Income Taxes

12 Months Ended

Jul. 31, 2013

Income Taxes [Abstract]

Income Taxes

Note 3—Income Taxes

Significant components of the Company’s deferred income tax assets consist of the following:

July 31 (in thousands)	2013			2012
Deferred income tax assets:
Accrued expenses	$	177		$	118
Net operating loss		50,620			49,864
Total deferred income tax assets		50,797			49,982
Valuation allowance		(50,797	)		(49,982	)
DEFERRED INCOME TAX ASSETS, NET	$	—		$	—

Because of the way it is structured, the Company will file separate income tax returns for its separate businesses. Because of its losses in the current and previous years, the Company concluded that it does not meet the criteria of more likely than not in order to utilize its deferred federal income tax assets in the foreseeable future. Accordingly, the Company recorded a valuation allowance against its deferred Federal income tax assets.

Winstar Holdings, LLC (“Winstar”) is a wholly-owned affiliate treated as a partnership for Federal income tax purposes. Winstar has material net operating losses that are “suspended” in accordance with section 704(d) of the Internal Revenue Code, and accordingly, are not available to the Company. As a consequence of the “suspension”, no deferred tax asset is reflected herein with respect of such net operating losses. If any part of such net operating losses does become available, it will be reported and appropriate disclosures made.

The provision for (benefit from) income taxes consists of the following:

Year ended July 31 (in thousands)	2013			2012
Current:
Federal	$	(560	)	$	(172	)
State and local		(113	)		(42	)
		(673	)		(214	)
Deferred:
Federal		560			192
State and local		121			47
		681			239
PROVISION FOR INCOME TAXES	$	8		$	25

The differences between income taxes expected at the U.S. federal statutory income tax rate and income taxes provided are as follows:

Year ended July 31 (in thousands)	2013			2012
U.S. federal income tax at statutory rate	$	1,445		$	1,912
Valuation allowance		(1,445	)		(1,889	)
State and local income tax, net of federal benefit		8			2
PROVISION FOR INCOME TAXES	$	8		$	25

At July 31, 2013, the Company had U.S. federal and state net operating loss carryforwards of approximately $127 million and $125 million, respectively. These carry-forward losses are available to offset future U.S. federal and state taxable income. The U.S. federal net operating loss carryforwards will start to expire in fiscal 2022, with fiscal 2012’s loss expiring in fiscal 2033. The state net operating loss carryforwards will start to expire in fiscal 2022, with fiscal 2012’s loss expiring in fiscal 2033. Straight Path IP has state net operating loss carryforwards of approximately $2.3 million, all other net operating loss carryforwards relate to Straight Path Spectrum.

The change in the valuation allowance for deferred income taxes was 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 deferred income taxes, net:
Valuation allowance	$	49,982	$	815	$	—		$	50,797
2012
Reserves deducted from deferred income taxes, net:
Valuation allowance	$	52,107	$	—	$	(2,125	)	$	49,982

The Company had no unrecognized income tax benefits at July 31, 2013 or 2012.

The Company was a member of IDT’s consolidated group, therefore its income or loss were included in IDT’s tax return and did not remain with the Company following the Spin-Off. IDT currently remains subject to examinations of its consolidated U.S. federal tax returns for fiscal years 2009 through fiscal 2013, and state and local tax returns generally for fiscal 2008 through fiscal 2013.