• Filing Date: 2020-06-12
  • Form Type: 10-Q
  • Description: Quarterly report
v3.20.1
Document and Entity Information - shares
9 Months Ended
Apr. 30, 2020
Jun. 10, 2020
Entity Registrant Name Zedge, Inc.  
Entity Central Index Key 0001667313  
Amendment Flag false  
Current Fiscal Year End Date --07-31  
Document Type 10-Q  
Document Period End Date Apr. 30, 2020  
Document Fiscal Period Focus Q3  
Document Fiscal Year Focus 2020  
Entity Current Reporting Status Yes  
Entity Filer Category Non-accelerated Filer  
Entity Small Business true  
Entity Shell Company false  
Entity Emerging Growth Company true  
Entity Ex Transition Period false  
Entity File Number 1-37782  
Entity Interactive Data Current Yes  
Entity Incorporation State Country Code DE  
Class A common stock    
Entity Common Stock, Shares Outstanding   524,775
Class B common stock    
Entity Common Stock, Shares Outstanding   11,674,707
v3.20.1
Consolidated Balance Sheets (Unaudited) - USD ($)
$ in Thousands
Apr. 30, 2020
Jul. 31, 2019
Current assets:    
Cash and cash equivalents $ 4,630 $ 1,609
Trade accounts receivable, net of allowance for doubtful accounts of $0 at April 30, 2020 and July 31, 2019 935 1,133
Prepaid expenses 180 380
Other current assets 45 103
Total current assets 5,790 3,225
Property and equipment, net 2,781 3,396
Goodwill 1,937 2,266
Other assets 455 120
Total assets 10,963 9,007
Current liabilities:    
Trade accounts payable 340 217
Insurance premium loan payable 16 141
Accrued expenses and other current liabilities 1,243 1,172
Deferred revenues 1,069 517
Total current liabilities 2,668 2,047
Loans Payable 218
Other liabilities 145
Total liabilities 3,031 2,047
Commitments and contingencies (Notes 8 and 12)
Stockholders' equity:    
Preferred stock, $.01 par value; authorized shares-2,400; no shares issued
Additional paid-in capital 25,624 23,131
Accumulated other comprehensive loss (1,469) (985)
Accumulated deficit (16,269) (15,243)
Treasury stock, 40 shares at April 30, 2020 and 22 shares at July 31, 2019, at cost (76) (47)
Total stockholders' equity 7,932 6,960
Total liabilities and stockholders' equity 10,963 9,007
Class A common stock    
Stockholders' equity:    
Common stock value 5 5
Total stockholders' equity 5 5
Class B common stock    
Stockholders' equity:    
Common stock value 117 99
Total stockholders' equity $ 117 $ 99
v3.20.1
Consolidated Balance Sheets (Unaudited) (Parenthetical) - USD ($)
shares in Thousands, $ in Thousands
Apr. 30, 2020
Jul. 31, 2019
Allowance for doubtful accounts $ 0 $ 0
Preferred stock, par value $ 0.01 $ 0.01
Preferred stock, shares authorized 2,400 2,400
Preferred stock, shares issued
Treasury stock, shares 40 22
Class A common stock    
Common stock, par value $ 0.01 $ 0.01
Common stock, shares authorized 2,600 2,600
Common stock, shares issued 525 525
Common stock, shares outstanding 525 525
Class B common stock    
Common stock, par value $ 0.01 $ 0.01
Common stock, shares authorized 40,000 40,000
Common stock, shares issued 11,715 9,876
Common stock, shares outstanding 11,675 9,854
v3.20.1
Consolidated Statements of Comprehensive Loss (Unaudited) - USD ($)
shares in Thousands, $ in Thousands
3 Months Ended 9 Months Ended
Apr. 30, 2020
Apr. 30, 2019
Apr. 30, 2020
Apr. 30, 2019
Income Statement [Abstract]        
Revenues $ 2,079 $ 1,912 $ 6,756 $ 6,866
Costs and expenses:        
Direct cost of revenues (exclusive of amortization of capitalized software and technology development costs included below) 289 353 925 1,031
Selling, general and administrative 1,569 2,289 5,408 6,761
Depreciation and amortization 348 391 1,216 1,022
Loss from operations (127) (1,121) (793) (1,948)
Interest and other income 2 3 7 48
Net loss resulting from foreign exchange transactions (200) (72) (239) (236)
Loss before income taxes (325) (1,190) (1,025) (2,136)
Provision for income taxes 5 1 6
Net loss (325) (1,195) (1,026) (2,142)
Other comprehensive loss:        
Changes in foreign currency translation adjustment (333) (93) (484) (224)
Total other comprehensive loss (333) (93) (484) (224)
Total comprehensive loss $ (658) $ (1,288) $ (1,510) $ (2,366)
Loss per share attributable to Zedge, Inc. common stockholders:        
Basic and diluted $ (0.03) $ (0.12) $ (0.10) $ (0.21)
Weighted-average number of shares used in calculation of loss per share:        
Basic and diluted 11,979 10,116 10,793 10,063
v3.20.1
Consolidated Statements of Changes in Stockholders' Equity (Unaudited) - USD ($)
shares in Thousands, $ in Thousands
Class A Common Stock
Class B Common Stock
Additional Paid-in Capital
Accumulated Other Comprehensive Loss
Accumulated Deficit
Treasury Stock
Total
Balance at Jul. 31, 2018 $ 5 $ 98 $ 22,508 $ (702) $ (11,899) $ 10,010
Balance, shares at Jul. 31, 2018 525 9,786          
Stock-based compensation 121 121
Stock-based compensation, shares          
Purchase of treasury stock (31) (31)
Foreign currency translation adjustment (131) (131)
Net Income/loss (706) (706)
Balance at Oct. 31, 2018 $ 5 $ 98 22,629 (833) (12,605) (31) 9,263
Balance, shares at Oct. 31, 2018 525 9,786          
Balance at Jul. 31, 2018 $ 5 $ 98 22,508 (702) (11,899) 10,010
Balance, shares at Jul. 31, 2018 525 9,786          
Net Income/loss             (2,142)
Balance at Apr. 30, 2019 $ 5 $ 98 22,958 (926) (14,040) (31) 8,064
Balance, shares at Apr. 30, 2019 525 9,832          
Balance at Oct. 31, 2018 $ 5 $ 98 22,629 (833) (12,605) (31) 9,263
Balance, shares at Oct. 31, 2018 525 9,786          
Exercise of stock options
Exercise of stock options, shares 3          
Stock-based compensation 162 162
Stock-based compensation, shares 16          
Stock issued for matching contributions to the 401(k) Plan 48 48
Stock issued for matching contributions to the 401(k) Plan, shares 19          
Net Income/loss (240) (240)
Balance at Jan. 31, 2019 $ 5 $ 98 22,839 (833) (12,845) (31) 9,233
Balance, shares at Jan. 31, 2019 525 9,824          
Exercise of stock options 1 1
Exercise of stock options, shares 8          
Stock-based compensation 118 118
Stock-based compensation, shares          
Foreign currency translation adjustment (93) (93)
Net Income/loss (1,195) (1,195)
Balance at Apr. 30, 2019 $ 5 $ 98 22,958 (926) (14,040) (31) 8,064
Balance, shares at Apr. 30, 2019 525 9,832          
Balance at Jul. 31, 2019 $ 5 $ 99 23,131 (985) (15,243) (47) 6,960
Balance, shares at Jul. 31, 2019 525 9,876          
Stock-based compensation 98 98
Stock-based compensation, shares          
Purchase of treasury stock (22) (22)
Foreign currency translation adjustment (143) (143)
Net Income/loss (801) (801)
Balance at Oct. 31, 2019 $ 5 $ 99 23,229 (1,128) (16,044) (69) 6,092
Balance, shares at Oct. 31, 2019 525 9,876          
Balance at Jul. 31, 2019 $ 5 $ 99 23,131 (985) (15,243) (47) 6,960
Balance, shares at Jul. 31, 2019 525 9,876          
Net Income/loss             (1,026)
Balance at Apr. 30, 2020 $ 5 $ 117 25,624 (1,469) (16,269) (76) 7,932
Balance, shares at Apr. 30, 2020 525 11,715          
Balance at Oct. 31, 2019 $ 5 $ 99 23,229 (1,128) (16,044) (69) 6,092
Balance, shares at Oct. 31, 2019 525 9,876          
Exercise of stock options 4 4
Exercise of stock options, shares 30          
Stock-based compensation $ 1 156 157
Stock-based compensation, shares 48          
Stock issued for matching contributions to the 401(k) Plan 41 41
Stock issued for matching contributions to the 401(k) Plan, shares 26          
Proceeds from sales of Class B Common Stock 275 275
Foreign currency translation adjustment (8) (8)
Net Income/loss 100 100
Balance at Jan. 31, 2020 $ 5 $ 100 23,705 (1,136) (15,944) (76) 6,654
Balance, shares at Jan. 31, 2020 525 9,980          
Stock-based compensation 102 102
Stock-based compensation, shares          
Net proceeds from sales of Class B Common Stock $ 17 1,817 1,834
Net proceeds from sales of Class B Common Stock, shares 1,735          
Foreign currency translation adjustment (333) (333)
Net Income/loss (325) (325)
Balance at Apr. 30, 2020 $ 5 $ 117 $ 25,624 $ (1,469) $ (16,269) $ (76) $ 7,932
Balance, shares at Apr. 30, 2020 525 11,715          
v3.20.1
Consolidated Statements of Cash Flows (Unaudited) - USD ($)
$ in Thousands
9 Months Ended
Apr. 30, 2020
Apr. 30, 2019
Operating activities    
Net loss $ (1,026) $ (2,142)
Adjustments to reconcile net loss to net cash provided by operating activities:    
Depreciation and amortization 1,216 1,022
Loss on disposal of furniture and fixtures 3
Stock-based compensation 397 449
Change in assets and liabilities:    
Trade accounts receivable 198 573
Prepaid expenses and other current assets 259 178
Other assets 24 6
Trade accounts payable and accrued expenses and other current liabilities (37) 99
Due to IDT Corporation (1)
Deferred revenues 552 284
Net cash provided by operating activities 1,583 471
Investing activities    
Capitalized software and technology development costs and purchase of equipment (613) (1,277)
Investment in privately-held company   (250)
Net cash used in investing activities (613) (1,527)
Financing activities    
Proceeds from sales of Class B Common Stock 2,250
Payment of issuance costs (141)
Proceeds from PPP loan payable 218
Repayment of insurance premium loan payable (125)
Proceeds from exercise of stock options 4 2
Purchase of treasury stock in connection with restricted stock vesting (29) (31)
Net cash provided by (used in) financing activities 2,177 (29)
Effect of exchange rate changes on cash and cash equivalents (126) (75)
Net increase (decrease) in cash and cash equivalents 3,021 (1,160)
Cash and cash equivalents at beginning of period 1,609 3,408
Cash and cash equivalents at end of period 4,630 2,248
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION    
Cash payments made for interest expenses 3
Cash payments made for income taxes $ 1
v3.20.1
Basis of Presentation and Recently Adopted Accounting Pronouncements
9 Months Ended
Apr. 30, 2020
Accounting Policies [Abstract]  
Basis of Presentation and Recently Adopted Accounting Pronouncements

