Item 1A. Risk Factors 9
Item 1B. Unresolved Staff Comments 45
Item 1C. Cybersecurity 45
Item 2. Properties 48
Item 3. Legal Proceedings 48
Item 4. Mine Safety Disclosures 48
Item 6. [Reserved] 50
Item 7A. Quantitative and Qualitative Disclosures about Market Risks 69
Item 8. Financial Statements and Supplementary Data 69
Item 9A. Controls and Procedures 69
Item 9B. Other Information 69
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections 69
PART III 70
Item 11. Executive Compensation 70
Item 14. Principal Accounting Fees and Services 70
Item 15. Exhibits, Financial Statement Schedules 71
SIGNATURES 73
PART
I
As
used in this Annual Report, unless the context otherwise requires, the terms the “Company,” “Zedge,” “we,”
“us,” and “our” refer to Zedge, Inc., a Delaware corporation, and its subsidiaries, collectively. Our fiscal
year runs from August 1 through July 31. Each reference to a fiscal year in this Annual Report refers to the fiscal year ending in the
calendar year indicated (for example, fiscal 2025 refers to the fiscal year ended July 31, 2025).
Item
1. Business
Company
Overview
Zedge
builds digital marketplaces and friendly competitive games around content that people use to express themselves. Our leading products
include Zedge Ringtones and Wallpapers, which we refer to as our “Zedge App,” a freemium digital content marketplace offering
mobile phone wallpapers, video wallpapers, ringtones, and notification sounds as well as pAInt, a generative AI wallpaper and ringtone
maker, GuruShots, a skill-based photo challenge game, and Emojipedia, the #1 trusted source for ‘all things emoji’. Our vision
is to enable and connect creators who enjoy friendly competitions with a community of prospective consumers in order to drive commerce.
We
are part of the ‘Creator Economy,’ which is estimated to be worth between $191 billion and $250 billion globally in 2025,
with some forecasts placing the global market size as high as $848 billion by 2032123. According to multiple reports,
there are now over 207 million active content creators worldwide.45 Furthermore, between 45% and 47% of creators identify
as working full-time in this space678. Most creators earn modest incomes, and studies suggest that only a small portion,
approximately 4%, of creators earn more than $100,000 per year91011. We view the Creator Economy as an opportunity for
Zedge to expand our business, especially as we execute by connecting our gamers with our marketplace.
Our
Zedge App (which is named “Zedge Wallpapers” in the App Store) offers a wide array of mobile personalization content including
wallpapers, video wallpapers, ringtones, and notification sounds, and is available both in Google Play and the App Store. Over the past
two fiscal years, our Zedge App has had between 22.1 million and 28.7 million monthly active users (“MAU”), ending with 23.3
million MAU as of July 31, 2025. MAU is a key performance indicator (“KPI”) for our Zedge App that captures the number of
unique users that used our Zedge App during the final 30 days of the relevant period. Our platform allows creators to upload content
to our marketplace and avail it to our users either for free or, via ‘Zedge Premium,’ the section of our marketplace where
we offer premium content for purchase. In turn, our users utilize the content to personalize their phones and express their individuality.
In
fiscal 2023, we introduced pAInt, a generative AI wallpaper maker in the Zedge App. A generative AI wallpaper maker is an implementation
of artificial intelligence software that can create images from text descriptions. To interface with a generative AI image maker, a user
enters a text description of the image they want to create, and the software generates an image based on that description. Today, pAInt
is available for text-to-image, image-to-image, and text-to-audio creation. In addition, we upgraded Zedge+, our paid subscription offering
by bundling together an ad-free experience with value adds making the offering more compelling.
We often refer to our freemium ringtones and wallpapers, our subscription
offering, the functionality for creators to market their products and ancillary offerings and features both in our Zedge App and website,
as our Zedge Marketplace.
2 https://market.us/report/creator-economy-market/
3 https://inbeat.agency/blog/creator-economy-statistics
4 https://demandsage.com/creator-economy-statistics/
7 https://nealschaffer.com/creator-economy-statistics/
8 https://www.spiralytics.com/blog/content-creator-statistics-2025/
9 https://blog.invitemember.com/how-much-do-content-creators-make/
10 https://brentonway.com/top-influencer-marketing-statistics/
11 https://blog.hootsuite.com/instagram-statistics/
1
The
Zedge Marketplace’s monetization stack consists of advertising revenue generated when users view advertisements when using the
Zedge App (and the related functionality under the zedge.net website), the in-app sale of Zedge Credits, our virtual currency, that is
used to purchase Zedge Premium content, and a paid-subscription offering that provides an ad-free experience to users that purchase a
monthly or annual subscription. In April 2023, we introduced a subscription tier in the iOS version of the app. As of July 31, 2025,
we had approximately 984,000 active subscribers.
In
fiscal 2025, we began building DataSeeds.AI (“DataSeeds”), a business-to-business marketplace offering access to our rapidly
growing catalog of over 30 million high-quality, fully rights-cleared images for AI training, ecommerce, and stock photos. Uniquely positioned
to deliver custom content at scale, DataSeeds leverages its global creator network, tens of thousands of photographers from GuruShots
and creators from Zedge to fulfill highly specific client briefs across geographies, themes, and use cases. DataSeeds addresses a critical
challenge facing foundational models today: the need for edge-case visual content to improve accuracy and performance. Each asset can
be enhanced with detailed annotations, segmentation masks, technical metadata, and peer-based quality rankings, ensuring datasets are
both robust and production-ready. With scalable infrastructure and fast turnaround times, DataSeeds is a powerful partner for enterprises
building the next generation of AI-powered applications.
