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Equity Investments

3 Months Ended

Oct. 31, 2021

Cash and Cash Equivalents [Abstract]

Note 7—Equity Investments

Equity investments consist of the following:

Schedule of Equity Investments

	October 31, 2021		July 31, 2021
	(in thousands)
Zedge, Inc. Class B common stock, 42,282 shares at October 31, 2021 and July 31, 2021	$	488	$	649
Rafael Holdings, Inc. Class B common stock, 290,214 and 246,565 shares at October 31, 2021 and July 31, 2021, respectively		2,194		12,479
Rafael Holdings, Inc. restricted Class B common stock, nil and 43,649 shares at October 31, 2021 and July 31, 2021, respectively		—		2,209
Other marketable equity securities		5,186		3,630
Fixed income mutual funds		23,276		23,467
Current equity investments	$	31,144	$	42,434

Visa Inc. Series C Convertible Participating Preferred Stock (“Visa Series C Preferred”)	$	2,119	$	2,465
Series B and Series C convertible preferred stock—equity method investment		3,329		2,901
Hedge funds		2,814		3,563
Other		1,225		2,725
Noncurrent equity investments	$	9,487	$	11,654

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 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.

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:

	2021			2020
	Three Months Ended October 31,
	2021			2020
	(in thousands)
Balance, beginning of period	$	2,743		$	4,109
Redemption for Visa mandatory release assessment		—			(1,870	)
Adjustment for observable transactions involving a similar investment from the same issuer		(346	)		(130	)
Impairments		—			—
Balance, end of the period	$	2,397		$	2,109

The Company decreased the carrying value of the shares of Visa Series C Preferred it held by $0.3 million and $0.1 million in the three months ended October 31, 2021 and 2020, 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:

	2021			2020
	Three Months Ended October 31,
	2021			2020
	(in thousands)
Net losses recognized during the period on equity investments	$	(14,494	)	$	(920	)
Less: net gains and losses recognized during the period on equity investments sold during the period		—			—
Unrealized losses recognized during the period on equity investments still held at the reporting date	$	(14,494	)	$	(920	)

The net losses on investments in the three months ended October 31, 2021 was primarily from unrealized losses of $12.5 million on shares of Rafael Class B common stock.

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 Company’s share of the EMI’s customer list on the dates of the acquisitions. 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 18).

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

	Three Months Ended October 31,
	2021			2020
	(in thousands)
Balance, beginning of period	$	2,901		$	—
Purchase of convertible preferred stock		1,051			—
Equity in the net loss of investee		(441	)		—
Amortization of equity method basis difference		(182	)		—
Balance, end of period	$	3,329		$	—

Summarized financial information of the EMI was as follows:

Summary of Statements of Operations

	Three Months Ended October 31,
	2021			2020
	(in thousands)
Revenues	$	1,691		$	—
Costs and expenses:
Direct cost of revenues		1,462			—
Selling, general and administrative		1,889			—
Depreciation and amortization		-			-
Severance		-			-
Total costs and expenses		3,351			—
Loss from operations		(1,660	)		—
Other expense		(1	)		—
Net loss	$	(1,661	)	$	—