Note 1—Basis of Presentation and Recently Adopted Accounting Pronouncements

 

Basis of Presentation

 

The accompanying unaudited consolidated financial statements of Zedge, Inc. and its subsidiaries, Zedge Europe AS and Zedge Canada, Inc. (dissolved as of May 2, 2019) (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 10 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 and nine months ended April 30, 2020 are not necessarily indicative of the results that may be expected for the fiscal year ending July 31, 2020 or any other period. The balance sheet at July 31, 2019 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 year ended July 31, 2019, 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 2020 refers to the fiscal year ending July 31, 2020).

 

COVID-19 Impacts on Financial and Operational Results

 

The COVID-19 pandemic has caused widespread economic disruption impacting the Company in a number of ways, most notably, with a significant decrease in global advertising spend. As such, the Company lacks clarity about how the pandemic will influence its future financial and operational results.

 

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. The Company imposed a temporary hiring freeze and lowered its discretionary spend to preserve cash for mission critical projects. The Company has responded quickly and decisively to the challenges presented by the pandemic in order to ensure the continuity of its service.

 

As of April 30, 2020, the Company had $4.6 million of cash and cash equivalents. The Company has developed certain contingency plans to preserve liquidity if such actions may be determined to be necessary due to worsening conditions, including related to an increase in impacts from the COVID-19 pandemic or if the effects of the pandemic last longer than currently anticipated. At the current time, the Company does not believe taking such actions is prudent nor, does it expect to need to take such action based on its current forecasts. The Company believes that its existing cash and cash equivalents, together with cash generated by operations will be sufficient to meet its working capital and capital expenditure requirements for the foreseeable future when accounting for the ill effects of the COVID-19 pandemic.

 

The Company considered the impacts of the COVID-19 pandemic on its significant estimates and judgments used in applying its accounting policies in the three months ended April 30, 2020. In light of the pandemic, there is a greater degree of uncertainty in applying these judgments and depending on the duration and severity of the pandemic, changes to its estimates and judgments could result in a meaningful impact to its financial statements in future periods. Of the more significant items subject to a greater degree of uncertainty during this time include estimates of revenue collectability and credit losses related to accounts receivable.

 

Recently Adopted Accounting Pronouncements

 

In February 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2016-02—Leases (Topic 842), and additional changes, modifications, clarifications, or interpretations related to this guidance thereafter, which require a reporting entity to recognize right-of-use ("ROU") assets and lease liabilities on the balance sheet for operating leases to increase the transparency and comparability.

 

The Company adopted this standard in the first quarter of fiscal 2020, effective as of August 1, 2019, using the modified retrospective approach. The adoption of Topic 842 had a material impact on the Company's consolidated balance sheets, but did not impact its consolidated statements of comprehensive loss, consolidated statements of stockholders' equity, or consolidated statements of cash flows. There was no adjustment to beginning retained earnings on August 1, 2019. The Company elected the short-term lease recognition exemption for all leases that qualify. Accordingly, the Company did not recognize ROU assets or lease liabilities for leases that qualify, including leases for existing short-term leases in effect at transition and continue to recognize those lease payments as expenses on the Company's consolidated statements of comprehensive loss on a straight-line basis over the lease term. The Company elected the practical expedient to not separate lease and non-lease components for all its leases. Upon adoption, the Company recognized new ROU assets and lease obligations on the Consolidated Balance Sheet for its operating leases of $538,000 and $512,000, respectively. See Note 12 – Lease for further details.

 

In August 2017, the FASB issued ASU 2017-12 – Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting Hedging Activities, which was intended to improve the financial reporting of hedging relationships to better portray the economic results of an entity's risk management activities in its financial statements. In addition, the ASU includes certain targeted improvements to simplify the application of hedge accounting guidance in U.S. GAAP. The amendments in this ASU were effective for the Company on August 1, 2019. Entities were to apply the amendments to qualified hedge relationships that existed on the date of adoption using a modified retrospective approach. The presentation and disclosure requirements were to be applied prospectively. The adoption of this ASU did not have a significant impact on the Company's consolidated financial statements as the Company's hedging activities of foreign currency are not designated and/or do not qualify as hedging instruments. See Note 4 – Derivative Instruments for further details.

v3.20.1
Revenue
9 Months Ended
Apr. 30, 2020
Revenue from Contract with Customer [Abstract]  
Revenue

Note 2—Revenue

 

Revenue Recognition

 

The Company generates revenue from three sources: (1) advertising; (2) subscriptions and Zedge Premium; and (3) in prior periods, service. Most of the Company's revenue is generated from selling its advertising inventory ("Advertising Revenue") to advertising networks, advertising exchanges, and direct arrangements with advertisers. The Company also earns revenue from subscriptions and Zedge Premium ("Other Revenue") which were launched in January 2019 and March 2018, respectively. Prior to May 31, 2019, the Company generated service revenue by 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.

 

The Company's current subscription offering allows users to pay a monthly or annual fee to remove unsolicited advertisements from the Zedge app. The Company is exploring adding additional features to its subscription offering. On the Zedge Premium platform, the Company retains 30% as fee revenue when users purchase licensed content using Zedge Credits or unlock licensed content by watching a video. Additionally, the Company earns revenue from breakage related to expired Zedge Credits.

