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Equity Investments | 9 Months Ended
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Apr. 30, 2023
Investments, Debt and Equity Securities [Abstract] |
Equity Investments | Note 7—Equity Investments Equity investments consist of the following: Schedule of Equity Investments
|  | April 30, 2023 |  |  | July 31, 2022 |
|  | (in thousands) |
Zedge, Inc. Class B common stock, 42,282 shares at April 30, 2023 and July 31, 2022 |  | $ | 84 |  |  | $ | 117 |
Zedge, Inc. Class B common stock, 42,282 shares at April 30, 2023 and July 31, 2022 |  | $ | 84 |  |  | $ | 117 |
Rafael Holdings, Inc. Class B common stock, 278,810 and 290,214 shares at April 30, 2023 and July 31, 2022, respectively |  |  | 586 |  |  |  | 586 |
Other marketable equity securities |  |  | 1,112 |  |  |  | 4,089 |
Fixed income mutual funds |  |  | 3,994 |  |  |  | 12,299 |
Current equity investments |  | $ | 5,776 |  |  | $ | 17,091 |
Visa Inc. Series C Convertible Participating Preferred Stock (“Visa Series C Preferred”) |  | $ | 1,238 |  |  | $ | 1,132 |
Visa Inc. Series A Convertible Participating Preferred Stock (“Visa Series A Preferred”) |  |  | — |  |  |  | 1,230 |
Convertible preferred stock—equity method investment |  |  | 3,064 |  |  |  | 1,001 |
Hedge funds |  |  | 3,136 |  |  |  | 3,238 |
Other |  |  | 2,825 |  |  |  | 825 |
Noncurrent equity investments |  | $ | 10,263 |  |  | $ | 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. The Company sold 11,404 shares of Rafael Class B common stock in November 2022. 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: Schedule of Carrying Value of Equity Investments
|  | 2023 |  |  | 2022 |  |  | 2023 |  |  | 2022 |
|  | Three Months Ended April 30, |  | Nine Months Ended April 30, |
|  | 2023 |  |  | 2022 |  |  | 2023 |  |  | 2022 |
|  | (in thousands) |
Balance, beginning of period |  | $ | 1,494 |  |  | $ | 2,539 |  |  | $ | 1,401 |  |  | $ | 2,743 |
Adjustment for observable transactions involving a similar investment from the same issuer |  |  | 13 |  |  |  | (130 | ) |  |  | 106 |  |  |  | (334 | )
Impairments |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Balance, end of the period |  | $ | 1,507 |  |  | $ | 2,409 |  |  | $ | 1,507 |  |  | $ | 2,409 |
The Company increased the carrying value of the shares of Visa Series C Preferred it held by $13,000 and $0.1 million in the three and nine months ended April 30, 2023, respectively, and the Company decreased the carrying value of the shares of Visa Series C Preferred it held by $0.1 million and $0.3 million in the three and nine months ended April 30, 2022, respectively, based on the fair value of Visa Class A common stock, including a discount for lack of current marketability. Unrealized gains and losses for all equity investments measured at fair value included the following: Schedule of Unrealized (losses) Gains for All Equity Investments
|  | 2023 |  |  | 2022 |  |  | 2023 |  |  | 2022 |
|  | Three Months Ended April 30, |  |  | Nine Months Ended April 30, |
|  | 2023 |  |  | 2022 |  |  | 2023 |  |  | 2022 |
|  | (in thousands) |
Net losses recognized during the period on equity investments |  | $ | (480 | ) |  | $ | (3,416 | ) |  | $ | (2,649 | ) |  | $ | (20,862 | )
Less: net gains recognized during the period on equity investments sold during the period |  |  | — |  |  |  | — |  |  |  | 18 |  |  |  | 10 |
Unrealized losses recognized during the period on equity investments still held at the reporting date |  | $ | (480 | ) |  | $ | (3,416 | ) |  | $ | (2,667 | ) |  | $ | (20,872 | )
The unrealized gains and losses for all equity investments measured at fair value in the table above included the following:
|  | 2023 |  |  | 2022 |  |  | 2023 |  |  | 2022 |
|  | Three Months Ended April 30, |  |  | Nine Months Ended April 30, |
|  | 2023 |  |  | 2022 |  |  | 2023 |  |  | 2022 |
|  | (in thousands) |
Unrealized gains (losses) recognized during the period on equity investments: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Rafael Class B common stock |  | $ | 11 |  |  | $ | (578 | ) |  | $ | 20 |  |  | $ | (14,064 | )
Zedge Class B common stock |  | $ | (9 | ) |  | $ | (102 | ) |  | $ | (33 | ) |  | $ | (432 | )
Unrealized losses recognized during the period on equity investments still held at the reporting date |  | $ | (480 | ) |  | $ | (3,416 | ) |  | $ | (2,667 | ) |  | $ | (20,872 | )
