ZEDGE, INC. This Annual Report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including statements that contain the words "believes," "anticipates," "expects," "plans," "intends" and similar words and phrases. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from the results projected in any forward-looking statement. In addition to the factors specifically noted in the forward-looking statements, other important factors, risks and uncertainties that could result in those differences include, but are not limited to, those discussed under Item 1A to Part I "Risk Factors" in this Annual Report. The forward-looking statements are made as of the date of this Annual Report, and we assume no obligation to update the forward-looking statements, or to update the reasons why actual results could differ from those projected in the forward-looking statements. Investors should consult all of the information set forth in this report and the other information set forth from time to time in our reports filed with theSecurities and Exchange Commission pursuant to the Securities Act of 1933 and the Securities Exchange Act of 1934, including our reports on Forms 10-Q and 8-K.
The following discussion should be read in conjunction with the Consolidated Financial Statements and Notes thereto included in Item 8 of this Annual Report.
We operate a state-of-the-art digital publishing platform that powers Zedge Ringtones and Wallpapers, available in theApp Store , which offers an easy, entertaining and immersive way for end-users to engage with its rich and diverse catalogue of wallpapers, video wallpapers, ringtones, notification sounds on Android and wallpapers, video wallpapers, ringtones and custom icon packs on iOS. We secure our content from amateur and professional artists, and also from emerging and major brands. Artists have the ability to easily launch a virtual storefront in our Zedge app where they can market and sell their content to our user base. That same platform powers an entertainment app called "Shortz - Chat Stories by Zedge", which is focused on serialized, short-form, fiction stories, as a beta that runs on Zedge's publishing platform. Over the past year, we have been expanding our content catalogue, started testing audio versions of a selected number of stories, materially improved our ability to measure all types of engagement within the app, and invested a modest budget in paid user acquisition. Finally, in August of 2021, we acquired Emojipedia, the leading source of all things emoji. 28 Our Zedge app has been installed approximately 511 million times, and atJuly 31, 2021 , boasted approximately 34.4 million monthly active users, or MAU. MAU is a key performance indicator that captures the number of unique users that used our Zedge app during the final 30 days of the relevant period. Our Zedge app has consistently ranked as one of the most popular free apps in thethe United States . Historically, we have not made a material investment in paid user acquisition for our Zedge app. Our Zedge app's success stems from its ability to meet consumer demand for a rich and diverse catalogue of both long-tail and popular content in a fun, intuitive and user-friendly fashion that aligns with their interest in expressing their essence in a bespoke manner, to offer reliable search and discovery capabilities and to make relevant content recommendations to our users. To this end, we invest heavily in both product design and development and the underlying technology required to satisfy both our Zedge app's users' and content contributors' expectations. Our Zedge app utilizes both user-generated and licensed, third-party content to achieve these goals. InMarch 2018 , we launched Zedge Premium, a marketplace within our Zedge app where professional creators and brands market, distribute and sell their digital content to our consumers. At launch, Zedge Premium was a "walled garden" - a separate section of the app which users needed to proactively choose to enter. In 2021, we embedded Zedge Premium content throughout the app making it far more prominent. We also introduced a new content type on iOS: custom icon packs. Over time, we expect that Zedge Premium will contribute to a virtuous cycle whereby it drives new consumers into our Zedge app resulting in more artist payouts, which in turn makes the platform more attractive for artists and brands looking to expand their reach and increase their income. InJanuary 2019 , we started offering freemium Zedge app Android users the ability to convert into paying subscribers for, amongst other things, the ability to remove unsolicited advertisements from our Zedge app. As ofJuly 31, 2021 , we had approximately 752,000 active subscribers. In fiscal 2022, we expect to launch subscriptions on iOS. InDecember 2019 , we completed the beta launch of 'Shortz' our new entertainment app offering serialized, short-form fiction delivered in a text-message format and more recently as audio productions across both Android and iOS, and focusing on users inthe United States , theUnited Kingdom andCanada and it is now available globally. New stories are added to the app each week, and as the content catalog expands, we are regularly improving content discovery in order to guide users to the stories that will most interest them and improve engagement. OnAugust 1, 2021 , we acquired 