 

The following table summarizes revenue by type of service for the periods presented:

 

   Three Months Ended   Nine Months Ended 
   April 30,   April 30, 
   2020   2019   2020   2019 
   (in thousands)   (in thousands) 
Advertising revenue  $1,501   $1,670   $5,428   $6,243 
Subscription and Zedge Premium revenue   578    63    1,328    95 
Service revenue   -    179    -    528 
Total Revenue  $2,079   $1,912   $6,756   $6,866 

 

Contract Balances

 

Deferred revenues

 

The Company 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. As of April 30, 2020, and July 31, 2019, the Company's deferred revenue balance related to Zedge Premium was approximately $170,000 and $155,000, respectively. In the three months and nine months ended April 30, 2020, the Company recognized $62,000 and $124,000 in revenue from breakage upon expiration of Zedge Credits.

 

The Company also records deferred revenues related to the unsatisfied performance obligations with respect to subscription revenue. As of April 30, 2020, the Company's deferred revenue balance related to subscriptions was approximately $899,000, representing approximately 394,000 active subscribers. As of July 31, 2019, the Company's deferred revenue balance related to paid subscriptions was approximately $362,000, representing approximately 129,000 active subscribers. The amount of revenue recognized in the nine months ended April 30, 2020 that was included in the deferred balance at July 31, 2019 was $329,000.

 

Practical Expedients

 

The Company expenses the fees retained by Google Play related to subscription revenue when incurred as marketing expense because the duration of the contracts for which the Company pay commissions are less than one year. These costs are included in the selling, general and administrative expenses of the Consolidated Statements of Comprehensive Loss.

v3.20.1
Fair Value Measurements
9 Months Ended
Apr. 30, 2020
Fair Value Disclosures [Abstract]  
Fair Value Measurements

Note 3—Fair Value Measurements

 

The following tables present the balance of assets and liabilities measured at fair value on a recurring basis:

 

      Level 1 (1)   Level 2 (2)   Level 3 (3)   Total 
   30-Apr-20  (in thousands) 
Assets:                  
Foreign exchange forward contracts     $-   $-   $-   $- 
                        
Liabilities:                       
Foreign exchange forward contracts     $-   $145   $-   $145 
   31-Jul-19                    
Assets:                       
Foreign exchange forward contracts     $-   $-   $-   $- 
                        
Liabilities:                       
Foreign exchange forward contracts     $-   $38   $-   $38 

 

(1) – quoted prices in active markets for identical assets or liabilities

(2) – observable inputs other than quoted prices in active markets for identical assets and liabilities

(3) – no observable pricing inputs in the market

 

Fair Value of Other Financial Instruments

 

The Company's other financial instruments at April 30, 2020 and July 31, 2019 included trade accounts receivable, trade accounts payable, loans payable, and lease liabilities. The carrying amounts of the trade accounts receivable, trade accounts payable, loan payables, and lease liabilities approximated fair value due to their short-term nature.

v3.20.1
Derivative Instruments
9 Months Ended
Apr. 30, 2020
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivative Instruments

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 U.S. Dollar – Norwegian Kroner (NOK) exchange rate. 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 9). The Company does not apply hedge accounting to these contracts, and therefore the changes in fair value are recorded in consolidated statements of 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.

 

The outstanding contracts at April 30, 2020, are as follows:

 

Settlement Date  U.S. Dollar Amount   NOK Amount 
May-20   350,000    3,216,464 
Jun-20   350,000    3,216,359 
Jul-20   350,000    3,216,114 
Aug-20   350,000    3,216,324 
Total  $1,400,000    12,865,261 

 

The fair value of outstanding derivative instruments recorded as liabilities in the accompanying consolidated balance sheets were as follows:

 

 

Derivatives Instruments

  Balance Sheet Location  April 30,
2020
   July 31,
2019
 
      (in thousands) 
Derivatives not designated or not qualifying as hedging instruments:           
Foreign exchange forward contracts  Accrued expenses and other current liabilities  $145   $38 
              

 

The effects of derivative instruments on the consolidated statements of comprehensive loss were as follows:

  

      Amount of Loss Recognized on Derivatives 

 

    Three Months Ended   Nine Months Ended 
      April 30,   April 30, 
Derivatives not designated or not qualifying as hedging instruments  Statement of Comprehensive Loss Location  2020   2019   2020   2019 
      (in thousands)   (in thousands) 
Foreign exchange forward contracts  Net loss resulting from foreign exchange transactions  $273   $80   $327   $254 
v3.20.1
Accrued Expenses and Other Current Liabilities
9 Months Ended
Apr. 30, 2020
Payables and Accruals [Abstract]  
Accrued Expenses and Other Current Liabilities

Note 5—Accrued Expenses and Other Current Liabilities

 

Accrued expenses and other current liabilities consist of the following:

 

  

April 30,

2020 

  

July 31,

2019 

 
    (in thousands) 
Accrued vacation  $459   $503 
Accrued payroll taxes   198    183 
Accrued payroll and bonuses   135    235 
Operating lease liability   198    - 
Derivative liability   145    38 
Accrued professional fees   -    57 
Due to artists   44    56 
Other   64    100 
Total accrued expenses and other current liabilities  $1,243   $1,172 
v3.20.1
Stock-Based Compensation
9 Months Ended
Apr. 30, 2020
Share-based Payment Arrangement [Abstract]  
Stock-Based Compensation

Note 6—Stock-Based Compensation

 

2016 Stock Option and Incentive Plan

 

On November 7, 2019, our Board of Directors amended the Company's 2016 Stock Option and Incentive Plan (as amended to date, the "2016 Incentive Plan") to increase the number of shares of the Company's Class B common stock available for the grant of awards thereunder by an additional 230,000 shares, to an aggregate of 1,271,000 shares. This amendment was ratified by the Company's stockholders at the Annual Meeting of Stockholders held on January 13, 2020. At April 30, 2020, there were 295,000 shares of Class B Stock available for awards under the 2016 Incentive Plan.

 

The exercise prices of options granted pursuant to the 2016 Incentive Plan must not equal to or greater than the Fair Market Value of the shares of Class B Stock covered by the option award on the date of grant. In general, Fair Market Value means the closing sale price per share of Class B Stock on the exchange on which the Class B Stock is principally traded for the last preceding date on which there was a sale of Class B Stock on such exchange.

 

Stock Options  

 

On October 18, 2017, the Compensation Committee of our Board of Directors approved the grant of options to purchase an aggregate of 124,435 shares of Class B Stock to 55 non-executive employees. The options vest over a three-year period from December 8, 2017. On the grant date, unrecognized compensation expense related to this grant was an aggregate of $159,000 based on the estimated fair value of the options on the grant date. The unrecognized compensation expense is being recognized on a straight-line basis over the vesting period.

 

In fiscal 2019, the Compensation Committee approved two equity grants of options to purchase an aggregate of 27,493 shares of Class B Stock to 6 non-executive employees. The options vest over a three-year period. Unrecognized compensation expense related to this grant was an aggregate of $33,000 based on the estimated fair value of the options on the grant dates. The unrecognized compensation expense is being recognized on a straight-line basis over the vesting period.

 

On November 7, 2019 and January 13, 2020, the Compensation Committee approved two equity grants of options to purchase an aggregate of 180,996 shares of Class B Stock to four employees and one consultant. The options vest over a three-year period. Unrecognized compensation expense related to these grants was an aggregate of $242,000 based on the estimated fair value of the options on the grant dates. The unrecognized compensation expense is being recognized on a straight-line basis over the vesting period.

 

At April 30, 2020, unrecognized compensation expense related to unvested stock options was an aggregate of $221,000.

 

Deferred Stock Units  

 

On August 28, 2019, the Compensation Committee approved the grant of 90,000 Deferred Stock Units (DSUs) to 11 of its non-executive employees based in Norway and Lithuania. Each DSU represents a right to receive one share of Class B Common Stock. The DSUs vest over a four-year period from August 1, 2019. On the grant date, unrecognized compensation expense related to this grant was an aggregate of $139,000 based on the estimated fair value of the DSUs on the grant date. The unrecognized compensation expense is being recognized on a straight-line basis over the vesting period. At April 30, 2020, unrecognized compensation expense related to unvested DSUs was an aggregate of $86,000.