In April 2022, we acquired GuruShots Ltd (“GuruShots”),
a gamified photography platform that engages a global community of photographers through daily challenges, real-time feedback, and a competitive,
interactive experience. GuruShots offers a platform spanning iOS, Android, and the web that provides a fun, educational and structured
way for amateur photographers to compete in a wide variety of contests showcasing their photos while gaining recognition with votes, badges,
and awards. We estimate that the total addressable market of amateur photographers using their smartphones to take and publicly share
artistic photos is 30-40 million people per month and that the market is still in its infancy. Every month, GuruShots stages more than
300 competitions that result in players uploading in excess of 550,000 photographs and casting close to 2.8 billion “perceived votes,”
which are calculated by multiplying the number of votes that each player casts by a weighting factor based on various factors related
to that user. To improve engagement, GuruShots has adopted a set of retention dynamics focused on individual, team and community dynamics
that create a sense of belonging, inspiration, recognition, improvement, and competition.
GuruShots
utilizes a ‘Free-to-Play’ business model and generates revenue through in-app purchases of virtual currency. Players can
use this currency to unlock competitions or gain an edge by purchasing resources and participating in additional gameplay. Over the past
eight years, the monthly average paying player spend has increased in excess of 6.2% annually to more than $40.9 per player.
In
fiscal 2024, we revamped GuruShots’ customer onboarding experience by guiding new players through simplified photo competitions
of limited size and duration. The upgrade was designed to enhance the gaming experience for new players by increasing their potential
for winning and providing immediate gratification. The new onboarding has shown improvements in engagement, retention, and revenue from
new users. In addition, we migrated to a coin-based economy with multiple currencies in order to enable more players to earn and spend
their currency on in-game resources.
Since
the acquisition, GuruShots has faced challenges in growth and profitability, and its revenue has declined. We have cut costs at GuruShots,
including as part of the restructuring implemented in January 2025, and have materially scaled back on paid user acquisition (PUA) for
the unit. In parallel, we are developing a plan, referred to as GuruShots 2.0, to revamp GuruShots’ offering in order to put it
on a growth trajectory and unlock the potential value of this asset. Our strategy focuses on attracting new users and converting them
into recurring, paying players. To date, we have introduced a fun and comprehensive onboarding experience to draw new users into the
gameplay with ease and migrated to a coin-based in-game economy to enable more opportunities to reward and monetize players
Historically,
we marketed GuruShots to prospective players primarily via PUA channels including Google, Meta, TikTok and other platforms, utilizing
a variety of advertising media, formats, such as static and video ads. As part of the GuruShots 2.0 development plan, we have significantly
reduced PUA investment for GuruShots to improve Return-on-Ad-Spend (ROAS) and intend to continue managing PUA spend in the current timeframe.
In
addition to its potential as a standalone game, we believe that the extensive library of photographs generated by GuruShots players through
submissions to GuruShots’ competitions represents a valuable dataset for our emerging DataSeeds offering. To date, we have secured
rights to license a portion of this library for various applications, including AI training, and we continue to expand the licensable
catalog by securing rights to additional photographs. We believe the scale and distinctive characteristics of this dataset position it
as a meaningful resource for DataSeeds’ target market.
In
August 2021, we acquired Emojipedia Pty Ltd (“Emojipedia”), the world’s leading authority dedicated to providing up-to-date
and well-researched emoji definitions, information, and news, as well as World Emoji Day and the annual World Emoji Awards. In July 2025,
Emojipedia received approximately 48.4 million monthly page views and has approximately 8.9 million monthly active users as of July 31,
2025 of which approximately 46.2% are located in well-developed markets. It is the top resource for all things emoji, offering insights
into data and cultural trends.
2
Post
its acquisition in August 2021, Emojipedia was immediately accretive to earnings. In the past year, we have implemented multiple changes
to Emojipedia including an AI-powered emoji sticker generator tool as well as an extensive emoji sticker library.
In late September 2025, Google released an update to its Search Engine
Results Page (SERP) enabling users to copy emojis directly from search results rather than being directed to third-party sites such as
Emojipedia. In addition, AI platforms, including ChatGPT and Claude, now return emoji results in response to user queries. While it is
too early to accurately quantify the impact of these changes on Emojipedia’s monthly active users (MAU), we believe they are likely
to result in reduced traffic and adversely affect revenue. In light of these developments, we are evaluating potential mitigation strategies
and will determine whether such measures warrant investment given the associated costs and expected benefits.
Our
Strategy
Our
vision is to provide tools that enable easy and high-quality digital content creation, connect the creators together with friendly competitions
and expose the content to communities of prospective consumers in order to drive commerce.
