including cross defaults and a change of control default. As of November 16, 2016, the Company entered into a Foreign Exchange Agreement with WAB to allow the Company to enter into foreign exchange contracts not to exceed $ 5.0 million in the aggregate at any point in time under its revolving credit facility. This limit was raised to approximately $ 7.5 million pursuant to the Loan and Security Modification Agreement dated May 30, 2018. The available borrowing under the revolving credit facility is reduced by an applicable foreign exchange reserve percentage as determined by WAB, in its reasonable discretion from time to time, which was set at 10 % of the nominal amount of the foreign exchange contracts in effect at the relevant time. At April 30, 2025, there were approximately $ 1.8 million of outstanding foreign exchange contracts, which reduced the available borrowing under the revolving credit facility by approximately $ 177,500 . Note 11—Segment and Geographic Information Segment Information The Company determines its operating segments based on how its chief operating decision maker (“CODM”) manages the business, allocates resources, makes operating decisions and evaluates operating performance. The Company’s CODM was its Chief Executive Officer as of April 30, 2025. There are two reportable segments, which are the Zedge Marketplace and GuruShots. The CODM evaluates the performance of each operating segment using segment income (loss) from operations. The Company defines segment income (loss) from operations as revenue less costs and expenses. Expenses include indirect costs that are allocated to operating segments based on a reasonable allocation methodology, which are generally related to sales and marketing activities and general and administrative overhead. Revenue and expenses exclude transactions between the Company’s operating segments. The CODM uses segment income (loss) from operations to allocate resources during the annual budgeting and forecasting process. The CODM considers segment income (loss) from operations when making decisions on operating and capital resource allocation. Additionally, the CODM uses segment income (loss) from operations to evaluate operating strategy and assess segment performance by comparing the results of each segment. 14 The following table provides information about the Company’s two reportable segments (in thousands): Three Months Ended April 30, Nine Months Ended April 30, 2025 2024 2025 2024 Zedge Marketplace: Revenues $ 7,283 $ 6,788 $ 20,196 $ 19,777 Less: Personnel related expenses 1,909 2,303 6,375 6,613 Users acquisition costs 1,927 1,772 5,010 3,689 Data center and SaaS costs 488 434 1,428 1,200 Restructuring charges 270 - 695 - Other expenses 1 1,425 1,082 4,448 3,743 Zedge Marketplace segment income from operations 1,264 1,197 2,240 4,532 GuruShots: Revenues $ 475 $ 869 $ 1,735 $ 2,732 Less: Personnel related expenses 592 978 2,665 2,550 Users acquisition costs 115 252 807 1,154 Platform fees 85 160 293 510 Data center and SaaS costs 223 247 707 788 Acquisition and restructuring related charges 307 - 1,190 11,959 Other expenses 2 257 561 830 2,043 GuruShots segment loss from operations ( 1,104 ) ( 1,329 ) ( 4,757 ) ( 16,272 ) Total segment income (loss) from operations $ 160 $ ( 132 ) $ ( 2,517 ) $ ( 11,740 ) 1. Other segment items for the Zedge Marketplace reportable segment include professional services costs, platform fee, depreciation and amortization, facilities costs, public company related expenses and other individually insignificant costs. 2. Other segment items for the GuruShots reportable segment include professional services costs, depreciation and amortization, facilities costs, and other individually insignificant costs. The CODM does not evaluate operating segments using asset information and, accordingly, the Company does not report asset information by segment. Geographic Information Net long-lived assets and total assets held outside of the United States, which are located primarily in Israel, Lithuania and Norway, were as follows (in thousands): United States Foreign Total Long-lived assets, net: April 30, 2025 $ 6,193 $ 496 $ 6,689 July 31, 2024 $ 6,570 $ 1,460 $ 8,030 Total assets: April 30, 2025 $ 32,230 $ 5,601 $ 37,831 July 31, 2024 $ 32,412 $ 5,783 $ 38,195 15 Note 12— Operating Leases The Company has operating leases primarily for office space. Operating lease right-of-use (“ROU”) assets recorded and included in other assets were $ 233,000 and $ 214,000 at April 30, 2025 and July 31, 2024, respectively. On August 7, 2024, the Company renewed its lease for the office space in Tel Aviv, Israel for a two-year term. Future minimum lease payments related to this lease renewal are as follows (in thousands): Years ending July 31, Operating Leases 2025 $ 48 2026 58 2027 9 Total future minimum lease payments 115 Less imputed interest 9 Total $ 106 The Company reviews the impairment of ROU assets consistent with the approach applied for the Company’s other long-lived assets. The Company reviews the recoverability of long-lived assets when events or changes in circumstances occur that indicate that the carrying value of the asset may not be recoverable. The assessment of possible impairment is based on the Company’s ability to recover the carrying value of the asset from the expected undiscounted future pre-tax cash flows of the related operations. In connection with the restructuring we implemented in January 2025 (See Note 14 Restructuring, Impairments, and Related Charges for more details), we are evaluating the potential impairment of the right-of-use assets associated with our leased office space in Norway. There were no other material changes in the Company’s operating and finance leases in the nine months ended April 30, 2025, as compared to the disclosure regarding such leases in the 2024 Form 10-K. Note 13—Income Taxes The Company’s income taxes expense (benefit) for interim periods has generally been determined using an estimate of its annual effective tax rate applied to year-to-date income and records the discrete tax items in the period to which they relate. In each quarter, the Company updates the estimated annual effective tax rate and makes a year-to-date adjustment to the tax provision as necessary. The Company’s estimated annual effective tax rate for the fiscal year ending July 31, 2025 differs from the U.S. federal statutory tax rate due to certain items primarily related to stock-based compensation expense, jurisdictional mix of earnings, foreign derived intangible income deduction, global intangible low-taxed income and the change in basis differences associated with tax deductible intangible assets and goodwill. As of April 30, 2025, the Company had $ 6.3 million of deferred tax assets, for which it has established a valuation allowance of $ 1.8 million, related to U.S. federal and state taxes and for a certain international subsidiary. The Company is subject to taxation in the United States and certain foreign jurisdictions. Earnings from non-U.S. activities are subject to local country income tax. The material jurisdictions where the Company is subject to potential examination by tax authorities include the United States, Norway, Lithuania and Israel. 