This Annual Report contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934, including statements that contain the words "believes,"
"anticipates," "expects," "plans," "intends" and similar words and phrases.
These forward-looking statements are subject to risks and uncertainties that
could cause actual results to differ materially from the results projected in
any forward-looking statement. In addition to the factors specifically noted in
the forward-looking statements, other important factors, risks and uncertainties
that could result in those differences include, but are not limited to, those
discussed under Item 1A to Part I "Risk Factors" in this Annual Report. The
forward-looking statements are made as of the date of this Annual Report, and we
assume no obligation to update the forward-looking statements, or to update the
reasons why actual results could differ from those projected in the
forward-looking statements. Investors should consult all of the information set
forth in this report and the other information set forth from time to time in
our reports filed with the Securities and Exchange Commission pursuant to the
Securities Act of 1933 and the Securities Exchange Act of 1934, including our
reports on Forms 10-Q and 8-K.

The following discussion should be read in conjunction with the Consolidated Financial Statements and Notes thereto included in Item 8 of this Annual Report.





Overview



We offer a state-of-the-art digital publishing platform. We use this platform to
power our consumer-facing mobile personalization app, called Zedge, available in
the Google Play store and App Store, which offers an easy, entertaining and
immersive way for end-users to engage with our rich and diverse catalogue of
wallpapers, video wallpapers, ringtones, notification sounds on Android and
wallpapers, video wallpapers and ringtones, 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. In fiscal 2020,
we introduced a new entertainment app called "Shortz - Chat Stories by Zedge",
which is focused on serialized, short-form, fiction stories, as a beta that

runs
on our publishing platform.



Our Zedge app has been installed approximately 450 million times, and at July
31, 2020, boasted approximately 32 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 previous 30-day of the relevant period. Our Zedge app
has consistently ranked as one of the most popular free apps in the Google Play
store in the 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.



In March 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. Since launching Zedge Premium, we have made and
continue making material investments in optimizing our Zedge app's homepage
design in order to maximize exposure to premium content with the goal of driving
sales. 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.



In January 2019, we started offering freemium Zedge app users the ability to
convert into paying subscribers for amongst other things the ability to remove
unsolicited advertisements from our Zedge app. As of July 31, 2020, we had more
than 504,000 active paid subscribers. In fiscal 2021, we hope to further
optimize the offer based on user type, geography and price point as well as
introduce new subscription enhancements like content bundles and rewards.



In December 2019, we completed the beta launch of 'Shortz' our new entertainment
app offering serialized, short-form fiction delivered in a text-message format
across both Android and iOS, focusing on users in the United States, the United
Kingdom and Canada and it is now available globally.



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 of July
31, 2020, users in emerging markets represented 70% of our MAU compared to 65% 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 2020, users in emerging markets grew by 1.4% while
users in well-developed economies declined 18.6% when compared to the same
period in fiscal 2019. As of July 31, 2020, approximately 50% of our Zedge app's
user base was located in North America and Europe (including Eastern Europe)
with a split of 26% and 24%, respectively, compared with 54% as of July 31, 2019
with 27% in each of North America and Europe (including Eastern Europe).



MAU growth is tightly coupled with securing new users. Historically, our
relatively high ranking in the Google Play store has been one of the primary
drivers for securing new users. Although still an important factor, we now also
dedicate resources to growth initiatives, both organic and paid. With time, we
believe that we can change our growth dynamic in well-developed markets. Aside
from targeted growth initiatives, we need to continually improve the core user
experience, test different mechanisms and content verticals that may spur growth
and capitalize on the role that Zedge Premium artists can have on driving new
users into the Zedge platform.



                                       24





The COVID-19 pandemic has negatively impacted our Zedge app's new user growth.
We believe that new smartphone sales have suffered as a result of retail
business closures, negatively impacting new user growth, especially in
well-developed markets. Assuming the retail business rebounds from the COVID-19
pandemic, we expect that our Zedge app's new user growth will also recover and
we will benefit accordingly.



During the quarter and fiscal year ended July 31, 2020, we generated
approximately 73% and 78%, 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. Alternatively, users can buy Zedge Credits via an
in-app purchase. If a user purchases Zedge Credits, Google Play or App Store
keeps 30% of the purchase price with the remaining 70% 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.



In January 2019, we started offering a subscription-based product to Android
users of our Zedge app in which the payment of a monthly or annual fee would
remove unsolicited ads when using 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,
2020, we had more than 504,000 active paid subscribers, 89% of which had
subscribed on an annual basis. During fiscal 2020, subscriptions have generated
approximately $2.4 million in gross revenue.