Our
Strategic Flywheel
Our
long-term strategy calls for creating and supporting a flywheel that leverages the synergies of content creation, gaming and marketplaces
by empowering consumers with easy-to-use content creation utilities whose output can be used to engage across a multitude of online and
mobile platforms including social networks, messaging, and gaming as well as for commerce purposes. This is unlike the existing dynamic
that many gaming platforms offer to players, who can create and sell virtual goods that are valuable only within the context of that
particular ecosystem. Although the foundation of our strategy is currently centered around existing offerings, over time we expect to
expand into other content verticals that have relevance beyond gameplay and we continuously evaluate our units to determine which best
fit into our strategic goals in their current forms, which need revamping and which no longer support our long term goals.
One
example of this approach in practice using our current is GuruShots. GuruShots is a skill-based game that attracts creators (mainly,
amateur photographers) with friendly photo competitions in which they compete to gain recognition and pedigree. We believe that adding
the ability for them to benefit by availing their content to third-parties is an attractive benefit that enables players not only to
have fun, but also to earn money while doing so. If this dual purpose resonates well with our players it may contribute to improving
user growth and increasing the lifetime value. It will also enable us to expand our marketplace with a business-to-business offering
where we can sell to enterprises including technology companies, stock photo sites, ecommerce vendors, to name a few. Recently, we have
begun to utilize the extensive library of photographs generated by GuruShots players through submissions to GuruShots’ competitions
as a dataset for our emerging DataSeeds offering. This is an example of our ongoing efforts to apply our assets and strengths to support
existing or new offerings that will enhance the value creation of our company.
Executing
this strategy calls for concentrating our efforts on the following goals:
3
4
Our
Competitive Advantages
We
believe that the following competitive strengths will drive the growth of our business:
5
Competition
We
face competition in all aspects of our business and especially from other digital marketplaces and gaming companies. In running our business,
we compete for:
○ large user base;
○ large content catalog;
○ recognized and well-respected brands;
○ proprietary recommendation engine; and
○ market ranking and longevity.
6
Our
History
In
2003, Tom Arnoy, Kenneth Sundnes, and Paul Shaw launched a consumer website at www.zedge.net that people used to upload and download
ringtones.
In
December 2006, IDT Corporation acquired 90% of Zedge. Zedge Holdings, Inc. was incorporated in Delaware in 2008, and our name was changed
to Zedge, Inc. in 2016.
In
2016, IDT Corporation spun off our stock to its stockholders, and our Class B common stock was listed on the NYSE American with the ticker
symbol “ZDGE”.
In
March 2018, we completed the launch of Zedge Premium, a section of our marketplace where artists can launch a virtual store and market,
distribute, and sell their digital content, including wallpapers, video wallpapers, ringtones, and notification sounds to our users.
In
January 2019, we started offering freemium Zedge App Android users the ability to convert into paying subscribers in exchange for removing
unsolicited advertisements from our Zedge App. In April 2023, we introduced a subscription tier in the iOS version of the app. As of
July 31, 2025, we had approximately 984,000 active subscribers, including approximately 693,000 lifetime subscriptions.
In
August 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.
In
April 2022, we acquired GuruShots, a recognized category leader that fuses photography with mobile gaming. GuruShots, headquartered in
Israel, offers a platform spanning iOS, Android, and the web that gamifies photography by providing a fun, educational, and structured
way for amateur photographers – essentially anyone with a mobile phone – to compete in a wide variety of contests showcasing
their photos while gaining recognition with votes, badges, and awards. On a monthly basis, GuruShots users currently cast more than 3
billion “perceived votes” in more than 300 competitions. GuruShots currently generates revenue from selling digital resources
that, if used skillfully, can provide additional visibility to competitors’ photographs, a critical factor in securing votes for
competitive ranking.
In
December 2022, we introduced ‘pAInt’ our generative AI creation suite within the Zedge App. pAInt enables users with the
ability to create high quality AI images and audio by typing a brief description of what they are interested in or by uploading visual
content that they want to tune with AI.
In
early 2025, Zedge implemented cost cutting initiatives to enhance profitability and support long-term growth. Overall, the estimated
total savings from the global restructuring and other cost reduction initiatives were expected to range from $3.9 million to
$4.1 million annually. In total, our global workforce was reduced by 22% and annualized compensation-related cost savings were projected
to be in the vicinity of $2.6 million.
Our
Technology
Our
ecosystem is powered by a scalable, distributed platform that integrates both open-source and proprietary technologies. It spans key
domains such as content management, content discovery, web and mobile application development, data science and analytics, device compatibility,
advertising and marketing technology, and reporting.
We
have built a robust infrastructure that enables continuous ideation, experimentation, and deployment. This environment allows our development
teams to quickly test hypotheses, analyze outcomes, and operationalize successful innovations.
Generative
AI and large language models (LLMs) are embedded throughout our technology stack, powering a wide range of workflows—from automating
content creation and enrichment to facilitating content translation. For example, generative models assist users in creating wallpapers,
ringtones, and other digital assets by generating imagery and audio based on user input and LLM-generated suggestions. Meanwhile, LLM-driven
systems enhance content translation for a broader global audience and refine search and discovery algorithms for real-time, relevant
content delivery.
Our
data pipelines continuously train and fine-tune machine learning models using user engagement signals. These insights feed into recommender
systems and ranking algorithms, optimizing for both user satisfaction and content diversity.
Operationally,
LLM tools assist developers and data scientists by automating tasks such as code refactoring and documentation generation, improving
productivity and reducing turnaround time.