16 Note 14—Restructuring, Impairments, and Related Charges In January 2025, we implemented a corporate restructuring aimed to reduce headcount at GuruShots and other operating expenses, and ultimately resulting in the closure of our Norway operations. This restructuring allows us to consolidate our workforce in Lithuania and Israel, streamlining operations, driving efficiency and reducing expenses beyond compensation, and is designed to position us for sustainable growth and support our strategic objectives. In connection with this initiative, the Company instituted moves expected to result in the reduction of its total global headcount by approximately 22 % and recognized a restructuring charge of $ 1.1 million primarily consisting of employee termination benefit which is recorded in the Company’s condensed consolidated statements of operations and comprehensive income (loss) for the three and nine months ended April 30, 2025. The Company capitalizes certain costs related to software to be sold, leased, or marketed in accordance with ASC 985-20, Costs of Software to Be Sold, Leased, or Marketed related to GuruShots. The Company evaluates these long-lived assets for impairment whenever circumstances arise that indicate the carrying amount of an asset may not be recoverable. The Company’s strategic reassessment of GuruShots’ operations in connection with the restructuring initiative resulted in a $ 0.8 million impairment of capitalized software and technology development costs which is recorded in the Company’s unaudited condensed consolidated statements of operations and comprehensive income (loss) for the nine months ended April 30, 2025. The following table summarizes total restructuring, impairments, and related charges for the Company’s two reportable segments (in thousands): Three Months Ended April 30, Nine Months Ended April 30, 2025 2024 2025 2024 Zedge Marketplace $ 270 $ - $ 695 $ - GuruShots 307 - 1,190 - Total restructuring, impairments, and related charges $ 577 $ - $ 1,885 $ - The following table provides information about restructuring, impairments, and related charges for the Company’s two reportable segments (in thousands): Restructuring, Impairment, and Related Charges Termination Benefits (1) Impairments and Assets Disposal (2) Total Zedge Marketplace $ 270 $ - $ 270 GuruShots 307 - 307 Three Months Ended April 30, 2025 $ 577 $ - $ 577 Zedge Marketplace $ 695 $ - $ 695 GuruShots 363 827 1,190 Nine Months Ended April 30, 2025 $ 1,058 $ 827 $ 1,885 1) Primarily relates to the global restructuring initiated in January 2025 and consists of termination benefits related to workforce reduction actions across all segments. Additionally, one-time severance and termination benefits of approximately $ 0.3 million, impairment of ROU assets, lease termination costs and other charges of approximately $ 0.2 million, were expected to be incurred but were not recognized as of April 30, 2025. 2) Primarily represents impairment of capitalized software and technology development costs resulting from the strategy assessment related to the restructuring initiative implemented in GuruShots. The following table shows a roll forward of restructuring reserves, primarily consists of employee termination benefits, that will result in cash spending. These amounts exclude asset impairment charges and other asset disposal activities (in thousands): Balance at Change in Cash Balance at Restructuring and Related Charges by Segment 7/31/24 reserves (1) payments Other (2) 4/30/25 (3) Zedge Marketplace $ - $ 695 $ ( 507 ) $ 11 $ 199 GuruShots - 363 ( 348 ) - 15 Total $ - $ 1,058 $ ( 855 ) $ 11   $ 214 1) Primarily consists of severance and employee termination costs. The impairment charges and other asset disposals associated with the restructuring implemented in January 2025 that have impacted our property, plant and equipment, intangible balances or other asset balances are not included in this table. 2) Primarily comprised of foreign currency translation and other non-cash adjustments. 3) Included in “Accrued expenses and other current liabilities” on the condensed consolidated balance sheets. 17 Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations The following information should be read in conjunction with the accompanying unaudited condensed consolidated financial statements and the associated notes thereto of this Quarterly Report, and the audited consolidated financial statements and the notes thereto and our Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in our Annual Report on Form 10-K for the fiscal year ended July 31, 2024 (the “2024 Form 10-K”), as filed with the U.S. Securities and Exchange Commission (the “SEC”) on October 29, 2024. As used below, unless the context otherwise requires, the terms “the Company,” “Zedge,” “we,” “us,” and “our” refer to Zedge, Inc., a Delaware corporation and its subsidiaries, GuruShots Ltd., Zedge Europe AS and Zedge Lithuania UAB, collectively. Forward-Looking Statements This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including statements that contain the words “believes,” “anticipates,” “expects,” “plans,” “intends,” and similar words and phrases. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from future results. Factors that may cause such differences include, but are not limited to: (1) economic, geopolitical and market conditions can adversely affect our business, results of operations and financial condition, including our revenue growth and profitability, which in turn could adversely affect our stock price; (2) delay or failure to realize the expected synergies and benefits of the GuruShots acquisition; (3) Russia’s invasion of Ukraine, and the international community’s response; and (4) recent attack by Hamas and other terrorist organizations from the Gaza Strip and Lebanon and Israel’s war against them. For further information regarding risks and uncertainties associated with our business, please refer to Item 1A to Part I “Risk Factors” in the 2024 Form 10-K. The forward-looking statements are made as of the date of this report and we assume no obligation to update the forward-looking statements, or to update the reasons why actual results could differ from those projected in the forward-looking statements. Investors should consult all of the information set forth in this report and the other information set forth from time to time in our reports filed with the SEC pursuant to the Securities Act of 1933 and the Securities Exchange Act of 1934, including the 2024 Form 10-K. Trends and Uncertainties Current Economic Conditions The majority of our users and employees are located outside of the United States exposing us to a range of economic factors and regulations including foreign exchange fluctuations. There is uncertainty surrounding macroeconomic factors in the U.S. and globally. We believe these macroeconomic conditions coupled with the global political climate and unrest, including the ongoing wars between Ukraine and Russia and Israel and Hamas, may negatively impact our performance. The Israel-Hamas and Israel-Hezbollah Conflicts 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 Houthi rebels based in Yemen have also launched ballistic missiles and kamikaze drones at Israel and the Islamic Republic of Iran has on two occasions attacked Israel with a barrage of ballistic missiles. Although a temporary ceasefire is in place, it is unclear if it is sustainable. The extent and duration of this conflict remains uncertain. Israel’s response to Hamas’ unprecedented attack led to the mobilization of IDF 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. 