Prior to May 31, 2019, we generated service revenue from managing and optimizing
the advertising inventory of a third-party mobile application publisher, as well
as overseeing the billing, collections and reporting related to advertising for
this publisher. The agreement with this mobile application publisher was
terminated effective May 31, 2019, and we are no longer providing these
services.



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 in the United States of America, or
U.S. GAAP. The preparation of financial statements requires management to make
estimates and assumptions that affect the reported amounts of assets,
liabilities, revenue and expenses as well as the disclosure of contingent assets
and liabilities. Critical accounting policies are those that require application
of management's most subjective or complex judgments, often as a result of
matters that are inherently uncertain and may change in subsequent periods. Our
critical accounting policies include those related to 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.




                                       25

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 Loss.





Revenue Recognition



On August 1, 2018, we adopted Financial Accounting Standards Board Accounting
Standards Codification Topic 606, applying the modified retrospective method to
those contracts not yet substantially completed as of August 1, 2018. The impact
of adopting the new revenue standard was not material to our consolidated
financial statements and there was no adjustment to beginning retained earnings
on August 1, 2018.



We generate revenue from four sources: (1) Advertising; (2) Paid Subscriptions;
(3) Zedge Premium and Other and (4) Service. 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. In fiscal 2019, we also generated revenue from managing and
optimizing the advertising inventory of a third-party mobile application
publisher, as well as overseeing the billing, collections and reporting related
to advertising for this publisher ("Service Revenue"). The contract with this
publisher was terminated effective May 31, 2019.



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. We also generate revenue from app publishers
that pay us for installations of their apps.

? 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. We sell advertising directly to advertisers

through a contractual relationship. These relationships typically offer higher

than average pricing than realized from sales via advertising networks or


   advertising exchanges.

? App Installs. We earn revenue when a Zedge user installs an app offered by a

publisher in the Game Channel that pays the Company a pre-negotiated fee for

the installation (referred to as Cost Per Install or CPI). In October 2018, the

Company replaced the Game Channel with a game wall which offers Zedge users

with a mix of interactive playable ads and HTML5 games which, if installed by

the user, generate revenue for Zedge. The Company discontinued game wall in the


   second quarter of fiscal 2020.




                                       26





We recognize advertising revenue as advertisements are delivered to users
through impressions, ad views or app installs (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, cost-per-action or cost-per-install
basis.



Paid Subscription Revenue: Beginning in January 2019, we started offering
monthly and annual paid subscription services sold through Google Play. When a
customer subscribes, they execute a clickthrough agreement with Zedge outlining
the terms and conditions of the subscription. Google Play processes subscription
prepayment on Zedge's behalf, and retains up to 30% as its fee. Paid
subscription revenue is a series type performance obligation and is recognized
net of sales tax amounts collected from subscribers. Both monthly and yearly
subscriptions are nonrefundable after a period of 7 days. Paid subscriptions are
automatically renewed at expiration unless cancelled by subscribers. The
enforceable rights in monthly and yearly subscription contracts are the service
period. Because of the cancellation clauses for these subscriptions, the
duration of these contracts is daily, and revenue for these contracts is
recognized on a daily ratable basis. The payment terms for subscriptions sold
through Google Play is net 30 days after month-end.



Zedge Premium: Zedge Premium is our marketplace where artists and brands can
market, distribute and sell their digital content to Zedge's users. The content
owner sets the price and the user can purchase the content by paying for it with
Zedge Credits, our closed virtual currency. A user can earn Zedge Credits when
taking specific actions such as watching rewarded videos or completing
electronic surveys. Alternatively, users can buy Zedge Credits with an in-app
purchase. If a user purchases Zedge Credits (ranging from 500 credits for $0.99
to 14,000 credits for $19.99), Google Play or iTunes retains 30% of the purchase
price as its fee. When a user purchases Zedge Premium content, the artist or
brand receives 70% of the actual revenue ("Royalty Payment") and the Company
receives the remaining 30%, which is recognized as revenue.



Service Revenue: Through May 2019, we managed and optimized the advertising
inventory of a third-party mobile application publisher, as well as overseeing
the billing, collections and reporting related to advertising for this
publisher. In exchange for these management and optimization services, Zedge
shared a portion the advertising revenues from this publisher whose revenue is
also derived from sales of advertising. The contract with this publisher was
terminated effective May 31, 2019.