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, and Emojitracker, which provides real time visualization of all emoji symbols used on Twitter. Emojipedia receives approximately 50 million monthly page views and has approximately 9 million monthly active users of which approximately 50% are located in well-developed markets. It is the top resource for all things emoji, offering insights into data and cultural trends. As a voting member of theUnicode Consortium , the standards body responsible for approving new emojis, Emojipedia works alongside major emoji creators including Apple, Google, Facebook and Twitter. Over the past several years, our Zedge app has experienced a continuing decline in its MAU as well as a shift in the regional customer make-up with MAU in emerging markets representing an increasing portion of our user base. As ofJuly 31, 2021 , users in emerging markets represented 75% of our MAU compared to 70% a year prior. This shift has negatively impacted revenue because advertising rates in emerging markets are materially lower than in well-developed markets. In the fourth quarter of fiscal 2021, users in emerging markets grew by 16.1% while users in well-developed economies declined by 11.5% when compared to the same period in fiscal 2020. As ofJuly 31, 2021 , approximately 42% of our Zedge app's user base was located inNorth America (20%) andEurope (includingEastern Europe , 22%), compared with 50% (North America , 24% andEurope 26%) as ofJuly 31, 2020 . The remaining 58% of the user base was primarily located in emerging markets with 25% located inIndia . 29 MAU growth is tightly coupled with new user growth. Historically, our relatively high ranking in theSeptember 1, 2021 , Gartner reported that worldwide smartphone sales grew by 10.8% year over year in the second quarter of calendar year 2021 despite supply constraints relating to COVID-19 component shortages and production disruptions; however, it is still unclear what the impact on user growth will be as vaccines become more available globally and as precautions like social distancing start to wane. The pandemic and measures implement to promote social distancing had a modest positive impact on user engagement. During the quarter and fiscal year endedJuly 31, 2021 , we generated approximately 81% and 80%, respectively, of our revenues from selling our Zedge app's advertising inventory to advertising networks, advertising exchanges, and direct arrangements with advertisers. Advertising networks and advertising exchanges are third-party technology platforms that facilitate the buying and selling of media advertising inventory from multiple ad networks. The price of advertising inventory is fixed on an advertising network whereas the price for inventory is determined through real-time bidding on an advertising exchange. Advertisers are attracted to our Zedge app because of its sizable user base. In our Zedge Premium marketplace, the content owner sets the price and the user can purchase the content by paying for it with Zedge Credits, our closed virtual currency. A user can earn Zedge Credits when taking specific actions such as watching a rewarded video or taking a survey. Alternatively, users can buy Zedge Credits via an in-app purchase. If a user purchases Zedge Credits,App Store keeps up to 30% of the purchase price with the remainder being paid to us. When a user purchases Zedge Premium content, the artist or brand receives 70% of the actual value of the Zedge Credits used to buy the content item as a royalty and we retain the remaining 30% as our fee, which we recognize as revenue. As Zedge Premium matures and expands, we expect to also diversify
our
revenue source mix.
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In January 2019 , we started offering paid subscriptions to our Android users
which amongst other things removed unsolicited advertisements from our Zedge
app. During the first 12 months after a customer's sign up for the
subscription-based product, Google retains up to 30% as a fee, which decreases
to 15% from month 13 and beyond. As of July 31, 2021 , we had approximately
752,000 active subscribers, 90% of which had subscribed on an annual basis.
Since inception in January 2019 , subscriptions have generated approximately$6.7 million in gross revenue. Reportable Segments
Our business consists of one reportable segment.
CRITICAL ACCOUNTING POLICIES
Our financial statements and accompanying notes are prepared in accordance with accounting principles generally accepted inthe United States of America , orU.S. GAAP. The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses as well as the disclosure of contingent assets and liabilities. Critical accounting policies are those that require application of management's most subjective or complex judgments, often as a result of matters that are inherently uncertain and may change in subsequent periods. Our critical accounting policies include those related to capitalized software and technology development costs, revenue recognition and goodwill. Management bases its estimates and judgments on historical experience and other factors that are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions. See Note 1 to the Consolidated Financial Statements in Item 8 of this Annual Report on Form 10-K for a complete discussion of our significant accounting policies.
