Zedge, Inc. Income Taxes Disclosure

Note 12—Income Taxes

 

The components of loss before income taxes are as follows (in thousands):

 

Fiscal year ended July 31,		2025				2024
Domestic		$	(3,240	)		$	(11,779	)
Foreign			524				410
Loss before income taxes		$	(2,717	)		$	(11,369	)

 

Income taxes benefit consisted of the following (in thousands):

 

Fiscal year ended July 31,		2025				2024
Current:
Foreign		$	179			$	154
Federal			(33	)			124
State			9				26
Total current expense			155				304
Deferred:
Federal			(406	)			(2,337	)
State			(73	)			(165	)
Total deferred expense			(479	)			(2,502	)
Income taxes benefit		$	(325	)		$	(2,198	)

 

During the fiscal year ended July 31, 2025, the Company has early adopted ASU 2023-09 to enhance the income taxes disclosures regarding income taxes paid and the rate reconciliation disclosure. The income taxes paid by the Company are as follows (in thousands):

 

Fiscal year ended July 31,		2025				2024
Federal		$	15			$	175
State			27				29
Foreign			178				77
Total income taxes paid		$	220			$	281

 

Income taxes paid (net of refunds) exceeds 5 percent of total income taxes paid (net of refunds) in the following jurisdictions (in thousands):

 

Fiscal year ended July 31,		2025				2024
State
Minnesota		$	27				*
Foreign
Norway		$	99				*
Lithuania		$	79			$	68

  

*

Jurisdiction below the threshold for the period presented.

The differences between income taxes expected at the U.S. federal statutory income tax rate and income taxes reported were as follows (in thousands):

 

		2025								2024
Fiscal Year ended July 31,		$				%				$				%
Loss before income taxes		$	(2,717	)						$	(11,369	)
U.S. Federal Statutory Tax Rate			(571	)			21.0	%			(2,387	)			21.0	%
Current State and Local Income Taxes, Net of Federal Income Tax Effect			(56	)			2.1	%			(149	)			1.3	%
Foreign Tax Effects
Norway
Statutory tax rate difference between Norway and United States			1				0.0	%			-				0.0	%
Other			2				-0.1	%			3				0.0	%
Lithuania
Statutory tax rate difference between Lithuania and United States			(22	)			0.8	%			(22	)			0.2	%
Other			-				0.0	%			-				0.0	%
Effect of Changes in Tax Laws or Rates Enacted in the Current Period			-				0.0	%			-				0.0	%
Effect of Cross-Border Tax Laws
Global intangible low-taxed income			90				-3.3	%			39				-0.3	%
Foreign-derived intangible income			-				0.0	%			(50	)			0.4	%
Foreign Tax Credit			-				0.0	%			-				0.0	%
Nontaxable or Nondeductible Items
Share-based payment awards			401				-14.8	%			258				-2.3	%
Other			2				-0.1	%			2				0.0	%
Changes in Valuation Allowances			(185	)			6.8	%			185				-1.6	%
Other Adjustments			12				-0.4	%			(76	)			0.7	%
Effective Tax Rate		$	(325	)			11.9	%		$	(2,198	)			19.3	%

 

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 and Lithuania.

 

The Tax Cuts and Jobs Act of 2017 (the “Tax Act”) contains a provision which subjects a U.S parent of a foreign subsidiary to current U.S. tax on its global intangible low-taxed income (“GILTI”). The GILTI income is eligible for a deduction, which lowers the effective tax. The Company will report the tax impact of GILTI as a period cost when incurred. Accordingly, the Company is not providing deferred taxes for basis differences expected to reverse as GILTI.

 

U.S companies are eligible for a deduction that lowers the effective tax rate on certain foreign income. This regime is referred to as the Foreign-Derived Intangible Income deduction (“FDII”).

Significant components of the Company’s deferred tax assets and are as follows (in thousands):

 

Fiscal year ended July 31,		2025				2024
Deferred tax assets:
Depreciation and amortization		$	3,260			$	3,561
Net operating loss carryforwards (Foreign)			1,840				1,840
Net operating loss carryforwards (Federal)			476				-
Net operating loss carryforwards (State)			90				52
Reserves and accruals			181				179
Stock-based compensation			213				523
Deferred revenue			209				-
Others			395				214
Net deferred tax assets			6,663				6,369
Less valuation allowance			(1,840	)			(2,025	)
Total deferred tax assets		$	4,823			$	4,344

 

At July 31, 2025, the Company had available gross U.S. federal and state net operating loss (“NOL”) carryforwards from domestic operations of approximately $2.3 million and $1.3 million, respectively, to offset future taxable income. The state NOL carryforwards will begin to expire in 2040. In addition, the Company has approximately $8.0 million of Foreign NOLs (Israel) which are available to offset future taxable income in Israel without time limit.

 

The change in the valuation allowance is as follows (in thousands):

 

Fiscal year ended July 31,		Balance at beginning of year				Additions related to stock-based compensation				Deductions				Balance at end of year
2025
Reserves deducted from deferred income taxes, net:
Valuation allowance		$	2,025			$	-			$	(185	)		$	1,840
2024
Reserves deducted from deferred income taxes, net:
Valuation allowance		$	1,840			$	185			$	-			$	2,025

 

At July 31, 2025 and 2024, the Company did not have any unrecognized tax benefits and does not anticipate any significant changes to the unrecognized tax benefits within the twelve months of this reporting date. In the fiscal years ended July 31, 2025 and 2024, the Company recorded $0 and $4,500, respectively, in interest and penalties on income taxes. At July 31, 2025 and 2024, there was no accrued interest included in income taxes payable.

 

The Company currently remains subject to examinations of its U.S. federal, state, and foreign tax returns generally for fiscal years 2020 through 2024.

 

The Tax Cuts and Jobs Act of 2017 (TCJA) has modified the IRC 174 expenses related to research and development (R&D) for the tax years beginning after December 31, 2021. The Company is required to capitalize the expenditures related to R&D activities and amortize over 5 years for US activities and 15 years for non-US activities using mid-year convention. For US GAAP purposes, the Company capitalize all R&D expenditures on the consolidated balance sheet and amortize over 3 years for book purposes. Therefore, we will have book to tax difference in amortization expense and no additional capitalization on R&D expenditures for tax purposes under IRC 174.

 

On July 4, 2025, the One Big Beautiful Act (“OBBBA”) was signed into law, which enacts significant changes to the U.S. tax and related laws. Some of the provisions of the new tax law that affect corporations include but are not limited to expensing of domestic specified research or experimental expenditures, increasing the limitation on the deductibility of business interest expense under IRC §163(j) to thirty percent of EBITDA, and one hundred percent bonus depreciation on eligible property acquired after January 19, 2025. The Company is currently evaluating the impact that the new tax law will have on its financial condition and results of operations.