7
From
an end user’s perspective, our platform minimizes response latency and optimizes resource allocation while maintaining cost efficiency.
Distributed systems, caching strategies, and inference optimization techniques ensure fast content rendering and real-time recommendations.
At GuruShots, our unique technology stack combines open-source and proprietary systems to power a highly-engaging gamified photography
platform. Our advanced ranking algorithms ensure fair exposure for participants, while our real-time voting and ranking engine scales
seamlessly to support millions of concurrent interactions. Our AI-driven recommendation system curates personalized competition suggestions
based on users’ photographic style and historical engagement.
To
sustain vibrant participation across all competitions, AI bots intelligently maintain gameplay liquidity, ensuring active, competitive,
and socially engaging challenges. All of this operates on a fully redundant, cloud-hosted infrastructure designed for high availability,
scalability, and performance.
Intellectual
Property
Our
trademarks, copyrights, domain names, proprietary technology, know-how, and other intellectual property are vital to our success. We
seek to protect our intellectual property rights by relying on federal, state, and common law rights in the United States and other countries,
as well as contractual restrictions. We enter into confidentiality and nondisclosure agreements with our employees and business partners.
The agreements we enter into with our employees also provide that all software, inventions, developments, works of authorship, and trade
secrets created by them during the course of their employment are our property.
We
have been granted trademark protection for “Zedge” in the United States, European Union, United Kingdom, India, and Canada,
“We Make Phones Personal,” “Zedge, Everything You,” “Tattoo Your Phone,” “Shortz – Chat
Stories By Zedge,” and “NFTs Made Easy” in United States and a stylized “D” logo in the European Union,
United Kingdom, the United States, and Canada. We also have applied for trademark protection for “pAInt,” and “Zedge
pAInt” in the United States, a stylized “D” logo in India, and have obtained a copyright registration for our flagship
app, Zedge. In addition, we have registered, amongst others, the following domain names: www.zedge.net and www.zedge.com.
On
August 1, 2021, we acquired Emojipedia. As part of this acquisition, we acquired trademark registrations for “Emojipedia”
in the United States, the European Union, the United Kingdom, and Australia, and trademark registrations for “World Emoji Day”
in the United States and the United Kingdom. We also acquired the following domain name registrations: www.emojipedia.com and www.emojipedia.org.
On
April 12, 2022, we acquired GuruShots Ltd. As part of this acquisition, we acquired all intellectual property rights associated with,
and encompassed within the GuruShots mobile and web-based applications, including the following domain name: GuruShots.com. In addition,
we have obtained trademark registrations for “GuruShots” in the United States, Canada, European Union, and United Kingdom
applied for trademark protection for “GuruShots” in India, and have obtained copyright registrations for the GuruShots mobile
and web-based applications.
Human
Capital
Attracting
and retaining qualified personnel familiar with our businesses who head our different businesses units is critical to our success. Our
headcount totaled 82 as of July 31, 2025.
Our
human capital resources objectives include, as applicable, identifying, recruiting, retaining, incentivizing and integrating our existing
and new employees, advisors and consultants. To accomplish that, our compensation practices are designed to attract and retain qualified
and motivated personnel and align their interests with the goals of the Company and with the best interests of our stockholders. Our
compensation philosophy is to provide compensation to attract the individuals necessary for our current needs and growth initiatives,
and provide them with the proper incentives to motivate those individuals to achieve our long-term plans, which includes among other
things, equity and cash incentive plans that attract, retain and reward personnel through the granting of stock-based and cash-based
compensation awards.
We
believe that talent attraction and retention are critical to our ability to achieve our strategy and that a trained, diverse and inspired
workforce is integral to delivering on our objectives. Our recruiting process reaches a wide array of potential employees, and we employ
a rigorous screening process to ensure that we identify and hire quality professionals. We work to ensure that compensation and benefits
offered to employees are fair and reflects industry standards and best practices.
8
We
are committed to diversity and inclusion in the workforce including a policy of non-discriminatory treatment and respect of human rights
for all current and prospective employees. Discrimination on the basis of an individual’s race, religion, creed, color, sex, sexual
orientation, age, marital status, disability, national origin or veteran’s status is not permitted by us and is illegal in many
jurisdictions. We respect the human rights of all employees and strive to treat them with dignity consistent with standards and practices
recognized by the international community.
Facilities
We
do not maintain office space in the United States in light of having a small domestic team. We address certain aspects of our commercial
operations, including accounting and finance, and business development from the New York area. We maintain leased facilities in Vilnius,
Lithuania and Tel Aviv, Israel for members of both GuruShots and Zedge teams and that make up our product, design, monetization, marketing
and technology teams. We lease space in Trondheim, Norway that formerly housed members of our team and we are exploring alternatives
for that space in light of the recent restructuring and shut down of that office.
A certain number of our servers are hosted in leased data centers in
different geographic locations in the United States. We utilize cloud-based resources for a significant portion of our needs and those
services are hosted at the providers’ facilities.
Item
1A. Risk Factors
Our
business, operating results or financial condition could be materially adversely affected by any of the following risks associated with
any one of our businesses, as well as the other risks highlighted elsewhere in this document, particularly the discussions about competition.
The trading price of our Class B common stock could decline due to any of these risks.