 

Restricted Stock Awards

 

On February 7, 2018, the Compensation Committee and the Corporate Governance Committee of our Board of Directors approved a grant of 108,553 restricted shares of Class B Common Stock to our Executive Chairman Michael Jonas. Mr. Jonas agreed to accept all of his compensation for his service as Executive Chairman during fiscal 2018 in the form of equity in the Company and to make receipt of such equity compensation contingent on the Company achieving certain milestones relative to its fiscal 2018 budget. The grant was made at the time that the milestones previously set were achieved. Two-thirds of the shares have vested and the remaining shares vest on February 7, 2021. These shares had an aggregate grant date fair value of $330,000 which is being amortized on a straight-line basis over the vesting period. Additionally, on November 7, 2019, Mr. Jonas received 1,411 restricted shares of the Company's Class B common stock to vest in substantially equal amounts on November 7, 2020, 2021 2022. At April 30, 2020, unrecognized compensation expense related to unvested restricted stock was an aggregate of $85,000.

 

On November 7, 2019, the Compensation Committee approved a grant of 30,534 restricted shares of Class B Common Stock to Mr. Elliot Gibber, our Interim Chief Executive Officer in respect of his service in that capacity through the remainder of Fiscal 2020 (or such shorter period as he shall serve in that capacity), 15,267 shares of which vested on February 7, 2020 and the remainder will vest on May 7, 2020. These shares had an aggregate grant date fair value of $60,000 which is fully amortized as of April 30, 2020.

 

In connection with the Freeform acquihire in September 2017, the Company granted a total of 192,953 restricted shares of Class B Common Stock to former Freeform employees, which vest over a four-year period subject to continued employment. These shares had an aggregate grant date fair value of $369,000 which is being amortized on a straight-line basis over the vesting period. At April 30, 2020, unrecognized compensation expense related to unvested restricted stock was an aggregate of $91,000.

 

For the nine months ended April 30, 2020 and 2019, we purchased 18,441 shares and 14,137 shares respectively of Class B Stock from former Freeform employees for $29,072 and $30,543 respectively, to satisfy tax withholding obligations in connection with the vesting of restricted stock.

v3.20.1
Earnings Per Share
9 Months Ended
Apr. 30, 2020
Earnings Per Share [Abstract]  
Earnings Per Share

Note 7—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 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:

 

   Three Months Ended   Nine Months Ended 
   April 30,   April 30, 
   2020   2019   2020   2019 
   (in thousands) 
Basic weighted-average number of shares   11,979    10,116    10,793    10,063 
Effect of dilutive securities:                    
Stock options   -    -    -    - 
Non-vested restricted Class B common stock   -    -    -    - 
Deferred stock units   -    -    -    - 
Diluted weighted-average number of shares   11,979    10,116    10,793    10,063 

 

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

 

   Three Months Ended   Nine Months Ended 
   April 30,   April 30, 
   2020   2019   2020   2019 
   (in thousands)                 
Stock options   1,326    1,277    1,326    1,277 
Non-vested restricted Class B common stock   120    217    120    217 
Deferred stock units   69    -    69    - 
Shares excluded from the calculation of diluted earnings per share   1,515    1,494    1,515    1,494 

 

For the three and nine months ended April 30, 2020 and 2019, the diluted earnings per share equals basic earnings per share because the Company incurred a net loss during those periods and the impact of the assumed exercise of stock options and vesting of restricted stock would have been anti-dilutive.

v3.20.1
Contingencies
9 Months Ended
Apr. 30, 2020
Commitments and Contingencies Disclosure [Abstract]  
Contingencies

Note 8—Contingencies  

 

Legal Proceedings

 

In March 2014, Saregama India, Limited filed a lawsuit against the Company before the Barasat District Court, seeking approximately $1.6 million as damages and an injunction for copyright infringement. Saregama India alleged that the Company made available Saregama India's sound recordings through the Company's platform with full knowledge that the sound recordings had been uploaded and were being communicated to the public without obtaining any license from Saregama India. On August 20, 2019, the Court lifted the injunction and, subsequently, Saregama India executed a consent pursuant to which the case against the Company was dismissed. 

 

The Company may from time to time be subject to other 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.

v3.20.1
Revolving Credit Facility
9 Months Ended
Apr. 30, 2020
Revolving Credit Facility [Abstract]  
Revolving Credit Facility

Note 9—Revolving Credit Facility

 

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 April 30, 2020, there were no amounts outstanding under the revolving credit facility and the Company was in compliance with all of the covenants.

 

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 nine 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 April 30, 2020, there were $1.4 million of outstanding foreign exchange contracts with less than six months tenor under the credit facility, which reduced the available borrowing under the revolving credit facility by $140,000.

v3.20.1
Investment in Privately-Held Company
9 Months Ended
Apr. 30, 2020
Investment in Privately-held Company [Abstract]  
Investment in Privately-held Company

Note 10—Investment in Privately-held Company

 

In August 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 (when compared to industry norms) of revenue derived from all playable ads provided by TreSensa, from its available catalogue for distribution through the Zedge App. This distribution agreement was terminated in April 2019.

 

The Company's ownership interest in TreSensa, a privately held company, is comprised of non-marketable equity securities without a readily determinable fair value. On August 1, 2018, the Company adopted ASU 2016-01, a new standard on the classification and measurement for non-marketable securities. The Company adjusts the carrying value of its non-marketable equity securities to fair value upon observable transactions for identical or similar investments of the same issuer or upon impairment (referred to as the measurement alternative). All gains and losses on non-marketable equity securities, realized and unrealized, are recognized in interest and other income (expense), net.

 

The Company periodically evaluates the carrying value of the investments in privately held company when events and circumstances indicate that the carrying amount of the investment may not be recovered. The Company estimates the fair value of the investments to assess whether impairment losses shall be recorded using Level 3 inputs. These investments include the Company's holdings in privately held company that are not exchange traded and therefore not supported with observable market prices; hence, the Company may determine the fair value by reviewing equity valuation reports, current financial results, long-term plans of the privately held company, the amount of cash that the privately held company have on-hand, the ability to obtain additional financing and overall market conditions in which the privately held company operate or based on the price observed from the most recent completed financing round.

 

In the fourth quarter of fiscal 2019, management performed its qualitative assessment using the above factors, which indicated the investment's fair value was below its carrying value, and therefore recorded an impairment charges of $250,000 in July 2019 and reduced the carrying value of the Company's non-marketable equity securities to $0 as of July 31, 2019.

v3.20.1
Business Segment and Geographic Information
9 Months Ended
Apr. 30, 2020
Segment Reporting [Abstract]  
Business Segment and Geographic Information

Note 11—Business Segment and Geographic Information

 

The Company offers a state-of-the-art digital publishing platform. The Company use this platform to power its consumer-facing mobile personalization app, called Zedge, available in the Google Play store and the App Store, which offers an easy, entertaining and immersive way for end-users to engage with its rich and diverse catalogue of wallpapers, stickers, ringtones, notification sounds and video wallpapers. The Company is evolving by developing new, entertainment-focused apps, that will run on its publishing platform. The Company conducts business as a single operating segment.

 

Net long-lived assets and total assets held outside of the United States, which are located primarily in Norway, were as follows:

 

  United States   Foreign   Total 
Long-lived assets, net:   (in thousands) 
30-Apr-20  $2,720   $516   $3,236 
31-Jul-19  $3,304   $212   $3,516 
                
Total assets:               
30-Apr-20  $7,303   $3,660   $10,963 
31-Jul-19  $5,508    3,499   $9,007 

v3.20.1
Leases
9 Months Ended
Apr. 30, 2020
Leases [Abstract]  
Leases

Note 12— Leases

 

At the inception of certain arrangements, the Company determines whether the arrangement is or contains a lease based on the unique facts and circumstances present. Operating leases are included in other assets, accrued expenses and other current liabilities, and other liabilities on the Company's Consolidated Balance Sheets. The Company does not have any finance leases.

 

Leases with a term greater than one year are recognized on the Consolidated Balance Sheet as right-of-use ("ROU") assets, lease obligations and, if applicable, long-term lease obligations in the line items cited above. The Company has elected not to recognize leases with terms of one year or less on the Consolidated Balance Sheets. Lease obligations and their corresponding ROU assets are recorded based on the present value of lease payments over the expected lease term. As the interest rate implicit in lease contracts is typically not readily determinable, the Company utilizes the appropriate incremental borrowing rate, which is the rate incurred to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment. The lease term may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option.

 

The Company has elected to combine lease components (including land, building or other similar items) and non-lease components (including common area maintenance, maintenance, consumables, or other similar items) as a single component and therefore the non-lease components are included the calculation of the present value of lease payments. The lease expense is recognized over the expected term on a straight-line basis.