Capitalized software and technology development costs
Software and technology development activities generally fall into three stages:
1. Planning Stage activities include developing a project or business plan that
outlines the goals for the content distribution platform or new product or
service; determining the functionality; identifying hardware and software
applications that will achieve functionality, security, and traffic flows; and
selecting the internal resources that will be assigned to the project as well
as the external vendors where applicable.
2. Application and Infrastructure Development Stage activities focus on acquiring
or developing hardware and software to operate a content distribution platform
or new product and service; and
3. Post-Implementation/Operating Stage activities address training,
administration, maintenance, and all other activities to operate an existing
content distribution platform or new product or service.
During the Planning Stage, we charge all costs to expense as incurred.
During the Application and Infrastructure Development Stage, we begin to capitalize costs when the project has been properly authorized and we determine that completion is probable. If a project is subsequently cancelled prior to placement in service, costs that have been capitalized to date will be reviewed for potential impairment. Capitalization ceases no later than the point at which a computer software project is substantially complete and ready for its intended use. Amortization, which is generally over three years, begins for each project when the code is ready for use, whether or not it is actually placed in service at that time (an exception being if the project's functionality completely depends on the completion of another project; then, amortization begins when that other project is ready for use). During the Post-Implementation/Operation Stage, we expense training costs and maintenance costs as incurred. However, upgrades and enhancements, defined as modifications to existing internal-use software that result in additional functionality (modifications to enable the software to perform tasks that it was previously incapable of performing, normally requiring new software specifications and perhaps a change to all or part of the existing software specifications) are treated as though they were new projects, and are assessed utilizing the same stages and criteria on a project-by-project basis. As such, internal costs incurred for upgrades and enhancements are expensed or capitalized based on the requirements noted above, while costs incurred for maintenance are expensed as incurred. These projects are tracked individually, such that the beginning and ending of the capitalization can be appropriately established, as well as the amounts capitalized therein.
Amortization of these costs is included in depreciation and amortization in the Statement of Comprehensive Income (Loss).
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Revenue Recognition.
We generate revenue from three sources: (1) Advertising; (2) Paid Subscriptions
and (3) Zedge Premium and Other. The substantial majority of our revenue is
generated from selling our advertising inventory ("Advertising Revenue") to
advertising networks and advertising exchanges, and through direct arrangements
with advertisers. Our monthly and annual subscriptions allow users to prepay a
fixed fee to remove unsolicited advertisements from our Android Zedge app
although we are working on adding additional capabilities to subscriptions
including offering subscriptions to iOS Zedge App users. In Zedge Premium, we
retain 30% as fee when users purchase licensed content using Zedge Credits or
unlock licensed content by watching a video or taking a survey on Zedge Premium.
Advertising Revenue: We generates the bulk of our revenue from selling our Zedge
app's advertising inventory to advertising networks and advertising exchanges
and direct sales to advertisers.
§ Advertising Networks. An advertising network is a third-party relationship
where buyers of advertising inventory go to purchase either specific targeted
inventory or a large scale of inventory at a set price. Advertising Networks
serve as an indirect source of advertising fill to a variety of branded ad
campaigns and performance-based ad campaigns.
§ Advertising Exchanges. An advertising exchange is similar to an advertising
network, except that the exchange typically bids in real-time for inventory.
Advertisers may utilize an exchange when looking for scale or specific
audiences, and accept that the price will vary based on when and how much
volume of inventory they wish to buy.
§ Direct Sales to Advertisers. In prior periods, we sold, and we currently retain
the ability to sell, advertising directly to advertisers through contractual
relationships. These relationships historically offered higher than average
pricing than realized from sales via advertising networks or advertising
exchanges. We had no direct sales of advertising during fiscal 2021 and have no
current expectation that this will represent a material portion of our sales in
the near term. We recognize advertising revenue as advertisements are delivered to users through impressions or ad views (depending on the terms agreed upon with the advertiser). For in-app display ads, in-app offers, engagement advertisements and other advertisements, our performance obligation is satisfied over the life of the relevant contract (i.e., over time), with revenue being recognized as advertising units are delivered. The advertiser may compensate us on a cost-per-impression, cost-per-click, or cost-per-action basis. Paid Subscription Revenue: Beginning inJanuary 2019 , we started offering monthly and annual paid subscription services sold through$0.99 to 14,000 credits for$19.99 ),
Gross Versus Net Revenue Recognition
We report revenue on a gross or net basis based on management's assessment of
whether we act as a principal or agent in the transaction. To the extent we act
as the principal, revenue is reported on a gross basis unless we are unable to
determine the amount on a gross basis, in which case we report revenue on a net
basis. The determination of whether we act as a principal or an agent in a
transaction is based on an evaluation of whether we control the good or service
prior to transfer to the customer.
