Zedge, Inc.

(Unaudited)

Note 1—Basis of Presentation and Summary of Significant Accounting Policies

Description of Business

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’, and DataSeeds.AI, a B2B offering which creates ethically sourced and fully rights-cleared custom image, video, and audio datasets that companies use to train their AI systems. Our vision is to enable and connect creators who enjoy friendly competitions with a community of prospective consumers in order to drive commerce. Except where the context clearly indicates otherwise, the terms the “Company,” “Zedge” “we,” “us” or “our” refer to Zedge, Inc. and its consolidated subsidiaries.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of Zedge, Inc. and its subsidiaries: GuruShots Ltd. (“GuruShots”); Zedge Europe AS; and Zedge Lithuania UAB (the “Company”), have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three months ended October 31, 2025 are not necessarily indicative of the results that may be expected for the fiscal year ending July 31, 2026 or any other period. The balance sheet at July 31, 2025 has been derived from the Company’s audited financial statements at that date but does not include all of the information and footnotes required by U.S. GAAP for complete financial statements. For further information, please refer to the consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended July 31, 2025 (the “2025 Form 10-K”), as filed with the U.S. Securities and Exchange Commission (the “SEC”).

The Company’s fiscal year ends on July 31 of each calendar year. Each reference below to a fiscal year refers to the fiscal year ending in the calendar year indicated (e.g., fiscal 2025 refers to the fiscal year ended July 31, 2025).

Significant Accounting Policies and Estimates

There have been no material changes to the Company’s significant accounting policies and critical accounting estimates described in the 2025 Form 10-K.

Use of Estimates

The preparation of our unaudited condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, as well as related disclosure of contingent assets and liabilities. Actual results could differ materially from our estimates due to risks and uncertainties, including uncertainty in the economic environment due to various global events. To the extent that there are material differences between these estimates and actual results, our financial condition or operating results will be affected. We base our estimates on past experience and other assumptions that we believe are reasonable under the circumstances, and we evaluate these estimates on an ongoing basis.

Recently Issued Accounting Pronouncements Not Yet Adopted

In November 2024, the FASB issued ASU 2024-03, Income Statement-Reporting Comprehensive Income*-Expense Disaggregation Disclosures* (Subtopic 220-40) (“ASU 2024-03”), ASU 2024-03 will require public entities to disaggregate, within the notes to the financial statements, certain expenses presented on the face of the financial statements to enhance transparency and help investors better understand an entity’s performance. The amendment will specifically require that an entity disclose the amounts related to purchases of inventory, employee compensation, depreciation and intangible asset amortization. Entities will also be required to provide a qualitative description of the amounts remaining in relevant expense captions that are not separately disaggregated quantitatively, disclose the total amount of selling expenses and, in annual reporting periods, provide a definition of what constitutes selling expenses. This ASU is effective for fiscal years beginning after December 15, 2026, and interim periods within fiscal years beginning after December 15, 2027, with early adoption permitted. The Company will not be required to adopt ASU 2024-03 until August 1, 2027. The Company is currently evaluating the impact of the adoption of ASU 2025-03 on the Company’s financial statement disclosures.

In September 2025, the FASB issued ASU No. 2025-06, Intangibles-Goodwill and Other-Internal-Use-Software (Subtopic 350-40):Targeted Improvements to the Accounting for Internal-Use Software(“ASU 2025-06”). ASU 2025 removes the prescriptive software development “project stages” and requires capitalization of software costs once (1) management authorizes and commits funding and (2) completion and use are probable. Entities must evaluate significant development uncertainty related to technological innovations or performance requirements. The amendments also require Subtopic 360-10 disclosures for all capitalized internal-use software costs and clarify that intangible asset disclosures under Subtopic 350-30 are not required. The standard is effective for annual periods beginning after December 15, 2027, and interim periods within those annual reporting periods, with early adoption permitted. The Company will not be required to adopt ASU 2025-06 until August 1, 2028. The Company is currently evaluating the impact of the adoption of ASU 2025-06 on the Company’s financial statement disclosures.