 

The Company currently leases 11,578 square feet of office space for its technology development center located in Trondheim, Norway, under a noncancelable lease that expires in 2021. The Company uses these facilities to accommodate its product, design and technology team. Additionally, the Company also has short-term leases for its offices in 1) New York to house its commercial operations including sales, accounting and finance, and business development, 2) Vilnius, Lithuania, a satellite development center and 3) Bodo, Norway that meet short-term lease criteria and are not recognized on the Consolidated Balance Sheets. Most leases include one or more options to renew, and the exercise of these options is at the Company's sole discretion. The Company determined that its options to break or renew would not be reasonably certain in determining the expected lease term, and therefore are not included as part of its ROU assets and lease liabilities.

 

In calculating the present value of the lease payments, the Company has elected to utilize its estimated incremental borrowing rate based on the remaining lease term and not the original lease term. The depreciable life of assets and leasehold improvements are limited by the expected lease term.

 

The elements of lease expense were as follows (in thousands): 

 

   Three Months Ended    Nine Months Ended 
  

April 30,

2020

  

April 30,

2020

 
Operating lease cost  $53   $170 
Other lease cost, net (1)   39    108 
Total lease cost  $92   $278 

 

(1)Other lease cost, net includes short-term lease costs and variable lease costs, which are immaterial.

 

The following table presents the lease-related assets and liabilities recorded on the Consolidated Balance Sheet (in thousands):

 

  

As of

April 30,

 
Operating leases:  2020 
Other assets  $327 
Other current liabilities  $198 
Other liabilities   145 
Total operating lease liabilities  $343 

 

The following table summarizes the weighted average remaining lease term and weighted average discount rate as of April 30, 2020:

  

As of

April 30,

 
   2020 
Weighted average remaining lease term:    
Operating leases   1.67 years 
Weighted average discount rate:     
Operating leases   5.00%

 

Supplemental cash flow information related to leases was as follows (in thousands):

 

  

Nine Months

Ended

 
  

April 30,

2020

 
Cash paid for amounts included in the measurement of lease liabilities:     
Operating cash flows used in operating leases  $188 

 

Future minimum lease payments under non-cancelable leases for the years ending July 31, 2020, 2021, 2022, and thereafter are as follows (in thousands):

 

      Operating Leases 
   2020  $51 
   2021   215 
   2022   92 
Total future minimum lease payments      358 
Less imputed interest      15 
Total     $343 

 

As of April 30, 2020, the Company did not have any leases that have not yet commenced that create significant rights and obligations.

v3.20.1
Provision for Income Taxes
9 Months Ended
Apr. 30, 2020
Income Tax Disclosure [Abstract]  
Provision for income taxes

Note 13—Provision for Income taxes

 

The provision for income consists of minimum state taxes based on allocated net worth.

 

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 Coronavirus Aid, Relief, and Economic Security (CARES) Act was signed into law. The CARES 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 years. The Company has evaluated the tax provisions related to the CARES Act and determined them as being immaterial.

v3.20.1
Recently Issued Accounting Standards Not Yet Adopted
9 Months Ended
Apr. 30, 2020
Accounting Changes and Error Corrections [Abstract]  
Recently Issued Accounting Standards Not Yet Adopted

Note 14—Recently Issued Accounting Standards Not Yet Adopted

 

Recently Issued Accounting Standards Not Yet Adopted

 

In June 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standard Update No. 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (ASU 2016-13) which changes the impairment model for most financial assets and certain other instruments. For receivables, loans and other instruments, entities will be required to use a new forward-looking "expected loss" model that generally will result in the earlier recognition of allowance for losses. For available-for-sale debt securities with unrealized losses, entities will measure credit losses in a manner similar to current practice, except the losses will be recognized as allowances instead of reductions in the amortized cost of the securities. In addition, an entity will have to disclose significantly more information about allowances, credit quality indicators and past due securities. The new provisions will be applied as a cumulative-effect adjustment to retained earnings. The Company will adopt the new standard on August 1, 2020. The Company does not expect that the new standard will have a significant impact on its consolidated financial statements. 

 

In August 2018, the FASB issued Accounting Standard Update No. 2018-13, Changes to Disclosure Requirements for Fair Value Measurements (Topic 820) (ASU 2018-13), which improved the effectiveness of disclosure requirements for recurring and nonrecurring fair value measurements. The standard removes, modifies, and adds certain disclosure requirements. The Company will adopt the new standard effective August 1, 2020 and does not expect the adoption of this guidance to have a material impact on its consolidated financial statements.

 

In August 2018, the FASB issued Accounting Standard Update No. 2018-15, Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract, which aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The Company will adopt the new standard effective August 1, 2020 and does not expect the adoption of this guidance to have a material impact on its consolidated financial statements.

 

In December 2019, the FASB issued Accounting Standard Update No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (ASU 2019-12), which simplifies the accounting for income taxes. This guidance will be effective for the Company in the first quarter of fiscal 2021 on a prospective basis, and early adoption is permitted. The Company is currently evaluating the impact of the new guidance on its consolidated financial statements.

 

With the exception of the accounting standards discussed above, there have been no other recent accounting pronouncements or changes in accounting pronouncements during the three months ended April 30, 2020 that are of significance or potential significance to the Company.

v3.20.1
Loans Payable
9 Months Ended
Apr. 30, 2020
Payables and Accruals [Abstract]  
Loans Payable

Note 15—Loans Payable

 

On July 16, 2019, the Company obtained a loan of $140,000 to pay for its insurance coverages, repayable in nine equal installments of $15,976 starting from September 1, 2020 which represented a 4.79% annual percentage interest rate.

 

On March 27, 2020, Congress passed CARES Act to provide an estimated $2.2 trillion to fight the COVID-19 pandemic and stimulate the U.S. economy, including $349 billion that was earmarked for the Paycheck Protection Program (PPP) to provide certain small businesses with liquidity to support their operations, to be administered by the Small Business Administration (SBA). An additional $310 billion was later authorized for the PPP.

 

Under the PPP, eligible small businesses can apply to an SBA-approved lender for a loan that doesn't require collateral or personal guarantees. The loans have a 1% fixed interest rate and are due in two years. However, they are eligible for forgiveness (in full or in part, including any accrued interest) under certain conditions. For loans (or parts of loans) that are forgiven, the lender will collect the forgiven amount from the U.S. government.

 

The Company believes it qualified for a PPP loan and applied for and received a $218,000 loan from Western Alliance Bank, a loan servicer and the Company's lender (see Note 9), on April 22, 2020. The Company is using these proceeds primarily for payroll purposes for U.S. employees during the covered period provided under the PPP (which was recently extended to 24 weeks) and therefore expects that most of this loan will be forgiven. Any portion of the loan that is not forgiven will due five years after inception of the loan.

v3.20.1
Sales of Class B Common Stock
9 Months Ended
Apr. 30, 2020
Equity [Abstract]  
Sales of Class B Common Stock

Note 16—Sales of Class B Common Stock

 

On February 5, 2020, the Company closed on its registered direct offering of 1,734,459 shares of its Class B common stock for gross proceeds of $2.25 million. The Company sold 1,657,813 shares at a purchase price of $1.28 per share which represented a 20% discount from the 10 Day Volume Weighted Average Price (VWAP) through January 31, 2020, and certain Company insiders purchased an additional 76,646 shares at a purchase price of $1.67 per share, the closing price on February 3, 2020. In connection with this offering, the Company incurred a total issuance costs of $141,000. The Company intends to use the net proceeds from the offering for working capital and other general corporate purposes.

v3.20.1
Basis of Presentation and Recently Adopted Accounting Pronouncements (Policies)
9 Months Ended
Apr. 30, 2020
Accounting Policies [Abstract]  
Basis of Presentation

Basis of Presentation

 

The accompanying unaudited consolidated financial statements of Zedge, Inc. and its subsidiaries, Zedge Europe AS and Zedge Canada, Inc. (dissolved as of May 2, 2019) (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 10 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 and nine months ended April 30, 2020 are not necessarily indicative of the results that may be expected for the fiscal year ending July 31, 2020 or any other period. The balance sheet at July 31, 2019 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 year ended July 31, 2019, 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 2020 refers to the fiscal year ending July 31, 2020).