18 Overview 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. 1 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. 2 Furthermore, Influencer Marketing Hub reports that out of 2,000 surveyed creators, 44.9% identify as full-time creators, 3 and Exploding Topics reports that 10% of influencers earn more than $100,000 per year. 4 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. 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 April 30, 2025, our Zedge App had been installed nearly 707 million times since inception and, over the past eight fiscal quarters, has had between 22.1 million and 30.1 million monthly active users (“MAU”), ending with 22.1 million MAU as of April 30, 2025. 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, annual or lifetime subscription. In April 2023, we introduced a subscription tier in the iOS version of the app. As of April 30, 2025, we had approximately 896,000 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 550,000 photographs and casting close to 3.0 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. 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 nine years, the monthly average paying player spend has increased in excess of 6.2% annually to more than $40.9 per player. 1 https://www.latimes.com/business/story/2024-01-08/creator-influencer-economy-2024-predictions-social-media-stars 2 https://linktr.ee/creator-report 3 https://influencermarketinghub.com/creator-earnings-benchmark-report 4 https://explodingtopics.com/blog/creator-economy-stats# 19 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. Since the acquisition, GuruShots has faced challenges in growth and profitability and its revenue has declined. As such the Company is cutting costs as part of the restructuring implemented in January 2025 and materially scaling back on paid user acquisition, or PUA, in order to approach breakeven. In parallel, we are developing a plan, that we refer to as GuruShots 2.0, to revamp GuruShots’ offering in order to put it on a growth trajectory and unlock the potential value in this asset. Our strategy focuses on attracting new users and converting them into recurring, paying players. To date, we introduced a fun and comprehensive onboarding experience to draw new users into the gameplay with ease and migrated to a coin-based in-game economy to enable more possibilities to reward and monetize players. We also launched Missions, a set of tasks that players need to complete in exchange for earning rewards, and Duels, a fast-paced, real-time player-versus-player game mechanic that adds an exciting competitive layer to GuruShots. Historically, we marketed GuruShots to prospective players, primarily via PUA channels. We utilize a host of creative formats including static and video ads in order to promote the game. As a part of the restructuring plan mentioned above, we have materially reduced PUA for GuruShots and do not expect to ramp up until we finalize the GuruShots 2.0 plan. Beyond our commitment to growing both the Zedge App and GuruShots on a standalone basis, we believe that there are untapped opportunities that we can capitalize on to unlock additional value. Specifically, we plan to enable GuruShots players the ability to sell their content both in the Zedge Marketplace and elsewhere. In addition, we are benefitting from the experience that the GuruShots team possesses in gamifying the Zedge App. Longer term, we believe that there are complementary content verticals that lend themselves to gamification. We own and operate Emojipedia, 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 April 2025, Emojipedia received approximately 46.3 million monthly page views and has approximately 10.9 million monthly active users as of April 30, 2025 of which approximately 49.7% 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 Our unaudited condensed 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. Our significant accounting policies are described in Note 1 to the consolidated financial statements included in the 2024 Form 10-K. The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses as well as the disclosure of contingent assets and liabilities. Critical accounting policies are those that require application of management’s most subjective or complex judgments, often as a result of matters that are inherently uncertain and may change in subsequent periods. Our critical accounting policies include those related to revenue recognition, intangible assets, goodwill, capitalized software and technology development costs, stock-based compensation and income taxes. 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. For additional discussion of our critical accounting policies, see our Management’s Discussion and Analysis of Financial Condition and Results of Operations in the 2024 Form 10-K. 20 Recently Issued Accounting Pronouncements Please see Note 1 to the unaudited condensed consolidated financial statements included in Item 1 to Part I of this Quarterly Report on Form 10-Q. Key Performance Indicators (KPIs) Zedge App-MAU and ARPMAU The presentation of our results of operations related to our Zedge App 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 we define as the number of unique users that used our Zedge App during the previous 30-day period, which is important to understanding the size of our active user base which is a main driver of our revenue. Changes and trends in MAU are useful for measuring the general health of our business, gauging both present and potential users/customers’ experience, assessing the efficacy of product improvements and marketing campaigns and overall user engagement. ARPMAU is defined as (i) the total revenue derived from Zedge App in a monthly period, divided by (ii) MAU in that same period. ARPMAU for a particular time period longer than one month is the average ARPMAU for each month during that period. ARPMAU is valuable because it provides insight into how well we monetize our users and, changes and trends in ARPMAU are indications of how effective our monetization investments are. MAU decreased 20.2% in the three months ended April 30, 2025 when compared to the same period a year ago. As of April 30, 2025, users in emerging markets represented about 76.5% of our MAU, as compared to 78.3% from the same period a year ago. ARPMAU for the three months ended April 30, 2025 increased 32.7% when compared to the same period a year ago, primarily due to the increase in price per advertising impression from the same period a year ago, which was driven by increased competition for our ad inventory as