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Equity Investments
 12 Months Ended
Jul. 31, 2020
Equity Investments Disclosure [Abstract]  
Equity Investments

Note 7—Equity Investments

 

At August 1, 2018, the cumulative effect of adopting ASU No. 2016-01, Financial Instruments—Overall (Subtopic 825-10), Recognition and Measurement of Financial Assets and Financial Liabilities (see Note 1) was a $1.2 million increase in noncurrent “Equity investments”, a $33,000 decrease in “Accumulated other comprehensive loss” and a $1.1 million decrease in “Accumulated deficit”, primarily from the measurement at fair value of the Company’s shares of Visa Inc. Series C Convertible Participating Preferred Stock (“Visa Series C Preferred”) and the derecognition of unrealized holding losses on equity securities classified as available-for-sale.

 

Equity investments consist of the following:

 

July 31
(dollars in thousands)		  2020   2019 
Zedge, Inc. Class B common stock, 42,282 shares at July 31, 2020 and 2019  $59   $68 
Rafael Holdings, Inc. Class B common stock, 27,806 and 27,419 shares at July 31, 2020 and 2019, respectively   389    567 
Mutual funds   5,516    5,053 
Current equity investments  $5,964   $5,688 
           
Visa Series C Preferred  $3,825   $3,619 
Hedge funds   4,783    5,475 
Other   225    225 
Noncurrent equity investments  $8,833   $9,319 

 

On June 1, 2016, the Company completed a pro rata distribution of the common stock that the Company held in the Company’s subsidiary Zedge, Inc. (“Zedge”) to the Company’s stockholders of record as of the close of business on May 26, 2016. The Company received Zedge Class B common shares as well as Rafael Class B common shares 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 related thereto.

 

In June 2016, upon the acquisition of Visa Europe Limited by Visa, Inc. (“Visa”), IDT Financial Services Limited received 1,830 shares of Visa Series C Preferred among other consideration. At July 31, 2020, each share of Visa Series C Preferred was convertible into 13.722 shares of Visa Class A common stock (the “Conversion Adjustment), subject to certain conditions, and will be convertible at the holder’s option beginning in June 2028. On September 24, 2020, in connection with Visa’s first mandatory release assessment, the Company received 125 shares of Visa Inc. Series A Convertible Participating Preferred Stock (“Visa Series A Preferred”) and the Conversion Adjustment for Visa Series C Preferred was reduced to 6.861. The 125 shares of Visa Series A Preferred are convertible into 12,500 shares of Visa Class A common stock. On September 24, 2020, the Company estimated the aggregate fair value of its shares of Visa Series C Preferred and Visa Series A Preferred was $4.4 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:

 

Year ended July 31
(in thousands)		  2020   2019 
Balance, beginning of period  $3,919   $1,883 
Adoption of change in accounting for equity investments   
—
    1,213 
Adjusted balance   3,919    3,096 
Adjustment for observable transactions involving a similar investment from the same issuer   206    826 
Upward adjustments   3    
—
 
Redemptions   (19)   (3)
Impairments   
—
    
—
 
BALANCE, END OF PERIOD  $4,109   $3,919 

 

The Company increased the carrying value of the 1,830 shares of Visa Series C Preferred it held by $0.2 million and $0.8 million in fiscal 2020 and fiscal 2019, 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 included the following:

 

Year ended July 31
(in thousands)		  2020   2019 
Net (losses) gains recognized during the period on equity investments  $(336)  $1,779 
Less: net gains and losses recognized during the period on equity investments redeemed during the period   
—
    
—
 
Unrealized (losses) gains recognized during the period on equity investments still held at the reporting date  $(336)  $1,779