 

COVID-19 Impacts on Financial and Operational Results

 

The COVID-19 pandemic has caused widespread economic disruption impacting the Company in a number of ways, most notably, with a significant decrease in global advertising spend. As such, the Company lacks clarity about how the pandemic will influence its future financial and operational results.

 

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. The Company imposed a temporary hiring freeze and lowered its discretionary spend to preserve cash for mission critical projects. The Company has responded quickly and decisively to the challenges presented by the pandemic in order to ensure the continuity of its service.

 

As of April 30, 2020, the Company had $4.6 million of cash and cash equivalents. The Company has developed certain contingency plans to preserve liquidity if such actions may be determined to be necessary due to worsening conditions, including related to an increase in impacts from the COVID-19 pandemic or if the effects of the pandemic last longer than currently anticipated. At the current time, the Company does not believe taking such actions is prudent nor, does it expect to need to take such action based on its current forecasts. The Company believes that its existing cash and cash equivalents, together with cash generated by operations will be sufficient to meet its working capital and capital expenditure requirements for the foreseeable future when accounting for the ill effects of the COVID-19 pandemic.

 

The Company considered the impacts of the COVID-19 pandemic on its significant estimates and judgments used in applying its accounting policies in the three months ended April 30, 2020. In light of the pandemic, there is a greater degree of uncertainty in applying these judgments and depending on the duration and severity of the pandemic, changes to its estimates and judgments could result in a meaningful impact to its financial statements in future periods. Of the more significant items subject to a greater degree of uncertainty during this time include estimates of revenue collectability and credit losses related to accounts receivable.

Recently Adopted Accounting Pronouncements

Recently Adopted Accounting Pronouncements

 

In February 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2016-02—Leases (Topic 842), and additional changes, modifications, clarifications, or interpretations related to this guidance thereafter, which require a reporting entity to recognize right-of-use ("ROU") assets and lease liabilities on the balance sheet for operating leases to increase the transparency and comparability.

 

The Company adopted this standard in the first quarter of fiscal 2020, effective as of August 1, 2019, using the modified retrospective approach. The adoption of Topic 842 had a material impact on the Company's consolidated balance sheets, but did not impact its consolidated statements of comprehensive loss, consolidated statements of stockholders' equity, or consolidated statements of cash flows. There was no adjustment to beginning retained earnings on August 1, 2019. The Company elected the short-term lease recognition exemption for all leases that qualify. Accordingly, the Company did not recognize ROU assets or lease liabilities for leases that qualify, including leases for existing short-term leases in effect at transition and continue to recognize those lease payments as expenses on the Company's consolidated statements of comprehensive loss on a straight-line basis over the lease term. The Company elected the practical expedient to not separate lease and non-lease components for all its leases. Upon adoption, the Company recognized new ROU assets and lease obligations on the Consolidated Balance Sheet for its operating leases of $538,000 and $512,000, respectively. See Note 12 – Lease for further details.

 

In August 2017, the FASB issued ASU 2017-12 – Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting Hedging Activities, which was intended to improve the financial reporting of hedging relationships to better portray the economic results of an entity's risk management activities in its financial statements. In addition, the ASU includes certain targeted improvements to simplify the application of hedge accounting guidance in U.S. GAAP. The amendments in this ASU were effective for the Company on August 1, 2019. Entities were to apply the amendments to qualified hedge relationships that existed on the date of adoption using a modified retrospective approach. The presentation and disclosure requirements were to be applied prospectively. The adoption of this ASU did not have a significant impact on the Company's consolidated financial statements as the Company's hedging activities of foreign currency are not designated and/or do not qualify as hedging instruments. See Note 4 – Derivative Instruments for further details.

v3.20.1
Revenue (Tables)
9 Months Ended
Apr. 30, 2020
Revenue from Contract with Customer [Abstract]  
Schedule of revenue by type of service
   Three Months Ended   Nine Months Ended 
   April 30,   April 30, 
   2020   2019   2020   2019 
   (in thousands)   (in thousands) 
Advertising revenue  $1,501   $1,670   $5,428   $6,243 
Subscription and Zedge Premium revenue   578    63    1,328    95 
Service revenue   -    179    -    528 
Total Revenue  $2,079   $1,912   $6,756   $6,866 
v3.20.1
Fair Value Measurements (Tables)
9 Months Ended
Apr. 30, 2020
Fair Value Disclosures [Abstract]  
Schedule of balance of assets and liabilities measured at fair value on a recurring basis
      Level 1 (1)   Level 2 (2)   Level 3 (3)   Total 
   30-Apr-20  (in thousands) 
Assets:                  
Foreign exchange forward contracts     $-   $-   $-   $- 
                        
Liabilities:                       
Foreign exchange forward contracts     $-   $145   $-   $145 
   31-Jul-19                    
Assets:                       
Foreign exchange forward contracts     $-   $-   $-   $- 
                        
Liabilities:                       
Foreign exchange forward contracts     $-   $38   $-   $38 

 

(1) – quoted prices in active markets for identical assets or liabilities

(2) – observable inputs other than quoted prices in active markets for identical assets and liabilities

(3) – no observable pricing inputs in the market

v3.20.1
Derivative Instruments (Tables)
9 Months Ended
Apr. 30, 2020
Schedule of fair value of derivative assets and liabilities

 

Derivatives Instruments

  Balance Sheet Location  April 30,
2020
   July 31,
2019
 
      (in thousands) 
Derivatives not designated or not qualifying as hedging instruments:           
Foreign exchange forward contracts  Accrued expenses and other current liabilities  $145   $38 

Schedule of derivative instruments on consolidated statements of comprehensive loss

      Amount of Loss Recognized on Derivatives 
      Three Months Ended   Nine Months Ended 
      April 30,   April 30, 
Derivatives not designated or not qualifying as hedging instruments  Statement of Comprehensive Loss Location  2020   2019   2020   2019 
      (in thousands)   (in thousands) 
Foreign exchange forward contracts  Net loss resulting from foreign exchange transactions  $273   $80   $327   $254 

Western Alliance Bank [Member]  
Schedule of outstanding foreign exchange contracts
Settlement Date  U.S. Dollar Amount   NOK Amount 
May-20   350,000    3,216,464 
Jun-20   350,000    3,216,359 
Jul-20   350,000    3,216,114 
Aug-20   350,000    3,216,324 
Total  $1,400,000    12,865,261 
v3.20.1
Accrued Expenses and Other Current Liabilities (Tables)
9 Months Ended
Apr. 30, 2020
Payables and Accruals [Abstract]  
Schedule of accrued expenses and other liabilities
  

April 30,

2020 

  

July 31,

2019 

 
    (in thousands) 
Accrued vacation  $459   $503 
Accrued payroll taxes   198    183 
Accrued payroll and bonuses   135    235 
Operating lease liability   198    - 
Derivative liability   145    38 
Accrued professional fees   -    57 
Due to artists   44    56 
Other   64    100 
Total accrued expenses and other current liabilities  $1,243   $1,172 
v3.20.1
Earnings per Share (Tables)
9 Months Ended
Apr. 30, 2020
Earnings Per Share [Abstract]  
Schedule of weighted-average number of shares calculation of basic and diluted earnings per share

   Three Months Ended   Nine Months Ended 
   April 30,   April 30, 
   2020   2019   2020   2019 
   (in thousands) 
Basic weighted-average number of shares   11,979    10,116    10,793    10,063 
Effect of dilutive securities:                    
Stock options   -    -    -    - 
Non-vested restricted Class B common stock   -    -    -    - 
Deferred stock units   -    -    -    - 
Diluted weighted-average number of shares   11,979    10,116    10,793    10,063 

Schedule of shares excluded from the dilutive earnings per share computations

   Three Months Ended   Nine Months Ended 
   April 30,   April 30, 
   2020   2019   2020   2019 
   (in thousands)                 
Stock options   1,326    1,277    1,326    1,277 
Non-vested restricted Class B common stock   120    217    120    217 
Deferred stock units   69    -    69    - 
Shares excluded from the calculation of diluted earnings per share   1,515    1,494    1,515    1,494 

v3.20.1
Business Segment and Geographic Information (Tables)
9 Months Ended
Apr. 30, 2020
Segment Reporting [Abstract]  
Schedule of net long-lived assets and total assets held outside of the United States

  United States   Foreign   Total 
Long-lived assets, net:   (in thousands) 
30-Apr-20  $2,720   $516   $3,236 
31-Jul-19  $3,304   $212   $3,516 
                
