Description of Business and Summary of Significant Accounting Policies (Policies)

12 Months Ended

Jul. 31, 2013

Description of Business and Summary of Significant Accounting Policies [Abstract]

Basis of Accounting

Basis of Accounting

The accompanying financial statements for periods prior to the July 31, 2013 Spin-Off were prepared on a combined basis because the operations were under common control.

All material intercompany balances and transactions have been eliminated in combination and consolidation.

The combined and consolidated financial statements include the assets, liabilities, results of operations and cash flows of the entities included in the Spin-Off. The assets and liabilities in the accompanying financial statements are recorded at historical cost. Direct expenses historically incurred by IDT on behalf of the entities are reflected in these financial statements. The most significant expenses are as follows. Straight Path IP’s legal and professional fees, salaries and employee benefits have been allocated based on specific identification. Facility costs as well as certain salaries consisting of payroll, human resources, purchasing, accounts payable, treasury, network and telephone services, legal, travel, and consulting fees were allocated to these entities based on estimates of the incremental cost incurred by IDT. Medical and dental benefits were allocated to these entities based on rates similar to COBRA health benefit provision rates charged to former IDT employees. Stock-based compensation and retirement benefits under IDT’s defined contribution plan were allocated to these entities based on specific identification. Insurance was allocated to these entities based on a combination of headcount and specific policy identification. Management believes that the assumptions and methods of allocation used were reasonable. However, the costs as allocated are not necessarily indicative of the costs that would have been incurred if these entities operated on a stand-alone basis. Therefore, the combined and consolidated financial statements included herein may not necessarily be indicative of the financial position, results of operations, changes in equity and cash flows of the Company to be expected in the future or what they would have been had the Company been a separate stand-alone entity during the periods presented.

In order for the Company to meet its obligations and other cash flow needs, IDT transferred cash to the Company such that the Company had approximately $15 million in cash at the time of the Spin-Off, which management believes will be sufficient to meet the Company’s cash requirements during fiscal 2014.

Use of Estimates

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results may differ from those estimates.

Reclassification

Reclassification

License renewal costs of $21,000 previously included in “Other current assets” in the combined balance sheet at July 31, 2012 have been reclassified to “Prepaid expenses” to conform to the current year’s presentation.

Revenue Recognition

Revenue Recognition

Straight Path Spectrum lease revenues are recognized on a straight line basis over the contractual lease period, which generally range from one to three years. Revenues from sale of rights in FCC licenses are recognized upon execution of the agreement by both parties, provided that the amounts are fixed or determinable, there are no significant undelivered obligations and collectability is reasonably assured. Revenues from sale of rights in FCC licenses less applicable costs of the sale are classified as “Gain on sale of rights in wireless spectrum” in the accompanying Combined and Consolidated Statements of Operations.

Straight Path Spectrum recorded the amounts that the Former Chief Executive Officer of Straight Path Spectrum (the “Former SPSI CEO”) was entitled to, related to leases, in “Selling, general and administrative” expense, in the same period the related revenues were recognized. Straight Path Spectrum recorded the amounts that the Former SPSI CEO was entitled to, related to the sale of rights in spectrum, in “Gains on sale of rights of wireless spectrum”, in the same period the related revenues were recognized. (See Note 10).

Straight Path IP licenses its portfolio of patents to companies who use these patents in the provision of their service. The contractual terms of the license agreements generally provide for payments over an extended period of time. For the licensing agreements with fixed royalty payments, Straight Path IP generally recognizes revenue on a straight-line basis over the contractual term of the license, once collectability of the amounts is reasonably assured. For the licensing agreements with variable royalty payments which are based on a percentage of sales, Straight Path IP earns royalties at the time that the customers’ sales occur. Straight Path IP’s customers, however, do not report and pay royalties owed for sales in any given period until after the conclusion of that period. As Straight Path IP is unable to estimate the customers’ sales in any given period to determine the royalties due to Straight Path IP, it recognizes royalty revenues when sales and royalties are reported by customers and when other revenue recognition criteria are met.

In addition, Straight Path IP may enter into certain settlements of patent infringement disputes. The amount of consideration received upon any settlement (including but not limited to past royalty payments and future royalty payments) is allocated to each element of the settlement based on the fair value of each element. In addition, revenues related to past royalties are recognized upon execution of the agreement by both parties, provided that the amounts are fixed or determinable, there are no significant undelivered obligations and collectability is reasonably assured. Straight Path IP does not recognize any revenues prior to execution of the agreement since there is no reliable basis on which it can estimate the amounts for royalties related to previous periods or assess collectability.

Direct Cost of Revenues

Direct Cost of Revenues

Direct cost of revenues for Straight Path Spectrum consists primarily of network and connectivity costs and associated regulatory taxes and fees. Such costs are charged to expense as incurred.  Direct cost of revenues for Straight Path IP consists of legal expenses directly related to revenues from litigation settlements.

Cash and Cash Equivalents

Cash and Cash Equivalents

The Company considers all highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents.