We generally report our advertising revenue net of amounts due to agencies and
brokers because we are not the primary obligor in the relevant arrangements, we
do not finalize the pricing, and we do not establish or maintain a direct
relationship with the advertiser. Any advertising arrangements that are directly
between us and advertisers would be recognized on a gross basis equal to the
price paid to us by the customer since we are the primary obligor and we
determine the price. Any third-party costs related to such direct relationships
are recognized as direct cost of revenues.
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We report subscription revenue gross of the fee retained byGoodwill Goodwill is deemed to have an indefinite life and is not amortized.Goodwill is reviewed annually (or more frequently under certain conditions) for impairment using a fair value approach. We perform our annual or interim goodwill impairment test by comparing the fair value of the relevant reporting unit with its carrying amount. We would recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit's fair value; however, the loss recognized would not exceed the total amount of goodwill allocated to that reporting unit. Additionally, we consider income tax effects from any tax-deductible goodwill on the carrying amount of our reporting unit when measuring the goodwill impairment loss, if applicable. We estimate the fair value of our reporting unit using the market approach. We have the option to perform a qualitative assessment to determine whether it is necessary to perform the quantitative goodwill impairment test. However, we may elect to perform the quantitative goodwill impairment test even if no indications of a potential impairment exist. For our annual impairment tests in fiscal years 2021 and 2020, our estimated fair value exceeded our carrying value, therefore, no impairment charge was required. Calculating the fair value of the reporting unit requires significant estimates and assumptions by management. Should our estimates or assumptions regarding the fair value of our reporting unit prove to be incorrect, we may be required to record impairment of goodwill in future periods and such impairment could be material.
RECENT ISSUED ACCOUNTING STANDARDS NOT YET ADOPTED
Recently issued accounting standards not yet adopted by us are more fully described in Note 1 to the Consolidated Financial Statements in Item 8 of this Annual Report on Form 10-K.
COVID The COVID-19 pandemic has resulted in public health responses including travel bans, restrictions, social distancing requirements, and shelter-in place orders, which have negatively impacted our business, operations and financial performance. While we saw a significant decrease in advertising spend when the pandemic became global inMarch 2020 , our daily advertising revenue has experienced a strong recovery sinceJuly 2020 throughJuly 2021 . We responded quickly and decisively to the challenges presented by the pandemic in order to ensure the long-term continuity of our service. Initially, we shifted resources and priorities and focused on streamlining our back-end infrastructure and specifically redesigning our content management system in order to better control costs while simultaneously establishing a scalable foundation for new growth initiatives, even at the expense of new product initiatives. At the outset of the pandemic, we instituted a hiring freeze which has subsequently been relaxed and we are starting to invest in new products, features, and enhancements. We grew our headcount by 36% from 39 atJuly 31, 2020 to 53 atJuly 31, 2021 , mostly in engineering, product and design to execute on our product development roadmap. Given the unprecedented uncertainty and rapidly shifting market conditions of the business environment, we cannot reasonably estimate the full impact of the COVID-19 pandemic on our future financial and operational results. At this point it is unclear whether variables including the economy, unemployment, retail sales, and advertising budgets, or capital markets, including volatility of our stock price will impact our business. We continue to monitor the rapidly evolving situation and guidance from international and domestic authorities, including federal, state and local public health authorities, and there may be developments outside our control requiring us to adjust our operating plan.
Key Performance Indicators
Our results of operations discussion include disclosure of two key performance
indicators - Monthly Active Users (MAU) and Average Revenue Per Monthly Active
User (ARPMAU). MAU is a key performance indicator that captures the number of
unique users that used our Zedge app in the last thirty days of the relevant
period, which is important to understanding the size of the user base for our
Zedge app which is a significant driver of revenue. Changes and trends in MAU
are useful for measuring the general health of our business, gauging both
present and potential customers' experience, assessing the efficacy of product
improvements and marketing campaigns and overall user engagement. ARPMAU is
valuable because it provides insight into how well we monetize our users and the
changes and trends in ARPMAU are indications of how effective our monetization
investments are.
