Zedge, Inc.

Other than as set forth below, there are no material changes from the risk factors previously disclosed in Item 1A to Part I of the 2024 Form 10-K.

Privacy and Data Protection Risks

The deployment of AI technologies in our products and services may involve the collection, processing, and storage of personal data, potentially exposing us to heightened privacy and data protection risks. Non-compliance with data protection regulations such as the General Data Protection Regulation (GDPR) and the California Consumer Privacy Act (CCPA) could result in significant fines, legal actions, and reputational damage. Moreover, AI systems can inadvertently process sensitive information, leading to unauthorized disclosures or misuse of personal data. As regulatory frameworks evolve, we may incur increased costs to ensure compliance and adapt our AI systems accordingly.

Algorithmic Bias and Discrimination

AI models are susceptible to biases present in training data, which can lead to discriminatory outcomes. Such biases may result in unfair treatment of users or creators, potentially violating anti-discrimination laws and damaging our brand reputation. Addressing algorithmic bias requires ongoing efforts in data curation, model evaluation, and the implementation of fairness measures, which may increase operational complexity and costs.

Cybersecurity Vulnerabilities in AI Systems

AI systems can introduce new cybersecurity vulnerabilities, including susceptibility to adversarial attacks, model inversion, and data poisoning. Exploitation of these vulnerabilities could lead to unauthorized access to sensitive information, disruption of services, or manipulation of AI outputs. As cyber threats become more sophisticated, we must invest in advanced security measures and continuously monitor our AI systems to mitigate potential risks.

Regulatory and Compliance Challenges

The regulatory landscape for AI is rapidly evolving, with new laws and guidelines emerging globally. Compliance with diverse and potentially conflicting regulations across jurisdictions may require significant resources and adjustments to our AI development and deployment practices. Failure to adhere to applicable laws could result in legal penalties, restrictions on our operations, and harm to our reputation.

Intellectual Property and Ownership Issue

The use of AI-generated content raises complex intellectual property (IP) considerations, including questions about ownership rights and potential infringement of third-party IP. Uncertainties in IP law regarding AI outputs may expose us to legal disputes and challenges in protecting our proprietary content. We may need to invest in legal expertise and adjust our content policies to navigate these complexities effectively.

Operational Dependence on AI Technologies

Our increasing reliance on AI technologies for various operational aspects, such as content moderation, personalization, and user engagement, may pose risks if these systems fail or produce unintended outcomes. Technical issues, data inaccuracies, or system malfunctions could disrupt our services and negatively impact user experience. Ensuring the reliability and accuracy of AI systems requires ongoing maintenance, testing, and potential human oversight.

Ethical and Reputational Considerations

The deployment of AI technologies can raise ethical concerns, particularly if users perceive AI-driven decisions as opaque or unfair. Public scrutiny and negative perceptions regarding our use of AI could harm our brand and user trust. We must proactively address ethical considerations in our AI development processes and maintain transparency to mitigate reputational risks.

Talent Acquisition and Retention

The specialized nature of AI development necessitates skilled personnel, and competition for such talent is intense. Challenges in attracting and retaining qualified AI professionals could impede our ability to innovate and maintain our AI systems effectively. We may need to offer competitive compensation and invest in training programs to build and sustain our AI capabilities.