well as strong year-over-year subscription revenue growth. Subscription revenue and subscription billings for the three months ended April 30, 2025 increased 13.4% and 22.9%, respectively, when compared to the same period a year ago, as discussed below. The following tables present the MAU – Zedge App and ARPMAU – Zedge App for the three months ended April 30, 2025 as compared to the same period in the prior year: Three Months Ended April 30, (in millions, except ARPMAU - Zedge App) 2025 2024 % Change MAU- Zedge App 22.1 27.7 -20.2 % Developed Markets MAU - Zedge App 5.2 6.0 -13.3 % Emerging Markets MAU - Zedge App 16.9 21.7 -22.1 % Emerging Markets MAU - Zedge App/Total MAU - Zedge App 76.5 % 78.3 % -2.4 % ARPMAU - Zedge App $ 0.0985 $ 0.0742 32.7 % 21 The following charts present the MAU – Zedge App and ARPMAU – Zedge App for the consecutive eight fiscal quarters ended April 30, 2025: GuruShots-MAPs and ARPMAP The presentation of our results of operations related to our GuruShots segment includes disclosure of two key performance indicators as discussed below: Monthly Active Payers (“MAPs”). We define a MAP as a unique active user on the GuruShots app or GuruShots.com in a month who 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. MAP is a key performance indicator because it shows the size of GuruShots’ active paying user base which is a main driver of GuruShots’ revenue. Changes and trends in MAP are useful for measuring the general health of GuruShots’ business, gauging both present and potential users/customers’ experience, assessing the efficacy of product improvements and marketing campaigns and overall user engagement. 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. MAP decreased 33.8% in the three months ended April 30, 2025 when compared to the same period a year ago, primarily attributable to Apple’s App Tracking Transparence (“ATT”) framework which impedes our ability to invest in paid user acquisition (“PUA”) campaigns profitably in terms of return on ad spend or (“ROAS”). As such, we continued to scale back our PUA spend for GuruShots while testing new campaigns and creatives in order to unearth attractive ROAS scaling opportunities. As part of the restructuring implemented in January 2025, we expect to materially decrease PUA at least through the end of fiscal 2025. ARPMAP decreased 17.1% to $44.1 in the three months ended April 30, 2025 from $53.2 in the same period a year ago. The following table shows our MAP and ARPMAP for the three months ended April 30, 2025 and 2024: Three Months Ended April 30, 2025 2024 % Change Monthly Active Payers 3,578 5,408 -33.8 % Average Revenue per Monthly Active Payer $ 44.1 $ 53.2 -17.1 % 22 The following charts present the MAP and ARPMAP – GuruShots for the consecutive eight quarters ended April 30, 2025: 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 summarizes our historical condensed consolidated statements of operations data: Three Months Ended April 30, Nine months Ended April 30, 2025 2024 % Change 2025 2024 % Change (in thousands, except percentages) Revenues $ 7,757 $ 7,658 1.3 % $ 21,930 $ 22,510 -2.6 % Direct cost of revenues 452 455 -0.7 % 1,360 1,399 -2.8 % Selling, general and administrative 6,343 6,752 -6.1 % 20,278 18,773 8.0 % Depreciation and amortization 225 583 -61.4 % 924 2,120 -56.4 % Impairment of intangible assets - - nm - 11,958 nm Restructuring charges 577 - nm 1,058 - nm Impairment of capitalized software and technology development costs - - nm 827 - nm Income (loss) from operations 160 (132 ) -221.2 % (2,517 ) (11,740 ) -78.6 % Interest and other income, net 154 188 -18.1 % 507 434 16.8 % Net loss resulting from foreign exchange transactions (41 ) (80 -48.8 % (141 ) (223 ) -36.8 % Income taxes expense (benefit) 88 (137 ) nm (318 ) (2,397 ) -86.7 % Net income (loss) $ 185 $ 113 63.7 % $ (1,833 ) $ (9,132 ) -79.9 % nm-not meaningful 23 Comparison of Our Results of Operations for the Three and Nine months Ended April 30, 2025 and 2024 Revenues The following table sets forth the composition of our revenues for the three and nine months ended April 30, 2025 and 2024 (in thousands): Three Months Ended April 30, % Nine Months Ended April 30, % 2025 2024 Changes 2025 2024 Changes Zedge Marketplace Advertising revenue $ 5,579 $ 5,461 2.2 % $ 15,151 $ 15,882 -4.6 % Paid subscription revenue 1,272 1,122 13.4 % 3,687 3,186 15.7 % Other revenues 431 206 109.2 % 1,357 710 91.1 % Total Zedge Marketplace revenue 7,282 6,789 7.3 % 20,195 19,778 2.1 % GuruShots Digital goods and services 475 869 -45.3 % 1,735 2,732 -36.5 % Total revenue $ 7,757 $ 7,658 1.3 % $ 21,930 $ 22,510 -2.6 % The following table summarizes our subscription revenue for the three and nine months ended April 30, 2025 and 2024: Three Months Ended April 30, % Nine Months Ended April 30, % 2025 2024 Change 2025 2024 Change (in thousands, except revenue per subscriber and percentages) Subscription Revenue $ 1,272 $ 1,122 13.4 % $ 3,687 $ 3,186 15.7 % Active subscriptions net increase 105 6 nm 227 7 nm Active subscriptions at end of period 896 654 37.0 % 896 654 37.0 % Average active subscriptions during the period 842 652 29.2 % 738 651 13.4 % Average monthly revenue per active subscription $ 0.50 $ 0.57 -12.3 % $ 0.56 $ 0.54 3.7 % nm-not meaningful The following table presents a reconciliation of subscription billings to the most directly comparable GAAP financial measures, for each of the periods indicated. 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. Three Months Ended April 30, % Nine Months Ended April 30, % 2025 2024 Change 2025 2024 Change (in thousands, except percentages) Subscription Revenue $ 1,272 $ 1,122 $ 3,687 $ 3,186 Changes in subscription deferred revenue 566 373 1,798 925 Subscription Billings (Non-GAAP) $ 1,838 $ 1,495 22.9 % $ 5,485 $ 4,111 33.4 % The following table summarizes Zedge Premium gross and net revenue for the three and nine months ended April 30, 2025 and 2024: Three Months Ended April 30, % Nine Months Ended April 30, % 2025 2024 Changes 2025 2024 Changes (in thousands, except percentages) Zedge Premium-gross revenue (“GTV”) $ 615 $ 592 3.9 % $ 1,975 $ 1,551 27.3 % Zedge Premium-net revenue 430 $ 202 112.9 % $ 1,354 $ 683 98.2 % Gross margin 70 % 34 % 69 % 44 % Three Months Ended April 30, 2025 Compared to Three Months Ended April 30, 2024 For the three months ended April 30, 2025, our advertising revenue increased 2.2% compared to the same period in the prior year primarily due to the increase in price per advertising impression paid by the advertisers on our platform when compared to the same period a year ago, which was driven by increased competition for our ad inventory. 