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. Certain advertising arrangements that are
directly between us and advertisers are recognized on a gross basis equal to the
price paid to us by the customer since we are the primary obligor and we
determines the price. Any third-party costs related to such direct relationships
are recognized as direct cost of revenues.



We report subscription revenue gross of the fee retained by Google Play, as the
subscriber is our customer in the contract and we control the service prior to
the transfer to the subscriber.



Goodwill



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 (guideline company
method).



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 2020 and 2019, 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.



                                       27

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 initially experienced a significant decrease in
advertising spend when the pandemic became global in March 2020, starting in the
late spring advertising rates started to stabilize and subscriptions rebounded.



In light of the current operating and economic environment, the Company has
shifted resources and priorities to increase focus on generating incremental
revenue at the expense of delivering new product. We imposed a temporary hiring
freeze and lowered our discretionary spend to preserve cash for mission critical
projects. We have responded quickly and decisively to the challenges presented
by the pandemic in order to ensure the continuity of our service. In light of
the improvement in our revenue in fourth quarter of fiscal 2020 we have begun
selectively investing in our products by hiring several software developers

and
consultants in Lithuania.




Given the unprecedented uncertainty and rapidly shifting market conditions of
the business environment, we cannot reasonably estimate the full impacts of the
COVID-19 pandemic on our future financial and operational results. Our past
results may not be indicative of our future performance, and historical trends
in revenue, income (loss) from operations, net income (loss), and net income
(loss) per share may differ materially. For example, to the extent the pandemic
continues to disrupt economic activity globally, it could adversely affect our
business, operations and financial results through prolonged decreases in
advertising spend, credit deterioration of our customers, depressed economic
activity, or declines in capital markets, including volatility of our stock
price. 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. As such, given the unprecedented
uncertainty around the duration and severity of the impact on market conditions
and the business environment, we cannot reasonably estimate the full impacts of
the COVID-19 pandemic on our operating results in the future.



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.




As of July 31, 2020 MAU, was down 5.6% year over year we believe primarily due
to slowing new phone sales which resulted in lower app installs and engagement
which are typical user behavior patterns when they purchase a new handset. Over
the past several years, we have experienced a continuing shift in the regional
customer make-up with MAU in emerging markets representing an increasing portion
of our user base. As of July 31, 2020, users in emerging markets represented 70%
of our MAU compared to 65% 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 50.3% for the three months ended July 31, 2020 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)        2020          2019        % Change
MAU                                    31.9         33.8           -5.6 %
Developed Markets MAU                   9.6         11.8          -18.6 %
Emerging Markets MAU                   22.3         22.0            1.4 %
Emerging Markets MAU/Total MAU           70 %         65 %          7.4 %

ARPMAU                           $   0.0284     $ 0.0189           50.3 %




                                       28





RESULTS OF OPERATIONS



The following table set forth our consolidated statements of operations data for
the fiscal year ended July 31, 2020 compared to the fiscal year ended July

31,
2019:



(in thousands)                                                                 Change
Fiscal year ended July 31,                   2020          2019            $             %
Revenues                                   $   9,470     $   8,816     $     654           7.4 %
Direct cost of revenues                        1,195         1,379          (184 )       -13.3 %
Selling, general and administrative            7,110         8,897        (1,787 )       -20.1 %
Depreciation and amortization                  1,568         1,427           141          9. 9 %
Loss from operations                            (403 )      (2,887 )       2,484         86. 0 %

Interest and other income (expense), net          11          (199 )         210         105.5 %
Net loss resulting from foreign exchange
transactions                                    (152 )        (242 )          90          37.2 %
Provision for income taxes                        15            16            (1 )        -6.3 %
Net loss                                   $    (559 )   $  (3,344 )   $   2,785         83. 3 %

The following table sets forth the composition of our revenues for the fiscal years ended July 31, 2020 and 2019:





                                       Fiscal Year Ended
                                            July 31,              Changes         % of total revenue
                                       2020          2019           FY           FY'20           FY'19
                                         (in thousands)
Advertising revenue                 $    7,410     $   7,939          -6.7 %         78.2 %         90.1 %
Paid subscription revenue                1,599           155         931.6 %         16.9 %          1.8 %
Zedge Premium and Shortz revenues          461           130         254.6

%          4.9 %          1.5 %
Service revenue                              -           592        -100.0 %          0.0 %          6.7 %
Total Revenues                      $    9,470     $   8,816           7.4 %        100.0 %        100.0 %




Advertising revenue. Advertising revenue declined 6.7% in fiscal 2020 compared
to fiscal 2019 primarily due to the shift in the makeup of our user base from
well-developed markets that command relatively higher advertising rates to
emerging markets where the rates are lower. The 5.6% decline in the overall MAU
also contributed the decline in advertising revenue despite improvement in user
engagement in fiscal 2020.