Risk
Factor Summary
Our
business operations are subject to numerous risks and uncertainties, including those outside of our control, that could cause our business,
financial condition or operating results to be harmed, including, but not limited to, risks regarding the following:
9
10
RISKS
RELATED TO OUR BUSINESS AND INDUSTRY
If
we fail to keep up with rapid technological changes in the internet, smartphone industries, and artificial intelligence (“AI”),
and adapt our products and services accordingly, our results of operations and future growth may be adversely affected.
The
internet and smartphone industries are characterized by rapid and innovative technological changes. Our future success will depend, in
part, on our ability to respond to fast changing technologies, adapt our products and services, including those of Emojipedia, to evolving
industry standards and improve the performance, functionality and reliability of our products and services. For example, AI platforms,
including ChatGPT and Claude, now return emoji results in response to user queries. While it is too early to accurately quantify the
impact of these changes on Emojipedia’s monthly active users (MAU), we believe they are likely to result in reduced traffic and
adversely affect revenue. Our increasing reliance on AI technologies for various operational aspects, such as content moderation, personalization,
and user engagement, may pose risks if these systems fail or produce unintended outcomes. Technical issues, data inaccuracies, or system
malfunctions could disrupt our services and negatively impact user experience. Ensuring the reliability and accuracy of AI systems requires
ongoing maintenance, testing, and potential human oversight, which may increase operational complexity and costs. Our failure to continue
to adapt to such changes could harm our business. If we are slow to develop products and services that are compatible with smartphones,
or if the products and services we develop are not widely accepted and used by smartphone users, we may not be able to capture a significant
share of this important market. In addition, the widespread adoption of new internet, networking or telecommunications technologies or
other technological changes for smartphones could require substantial expenditures to modify or adapt our products, services or infrastructure.
If we fail to keep up with rapid and innovative technological changes to remain competitive, our future growth may be materially and
adversely affected and our results of operations could be materially and adversely affected.
A
key component of our growth strategy involves the adoption, integration, and effective utilization of AI technologies across our products,
services, and internal operations, which introduces significant and evolving risks.
We
currently incorporate AI into certain existing and planned products, as well as our internal operations. For example, in fiscal 2023
we launched pAInt, a generative AI creation suite within the Zedge App. We also rely on AI tooling, automation platforms, and emerging
practices such as “vibe coding” to improve operational efficiency, enhance content creation workflows, and accelerate product
development. Developing, testing, and deploying these AI systems, particularly those leveraging third-party services, may increase our
cost profile due to high computing costs, which could reduce our margins and adversely affect our financial results. Achieving consistent,
secure, and compliant AI adoption across departments—including Product & Engineering, Content Operations, Trust & Safety,
Customer Support, Finance, and Legal/Compliance—requires ongoing investment in training, governance, and change management. Failure
by any function to adopt or appropriately use these tools could reduce productivity, impair product quality, or cause compliance or security
issues.
AI
technologies are complex, resource-intensive, and rapidly evolving. Market demand and acceptance of AI-driven offerings, such as pAInt
and Zedge Premium, remain uncertain, and our product development efforts may not achieve widespread adoption or may be outpaced by competitors.
Competitors with greater financial, technical, data, or distribution resources may gain an advantage in attracting and retaining AI talent
and in acquiring training data and compute capacity, which could impair our ability to maintain competitive AI capabilities. If our AI
solutions, or those of others in our industry, draw controversy due to their perceived or actual societal impact—such as generating
biased, harmful, or misleading content—we may experience brand or reputational harm, competitive harm, or legal liability, which
could slow user adoption of our products.
The
use of AI also raises ethical, reputational, and legal concerns. AI systems can generate or amplify content that is inaccurate, misleading,
biased, discriminatory, harmful, or otherwise controversial, or be misused by third parties. If our AI tools produce, or are perceived
to produce, such outputs, or if we fail to implement adequate human oversight, testing, and safeguards (including data governance, evaluation,
and post-deployment monitoring), our brand and competitive standing could be harmed and we could face complaints, investigations, or
litigation. Potential litigation or government regulation related to AI may increase the burden and cost of research and development,
further subjecting us to reputational harm, competitive harm, or legal liability. Failure to address perceived or actual technical, legal,
compliance, privacy, security, or ethical issues could undermine public confidence in AI, slowing customer adoption of our AI-driven
products and services, such as pAInt and Zedge Premium.
11
We
are susceptible to platform and competitive risks arising from the rapid adoption and integration of AI by established technology platforms,
app stores, search engines, and new market entrants. For example, platforms may incorporate AI-driven wallpaper, emoji, or other personalization
features directly into their services or AI overviews, reduce referral traffic, alter algorithms or terms governing AI content, or restrict
use of third-party AI tools, any of which could decrease usage of our products or increase customer acquisition costs. Over time, improvements
in AI accuracy, efficiency, and capabilities could disrupt our business model if we fail to anticipate and respond effectively.
Laws
and regulations focused on the development, use, and provision of AI technologies and other digital products and services are proliferating
in many jurisdictions around the world. Staying compliant with evolving laws, regulations, and industry standards pertaining to AI may
impose significant operational costs and constrain our ability to develop, deploy, or employ AI technologies. Failing to adapt appropriately
to this evolving regulatory environment could result in legal liability, regulatory actions, monetary penalties and damage to our brand
and reputation.