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As ofJuly 31, 2021 MAU, was up 7.8% year over year primarily attributed to higher user engagement. Over the past several years, we have experienced a continuing shift in the regional customer make-up with MAU in emerging markets (particularlyIndia ) representing an increasing portion of our user base. As ofJuly 31, 2021 , users in emerging markets represented 75% of our MAU compared to 70% a year prior. This shift has negatively impacted revenue because advertising rates in emerging markets are materially lower than in well-developed markets. ARPMAU was up 76.3% for the three months endedJuly 31, 2021 when compared to the same period a year ago, pointing to progress we have made in generating more value from our users, particularly from subscriptions. Three months ended July 31, (in millions, except ARPMAU) 2021 2020 MAU 34.4 31.9 Developed Markets MAU 8.5 9.6 Emerging Markets MAU 25.9 22.3 Emerging Markets MAU/Total MAU 75 % 70 % ARPMAU$ 0.0501 $ 0.0284 [[Image Removed]] [[Image Removed]] 34 RESULTS OF OPERATIONS The following table set forth our consolidated statements of operations data for the fiscal year endedJuly 31, 2021 compared to the fiscal year ended July
31, 2020: (in thousands) Change Fiscal year ended July 31, 2021 2020 $ % Revenues$ 19,569 $ 9,470 $ 10,099 106.6 % Direct cost of revenues 1,194 1,195 (1 ) -0.1 %
Selling, general and administrative 9,311 7,110 2,201 31.0 % Depreciation and amortization 1,261 1,568 (307 ) -19.6 % Income (loss) from operations 7,803 (403 ) 8,206 nm Interest and other income, net 245 11 234 2,127.3 % Net loss resulting from foreign exchange transactions (2 ) (152 ) 150 -98.7 % Provision for (benefit from) income taxes (202 ) 15 (217 ) nm Net income (loss)$ 8,248 $ (559 ) $ 8,807 nm nm-not meaningful
The following table sets forth the composition of our revenues for the fiscal
years ended
Fiscal Year Ended
July 31, Changes % of total Revenue
2021 2020 YoY FY '21 FY '20
(in thousands)
Advertising revenue $ 15,741 $ 7,410 112 % 80 % 78 %
Paid subscription revenue 3,311 1,599 107 % 17 % 17 %
Other revenues 517 461 12 % 3 % 5 %
Total Revenues $ 19,569 $ 9,470 107 % 100 % 100 %
Advertising revenue. Advertising revenue increased 112% from $7.4 million in
fiscal 2020 to $15.7 million in fiscal 2021 primarily due to improvements in our
ad stack and higher advertising rates.
Paid subscription revenue. We rolled out a subscription-based product on Android
in January 2019 , whereby users of our Zedge app can pay a monthly or annual fee
to remove unsolicited ads when using our Zedge app. In general, pricing of our
monthly subscriptions in the US is $0.99 per month and $4.99 for yearly
subscription with different pricing for users in other countries. Google Play
processes subscription prepayment on Zedge's behalf, and retains up to 30% as
its fee. We generated $3.8 million and $2.4 million in gross prepaid
subscription sales consisting of both monthly and annual subscriptions for the
fiscal years ended July 31, 2021 and 2020 respectively. We expect that, based on
research and testing we undertake, from time to time, the prices of our
subscription in each country/region may change and we may test other plan and
price variations.
The following table summarizes subscription revenue for the fiscal years ended
July 31, 2021 and 2020.
As of/Years Ended % Change
7/31/21 7/31/20 FY'21 vs FY'20
(in thousands, except revenue per subscriber and percentages)
Revenues $ 3,311 $ 1,599 $ 1,712 107 %
Active subscriptions net additions 248 370 (122 ) -33 %
Active subscriptions at end of period 752 504 248 49 %
Average active subscriptions 678 304 374 123 %
Average monthly revenue per active
subscription $ 0.41 $ 0.43 $ (0.02 ) -5 %
Zedge Premium. We completed the initial rollout of Zedge Premium in March 2018
to a segment of our Android user base and we expanded it to 100% of our Android
user base in January 2019 . In fiscal 2021, gross transaction value (the total
sales volume transacting through the platform), or "GTV," and net revenue
generated from Zedge Premium were $945,000 and $509,000 , respectively. In fiscal
2020, GTV and net revenue generated from Zedge Premium were $728,000 and
$459,000 respectively. Net revenue includes breakage related to expired Zedge
Credits.