Paid subscription revenue. We rolled out a subscription-based product on Android
in January 2019, whereby users of our Zedge app could pay a monthly or annual
fee to remove unsolicited ads when using our Zedge app. In general, pricing of
our monthly subscriptions is $0.99 per month and $3.99 for yearly subscription.
We generated $2,406,000 and $516,000 in gross prepaid subscription sales
consisting of both monthly and annual subscriptions for the fiscal years ended
July 31, 2020 and 2019 respectively. We expect that from time to time the prices
of our subscription in each country/region may change and we may test other

plan
and price variations.



                                       29





The following table summarizes subscription revenue for the fiscal years ended
July 31, 2020 and 2019.



                                                           As of/Years Ended                                Change
                                                 31-Jul-20                 31-Jul-19                   FY'20 vs. FY'19
                                                       (in thousands, except revenue per subscriber and percentages)
Revenues                                      $          1,599         $              155                  1,444           932 %
Paid net subscriber additions                              370                        134                    236           176 %
Paid subscriber at end of period                           504                        134                    370           276 %
Average paid subcribers                                    304                        103                    201           195 %
Average monthly revenue per paid subscriber   $           0.43         $   

         0.41                   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 2020, gross transaction value (the total
sales volume transacting through the platform), or "GTV," and net revenue
generated from Zedge Premium were $728,000 and $459,000, respectively. In fiscal
2019, GTV and net revenue generated from Zedge Premium were $485,000 and
$130,000 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, merchandising, coin sales as well as
certain growth initiatives such as new content vertical in our app and/or new
app.

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)                    2020                2019            FY'20 vs. FY'19
Direct cost of revenues       $       1,195       $       1,379     $   (184 )     -13.3 %
As a percentage of revenues            12.6 %              15.6 %

Direct cost of revenues decreased by 13.3% in fiscal 2020 to $1.2 million from $1.4 million in fiscal 2019, primarily attributable to the savings from the migration of our backend infrastructure to cloud-based providers.





As a percentage of revenue, direct cost of revenues in fiscal 2020 were 12.6% as
compared to 15.6.% in fiscal 2019 due to the combination of higher revenue and
lower direct costs in fiscal 2020 compared to fiscal 2019.



Selling, general and administrative expense. Selling, general and administrative
expense ("SG&A") consists mainly of payroll, benefits, recruiting fees,
facilities, marketing, content acquisition costs, consulting, professional fees,
software licensing ("SaaS") and public company related expenses.



                                              Fiscal year ended July 31,                 Change
(in thousands)                                 2020                2019              FY'20 vs. FY'19
Selling, general and administrative        $       7,110       $       8,897     $  (1,787 )       -20.1 %
As a percentage of revenues                         75.1 %             100.9 %




SG&A expenses decreased $1.8 million or 20.1 % in fiscal 2020 to $7.1 million
from $8.9 million in fiscal 2019. These decreases were primarily attributable to
a $2.1 million reduction in net compensation costs resulting from the workforce
reduction plan we implemented in May 2019 and lower discretionary expenses
including lower travel expenses caused by the travel ban related to COVID-19,
offset by $471,000 higher sales and marketing costs related to the Google fee on
subscriptions sales severance payments, a one-time payment related to copyright
matters and content acquisition costs associated with the 'Shortz' app which was
launched in December 2019. As the majority of our employees are based in Norway
a stronger U.S. Dollar against NOK in fiscal 2020 when compared to fiscal 2019
also contributed to the overall decline of SG&A.



Our headcount totaled 39 as of July 31, 2020 compared to 53 as of July 31, 2019,
primarily resulting from the workforce reduction and organic staff attrition in
Norway and the U.S., offset by 7 new hires in Lithuania during fiscal 2020
bringing total headcount in Lithuania to 16 at July 31, 2020.



SG&A expenses also included non-cash stock-based compensation expense of
$402,000 and $499,000 in fiscal 2020 and 2019, 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
$90,000 and $120,000 in fiscal 2020 and 2019, respectively. See Note 12 to the
Consolidated Financial Statements in this Annual Report for a complete
discussion of our stock-based compensation.