Operationally,
AI models depend on the quality, provenance, and security of data and on reliable third-party infrastructure. Inadequate, outdated, biased,
or compromised datasets can produce flawed outputs and “model drift.” Our reliance on third-party models, APIs, datasets,
and cloud providers exposes us to outages, cost volatility, performance degradation, or changes in licensing or acceptable-use terms,
which could disrupt our operations if these services become unavailable or are no longer offered on commercially reasonable terms. Integrating
AI introduces new cybersecurity risks, including prompt-injection, data exfiltration, model poisoning, and supply-chain vulnerabilities,
as well as the risk that employees inadvertently input confidential or personal data into external systems.
Intellectual
property ownership surrounding AI technologies has not been fully addressed by U.S. courts or federal and state laws, nor by international
legal frameworks globally. Our ongoing development and use of generative AI tools may result in copyright infringement claims, disputes
over ownership and licensing, and potential patent infringement claims, among other things. These legal challenges could be costly to
defend against, leading to substantial financial obligations and reputational damage. The evolving regulatory environment and uncertain
legal precedents in this field further increase our exposure to litigation risks, which could materially affect our business, financial
condition, and results of operations.
Additionally,
laws and regulations focused on the development and use of AI are proliferating globally and continue to evolve (for example, comprehensive
AI frameworks in the EU and emerging federal and state guidance in the U.S.). Compliance may require significant documentation, transparency
and record-keeping, risk assessments, model governance, content provenance or watermarking, impact assessments, vendor oversight, and
restrictions on certain use cases. Noncompliance could result in investigations, fines, injunctions, remediation obligations, or other
sanctions. Cross-border data transfer rules, sanctions, and export controls may affect access to datasets, models, or compute resources
in some jurisdictions.
Further,
our use of generative AI in aspects of our platforms may present risks and challenges that could increase as AI solutions become more
prevalent. AI algorithms may be flawed. Datasets may be insufficient or contain biased information. These deficiencies and other failures
of AI systems could have negative impacts on our users’ experience and subject us to competitive harm, regulatory action, legal
liability, and brand or reputational harm. Contractual indemnities from vendors may be unavailable or insufficient. We may also face
claims related to privacy (including the processing of personal or biometric information), publicity rights, deceptive practices, or
content moderation failures. Defending such claims can be costly and time-consuming, could require changes to our products or processes,
and could harm our reputation and financial results.
Finally,
AI-related development and inference can increase energy consumption and costs, and investor or regulatory focus on sustainability may
impose additional constraints. If we fail to implement robust AI governance, align employee practices with our policies, maintain sufficient
human oversight, and continuously evaluate and improve our systems, the risks described above could materially and adversely affect our
business, financial condition, results of operations, and reputation.
12
We
offer a suite of freemium apps and we may not be successful in adding new users or in retaining existing users, or if our users decrease
their level of engagement with our products or do not make optional purchases of tokens, coins, resources, or content, or convert into
paying subscribers and renew their paid subscriptions our revenue, financial results and business may be significantly harmed.
The
size of our user base and our users’ level of engagement and paid conversion are fundamental to our success. Our financial performance
has been and will continue to be dependent on our ability to successfully add new users, retain and engage existing users and convert
them into paying users and/or subscribers. We expect that the size of our user base will fluctuate or decline in one or more markets
from time to time. If consumers and/or creators do not perceive our products as useful, effective, entertaining, reliable, and/or trustworthy,
we may not be able to attract or keep users or otherwise maintain or increase the frequency and duration of their engagement or the percentage
of users that are converted into or remain paying subscribers. We may continue to see declines in our user base or engagement levels,
which could further erode our ability to maintain or grow revenue. User engagement can be difficult to measure, particularly as we introduce
new and different products and services, and as various privacy regulations evolve. Any number of factors can negatively affect user
retention, growth, engagement and conversion, including if:
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● we fail to combat inappropriate or abusive activity on our platforms;
● we are unable to offer relevant content to our users;
● we fail to provide adequate support for our users and creators;
Certain
of these factors have, at various times, negatively impacted user and creator growth, MAU and engagement. If we are unable to maintain
or increase our user base and user engagement, our revenue and financial results may be materially adversely affected.
We
may not experience growth or engagement in certain geographic locations due to local factors.
We
may not experience rapid user growth or continued engagement in countries that have unreliable telecommunications infrastructure or in
countries where mobile and internet usage are expensive or limited in regular accessibility. Any decrease in user retention, growth or
engagement may have a material and adverse impact on our popularity, revenue, business, reputation, financial condition, and results
of operations.
We
may not be successful in acquiring a sufficient number of users that become purchasers or retain existing users who generate profitable
revenue for our apps.
Revenues
of freemium apps and websites typically rely on a small percentage of users that convert into paying users by making in-app purchases
of digital goods and/or paid subscriptions; however, the vast majority of users play for free or only occasionally make purchases or
opt-in for paid subscriptions. Accordingly, only a small percentage of our users are paying users. In addition, a small portion of paying
users generate a disproportionate percentage of revenue. Because of this, it is imperative for us to both retain these valuable customers
and to maintain or increase their spend over time. In fiscal 2025, we experienced a 17% increase in subscription revenue and a 29% increase
in subscription billings. Conversely, over the past nine years, GuruShots has successfully increased the compounded annual growth rate
of monthly spending per paying player by around 6.2%. There can be no assurance that we will be able to continue to retain paying users,
grow or maintain subscription levels or that paying users will maintain or increase their spending. We may experience a net decline in
paying players resulting in a decrease in revenue resulting in a materially adverse outcome for our business and financial results.
