Equity Investments

3 Months Ended

Oct. 31, 2022

Investments, Debt and Equity Securities [Abstract]

Equity Investments

Note 7—Equity Investments

Equity investments consist of the following:

	October 31, 2022		July 31, 2022
	(in thousands)
Zedge, Inc. Class B common stock, 42,282 shares at October 31, 2022 and July 31, 2022	$	90	$	117
Rafael Holdings, Inc. Class B common stock, 290,214 shares at October 31, 2022 and July 31, 2022		514		586
Other marketable equity securities		2,679		4,089
Fixed income mutual funds		6,086		12,299
Current equity investments	$	9,369	$	17,091
Visa Inc. Series C Convertible Participating Preferred Stock (“Visa Series C Preferred”)	$	1,105	$	1,132
Visa Inc. Series A Convertible Participating Preferred Stock (“Visa Series A Preferred”)		—		1,230
Series B and Series C convertible preferred stock—equity method investment		349		1,001
Hedge funds		3,137		3,238
Other		2,325		825
Noncurrent equity investments	$	6,916	$	7,426

The Company received the shares of Zedge, Inc. (“Zedge”) Class B common stock and 28,320 of the shares of Rafael Class B common stock set forth in the table above in connection with the lapsing of restrictions on Zedge and Rafael restricted stock held by certain of the Company’s employees and the Company’s payment of taxes on behalf of its employees related thereto. The Company purchased 261,894 shares of Rafael Class B common stock in fiscal 2021. Howard S. Jonas is the Vice-Chairman of the Board of Directors of Zedge.

On July 28, 2022, in connection with Visa Inc.’s second mandatory release assessment, the Company received 58 shares of Visa Series A Preferred and the conversion adjustment for Visa Series C Preferred was reduced to 3.645. In August 2022, the 58 shares of Visa Series A Preferred were converted into 5,800 shares of Visa Class A common stock, which the Company sold for $1.3 million.

The changes in the carrying value of the Company’s equity investments without readily determinable fair values for which the Company elected the measurement alternative was as follows:

	Three Months Ended October 31,
	2022			2021
	(in thousands)
Balance, beginning of period	$	1,401		$	2,743
Adjustment for observable transactions involving a similar investment from the same issuer		(27	)		(346	)
Impairments		—			—
Balance, end of the period	$	1,374		$	2,397

The Company decreased the carrying value of the shares of Visa Series C Preferred it held by $27,000 and $0.3 million in the three months ended October 31, 2022 and 2021, respectively, based on the fair value of Visa Class A common stock and a discount for lack of current marketability.

Unrealized gains and losses for all equity investments measured at fair value included the following:

	Three Months Ended October 31,
	2022			2021
	(in thousands)
Net losses recognized during the period on equity investments	$	(1,941	)	$	(14,494	)
Plus: net losses recognized during the period on equity investments redeemed during the period		4			—
Unrealized losses recognized during the period on equity investments still held at the reporting date	$	(1,937	)	$	(14,494	)

The unrealized gains and losses for all equity investments measured at fair value in the table above included the following:

	Three Months Ended October 31,
	2022			2021
	(in thousands)
Unrealized losses recognized during the period on equity investments:
Rafael Class B common stock	$	(72	)	$	(12,494	)
Zedge Class B common stock	$	(27	)	$	(162	)

Equity Method Investment

On February 2, 2021, the Company paid $4.0 million to purchase shares of series B convertible preferred stock of a communications company (the equity method investee, or “EMI”), and on August 10, 2021, the Company paid $1.1 million to purchase shares of the EMI’s series C convertible preferred stock and additional shares of the EMI’s series B convertible preferred stock. The initial shares purchased represented 23.95% of the outstanding shares of the EMI on an as converted basis. The subsequent purchases increased the Company’s ownership to 26.57% on an as converted basis.

The Company accounts for this investment using the equity method since the series B and series C convertible preferred stock are in-substance common stock, and the Company can exercise significant influence over the operating and financial policies of the EMI.

The Company determined that on the dates of the acquisitions, there were differences of $3.4 million and $1.0 million between its investment in the EMI and its proportional interest in the equity of the EMI, which represented the share of the EMI’s customer list on the dates of the acquisitions attributed to the Company’s interest in the EMI. These basis differences are being amortized over the 6-year estimated life of the customer list. In the accompanying consolidated statements of operations, amortization of equity method basis difference is included in the equity in the net loss of investee, which is recorded in “Other expense, net” (see Note 17).

As of October 31, 2022 and July 31, 2022, the Company had secured promissory notes from the EMI in exchange for loans of an aggregate of $3.4 million and $2.5 million, respectively. The notes provide for interest on the principal amount at 15% per annum payable monthly. The notes are due and payable in February 2023. As of October 31, 2022 and July 31, 2022, the notes were included in “Other current assets” in the accompanying consolidated balance sheets.

The following table summarizes the change in the balance of the Company’s equity method investment:

	Three Months Ended October 31,
	2022			2021
	(in thousands)
Balance, beginning of period	$	1,001		$	2,901
Purchase of convertible preferred stock		—			1,051
Equity in the net loss of investee		(470	)		(441	)
Amortization of equity method basis difference		(182	)		(182	)
Balance, end of period	$	349		$	3,329

Summarized financial information of the EMI was as follows:

	Three Months Ended October 31,
	2022			2021
	(in thousands)
Revenues	$	1,873		$	1,691
Costs and expenses:
Direct cost of revenues		1,694			1,462
Selling, general and administrative		1,636			1,889
Total costs and expenses		3,330			3,351
Loss from operations		(1,457	)		(1,660	)
Other expense		(344	)		(1	)
Net loss	$	(1,801	)	$	(1,661	)