We continue to focus on topline growth strategy by testing new monetization
drivers including a variety of ad units, in-app purchases of Zedge Credits, our
virtual currency. as well as certain growth initiatives such as new content
vertical in our app and/or new app. Additionally, we may pursue synergistic
acquisitions from time to time to complement organic growth, although we can
provide no assurance that any such acquisitions will be consummated.
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Direct cost of revenues. Direct cost of revenues consists primarily of content hosting and content delivery costs.
Fiscal year ended
July 31, Change
(in thousands) 2021 2020 FY'21 vs. FY'20
Direct cost of revenues
Direct cost of revenues decreased by 0.1% in fiscal 2021 to$1.194 million from$1.195 million in fiscal 2020, primarily attributable to the residual savings from the migration of our backend infrastructure to cloud-based providers.
As a percentage of revenue, direct cost of revenues in fiscal 2021 were 6.1% as compared to 12.6.% in fiscal 2020 due primarily to the 107% increase of our revenue in fiscal 2021.
Selling, general and administrative expense. Selling, general and administrative
expense ("SG&A") consists mainly of payroll, benefits, facilities, marketing,
content acquisition costs, consulting, professional fees, software licensing
("SaaS") and public company related expenses.
Fiscal year ended
July 31, Change
(in thousands) 2021 2020 FY'21 vs. FY'20Selling, general and administrative$ 9,311 $ 7,110 $ 2,201
31.0 % As a percentage of revenues 47.6 % 75.1 % SG&A expenses increased$2.2 million or 31.0 % in fiscal 2020 to$9.3 million from$7.1 million in fiscal 2020. This increase was primarily attributable to compensation costs resulting from additional headcount, higher professional and consulting fees and higher marketing fees we pay to
Our headcount totaled 53 as of
SG&A expenses also included non-cash stock-based compensation expense of$523,000 and$402,000 in fiscal 2021 and 2020, respectively. We also opted to use Class B common stock to pay a portion of our Board of Directors' compensation and to fund 401(k) matching contributions that aggregated to$129,000 and$90,000 in fiscal 2021 and 2020, respectively. See Note 12 to the Consolidated Financial Statements in this Annual Report for a complete discussion of our stock-based compensation. Depreciation and amortization. Depreciation and amortization expense consists mainly of amortization of capitalized software and technology development costs of our internal developers on various projects that we invested in specific to the various platforms on which we operate our mobile app service. Fiscal year ended July 31, Change (in thousands) 2021 2020 FY'21 vs. FY'20
Depreciation and amortization
6.4 % 16.6 %
Depreciation and amortization expense decreased $0.3 million or 19.6 % in fiscal
2020 to $1.3 million from $1.6 million in fiscal 2020. The comparison of
depreciation and amortization expenses in any given periods can be attributed to
the number of projects being amortized during those periods, as we removed fully
amortized projects and added newly completed projects in the amortization pool.
Interest and other income, net. The increase in interest and other income, net
in fiscal 2021 when compared to fiscal 2020 was primarily due to the PPP loan
forgiveness of $218,000 in fiscal 2021. See Note 17 to the Consolidated
Financial Statements in this Annual Report for further details.
Fiscal year ended
July 31, Change
(in thousands) 2021 2020 FY'21 vs. FY'20
Interest and other income, net
1.3 % 0.1 %
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 currency hedging activities.