We
may not manage our in-app economy well and as a result, disincentivize users from making in-app purchases. Any failure to do so could
adversely affect our business, financial condition, and results of operations.
Our
apps are available to players for free and each brand generates a material portion of its revenue by selling digital goods and/or paid
subscriptions. The perceived value of these digital goods and/or paid subscriptions can be impacted by various factors including, but
not limited to, their price, discounting policies, promotional strategies, market competition, user reviews, and user engagement levels.
If we fail to manage our economy well, we risk confusing or upsetting users to the point that they reduce their purchases which could
negatively hurt the business.
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If
we are unable to compete for advertisers or if advertisers reduce their spend with us, our revenues, profitability and prospects may
be materially and adversely affected.
In
fiscal 2025, approximately 75% of our revenues (excluding GuruShots) were generated from selling advertising inventory. We generally
enter into arrangements with the major programmatic advertising networks to monetize our advertising inventory. We need to maintain good
relationships with these advertising networks to provide us with a sufficient inventory of advertisements. Online advertising, including
through mobile applications, is an intensely competitive industry. Many large companies, such as Applovin, Meta and Google, invest significantly
in data analytics to make their properties and platforms more attractive to advertisers. Our advertising revenue is primarily a function
of the number and hours of engagement of our free users and our ability to provide innovative advertising products that are relevant
to our users, maintain or increase user engagement and satisfaction with our products, and enhance returns and add incremental gains
for our advertising partners. If our relationship with any advertising partners terminates for any reason, or if the commercial terms
of our relationships are changed or do not continue to be renewed on favorable terms, or if we cannot source high-quality ads consistent
with our brand or product experience, we would need to qualify new advertising partners, which could negatively impact our revenues,
at least in the short term.
In
addition, internet-connected devices and operating systems controlled by third parties increasingly contain features that allow device
users to disable functionality that allows for the delivery of advertising on their devices or reduce the ability to provide personalized
or targeted advertising, which results in less valuable ads. Device and browser manufacturers may include or expand these features as
part of their standard device specifications. For example, when Apple announced that IDFA, a standard device identifier used in some
applications, was being superseded and would no longer be supported, application developers were required to update their apps to utilize
alternative device identifiers such as universally unique identifier, or, more recently, identifier-for-advertising, which simplifies
the process for Apple users to opt out of behavioral targeting. Furthermore, laws and regulations may also make it more difficult to
deliver personalized or targeted advertising or impose requirements that result in more users making elections to block our ability to
deliver targeted ads. If users do not elect to participate in functionality that supports the delivery of targeted advertising on their
devices, our ability to deliver effective advertising campaigns could suffer, which could cause our business, financial condition, or
operating results to be adversely affected.
We
anticipate that our growth and profitability will continue to depend on our ability to sell our advertising inventory. Companies that
advertise with us may choose to utilize other advertising channels or may reduce or eliminate their marketing altogether for a variety
of reasons, many of which are out of our control, including, without limitation, if the demand for mobile phone personalization industry
declines or otherwise falls out of favor with advertisers or consumers. In addition, we previously disclosed that disruptions caused
by U.S. regulatory action, specifically the TikTok ban that took effect in early 2025 shortly after President Trump assumed office, had
an immediate impact on advertiser behavior. During that period, U.S. advertising revenue fell, with TikTok advertising spend for the
most part disappearing. This experience illustrates how government-mandated restrictions on a major advertiser can impact revenue quickly.
Should future regulation, such as a reinstated or expanded ban on TikTok or restrictions on other platforms result, our revenue could
be materially and adversely affected.
If
the size of the digital advertising market does not increase from current levels, or if our digital brands are unable to capture and
retain a sufficient share of that market, our ability to maintain or increase our current level of advertising revenues and our revenues,
profitability and prospects could be materially and adversely affected.
The
digital advertising market may deteriorate, which could materially harm our business and results of operations.
We
generate the substantial majority of our revenue from selling advertising inventory. We anticipate that our growth and profitability
will continue to depend on our ability to sell advertising inventory across some if not all of our digital brands.
Future
demand for mobile advertising is uncertain. Many advertisers still have limited experience with mobile advertising and may continue to
devote larger portions of their advertising budgets to more traditional offline or online personal computer-based advertising, instead
of shifting additional advertising resources to mobile advertising.
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Further,
our advertisers’ ability to effectively target their advertising to our user’s interests may be negatively impacted by the
degree to which our privacy control measures that we have implemented or may implement in the future in connection with regulations,
regulatory actions, the user experience, or otherwise, and our advertising revenue may decrease or otherwise be curtailed as a result.