Intangibles

Intangibles

Intangibles consists of the cost of the wireless spectrum licenses that were transferred to the Company by an entity controlled by the Former SPSI CEO in connection with the June 2013 settlement of all outstanding claims and disputes with the Former SPSI CEO and parties related to the Former SPSI CEO (see Note 8). The wireless spectrum licenses are not amortized since they are deemed to have an indefinite life. These assets are reviewed annually or more frequently under certain conditions for impairment using a fair value approach. On August 1, 2013, the Company adopted the accounting standard update that reduced the complexity of performing an impairment test for indefinite-lived intangible assets by simplifying how an entity tests those assets for impairment and improved consistency in impairment testing guidance among long-lived asset categories. The Company may first assess qualitative factors to determine whether it is more likely than not that an indefinite-lived intangible asset is impaired as a basis for determining whether it is necessary to perform the quantitative impairment test. Prior to the adoption of this update, the Company was required to test indefinite-lived intangible assets for impairment by comparing the fair value of the asset with its carrying amount. The adoption of this standard update did not impact the Company’s financial position, results of operations or cash flows.

Income Taxes

Income Taxes

The accompanying financial statements include provisions for federal and state income taxes on a separate tax return basis.

The Company recognizes deferred tax assets and liabilities for the future tax consequences attributable to temporary differences between the financial statements carrying amounts of existing assets and liabilities and their respective tax bases. A valuation allowance is provided when it is more likely than not that some portion or all of a deferred tax asset will not be realized. The ultimate realization of deferred tax assets depends on the generation of future taxable income during the period in which related temporary differences become deductible. The Company considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in its assessment of a valuation allowance. Deferred tax assets and liabilities are measured using the enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date of such change.

The Company uses a two-step approach for recognizing and measuring tax benefits taken or expected to be taken in a tax return. The Company determines whether it is more-likely-than-not that a tax position will be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of the position. In evaluating whether a tax position has met the more-likely-than-not recognition threshold, the Company presumes that the position will be examined by the appropriate taxing authority that has full knowledge of all relevant information. Tax positions that meet the more-likely-than-not recognition threshold are measured to determine the amount of tax benefit to recognize in the financial statements. The tax position is measured at the largest amount of benefit that is greater than 50 percent likely of being realized upon ultimate settlement. Differences between tax positions taken in a tax return and amounts recognized in the financial statements will generally result in one or more of the following: an increase in a liability for income taxes payable, a reduction of an income tax refund receivable, a reduction in a deferred tax asset, or an increase in a deferred tax liability.

The Company classifies interest and penalties on income taxes as a component of income tax expense.

Contingencies

Contingencies

The Company accrues for loss contingencies when both (a) information available prior to issuance of the financial statements indicates that it is probable that a liability had been incurred at the date of the financial statements and (b) the amount of loss can reasonably be estimated. When the Company accrues for loss contingencies and the reasonable estimate of the loss is within a range, the Company records its best estimate within the range. When no amount within the range is a better estimate than any other amount, the Company accrues the minimum amount in the range. The Company discloses an estimated possible loss or a range of loss when it is at least reasonably possible that a loss may have been incurred.

Earnings Per Share

Earnings Per Share

Basic earnings per share is computed by dividing net income attributable to all classes of common stockholders of the Company by the weighted average number of shares of all classes of common stock outstanding or assumed to have been outstanding during the applicable period. Diluted earnings per share is determined in the same manner as basic earnings per share, except that the number of shares assumed to have been outstanding is increased to include restricted stock subject to risk of forfeiture, unless the effect of such increase in anti-dilutive.

Stock-Based Compensation

Stock-Based Compensation

The Company recognizes compensation expense for all of its grants of stock-based awards based on the estimated fair value on the grant date. Compensation cost for awards is recognized using the straight-line method over the vesting period. Stock-based compensation is included in selling, general and administrative expense.

Fair Value Measurements

Fair Value Measurements

Fair value of financial and non-financial assets and liabilities is defined as an exit price, which is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The three-tier hierarchy for inputs used to measure fair value, which prioritizes the inputs to valuation techniques used to measure fair value, is as follows:

Level 1 –	quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2 –	quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the financial instrument.
Level 3 –	unobservable inputs based on the Company’s assumptions used to measure assets and liabilities at fair value.

A financial asset or liability’s classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement. The assessment of the significance of a particular input to the fair value measurement requires judgment, and may affect the valuation of the assets and liabilities being measured and their placement within the fair value hierarchy.

Allowance for Doubtful Accounts

Allowance for Doubtful Accounts

The allowance for doubtful accounts reflects the Company’s best estimate of probable losses inherent in the accounts receivable balance. The allowance is determined based on known troubled accounts, historical experience and other currently available evidence. Doubtful accounts are written-off upon final determination that the trade accounts will not be collected. The change in the allowance for doubtful accounts is as follows:

Year ended July 31 (in thousands)	Balance at beginning of year		Additions charged to costs and expenses		Deductions			Balance at end of year
2013
Reserves deducted from accounts receivable:
Allowance for doubtful accounts	$	11	$	—	$	(7	)	$	4
2012
Reserves deducted from accounts receivable:
Allowance for doubtful accounts	$	11	$	—	$	—		$	11