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Fiscal year ended
July 31, Change
(in thousands) 2021 2020 FY'21 vs. FY'20
Net loss resulting from foreign exchange
transactions $ (2 ) $ (152 ) $ (150 ) -98.7 %
As a percentage of revenues 0.0 % -1.6 %
In fiscal 2021 and 2020, we incurred losses of
Provision for (benefit from) income taxes. During fiscal 2021, we had pretax income of about$8 million which enabled us to utilize all the federal NOL carry forward and portions of the NOL carry forward from states and other foreign jurisdiction. Combined with the release of the valuation allowance of$477,000 , this resulted in an income tax benefit of$202,000 for the fiscal year endedJuly 31, 2021 , an effective income tax of (2.5%). Fiscal year ended July 31, Change (in thousands) 2021 2020 FY'21 vs. FY'20
Provision for (benefit from) income taxes$ (202 ) $ 15 $
(217 ) nm As a percentage of revenues -1.0 % 0.2 % OnMarch 27, 2020 , the CARES Act was signed into law. The Act contains several new or changed income tax provisions, including but not limited to the following: increased limitation threshold for determining deductible interest expense, class life changes to qualified improvements (in general, from 39 years to 15 years), and the ability to carry back net operating losses incurred from tax years 2018 through 2020 up to the five preceding tax years. Most of these provisions are either not applicable or have no material effect on the Company.
LIQUIDITY AND CAPITAL RESOURCES
General AtJuly 31, 2021 , we had cash and cash equivalents of$24.9 million and working capital (current assets less current liabilities) of$23.4 million . We currently expect that our cash and cash equivalents on hand, and our cash flow from operations will be sufficient to meet our anticipated cash requirements for the twelve months endingJuly 31, 2022 . During fiscal 2021, we raised$15 million through sales of equity in At the Market offerings. We also maintain a revolving line of credit of up to$2.0 million and a foreign exchange contract facility of up to$6.5 million withWestern Alliance Bank , as discussed below in Financing Activities.
The following tables present selected financial information for the
twelve months ended
Fiscal year ended
July 31,
(in thousands) 2021 2020
Cash flows provided by (used in):
Operating activities $ 10,130 $ 2,122
Investing activities (5,479 ) (759 )
Financing activities 15,101 2,169Effect of exchange rate changes on cash and cash equivalents 45 (30 ) Increase in cash and cash equivalents$ 19,797
$ 3,502 Operating Activities
Our cash flow from operations varies significantly from quarter to quarter and from year to year, depending on our operating results and the timing of operating cash receipts and payments, specifically trade accounts receivable and trade accounts payable. Cash provided by operating activities increased$8.0 million to$10.1 million in fiscal 2021 from$2.1 million in fiscal 2020, primarily attributable to the higher revenues generated from our service offerings, primarily advertising and paid subscription revenue. 37 Investing Activities
OnAugust 1, 2021 , we acquired Emojipedia for up to$7.0 million including initial cash payment of$4.8 million , with the balance to be determined based on an incentive structure linked to EBITDA generated from emojipedia.org during the four month period following the closing of the acquisition and paid out on the six-month and twelve month anniversaries of the closing. Given the closing occurred on Sunday, we deposited$4.8 million into an escrow account onJuly 30, 2021 which was classified as other assets on our balance sheet as ofJuly 31, 2021 . See Note 19 to the Consolidated Financial Statements in Item 8 of this Annual Report on Form 10-K. Cash used in other investing activities in fiscal 2021 and fiscal 2020 consisted mostly of capitalized software and technology development costs related to various projects that we invested in specific to the various platforms on which we operate our service. Financing Activities BetweenDecember 14, 2020 andJanuary 26, 2021 , we sold 761,906 shares of our Class B common stock at an average price of$6.5625 per share for total proceeds of$5 million in a registered "At the Market" offering through National Securities Corp. andH.C. Wainwright & Co, LLC as sales agents. In connection with this offering, total issuance costs were$215,000 . We intend to use the net proceeds from this offering for general corporate purposes including organic and other growth initiatives. OnMarch 16, 2021 , we filed a prospectus supplement with theSEC which contemplates the sale, for a gross aggregate sale price of up to$10,000,000 , of shares of our Class B common stock, from time to time in "at-the-market offerings" pursuant to an At Market Issuance Sales Agreement with National Securities Corporation andMaxim Group LLC dated as ofMarch 16, 2021 . ThroughJune 11, 2021 we sold 663,686 shares at an average price of$15.0674 per share for total proceeds of$10 million in this offering. Total issuance costs were$350,000 . We intend to use the net proceeds from this offering for general corporate purposes including organic and