Total assets:               
30-Apr-20  $7,303   $3,660   $10,963 
31-Jul-19  $5,508    3,499   $9,007 
v3.20.1
Leases (Tables)
9 Months Ended
Apr. 30, 2020
Leases [Abstract]  
Schedule of lease expense
   Three Months Ended   Nine Months Ended 
   April 30,
2020
   April 30,
2020
 
Operating lease cost  $53   $170 
Other lease cost, net (1)   39    108 
Total lease cost  $92   $278 

 

(1)Other lease cost, net includes short-term lease costs and variable lease costs, which are immaterial.
Schedule of lease-related assets and liabilities

  

As of

April 30,

 
Operating leases:  2020 
Other assets  $327 
Other current liabilities  $198 
Other liabilities   145 
Total operating lease liabilities  $343 
Schedule of weighted average remaining lease term and weighted average discount rate

  

As of

April 30,

 
   2020 
Weighted average remaining lease term:    
Operating leases   1.67 years 
Weighted average discount rate:     
Operating leases   5.00%
Schedule of cash flow information related to leases

  

Nine Months

Ended

 
  

April 30,

2020

 
Cash paid for amounts included in the measurement of lease liabilities:     
Operating cash flows used in operating leases  $188 
Schedule of Future minimum lease payments under non-cancelable leases