24 For the three months ended April 30, 2025, our subscription revenue increased 13.4%, and our subscription billings increased 22.9% compared to the same period in the prior year primarily due to the introduction of our iOS subscription offering in April 2023 and the lifetime subscription product for Android users we rolled out in August 2023. For the three months ended April 30, 2025, our other revenue increased 109.2% compared to the same period in the prior year primarily due to the increase in Zedge Premium net revenue. For the three months ended April 30, 2025, Zedge Premium net revenue increased 112.9% compared to the same period in the prior year primarily attributable to additional revenue from certain AI generative features we rolled out in our Zedge App in fiscal 2024 and the effect of the write-down of advanced royalties paid to certain content creators or owners in the prior period. For the three months ended April 30, 2025, digital goods and services revenue declined 45.3% compared to the same period in the prior year primarily due to the 33.8% decrease in GuruShots’ MAP coupled with 17.1% decrease in ARPMAP for the corresponding periods. Nine months Ended April 30, 2025 Compared to Nine months Ended April 30, 2024 For the nine months ended April 30, 2025, our advertising revenue decreased 4.6% compared to the same period in the prior year primarily due to lower ad inventory resulting mainly from the decline in MAU partially offset by an increase in price per advertising impression paid by the advertisers on our platform when compared to the same periods a year ago, which was driven by increased competition for our ad inventory. For the nine months ended April 30, 2025, our subscription revenue increased 15.7%, and our subscription billings increased 33.4% compared to the same period in the prior year primarily due to the introduction of our iOS subscription offering in April 2023 and the lifetime subscription product for Android users we rolled out in August 2023. For the nine months ended April 30, 2025, our other revenue increased 91.1% compared to the same period in the prior year primarily due to the increase in Zedge Premium net revenue. For the nine months ended April 30, 2025, Zedge Premium net revenue increased 98.2% compared to the same period in the prior year primarily attributable to additional revenue from certain AI generative features we rolled out in our Zedge App in fiscal 2024. For the nine months ended April 30, 2025, digital goods and services revenue declined 36.5% compared to the same period in the prior year primarily due to the decreases in both MAP and ARPMAP. Direct cost of revenues . Direct cost of revenues consists primarily of content hosting and content delivery costs. Three Months Ended April 30, Nine Months Ended April 30, 2025 2024 % Change 2025 2024 % Change (in thousands, except percentages) Direct cost of revenues $ 452 $ 455 -0.7 % $ 1,360 $ 1,399 -2.8 % As a percentage of revenues 5.8 % 5.9 % 6.2 % 6.2 % Direct cost of revenues decreased 0.7% in the three months ended April 30, 2025 compared to the same period in the prior year primarily due to continued optimization of our backend infrastructure. As a percentage of revenue, direct cost of revenues in the three months ended April 30, 2025 decreased to 5.8% from 5.9% for the same period in the prior year. Direct cost of revenues decreased 2.8% in the nine months ended April 30, 2025 compared to the same period in the prior year primarily due to continued optimization of our backend infrastructure. As a percentage of revenue, direct cost of revenues in the nine months ended April 30, 2025 was flat at 6.2% when compared to the same period in the prior year primarily due to the cost savings offset by lower revenue in the current year period. Selling, general and administrative expense . Selling, general and administrative expense (“SG&A”) consists mainly of payroll and benefits, stock-based compensation expense (as discussed below), PUA expenses, third-party payment processing fee relate to in-app purchases, marketing, consulting, professional fees, software licensing (“SaaS”), recruiting fees, facilities and public company related expenses. Three Months Ended April 30, Nine Months Ended April 30, 2025 2024 % Change 2025 2024 % Change (in thousands, except percentages) Selling, general and administrative $ 6,343 $ 6,752 -6.1 % $ 20,278 $ 18,773 8.0 % As a percentage of revenues 81.8 % 88.2 % 92.5 % 83.4 % SG&A expense decreased 6.1% in the three months ended April 30, 2025 compared to the same period in the prior year primarily due to lower compensation expenses resulting primarily from the corporate restructuring implemented in January 2025. As a percentage of revenue, SG&A expense in the three months ended April 30, 2025 was 81.8% compared to 88.2% for the same period in the prior year. 25 SG&A expense increased 8.0% in the nine months ended April 30, 2025 compared to the same period in the prior year primarily due to higher PUA, higher net compensation expenses (resulting primarily from lower capitalized software and technology development costs in the current year period) and higher platform fee paid to Google and Apple offset by lower discretionary spends and lower stock-based compensation expense. In the nine months ended April 30, 2025, we ramped up PUA for our Zedge App significantly but scaled back PUA spend for GuruShots as compared to the same period in the prior year. We expect to continue our investment in PUA for our Zedge App in the near term provided that the ROAS remains compelling while materially cutting back on PUA for GuruShots, at least through the end of the fiscal year. As a percentage of revenue, SG&A expense in the nine months ended April 30, 2025 was 92.5% compared to 83.4% for the same period in the prior year. Global headcount as of April 30, 2025 totaled 96 (including 15 at GuruShots) compared to 100 (including 29 at GuruShots) as of April 30, 2024 with the majority of those employees based in Lithuania and Israel. In January 2025, we implemented a corporate restructuring and reduced our global headcount by approximately 22% which will reduce our headcount to about 80 at the end of our fiscal 2025. Details are more fully described in Note 14 Restructuring and Other Related Charges to the unaudited condensed consolidated financial statements included in Item 1 to Part I of this Quarterly Report on Form 10-Q. The following table summarizes stock-based compensation expense included in SG&A expense for the three and nine months ended April 30, 2025 and 2024: Three Months Ended April 30, Nine Months Ended April 30, 2025 2024 % Change 2025 2024 % Change Stock-based compensation expense $ 603 $ 683 -11.7 % $ 1,308 $ 1,673 -21.8 % Stock-based compensation expenses decreased 11.7% in the three months ended April 30, 2025 compared to the same period in the prior year. The decrease was primarily attributable to lower aggregate fair value related to the DSUs granted in November 2024 compared to that of the DSUs granted in September 2021 which were being recognized on a graded vesting basis over the requisite service periods. Additionally, our stock-based compensation expense related to the portion of retention bonus to be paid in our Class B common stock in connection with the GuruShots acquisition have been fully recognized as of April 1, 2025, which contributed in part to the year over year decrease. Stock-based compensation expenses decreased 21.8% in the nine months ended April 30, 2025 compared to the same period in the prior year. The decrease was primarily attributable to lower aggregate fair value related to the DSUs granted in