                                       30





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)                      2020                2019            FY'20 vs. FY'19

Depreciation and amortization   $       1,568       $       1,427     $    141         9.9 %
As a percentage of revenues              16.6 %              16.2 %




The increase in depreciation and amortization in fiscal 2020 compared to fiscal
2019 was primarily attributable to the completion of four projects with an
aggregate value of $459,000 in fiscal 2020. We started amortizing these
capitalized software and technology development costs once these projects were
completed.



Interest and other income (expense), net. The increase in interest and other
income (expenses), net in fiscal 2020 when compared to fiscal 2019 was primarily
due to the impairment charges of $250,000 in investment in privately-held
company recorded in July 2019. See Note 17 to the Consolidated Financial
Statements in this Annual Report for a complete discussion of our investment in
privately-held company.



                                               Fiscal year ended July 31,                   Change
(in thousands)                                 2020                  2019               FY'20 vs. FY'19

Interest and other income (expense), net $ 11 $ (199 ) $ 210 105.5 % As a percentage of revenues

                         0.1 %                 -2.3 %




Net loss resulting from foreign exchange transactions. Net loss resulting from
foreign exchange transactions is comprised of losses and gains generated from
movements in Norwegian Krone, or NOK, relative to the U.S. Dollar including
gains or losses from our NOK hedging activities.



                                               Fiscal year ended July 31,                    Change
(in thousands)                                 2020                  2019                FY'20 vs. FY'19
Net loss resulting from foreign exchange
transactions                               $        (152 )       $        (242 )   $       90             37.2 %
As a percentage of revenues                         -1.6 %                -2.7 %

In fiscal 2020 and 2019, we incurred losses of $218,000 and $278,000, respectively, from NOK hedging activities due to U.S. Dollar's continued climb against NOK during fiscal 2020.

Provision for income taxes. The tax expense consists of minimum state taxes based on allocated net worth and certain income taxes payable in foreign jurisdictions where our subsidiaries reside.





                                 Fiscal year ended July 31,                Change
(in thousands)                    2020                 2019           FY'20 vs. FY'19
Provision for income taxes    $         15         $         16     $   (1 )        -6.3 %
As a percentage of revenues            0.2 %                0.2 %




As part of the Tax Cuts and Jobs Act of 2017, Global Intangible Low-Taxed Income
inclusion (GILTI) and Foreign Derived Intangible Income (FDII) deduction became
effective on January 1, 2018.  There was no impact to income tax expense
resulting from the GILTI and FDII in light of the Company's available NOL carry
forward and its full valuation allowance.



On March 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.



                                       31

LIQUIDITY AND CAPITAL RESOURCES





General



At July 31, 2020, we had cash and cash equivalents of $5.1 million and working
capital (current assets less current liabilities) of $3.9 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 ending July 31, 2021. 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 with Western Alliance Bank, as discussed below in Financing Activities.

The following tables present selected financial information for the twelve months ended July 31, 2020 and 2019:





                                                                  Fiscal year ended July 31,
(in thousands)                                                     2020                2019
Cash flows provided by (used in):
Operating activities                                           $      2,122       $           76
Investing activities                                                   (759 )             (1,740 )
Financing activities                                                  2,169                  (42 )

Effect of exchange rate changes on cash and cash equivalents            (30 )                (93 )
Increase (decrease) in cash and cash equivalents               $      3,502
$       (1,799 )




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 is also impacted
by the factors impacting revenue discussed above. The change in cash provided by
operating activities in fiscal 2020 compared to fiscal 2019 was primarily due to
higher revenues coupled with lower costs and expenses, an increase in deferred
revenues from paid subscriptions and Zedge Premium, as well as increases in
certain non-cash costs and expenses items such as stock-based compensation,
impairment of investment in privately-held company and depreciation and
amortization which did not consume cash.



Investing Activities

Cash used in investing activities in fiscal 2020 and fiscal 2019 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.





On August 23, 2018, the Company made a $250,000 investment in TreSensa, Inc.
("TreSensa") representing a less than 1% equity ownership interest on a
fully-diluted basis, and concurrently entered into a playable ad distribution
agreement with TreSensa under which the Company shall be paid a higher
percentage of revenue derived from all playable ads provided by TreSensa, from
its available catalogue for distribution through the Zedge App, when compared to
industry norms. In July 2019, we recorded an impairment charge of $250,000 and
thus reduced the fair value to $0.