      Operating Leases 
   2020  $51 
   2021   215 
   2022   92 
Total future minimum lease payments      358 
Less imputed interest      15 
Total     $343 
v3.20.1
Basis of Presentation and Recently Adopted Accounting Pronouncements (Details) - USD ($)
$ in Thousands
Apr. 30, 2020
Jul. 31, 2019
Apr. 30, 2019
Jul. 31, 2018
Basis of Presentation and Recently Adopted Accounting Pronouncements (Textual)        
Cash and cash equivalents $ 4,630 $ 1,609 $ 2,248 $ 3,408
Operating leases right of use asset $ 538 $ 512    
v3.20.1
Revenue (Details) - USD ($)
$ in Thousands
3 Months Ended 9 Months Ended
Apr. 30, 2020
Apr. 30, 2019
Apr. 30, 2020
Apr. 30, 2019
Disaggregation of Revenue [Line Items]        
Total Revenue $ 2,079 $ 1,912 $ 6,756 $ 6,866
Advertising revenue [Member]        
Disaggregation of Revenue [Line Items]        
Total Revenue 1,501 1,670 5,428 6,243
Subscription and Zedge Premium revenue [Member]        
Disaggregation of Revenue [Line Items]        
Total Revenue 578 63 1,328 95
Service revenue [Member]        
Disaggregation of Revenue [Line Items]        
Total Revenue $ 179 $ 528
v3.20.1
Revenue (Details Textual) - USD ($)
$ in Thousands
1 Months Ended 3 Months Ended 9 Months Ended
Jul. 31, 2019
Apr. 30, 2020
Apr. 30, 2020
Revenue (Textual)      
Credits, description     The Company 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.
Deferred revenue $ 362    
Process subscription payments fee percent     30.00%
Unsatisfied performance obligations, description     The Company also records deferred revenues related to the unsatisfied performance obligations with respect to subscription revenue. As of April 30, 2020, the Company’s deferred revenue balance related to subscriptions was approximately $899,000, representing approximately 394,000 active subscribers.
Revenue from breakage   $ 62 $ 124
Revenue recognized 329   329
Subscription Revenue [Member]      
Revenue (Textual)      
Deferred revenue 129    
Zedge Premium [Member]      
Revenue (Textual)      
Deferred revenue $ 155 $ 170 $ 170
v3.20.1
Fair Value Measurements (Details) - USD ($)
$ in Thousands
Apr. 30, 2020
Jul. 31, 2019
Assets:    
Foreign exchange forward contracts
Liabilities:    
Foreign exchange forward contracts 145 38
Fair Value on a Recurring Basis [Member] | Level 1 [Member]    
Assets:    
Foreign exchange forward contracts [1]
Liabilities:    
Foreign exchange forward contracts [1]
Fair Value on a Recurring Basis [Member] | Level 2 [Member]    
Assets:    
Foreign exchange forward contracts [2]
Liabilities:    
Foreign exchange forward contracts [2] 145 38
Fair Value on a Recurring Basis [Member] | Level 3 [Member]    
Assets:    
Foreign exchange forward contracts [3]
Liabilities:    
Foreign exchange forward contracts [3]
[1] quoted prices in active markets for identical assets or liabilities
[2] observable inputs other than quoted prices in active markets for identical assets and liabilities
[3] no observable pricing inputs in the market
v3.20.1
Derivative Instruments (Details) - Western Alliance Bank [Member]
9 Months Ended
Apr. 30, 2020
USD ($)
Apr. 30, 2020
NOK (kr)
Amount | $ $ 1,400,000  
NOK [Member]    
Amount | kr   kr 12,865,261
May-20 [Member]    
Settlement Date May 31, 2020 May 31, 2020
Amount | $ $ 350,000  
May-20 [Member] | NOK [Member]    
Amount | kr   kr 3,216,464
Jun-20 [Member]    
Settlement Date Jun. 30, 2020 Jun. 30, 2020
Amount | $ $ 350,000  
Jun-20 [Member] | NOK [Member]    
Amount | kr   kr 3,216,359
Jul-20 [Member]    
Settlement Date Jul. 31, 2020 Jul. 31, 2020
Amount | $ $ 350,000  
Jul-20 [Member] | NOK [Member]    
Amount | kr   kr 3,216,114
Aug-20 [Member]    
Settlement Date Aug. 31, 2020 Aug. 31, 2020
Amount | $ $ 350,000  
Aug-20 [Member] | NOK [Member]    
Amount | kr   kr 3,216,324
v3.20.1
Derivative Instruments (Details 1) - USD ($)
$ in Thousands
9 Months Ended 12 Months Ended
Apr. 30, 2020
Jul. 31, 2019
Derivatives not designated or not qualifying as hedging instruments:    
Foreign exchange forward contracts $ 145 $ 38
Balance Sheet Location Accrued expenses and other current liabilities Accrued expenses and other current liabilities
v3.20.1
Derivative Instruments (Details 2) - USD ($)
$ in Thousands
3 Months Ended 9 Months Ended
Apr. 30, 2020
Apr. 30, 2019
Apr. 30, 2020
Apr. 30, 2019
Derivatives not designated or not qualifying as hedging instruments        
Foreign exchange forward contracts $ 273 $ 80 $ 327 $ 254
Statement of Comprehensive Loss Location Net loss resulting from foreign exchange transactions Net loss resulting from foreign exchange transactions Net loss resulting from foreign exchange transactions Net loss resulting from foreign exchange transactions
v3.20.1
Accrued Expenses and Other Current Liabilities (Details) - USD ($)
$ in Thousands
Apr. 30, 2020
Jul. 31, 2019
Payables and Accruals [Abstract]    
Accrued vacation $ 459 $ 503
Accrued payroll taxes 198 183
Accrued payroll and bonuses 135 235
Operating lease liability 198
Derivative liability 145 38
Accrued professional fees 57
Due to artists 44 56
Other 64 100
Total accrued expenses and other current liabilities $ 1,243 $ 1,172
v3.20.1
Stock-Based Compensation (Details)
$ / shares in Units, $ in Thousands
1 Months Ended 9 Months Ended
Nov. 07, 2019
USD ($)
Customer
shares
Feb. 07, 2018
USD ($)
shares
Feb. 05, 2020
USD ($)
shares
Aug. 28, 2019
USD ($)
shares
Oct. 18, 2017
USD ($)
Customer
shares
Sep. 30, 2017
USD ($)
shares
Apr. 30, 2020
USD ($)
$ / shares
shares
Apr. 30, 2019
USD ($)
shares
May 07, 2020
shares
Feb. 07, 2020
shares
Jul. 31, 2019
$ / shares
Stock-Based Compensation (Textual)                      
Unrecognized compensation expense | $       $ 139              
Vested period, description       The DSUs vest over a four-year period from August 1, 2019.              
Number of non-executive employees, description       11 of its non-executive employees based in Norway and Lithuania.              
Shares purchased     76,646                
Restricted Stock Award [Member]                      
Stock-Based Compensation (Textual)                      
Options granted   108,553                  
Unrecognized compensation expense | $             $ 85        
Aggregate grant date fair value | $   $ 330       $ 369 60        
Vested period, description   Two-third of the shares have vested and the remaining shares shall vest on February 7, 2021.                  
Issuance of shares                   15,267  
Restricted Stock Award [Member] | Employees [Member]                      
Stock-Based Compensation (Textual)                      
Amount of share purchase | $             29,072 $ 30,543      
Restricted Stock Award [Member] | Subsequent Event [Member]                      
Stock-Based Compensation (Textual)                      
Issuance of shares                 15,267    
Unvested Stock Options [Member]                      
Stock-Based Compensation (Textual)                      
Unrecognized compensation expense | $             221        
Aggregate grant date fair value | $             $ 91        
Stock Options [Member]                      
Stock-Based Compensation (Textual)                      
Options to purchase shares of the Company's Class B common stock         124,435            
Unrecognized compensation expense | $         $ 159            
Stock, description             The Compensation Committee approved two equity grants of options to purchase an aggregate of 27,493 shares of Class B Stock to 6 non-executive employees. The options vest over a three-year period. Unrecognized compensation expense related to this grant was an aggregate of $33,000 based on the estimated fair value of the options on the grant dates.        
Class B common stock [Member]                      
Stock-Based Compensation (Textual)                      
Common stock, par value | $ / shares             $ 0.01       $ 0.01
Amount of share purchase | $     $ 2,250                
Class B common stock [Member] | Restricted Stock Award [Member]                      
Stock-Based Compensation (Textual)                      
Options granted           192,953          
Shares purchased             18,441 14,137      
Restricted shares 30,534                    
Deferred Stock Units [Member]                      
Stock-Based Compensation (Textual)                      
Options granted       90,000              
Unrecognized compensation expense | $             $ 86        
2016 Incentive Plan [Member]                      
Stock-Based Compensation (Textual)                      
Vesting period 3 years                    
Unrecognized compensation expense | $ $ 242                    
Number of employees | Customer 4                    
Number of consultant | Customer 1                    
Stock, description Additionally, on November 7, 2019, Mr. Jonas received 1,411 restricted shares of the Company's Class B common stock to vest in substantially equal amounts on November 7, 2020, 2021 2022.                    
Vested period, description The unrecognized compensation expense is being recognized on a straight-line basis over the vesting period.                    
2016 Incentive Plan [Member] | Class B common stock [Member]                      
Stock-Based Compensation (Textual)                      
Options granted             295,000        
Options to purchase shares of the Company's Class B common stock 180,996                    
Number of non-executive employees | Customer         55            
Incentive plan, description The Company’s Board of Directors amended its 2016 Stock Option and Incentive Plan (as amended to date, the “2016 Incentive Plan”) to increase the number of shares of the Company’s Class B common stock available for the grant of awards thereunder by an additional 230,000 shares, to an aggregate of 1,271,000 shares. This amendment was ratified by the Company’s stockholders at the Annual Meeting of Stockholders held on January 13, 2020.                    
v3.20.1
Earnings Per Share (Details) - shares
shares in Thousands
3 Months Ended 9 Months Ended
Apr. 30, 2020
Apr. 30, 2019
Apr. 30, 2020
Apr. 30, 2019
Earnings Per Share [Abstract]        
Basic weighted-average number of shares 11,979 10,116 10,793 10,063
Effect of dilutive securities:        
Stock options
Non-vested restricted Class B common stock
Deferred stock units
Diluted weighted-average number of shares 11,979 10,116 10,793 10,063
v3.20.1
Earnings Per Share (Details 1) - shares
shares in Thousands
3 Months Ended 9 Months Ended
Apr. 30, 2020
Apr. 30, 2019
Apr. 30, 2020
Apr. 30, 2019
Shares excluded from the calculation of diluted earnings per share 1,515 1,494 1,515 1,494
Stock options [Member]        
Shares excluded from the calculation of diluted earnings per share 1,326 1,277 1,326 1,277
Non-vested restricted Class B common stock [Member]        
Shares excluded from the calculation of diluted earnings per share 120 217 120 217
Deferred stock units [Member]        
Shares excluded from the calculation of diluted earnings per share 69 69
v3.20.1
Contingencies (Details)
$ in Thousands
Mar. 31, 2014
USD ($)
Contingencies (Textual)  
Lawsuit approximate amount $ 1,600
v3.20.1
Revolving Credit Facility (Details) - USD ($)
$ in Thousands
1 Months Ended 9 Months Ended
Dec. 31, 2016
Nov. 16, 2016
Sep. 27, 2016
Apr. 30, 2020
Revolving Credit Facility (Textual)        
Forward contracts, description       There were $1.4 million of outstanding foreign exchange contracts with less than six months tenor under the credit facility, which reduced the available borrowing under the revolving credit facility by $140,000.
Foreign Exchange Contract [Member]        
Revolving Credit Facility (Textual)        
Loan and security agreement with western alliance bank for revolving credit facility amount   $ 5,000    
Line of credit facility, borrowing capacity, description   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.    
Foreign exchange, description The applicable foreign exchange reserve percentage was changed so that the reduction of available borrowing for major currency forward contracts of less than nine 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.      
Revolving Credit Facility [Member]        
Revolving Credit Facility (Textual)        
Loan and security agreement with western alliance bank for revolving credit facility amount     $ 2,500  
Line of credit facility, borrowing capacity, description     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.  
Interest rate, description     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.  
Line of credit maturity date     Sep. 26, 2020  
Line of credit facility annual fee     $ 12,500  
Available borrowing reduction       $ 140
v3.20.1
Investment in Privately-Held Company (Details) - USD ($)
$ in Thousands
3 Months Ended
Jul. 31, 2019
Aug. 31, 2018
Investment in Privately-Held Company (Textual)    
Investments   $ 250
Equity ownership interest   1.00%
Impairment charges $ 250  
Non-marketable equity securities $ 0  
v3.20.1
Business Segment and Geographic Information (Details) - USD ($)
$ in Thousands
Apr. 30, 2020
Jul. 31, 2019
Segment Reporting Information [Line Items]    
Long-lived assets, net $ 3,236 $ 3,516
Total assets 10,963 9,007
United States [Member]    
Segment Reporting Information [Line Items]    
Long-lived assets, net 2,720 3,304
Total assets 7,303 5,508
Foreign [Member]    
Segment Reporting Information [Line Items]    
Long-lived assets, net 516 212
Total assets $ 3,660 $ 3,499
v3.20.1
Business Segment and Geographic Information (Details Textual)
9 Months Ended
Apr. 30, 2020
Segment
Business Segment and Geographic Information (Textual)  
Number of opertating segment 1
v3.20.1
Leases (Details) - USD ($)
$ in Thousands
3 Months Ended 9 Months Ended
Apr. 30, 2020
Apr. 30, 2020
Leases [Abstract]    
Operating lease cost $ 53 $ 170
Other lease cost, net [1] 39 108
Total lease cost $ 92 $ 278
[1] Other lease cost, net includes short-term lease costs and variable lease costs, which are immaterial
v3.20.1
Leases (Details 1)
$ in Thousands
Apr. 30, 2020
USD ($)
Operating leases:  
Other assets $ 327
Accrued expenses and other current liabilities 198
Other liabilities 145
Total operating lease liabilities $ 343
v3.20.1
Leases (Details 2)
Apr. 30, 2020
Weighted average remaining lease term:  
Operating leases 1 year 8 months 2 days
Weighted average discount rate:  
Operating leases 5.00%
v3.20.1
Leases (Details 3)
$ in Thousands
9 Months Ended
Apr. 30, 2020
USD ($)
Cash paid for amounts included in the measurement of lease liabilities:  
Operating cash flows used in operating leases $ 188
v3.20.1
Leases (Details 4)
$ in Thousands
Apr. 30, 2020
USD ($)
Leases [Abstract]  
2020 $ 51
2021 215
2022 92
Total future minimum lease payments 358
Less imputed interest 15
Total $ 343
v3.20.1
Leases (Details Textual)
9 Months Ended
Apr. 30, 2020
ft²
Leases (Textual)  
Area of land 11,578
Lease expires Jul. 31, 2021
Lease, description 1) New York to house its commercial operations including sales, accounting and finance, and business development, 2) Vilnius, Lithuania, a satellite development center and 3) Bodo, Norway that meet short-term lease criteria and are not recognized on the Consolidated Balance Sheets.