November 2024 compared to that of the DSUs granted in September 2021 which were being recognized on a graded vesting basis over the requisite service periods. Additionally, our stock-based compensation expense related to the portion of retention bonus to be paid in our Class B common stock in connection with the GuruShots acquisition have been fully recognized as of April 1, 2025, which contributed in part to the year over year decrease. Certain stock options, DSUs and restricted stock grants are more fully described in Note 7 Stock-Based Compensation to the unaudited condensed consolidated financial statements included in Item 1 to Part I of this Quarterly Report on Form 10-Q. Depreciation and amortization . Depreciation and amortization consist mainly of amortization of intangible assets in connection with the GuruShots and Emojipedia acquisitions and 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. Three Months Ended April 30, Nine Months Ended April 30, 2025 2024 % Change 2025 2024 % Change (in thousands, except percentages) Depreciation and amortization $ 225 $ 583 -61.4 % $ 924 $ 2,120 -56.4 % As a percentage of revenues 2.9 % 7.6 % 4.2 % 9.4 % Depreciation and amortization expenses decreased 61.4% in three months ended April 30, 2025 compared to the same period in the prior year primarily due to the $11.9 million impairment charge recorded in Q2 of fiscal 2024. 26 Depreciation and amortization expenses decreased 56.4% in nine months ended April 30, 2025 compared to the same period in the prior year also due to the $11.9 million impairment charge recorded in Q2 of fiscal 2024. Impairment of intangible assets . For the nine months ended April 30, 2024, we recorded an approximately $11.9 million impairment of intangible assets of our GuruShots reporting segment, as more fully described in Note 5 Intangible Assets and Goodwill to the unaudited condensed consolidated financial statements included in Item 1 to Part I of this Quarterly Report on Form 10-Q. Restructuring charges . For the three and nine months ended April 30, 2025, we recorded approximately $0.6 and $1.1 million, respectively, in restructuring charges primarily consisting of severance and employee benefits in connection with the global restructuring implemented in January 2025, as more fully described in Note 14 Restructuring and Other Related Charges to the unaudited condensed consolidated financial statements included in Item 1 to Part I of this Quarterly Report on Form 10-Q. Impairment of capitalized software and technology development costs . For the nine months ended April 30, 2025, we wrote off approximately $0.8 million of GuruShots’ capitalized software and technology development costs in connection with the global restructuring implemented in January 2025, as more fully described in Note 14 Restructuring and Other Related Charges to the unaudited condensed consolidated financial statements included in Item 1 to Part I of this Quarterly Report on Form 10-Q. Interest and other income, net. Three Months Ended April 30, Nine Months Ended April 30, 2025 2024 % Change 2025 2024 % Change (in thousands, except percentages) Interest and other income, net $ 154 $ 188 -18.1 % $ 507 $ 434 16.8 % As a percentage of revenues 2.0 % 2.5 % 2.3 % 1.9 % In the three months ended April 30, 2025, interest and other income, net decreased by $34,000 compared to the same period in the prior year, primarily due to lower interest yield we received on our cash in the current year period. In the nine months ended April 30, 2025, interest and other income, net increased by $73,000 compared to the same period in the prior year, primarily due to lower interest yield we received on our cash in the current year period, which was more than offset by $65,000 in interest expense related to the $2 million term loan which was repaid in November 2023 and the $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 resulting from foreign exchange transactions . Net loss resulting from foreign exchange transactions is comprised of gains and losses generated from movements in NOK and EUR relative to the U.S. Dollar, including gains or losses from our hedging activities. Three Months Ended April 30, Nine Months Ended April 30, 2025 2024 % Change 2025 2024 % Change (in thousands, except percentages) Net loss resulting from foreign exchange transactions $ (41 ) $ (80 ) -48.8 % $ (141 ) $ (223 ) -36.8 % As a percentage of revenues -0.5 % -1.0 % -0.6 % -1.0 % In the three months ended April 30, 2025, net loss resulting from foreign exchange transactions was $41,000 compared to a net loss of $80,000 for the same period in the prior year primarily due to unfavorable FX movement related to our NOK and EUR hedging activities in both current and prior periods. In the nine months ended April 30, 2025, net loss resulting from foreign exchange transactions decreased by $82,000 from $141,000 to $223,000 when compared to the same period in the prior year primarily due to unfavorable FX movement related to our NOK and EUR hedging activities in both current and prior periods. We recognized Mark to Market (“MTM”) gains of $65,000 and losses of $51,000 from NOK and EUR hedging activities, respectively, as of April 30, 2025 and July 31, 2024, as more fully described in Note 4, Derivative Instruments, to the unaudited condensed consolidated financial statements included in Item 1 to Part I of this Quarterly Report on Form 10-Q. Following closure of our Norwegian office, we do not anticipate further USD to NOK hedging activities. 27 Income taxes expense (benefit) Three Months Ended April 30, Nine Months Ended April 30, 2025 2024 % Change 2025 2,024 % Change (in thousands, except percentages) Income taxes expense (benefit) $ 88 $ (137 ) nm $ (318 ) $ (2,397 ) -86.7 % As a percentage of revenues 1.1 % -1.8 % -1.5 % -10.6 % In the three months ended April 30, 2025, income taxes expense was $88,000 compared to an income tax benefit of $137,000 for the same period in the prior year, resulting primarily from the $273,000 pre-tax income in the current year period compared to the pre-tax loss of $24,000 in the prior period. In the nine months ended April 30, 2025, income tax benefit decreased by $2.1 million compared to the same period in the prior year, resulting primarily from the $2.5 million increase in deferred tax assets related to the $11.9 million impairment loss on GuruShot’s intangible assets recorded in the prior period offset by $0.2 million increase in deferred tax assets related to the impairment charge of GuruShot’s capitalized software and technology development costs of $0.8 million recorded in the current year period. 