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 accounted for this investment using the equity method since the Series B and Series C convertible preferred stock were in-substance common stock, and the Company could exercise significant influence over the operating and financial policies of the EMI. As of July 31, 2022, the Company was the holder of secured promissory notes made by the EMI in exchange for loans of an aggregate of $2.5 million, which increased to an aggregate of $4.0 million including accrued interest as of April 6, 2023. The notes provided for interest on the principal amount at 15% per annum payable monthly. The notes were due and payable in February 2023 and April 2023. On April 6, 2023, in accordance with an Agreement and Plan of Merger dated as of April 5, 2023, the EMI merged with and into its subsidiary, with the subsidiary being the surviving corporation. Effective with the merger, the EMI has no common stock outstanding, each share of the EMI’s convertible preferred stock was converted into shares of the subsidiary’s Series A Convertible Preferred Stock (“EMI Preferred Stock”), and the principal and accrued interest of the EMI’s secured promissory notes was converted into shares of EMI Preferred Stock (the “Conversions”). In addition, each of the EMI’s shareholders agreed to purchase additional shares of EMI Preferred Stock, for which the Company paid $0.2 million in April 2023 and $0.7 million in May 2023 to purchase the additional shares. Following the merger, the Conversions, and the purchases of additional shares of EMI Preferred Stock, the Company’s ownership increased to 33.3% of the EMI’s outstanding shares. The Company accounts for this investment using the equity method since the Company can exercise significant influence over the operating and financial policies of the EMI but it does not have a controlling interest. The Company determined that on the dates of the acquisitions, there were differences between its investment in the EMI and its proportional interest in the equity of the EMI of an aggregate of $8.2 million, 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 income, 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). The following table summarizes the change in the balance of the Company’s equity method investment: Summary of Changes in Equity Method Investments
|  | 2023 |  |  | 2022 |  |  | 2023 |  |  | 2022 |
|  | Three Months Ended April 30, |  |  | Nine Months Ended April 30, |
|  | 2023 |  |  | 2022 |  |  | 2023 |  |  | 2022 |
|  |  | (in thousands) |
Balance, beginning of period |  | $ | (374 | ) |  | $ | 2,509 |  |  | $ | 1,001 |  |  | $ | 2,901 |
Purchase of convertible preferred stock |  |  | 168 |  |  |  | — |  |  |  | 168 |  |  |  | 1,051 |
Conversion of secured promissory notes into convertible preferred stock |  |  | 4,038 |  |  |  | — |  |  |  | 4,038 |  |  |  | — |
Equity in the net loss of investee |  |  | (532 | ) |  |  | (583 | ) |  |  | (1,544 | ) |  |  | (1,662 | )
Amortization of equity method basis difference |  |  | (236 | ) |  |  | (182 | ) |  |  | (599 | ) |  |  | (546 | )
Balance, end of the period |  | $ | 3,064 |  |  | $ | 1,744 |  |  | $ | 3,064 |  |  | $ | 1,744 |
Summarized financial information of the EMI was as follows: Summary of Statements of Operations
|  | 2023 |  |  | 2022 |  |  | 2023 |  |  | 2022 |
|  | Three Months Ended April 30, |  |  | Nine Months Ended April 30, |
|  | 2023 |  |  | 2022 |  |  | 2023 |  |  | 2022 |
|  | (in thousands) |
Revenues |  | $ | 2,115 |  |  | $ | 2,689 |  |  | $ | 5,806 |  |  | $ | 5,760 |
Costs and expenses: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Direct cost of revenues |  |  | 1,693 |  |  |  | 4,402 |  |  |  | 4,921 |  |  |  | 7,307 |
Selling, general and administrative |  |  | 2,080 |  |  |  | 1,265 |  |  |  | 5,488 |  |  |  | 3,928 |
Total costs and expenses |  |  | 3,773 |  |  |  | 5,667 |  |  |  | 10,409 |  |  |  | 11,235 |
Loss from operations |  |  | (1,658 | ) |  |  | (2,978 | ) |  |  | (4,603 | ) |  |  | (5,475 | )
Other expense |  |  | (266 | ) |  |  | (82 | ) |  |  | (1,108 | ) |  |  | (83 | )
Net loss |  | $ | (1,924 | ) |  | $ | (3,060 | ) |  | $ | (5,711 | ) |  | $ | (5,558 | )

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