All other new accounting pronouncements that have been issued but not yet effective are currently being evaluated and at this time are not expected to have a material impact on our financial position or results of operations.

Related Party Transactions

The Company was formerly a majority-owned subsidiary of IDT Corporation (“IDT”). On June 1, 2016, IDT’s interest in the Company was spun-off by IDT to IDT’s stockholders and the Company became an independent public-held company. IDT charges the Company for services it provides, and the Company charges IDT for services it provides, pursuant to Services Agreements between the companies.

The Company is party to a consulting agreement with Activist Artist Management, LLC (“Activist”), which assists the Company in strategic business development. A member of the Company’s Board of Directors owns a significant minority stake in Activist.

The Company is party to a revenue sharing agreement with National Retail Services, Inc. (“NRS”), a wholly owned subsidiary of IDT, under which Zedge and certain of its subsidiaries (Emojipedia and GuruShots) provide a selection of their digital content for display on NR screens and share in the revenue generated from the resulting advertisements.

Transactions with these related parties did not have a material impact on the consolidated balance sheets as of October 31, 2025 or July 31, 2025, or the consolidated statements of operations and comprehensive income (loss) for the three months ended October 31, 2025 or 2024.

Note 2—Revenue

Disaggregation of Revenue

The following table presents revenue disaggregated by segment and type (in thousands):

Contract Balances

Contract liabilities consist of deferred revenue, which are recorded for payments received in advance of the satisfaction of performance obligations*.*

The Company records deferred revenues related to the unsatisfied performance obligations with respect to subscription revenue. The Company’s deferred revenue balance for paid subscriptions was approximately $5.5 million related to approximately 1.1 million active subscribers, and approximately $5.1 million, related to approximately 1.0 million active subscribers, as of October 31, 2025 and July 31, 2025, respectively.

The Company also records deferred revenues when users purchase or earn Zedge Credits. Unused Zedge Credits represent the value of the Company’s unsatisfied performance obligation to its users. Revenue is recognized when Zedge App users use Zedge Credits to acquire Zedge Premium content or upon expiration of the Zedge Credits upon 180 days of account inactivity (“Breakage”). As of October 31, 2025, and July 31, 2025, the Company’s deferred revenue balance related to Zedge Premium was approximately $255,000 and $248,000, respectively.

The amount of deferred revenue recognized in the three months ended October 31, 2025 that was included in the deferred revenue balance at July 31, 2025 was $0.9 million.

Unsatisfied Performance Obligations

Substantially all of the Company’s unsatisfied performance obligations relate to contracts with an original expected length of 30 months or less.

Significant Judgments

The advertising networks and advertising exchanges to which the Company sells its inventory track and report the impressions and revenues to Zedge, and Zedge recognizes revenues based on these reports. The networks and exchanges base their payments off of those reports and Zedge independently compares the data to each of the client sites to validate the imported data and identify any differences. The number of impressions and revenues delivered by the advertising networks and advertising exchanges is determined at the end of each month, which resolves any uncertainty in the transaction price during the reporting period.

For lifetime subscriptions, revenue is recognized over the estimated retention period during which the customer is expected to benefit from use of the Zedge app, which management has determined to be 30 months based on historical usage and retention patterns information available to us to date. This estimate represents a significant judgement and is reviewed periodically for changes in customer behavior or other relevant factors.

Note 3—Fair Value Measurements

The fair value measurement of cash equivalents invested money market funds is based on quoted market prices in active markets (Level 1). The fair value measurement of foreign exchange forward contracts is based on observable market-based inputs principally derived from or corroborated by observable market data (Level 2*).*

The following table presents the balance of assets and liabilities measured at fair value on a recurring basis (in thousands):

Fair Value of Other Financial Instruments

The Company’s other financial instruments at October 31, 2025 and July 31, 2025 included prepaid expenses and other current assets, and trade accounts payable and accrued expenses and other liabilities are stated at their carrying value, which approximates fair value due to the short time to the expected receipt or payment date.