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 three and nine months ended April 30, 2025 and 2024: Three Months Ended April 30, Nine Months Ended April 30, 2025 2024 % Change 2025 2024 % Change Segment income (loss) from operations: Zedge Marketplace: $ 1,264 $ 1,197 5.6 % $ 2,240 $ 4,532 -50.6 % GuruShots: (1,104 ) (1,329 ) -16.9 % (4,757 ) (16,272 ) -70.8 % Total $ 160 $ (132 ) -221.2 % $ (2,517 ) $ (11,740 ) -78.6 % Three months Ended April 30, 2025 Compared to Three Months Ended April 30, 2024 For the three months ended April 30, 2025, our income from operations related to the Zedge Marketplace increased 5.6% to $1.3 million from $1.2 million for the same period in the prior year, primarily due to higher revenue coupled with lower personnel related expenses offset by the increase in user acquisition costs, restructuring charges and other expenses. For the three months ended April 30, 2025, our loss from operations related to GuruShots decreased 16.9% to $1.1 million from $1.3 million for the same period in the prior year, primarily due to lower revenue more than offset by lower personnel expenses, lower users acquisition costs and lower platform fees. Nine months Ended April 30, 2025 Compared to Nine months Ended April 30, 2024 For the nine months ended April 30, 2025, our income from operations related to the Zedge Marketplace decreased 50.6% to $2.2 million from $4.5 million for the same period in the prior year, primarily due to higher users acquisition costs and higher other expenses incurred in the current year period. Additionally, we recorded $0.7 million restructuring charges in the current year period which contributed in part to the decrease in the segment income from operation related to the Zedge Marketplace. For the nine months ended April 30, 2025, our loss from operations related to GuruShots decreased 70.8% to $4.8 million from $16.3 million for the same period in the prior year, primarily due to lower revenue coupled with the $11.9 million impairment loss of intangible assets recorded in the prior period. 28 Liquidity and Capital Resources General At April 30, 2025, we had cash and cash equivalents of $20.4 million and working capital (current assets less current liabilities) of $17.5 million, compared to $20.0 million and $17.7 million, respectively, at July 31, 2024. We expect that our cash and cash equivalents on hand and our cash flow from operations will be sufficient to meet our anticipated cash requirements for the twelve-month period ending June 13, 2026. We maintain a revolving credit facility of $4 million, including a foreign exchange contract facility of up to $7.5 million with WAB, as discussed below under Financing Activities and in Note 10, Term Loan and Revolving Credit Facility , to the unaudited condensed consolidated financial statements included in Item 1 to Part I of this Quarterly Report on Form 10-Q. The following tables present selected financial information for the nine months ended April 30, 2025 and 2024: Nine Months Ended April 30, (in thousands) 2025 2024 $ Changes Cash flows provided by (used in): Operating activities $ 2,748 $ 5,155 $ (2,407 ) Investing activities (378 ) (1,028 ) 650 Financing activities (2,030 ) (2,162 ) 132 Effect of exchange rate changes on cash and cash equivalents 95 (165 ) 260 Increase in cash and cash equivalents $ 435 $ 1,800 $ (1,365 ) Operating Activities Our cash flow from operations varies significantly from quarter to quarter and from year to year, depending on our operating results and the timing of operating cash receipts and payments, specifically trade accounts receivable and trade accounts payable. Net cash provided by operating activities was $2.7 million for the nine months ended April 30, 2025, primarily consisting of a $1.8 million net loss, adjusted for certain non-cash items, which included a $0.6 million impairment charge (net of tax effect) of capitalized software and technology development costs, $0.9 million of amortization, depreciation, and write-offs, $1.3 million of stock-based compensation expense, and a net increase in operating assets and liabilities of $1.7 million, primarily from the deferred revenue associated with the lifetime subscriptions sold during the period. Net cash provided by operating activities was $5.2 million for the nine months ended April 30, 2024, primarily consisting of $9.1 million of net loss, adjusted for certain non-cash items, which included a $9.3 million impairment charge (net of tax effect) of intangible assets, $2.2 million of amortization, depreciation, and write-offs, $1.7 million of stock-based compensation expense, and a net increase in operating assets and liabilities of $1.1 million. Investing Activities Cash used in investing activities in the nine months ended April 30, 2025 and 2024 consisted primarily 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 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. 29 In the nine months ended April 30, 2025, we repurchased - in connection with the share repurchase program – 683,506 shares of our Class B common stock for approximately $2.0 million compared to 60,206 shares for approximately $152,000 in the prior period. In the nine months ended April 30, 2025 and 2024, we purchased 6,903 shares and 6,328 shares, respectively, of our Class B common stock from certain employees for $22,000 and $13,000, respectively, to satisfy tax withholding obligations in connection with the vesting of 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 mobile 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, Facebook, Vungle and AppLovin, and we terminate our services with smaller customers immediately upon balances becoming past due. Since these smaller customers rely on us to derive their own revenue, they generally pay their outstanding balances on a timely basis. In the nine months ended April 30, 2025, one major customer represented 35% of our revenue. In the nine months ended April 30, 2024, two customers represented 31% and 10% of our revenue, respectively. At April 30, 2025, two customers represented 45% and 13% of our accounts receivable balance, respectively. At April 30, 2024, two customers represented 36% and 19% of our accounts receivable balance, respectively. All of these significant customers were advertising exchanges operated by leading companies, and the receivables represent many smaller amounts due from their advertisers. Contractual Obligations and Other Commercial Commitments Smaller reporting companies are not required to provide the information required by this item. Off-Balance Sheet Arrangements At April 30, 2025, 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. Item 3. Quantitative and Qualitative Disclosures About Market Risks Smaller reporting companies are not required to provide the information required by this item. Item 4. Controls and Procedures Evaluation of Disclosure Controls and Procedures . Our Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended), as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of such date, our disclosure controls and procedures were effective at a reasonable assurance level as of April 30, 2025. Changes in Internal Control over Financial Reporting . There were no changes in our internal control over financial reporting during the quarter ended April 30, 2025 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. 