other growth initiatives. InAugust 2020 , we obtained a loan of$181,000 to finance about 82% of our directors' and officers' liability and cyber liability insurance policies, at an annual percentage interest rate of 3.89% to be repaid over nine equal monthly installments of$20,490 starting fromSeptember 1, 2020 . This loan was repaid in full as ofJuly 31, 2021 . OnApril 22, 2020 , we received$218,000 in proceeds from a PPP loan fromWestern Alliance Bank , which was administered by theSmall Business Administration and established under the CARES Act. OnNovember 25, 2020 , we submitted the PPP Loan Forgiveness Application Form 3508EZ and onMay 21, 2021 , we were notified that such application for the loan forgiveness has been approved and the loan, including accrued interest, has been deemed satisfied in full by theSmall Business Administration toWestern Alliance Bank . Please see Note 17 to the Consolidated Financial Statements in Item 8 of this Annual Report on Form 10-K. OnFebruary 5, 2020 , we closed a registered direct offering of 1,734,459 shares of its Class B common stock for net proceeds of$2.1 million from both new and existing investors. See Note 19 to the Consolidated Financial Statements in Item 8 of this Annual Report on Form 10-K. InJuly 2019 , we obtained a loan of$140,000 to finance about 85% of various insurance policies, at an annual percentage interest rate of 4.79% to be repaid over nine equal monthly installments of$15,976.20 starting fromSeptember 1, 2019 . We repaid this loan in full as ofJuly 31, 2020 . We received proceeds of$873,261 from the exercise of stock options in fiscal 2021 in connection with which we issued 559,840 shares of our Class B common stock. We received proceeds of$11,571 from the exercise of stock options in fiscal 2020 in connection with which we issued 86,197 shares of our Class B common stock.
We maintain a credit facility of up to
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.
38
Changes in Trade Accounts Receivable
Gross trade accounts receivables were$2.5 million and$1.4 million atJuly 31, 2021 and 2020 respectively. Our cash collections in fiscal 2021 and fiscal 2020 were$18.4 million and$9.2 million , respectively.
Concentration of Credit Risk and Significant Customers
Historically, we have had very little or no bad debt, which is common with other platforms of our size that derive their revenue from digital advertising, as we aggressively manage our collections and perform due diligence on our customers. In addition, the majority of our revenue is derived from large, credit-worthy customers, e.g. MoPub (owned by Twitter),July 31, 2021 , three customers represented 30%, 22% and 12% of the Company's revenue, and in the fiscal year endedJuly 31, 2020 , two customers represented 29% and 26% of the Company's revenue. AtJuly 31, 2021 , two customers represented 37% and 28% of the Company's accounts receivable balance and atJuly 31, 2020 , two customers represented 35% and 32% of the Company's accounts receivable balance. All of these significant customers were advertising exchanges operated by leading companies, and the receivables represent many smaller amounts due from 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
AtJuly 31, 2021 , we did not have any "off-balance sheet arrangements," as defined in relevantSEC regulations that are reasonably likely to have a current or future effect on our financial condition, results of operations, liquidity, capital expenditures or capital resources, other than the following. In connection with our Spin-Off, we and IDT entered into various agreements prior to the Spin-Off including a Separation and Distribution Agreement to effect the separation and provide a framework for our relationship with IDT after the Spin-Off, and a Tax Separation Agreement, which sets forth the responsibilities of us and IDT with respect to, among other things, liabilities for federal, state, local and foreign taxes for periods before and including the Spin-Off, the preparation and filing of tax returns for such periods and disputes with taxing authorities regarding taxes for such periods. Pursuant to Separation and Distribution Agreement, among other things, we indemnify IDT and IDT indemnifies us for losses related to the failure of the other to pay, perform or otherwise discharge, any of the liabilities and obligations set forth in the agreement. Pursuant to the Tax Separation Agreement, among other things, IDT indemnifies us from all liability for taxes of ours and any of our subsidiaries or relating to our business with respect to taxable periods ending on or before the Spin-Off, and we indemnify IDT from all liability for taxes of ours and any of our subsidiaries or relating to our business accruing after the Spin-Off. Notwithstanding the foregoing, we are responsible for, and IDT has no obligation to indemnify us for, any tax liability of ours resulting from an audit, examination or other proceeding related to any tax returns that relate solely to us and our subsidiaries regardless of whether such tax return relates to a period prior to or following the Spin-Off.
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