Note 4—Derivative Instruments

The primary risk managed by the Company using derivative instruments is foreign exchange risk. Foreign exchange forward contracts are entered into as hedges against unfavorable fluctuations in the USD to NOK (prior to the restructuring) and USD to EUR exchange rates. The Company is party to a Foreign Exchange Agreement with Western Alliance Bank allowing the Company to enter into foreign exchange contracts under its revolving credit facility with the bank (see Note 10Revolving Credit Facility). The Company does not apply hedge accounting to these contracts because these are not qualified as hedging accounting pursuant to ASC 815; therefore the changes in fair value are recorded in the consolidated statements of operations and comprehensive loss. By using derivative instruments to mitigate exposures to changes in foreign exchange rates, the Company is exposed to credit risk from the failure of the counterparty to perform under the terms of the contract. The credit or repayment risk is minimized by entering into transactions with high-quality counterparties.

As a result of the global restructuring initiative implemented in January 2025, which included the closure of the Company’s Norway operations, the Company no longer has exposure to USD/NOK foreign exchange risk. Accordingly, there were no outstanding NOK forward contracts as of July 31, or October 31, 2025.

Management has further concluded that there were no current requirement to enter into USD/EUR forward contracts beyond August 2025. As a result, there were no outstanding EUR forward contracts as of October 31, 2025.

The fair value of outstanding derivative instruments recorded in the accompanying unaudited condensed consolidated balance sheets were as follows (in thousands):

The effects of derivative instruments on the condensed consolidated statements of operations and comprehensive income (loss) were as follows (in thousands):

Note 5—Intangible Assets and Goodwill

The following table presents the detail of intangible assets, net as of October 31, 2025 and July 31, 2025 (in thousands):

Estimated future amortization expense as of October 31, 2025 is as follows (in thousands):

The Company’s amortization expense for intangible assets were $112,000 and $112,000 for the three months ended October 31, 2025 and 2024, respectively.

Goodwill

The following table summarizes the changes in the carrying amount of goodwill for the three months ended October 31, 2025 (in thousands).

The total accumulated impairment loss of the Company’s goodwill as of October 31, 2025 was $8.7 million.

Note 6—Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consist of the following (in thousands):

Note 7—Stock-Based Compensation

The Company recognizes stock-based compensation for stock-based awards, including stock options, restricted stock and deferred stock units (“DSUs”) based on the estimated fair value of the awards and recognized over the relevant service period and/or market conditions. The Company estimates the fair value of stock options on the measurement date using the Black-Scholes option valuation model. The Company estimates the fair value of the restricted stock and DSU’s with service conditions only using the current market price of the stock. The Company estimates the fair value of the DSU’s with both service and market conditions using the Monte Carlo Simulation valuation model.

The Black-Scholes and Monte Carlo Simulation valuation models incorporate assumptions as to stock price volatility, the expected life of options or awards, a risk-free interest rate and dividend yield. The Company recognizes stock-based compensation expense related to options and restricted stock units on a straight-line basis over the service period of the award, which is generally 4 years for options and 3 years for restricted stock units.

In our accompanying unaudited condensed consolidated statements of operations and comprehensive income (loss), the Company recognized stock-based compensation expense for our employees and non-employees as follows (in thousands):

As of October 31, 2025, the Company’s unrecognized stock-based compensation expense was $213,000 for unvested stock options, $125,000 for unvested DSUs and $158,000 for unvested restricted stock.

In the three months ended October 31, 2025 and 2024, awards of restricted stock and DSUs with respect to 30,000 shares and 119,000 shares, respectively, vested, and in connection with these vesting events, the Company purchased 4,312 shares and 6,903 shares respectively, of our Class B common stock from certain employees for $13,000 and $22,000, respectively, to satisfy tax withholding obligations.