On June 30, 2020, TreSensa agreed to transfer substantially all of its assets to
its lender in full satisfaction of its obligations under certain loan agreement
dated March 27, 2020. See Note 17 to the Consolidated Financial Statements in
Item 8 of this Annual Report on Form 10-K.



Financing Activities



On February 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.



On April 22, 2020, we received $218,000 in proceeds from a PPP loan from Western
Alliance Bank, which was administered by the Small Business Administration and
established under the CARES Act, as more fully described in Note 18 to the
Consolidated Financial Statements in Item 8 of this Annual Report on Form 10-K.



In July 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 from September 1,
2019. We repaid this loan in full as of July 31, 2020. Effective August 1, 2020,
we obtained a loan of $181,462 to pay for our insurance policies, repayable in
nine equal installments of $20,491 starting from September 1, 2020 which
represented a 3.89% annual percentage interest rate.



                                       32

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 received proceeds of $5,291 from the exercise of stock options in fiscal 2019 in connection with which we issued 40,700 shares of our Class B common stock.





As of September 27, 2016, the Company entered into a loan and security agreement
with Western Alliance Bank for a revolving credit facility of up to $2.5 million
for an initial two years term which was extended for another two years term
expiring September 26, 2020. Advances under this facility may not exceed the
lesser of $2.5 million or 80% of the Company's eligible accounts receivable,
subject to certain concentration limits. The revolving credit facility is
secured by a lien on substantially all of the Company's assets. The outstanding
principal amount bears interest per annum at the greater of 5.0% or the prime
rate plus 1.25%. Interest is payable monthly and all outstanding principal and
any accrued and unpaid interest is due on the maturity date of September 26,
2020. The Company is required to pay an annual facility fee of $12,500 to
Western Alliance Bank. The Company is also required to comply with various
affirmative and negative covenants and to maintain certain financial ratios
during the term of the revolving credit facility. The covenants include a
prohibition on the Company paying any dividend on its capital stock. The Company
may terminate this agreement at any time without penalty or premium provided
that it pays down any outstanding principal, accrued interest and bank expenses.
At July 31, 2020, there were no amounts outstanding under the revolving credit
facility and the Company was in compliance with all of the covenants. On
September 25, 2020, this agreement was extended for another two-year term at
substantially comparable terms except for the minimum interest rate which was
reduced from 5.0% to 3.5%, and the facility was reduced from $2.5 million to
$2.0 million at the Company's request.



As of November 16, 2016, the Company entered into a Foreign Exchange Agreement
with Western Alliance Bank 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 $6.5
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 Western
Alliance Bank, in its reasonable discretion from time to time, which was
initially set at 10% of the nominal amount of the foreign exchange contracts in
effect at the relevant time. In December 2016, the applicable foreign exchange
reserve percentage was changed so that the reduction of available borrowing for
major currency forward contracts of less than six months tenor is set at 10% of
the nominal amount of the foreign exchange contracts, and for contracts over six
months tenor, 12.5% of the nominal amount of the foreign exchange contracts. At
July 31, 2020, there were $2.6 million of outstanding foreign exchange contracts
under the credit facility, which reduced the available borrowing under the
revolving credit facility by $269,000, see Note 4 to the Consolidated Financial
Statements included in Item 8 of this annual report on Form 10-K.



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.

Changes in Trade Accounts Receivable


Gross trade accounts receivable were $1.4 million and $1.1 million at July 31,
2020 and 2019 respectively. Our cash collections in fiscal 2020 and fiscal 2019
were $9.2 million and $9.4 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), Google and Facebook, and we terminate
our services with smaller customers immediately upon balances becoming past due.
Since these smaller customers rely on us to derive their own revenue, they
generally pay their outstanding balances on a timely basis.



In the fiscal year ended July 31, 2020, two customers represented 29% and 26% of
the Company's revenue, and in the fiscal year ended July 31,2019, three
customers represented 28%, 28% and 10% of the Company's revenue. At July 31,
2020, two customers represented 35% and 32% of the Company's accounts receivable
balance and at July 31, 2019, three customers represented 32%, 17% and 17% 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.





                                       33

OFF-BALANCE SHEET ARRANGEMENTS


At July 31, 2020, we did not have any "off-balance sheet arrangements," as
defined in relevant SEC regulations that are reasonably likely to have a current
or future effect on our financial condition, results of operations, liquidity,
capital expenditures or capital resources, other than the following.



In connection with our Spin-Off, 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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