30 PART II. OTHER INFORMATION Item 1. Legal Proceedings Legal proceedings in which we are involved are more fully described in Note 9, Commitments and Contingencies , to the unaudited condensed consolidated financial statements included in Item 1 to Part I of this Quarterly Report on Form 10-Q. Item 1A. Risk Factors Other than as set forth below, there are no material changes from the risk factors previously disclosed in Item 1A to Part I of the 2024 Form 10-K. Privacy and Data Protection Risks The deployment of AI technologies in our products and services may involve the collection, processing, and storage of personal data, potentially exposing us to heightened privacy and data protection risks. Non-compliance with data protection regulations such as the General Data Protection Regulation (GDPR) and the California Consumer Privacy Act (CCPA) could result in significant fines, legal actions, and reputational damage. Moreover, AI systems can inadvertently process sensitive information, leading to unauthorized disclosures or misuse of personal data. As regulatory frameworks evolve, we may incur increased costs to ensure compliance and adapt our AI systems accordingly. Algorithmic Bias and Discrimination AI models are susceptible to biases present in training data, which can lead to discriminatory outcomes. Such biases may result in unfair treatment of users or creators, potentially violating anti-discrimination laws and damaging our brand reputation. Addressing algorithmic bias requires ongoing efforts in data curation, model evaluation, and the implementation of fairness measures, which may increase operational complexity and costs. Cybersecurity Vulnerabilities in AI Systems AI systems can introduce new cybersecurity vulnerabilities, including susceptibility to adversarial attacks, model inversion, and data poisoning. Exploitation of these vulnerabilities could lead to unauthorized access to sensitive information, disruption of services, or manipulation of AI outputs. As cyber threats become more sophisticated, we must invest in advanced security measures and continuously monitor our AI systems to mitigate potential risks. Regulatory and Compliance Challenges The regulatory landscape for AI is rapidly evolving, with new laws and guidelines emerging globally. Compliance with diverse and potentially conflicting regulations across jurisdictions may require significant resources and adjustments to our AI development and deployment practices. Failure to adhere to applicable laws could result in legal penalties, restrictions on our operations, and harm to our reputation. Intellectual Property and Ownership Issue The use of AI-generated content raises complex intellectual property (IP) considerations, including questions about ownership rights and potential infringement of third-party IP. Uncertainties in IP law regarding AI outputs may expose us to legal disputes and challenges in protecting our proprietary content. We may need to invest in legal expertise and adjust our content policies to navigate these complexities effectively. Operational Dependence on AI Technologies Our increasing reliance on AI technologies for various operational aspects, such as content moderation, personalization, and user engagement, may pose risks if these systems fail or produce unintended outcomes. Technical issues, data inaccuracies, or system malfunctions could disrupt our services and negatively impact user experience. Ensuring the reliability and accuracy of AI systems requires ongoing maintenance, testing, and potential human oversight. Ethical and Reputational Considerations The deployment of AI technologies can raise ethical concerns, particularly if users perceive AI-driven decisions as opaque or unfair. Public scrutiny and negative perceptions regarding our use of AI could harm our brand and user trust. We must proactively address ethical considerations in our AI development processes and maintain transparency to mitigate reputational risks. 31 Talent Acquisition and Retention The specialized nature of AI development necessitates skilled personnel, and competition for such talent is intense. Challenges in attracting and retaining qualified AI professionals could impede our ability to innovate and maintain our AI systems effectively. We may need to offer competitive compensation and invest in training programs to build and sustain our AI capabilities. Item 2. Unregistered Sales of Equity Securities and Use of Proceeds In October 2021, our Board of Directors authorized a repurchase program of up to 1.5 million shares of our Class B common stock at a maximum aggregate purchase price of $3 million. In September 2024, upon the completion of the initial $3.0 million repurchase program, our Board of Directors authorized an additional $5 million for the repurchase program with no limitation on the number of shares that may be repurchased. Repurchases may be made from time to time through open market purchases or through privately negotiated transactions, subject to market conditions, applicable legal requirements and other relevant factors. Open market repurchases may be structured to occur in accordance with the requirements of Rule 10b-18 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). We may also, from time to time, enter into Rule 10b5-1 (under the Exchange Act) trading plans to facilitate repurchases of our shares. The repurchase program does not obligate us to acquire any particular amount of our Class B common stock, has no expiration date and may be modified, suspended, or terminated at any time at our discretion. The following table summarizes the share repurchase activity for the third quarter of our fiscal 2025 ended April 30, 2025: Period Total Number of Shares Purchased (1) Average Price Paid Per Share Total Number of Shares Purchased as Part of Publicly Announced Programs Approximate Dollar Value of Shares that May Yet Be Purchased Under the Program (in thousands) (in thousands) (in thousands) February 1, 2025 to February 28, 2025 82 $ 2.81 82 $ 4,085 March 1, 2025 to March 31, 2025 50 $ 2.31 50 $ 3,970 April 1, 2025 - April 30, 2025 87 $ 2.18 87 $ 3,780 Total 219 219 (1) The average price paid per share includes any broker commissions. Item 3. Defaults Upon Senior Securities None Item 4. Mine Safety Disclosures Not applicable Item 5. Other Information None 32 Item 6. Exhibits Exhibit Number Description 31.1* Certification of Chief Executive Officer pursuant to 17 CFR 240.13a-14(a), as adopted pursuant to §302 of the Sarbanes-Oxley Act of 2002. 31.2* Certification of Chief Financial Officer pursuant to 17 CFR 240.13a-14(a), as adopted pursuant to §302 of the Sarbanes-Oxley Act of 2002. 32.1* Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002. 32.2* Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002. 101.INS* Inline XBRL Instance Document 101.SCH* Inline XBRL Taxonomy Extension Schema Document 101.CAL* Inline XBRL Taxonomy Extension Calculation Linkbase Document 101.DEF* Inline XBRL Taxonomy Extension Definition Linkbase Document 101.LAB* Inline XBRL Taxonomy Extension Label Linkbase Document 101.PRE* Inline XBRL Taxonomy Extension Presentation Linkbase Document 104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) * Filed or furnished herewith. 33 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. ZEDGE, INC. June 13, 2025 By: /s/ JONATHAN REICH Jonathan Reich Chief Executive Officer June 13, 2025 By: /s/ YI TSAI Yi Tsai Chief Financial Officer 34