In the three months ended October 31, 2025 and 2024, the Compensation Committee approved grants of options to purchase 13,750 and 5,000 shares, respectively, of the Company’s Class B common stock to certain employees, vesting mostly over a three-year or four-year period. Unrecognized compensation expense related to these awards granted were $32,000 and $11,000 respectively based on the estimated fair value of the options on the grant dates.

Note 8—Earnings Per Share

Basic earnings per share is computed by dividing net income attributable to all classes of common stockholders of the Company by the weighted average number of shares of all classes of common stock outstanding during the applicable period. Diluted earnings per share is computed in the same manner as basic earnings per share, except that the number of shares is increased to include restricted stock still subject to risk of forfeiture, issuances to be made on the vesting of unvested DSUs and the exercise of potentially dilutive stock options using the treasury stock method, unless the effect of such increase is anti-dilutive.

The rights of holders of Class A common stock and Class B common stock are identical except for certain voting and conversion rights and restrictions on transferability. As such, the Company is not required to break out earnings per share by class.

The weighted-average number of shares used in the calculation of basic and diluted earnings per share attributable to the Company’s common stockholders consists of the following (in thousands):

The following shares were excluded from the dilutive earnings per share computations because their inclusion would have been anti-dilutive (in thousands):

For the three months ended October 31, 2024, the diluted earnings per share equals basic earnings per share because the Company incurred a net loss during that period and the impact of the assumed exercise of stock options and vesting of restricted stock and DSUs would have been anti-dilutive.

Note 9—Commitments and Contingencies

Legal Proceedings

The Company may from time to time be subject to legal proceedings that arise in the ordinary course of business. Although there can be no assurance in this regard, the Company does not expect any of those legal proceedings to have a material adverse effect on the Company’s results of operations, cash flows or financial condition.

Note 10—Revolving Credit Facility

On October 28, 2022, the Company entered into an Amended and Restated Loan and Security Agreement (“Amended Loan Agreement”) with WAB. Pursuant to the Amended Loan Agreement, WAB agreed to provide the Company with a new term loan facility in the maximum principal amount of $7 million for a four-year term and a $4 million revolving credit facility for a two-year term expiring October 28, 2024. Amounts outstanding under the term loan and credit facility of the Amended Loan Agreement bear interest at a per annum rate equal to the Prime Rate (as published in The Wall Street Journal) plus 0.5%, with a Prime “floor” rate of 4.00%.

On October 28, 2024, the Company signed an Amended and Restated Loan and Security Agreement Modification Agreement with WAB. Under this agreement, WAB agreed to renew the $4 million revolving credit facility for an additional four years, extending it to October 28, 2028. The modification also removed certain provisions, including financial covenants, related to the $2 million term loan, which has already been repaid and is no longer available for re-borrowing.

The Amended Loan Agreement, as amended, includes customary negative covenants, subject to exceptions, which limit transfers, capital expenditures, indebtedness, certain liens, investments, acquisitions, dispositions of assets, restricted payments and the business activities of the Company, as well as customary representations and warranties, affirmative covenants and events of default, including cross defaults and a change of control default.

As of November 16, 2016, the Company entered into a Foreign Exchange Agreement with WAB to allow the Company to enter into foreign exchange contracts not to exceed $5.0 million in the aggregate at any point in time under its revolving credit facility. This limit was raised to approximately $7.5 million pursuant to the Loan and Security Modification Agreement dated May 30, 2018. The available borrowing under the revolving credit facility is reduced by an applicable foreign exchange reserve percentage as determined by WAB, in its reasonable discretion from time to time, which was set at 10% of the nominal amount of the foreign exchange contracts in effect at the relevant time. At October 31, 2025, there were no outstanding foreign exchange contracts.

Note 11—Segment and Geographic Information

Segment Information

The Company determines its operating segments based on how itschief operating decision maker (“CODM”) manages the business, allocates resources, makes operating decisions and evaluates operating performance. The Company’s CODM was its Chief Executive Officer as of October 31, 2025.