Changes to operating systems’ practices and policies, such as Apple’s deprecating the Identifier for Advertisers (“IDFA”)
and changes by Google to its advertising and tracking policies, including the planned deprecation of third-party cookies in Chrome and
a shift away from certain elements of its Privacy Sandbox initiative, as well as efforts to block covert tracking techniques like fingerprinting,
may also reduce the quantity and quality of the data and metrics that can be collected or used by us and our partners. These limitations
may adversely affect our advertisers’ ability to effectively target advertisements and measure their performance, which could reduce
the demand and pricing for our advertising products and harm our business. As such, our digital property’s current and potential
advertiser clients may ultimately find digital advertising to be less effective than traditional advertising media or marketing methods
or other technologies for promoting their products and services, and they may even reduce their spending on mobile advertising from current
levels as a result or for other reasons.
If
the market for mobile advertising deteriorates, we may not be able to increase our revenues or our revenues and profitability could decline
materially.
A
material amount of our revenue is generated from a limited number of geographies and third-party advertising demand partners. Any change
to this mix could result in negatively impacting our business, financial condition, and results of operations.
In
fiscal 2025, revenue from well developed economies accounted for approximately 81% of our total revenues and 72% of our total
advertising revenues were generated by three advertising demand partners. While our end users are located around the world, the
revenue is generated in the United States from our advertising partners. During the past five years, we have experienced a shift in
our Zedge App’s regional customer make-up with the percentage of our total MAU from emerging markets increasing, while the
portion from well-developed markets is decreasing. In fiscal 2025, 76.7% of our Zedge App’s users were located in emerging
markets with 23.3% of users in well-developed regions compared to 21.1% and 78.9% respectively in fiscal 2024. India comprised 32.5%
of our MAU as of July 31, 2025. This shift has negatively impacted revenues because well-developed markets command materially higher
advertising rates when compared to those in emerging markets. Although we are investing in reversing this trend, we may not be
successful in this effort which may result in lower revenues and profitability. Although GuruShots’ and Emojipedia’ s
user bases are more heavily weighted to well-developed economies, our overall revenue remains sensitive to the regional composition
of our Zedge App’s user base.
Three
advertising demand partners, mainly, Google, Liftoff, and AppLovin were responsible for 72% of advertising revenue in fiscal 2025. If
any of these advertising demand partners were to alter their spend on our digital properties the outcome could result in lowering revenues
and profitability.
In
addition, on April 24, 2024, President Biden signed the Protecting Americans from Foreign Adversary Controlled Applications
Act (PAFACA), which required ByteDance, TikTok’s Chinese owner, to divest the app’s U.S. operations by January 19, 2025,
or face a nationwide ban. This law was upheld by the U.S. Supreme Court in January 2025 in TikTok v. Garland.
After
briefly going offline in mid-January, TikTok continued to operate in the U.S. under a series of executive orders signed by President
Trump, each delaying enforcement of the federal ban by 75- to 90-day increments. The most recent extension set a compliance deadline
of September 17, 2025. Shortly before that date, the U.S. and China announced they had reached a framework agreement to transition TikTok’s
U.S. operations toward a U.S.-based ownership structure, aimed at preserving continued operation in the U.S. while satisfying national
security concerns. Consistent with this framework, on September 16, 2025, the President signed a new executive order further extending
the compliance deadline to December 16, 2025.
Should
TikTok fail to complete an approved divestiture or meet U.S. requirements under the PAFACA and its implementing regulations by December
16, 2025, enforcement of the federal ban could resume, including removal of the app from U.S. app stores and other restrictions. This
poses material risks to advertising and e-commerce, including revenue tied to TikTok-based promotions on Zedge’s platform.
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Our
apps’ user base is heavily weighted to the Android operating system and our revenues and profitability may suffer if the market
demand for Android smartphones decreases.
Our
apps’ user base is heavily weighted to smartphones running the Android operating system, which constituted approximately 95% of
our MAU (excluding Emojipedia) as of July 31, 2025, and most of our revenues for fiscal 2025. Any significant downturn in the overall
demand for Android smartphones or the use of Android smartphones could significantly and adversely affect the demand for our products
and services and would materially affect our revenues.
Although
the Android smartphone market has grown rapidly in recent years, it is uncertain whether the Android smartphone market will continue
growing at a similar rate in the future. In addition, due to the constantly evolving nature of the smartphone industry, another operating
system for smartphones may eclipse the Android operating system and result in a decline in its popularity, which would likely adversely
affect our apps’ popularity. To the extent that our products and services continue operating on Android smartphones and to the
extent that our future revenues substantially depend on the use and sales of Android smartphones, our business and financial results
would be vulnerable to any downturns in the Android smartphone market.
We
may not be successful in diversifying our revenue mix in order to reduce our significant dependence on third-party advertisers.
In
fiscal 2025, approximately 75% of our revenues excluding GuruShots were generated from advertising sales. We cannot assure you that we
will be successful in diversifying our revenue mix by identifying new revenue drivers that complement our advertising-heavy business.
Although the Zedge App had initial success in converting freemium users into paid subscribers, starting with zero in January 2019 and
ending fiscal 2024 with approximately 669,000, we ended fiscal 2025 with 984,000 subscribers, a 47% increase and we may not be successful
in improving subscriber base growth or in maintaining our current subscriber base. Furthermore, the subscription growth we experienced
in fiscal 2025 was fueled by converting users to lifetime subscriptions and offers that aligned with localized pricing dynamics. We may
not be able to continue to be able to drive this growth as market dynamics may change. To date, Zedge Premium has taken longer to scale