The CODM evaluates the performance of each operating segment using segment income (loss) from operations. The Company defines segment income (loss) from operations as revenue less costs and expenses. Expenses include indirect costs that are allocated to operating segments based on a reasonable allocation methodology, which are generally related to sales and marketing activities and general and administrative overhead. Revenue and expenses exclude transactions between the Company’s operating segments.

The CODM uses segment income (loss) from operations to allocate resources during the annual budgeting and forecasting process. The CODM considers segment income (loss) from operations when making decisions on operating and capital resource allocation. Additionally, the CODM uses segment income (loss) from operations to evaluate operating strategy and assess segment performance by comparing the results of each segment.

There aretwo reportable segments, which are the Zedge Marketplace and GuruShots. The following table provides information about these two reportable segments (in thousands):

The CODM does not evaluate operating segments using asset information and, accordingly, the Company does not report asset information by segment.

Geographic Information

Net long-lived assets and total assets held outside of the United States, which are located primarily in Israel and Lithuania, were as follows (in thousands):

Note 12— Operating Leases

The Company has operating leases primarily for office space. Operating lease right-of-use assets recorded and included in other assets were $336,000 and $64,000 at October 31, 2025 and July 31, 2025, respectively.

Effective October 1, 2025, the Company commenced a new lease and relocated to its new office in Vilnius, Lithuania.

Future minimum lease payments related to this new lease are as follows (in thousands):

There were no other material changes in the Company’s operating and finance leases in the three months ended October31, 2025, as compared to the disclosure regarding such leases in the 2025 Form 10-K.

Note 13—Income Taxes

The Company’s income tax expense (or benefit) has generally been determined using an estimate of its annual effective tax rate applied to year-to-date income and records the discrete tax items in the period to which they relate. In each quarter, the Company updates the estimated annual effective tax rate and makes a year-to-date adjustment to the tax provision as necessary.

The Company’s estimated annual effective tax rate for the fiscal year ending July 31, 2026 differs from the U.S. federal statutory tax rate due to certain items primarily related to stock-based compensation expense, jurisdictional mix of earnings, foreign derived intangible income deduction, global intangible low-taxed income and the change in basis differences associated with tax deductible intangible assets and goodwill.

As of October 31, 2025, the Company had $6.6 million of deferred tax assets, for which it has established a valuation allowance of $1.8 million, related to U.S. federal and state taxes and for a certain international subsidiary.

The Company is subject to taxation in the United States and certain foreign jurisdictions. Earnings from non-U.S. activities are subject to local country income tax. The material jurisdictions where the Company is subject to potential examination by tax authorities include the United States, Norway, Lithuania and Israel.

Note 14—Shareholder Distributions and Earnings and Profits (E&P)

On October 14, 2025, the Company issued a press release announcing that its Board of Directors had declared a quarterly cash dividend of $0.016 per share, aggregating approximately $208,000. The dividend was included inAccrued expenses and other current liabilities (see Note 6) as of October 31, 2025, and was paid on November 7, 2025, to stockholders of record as of October 24, 2025.

As of the declaration date, the Company had an accumulated deficit of approximately $14.5 million. Accordingly, under U.S. GAAP, the distribution was accounted for as a return of capital and recorded as a reduction toAdditional paid-in capital in the accompanying financial statements. The distribution did not affect the Company’s results of operations for the year.

For U.S. federal income tax purposes, the Company had accumulated earnings and profits (“E&P”) of approximately $11.4 million. Pursuant to Internal Revenue Code Section 316(a), distributions to shareholders are characterized as dividends to the extent of current or accumulated E&P. As a result, the entire $208,000 distribution is treated as a taxable dividend to shareholders for U.S. federal income tax reporting purposes.

The difference between the book and tax characterization of the distribution results from timing and permanent differences between financial reporting income and taxable income, primarily related to the impairment of intangible assets and stock-based compensation.