Stock-Based Compensation

12 Months Ended

Jul. 31, 2016

Stock-Based Compensation [Abstract]

Stock-Based Compensation

Note 7— Stock-Based Compensation

Stock Options

Effective as of July 31, 2013, the Company adopted the 2013 Stock Option and Incentive Plan (as amended and restated to date) (the “2013 Plan”). There are 678,532 shares of the Company’s Class B common stock reserved for the grant of awards under the 2013 Plan. In October 2013, the Board of Directors approved an amendment to the 2013 Plan increasing the number of shares of the Company’s Class B common stock available for grant of awards by an additional 350,000 shares. The increase was approved by the stockholders on January 12, 2015 at the Company’s annual stockholder meeting. On October 8, 2015, the Company approved an amendment and restatement of the 2013 Plan increasing the number of shares of the Company’s Class B common stock available for the grant of awards thereunder by 475,000 shares. The increase was approved by the stockholders on January 12, 2016 at the Company’s annual stockholder meeting.

In connection with the Spin-Off, each holder of an option to purchase IDT Class B common stock received a ratable share in a pool of options to purchase 32,155 shares of the Company’s Class B common stock (which was based on 10% of the outstanding options to purchase 641,567 shares of IDT Class B common stock issued by IDT and the 1 for 2 distribution ratio of the Spin-Off). The exercise price of the Company’s options is $5.67 per share which is equal to the closing price of the Company’s Class B common stock on the first trading day following the consummation of the Spin-Off. The expiration date of the Company’s options is equal to the later of (i) the expiration of the IDT option held by such option holder and (ii) a date on or about the first anniversary of the Spin-Off when the Company’s insiders will be free to trade in shares of the Company under the Company’s insider trading policy. The options to purchase shares of the Company were issued under the Company’s Plan. The adjustment to the exercise price of the options to purchase IDT shares and the issuance of the 32,155 options to purchase the Company’s shares were accounted for as a modification. No incremental charge was required as a result of the modification.

In June 2016, the Company granted stock options to three of its officers to purchase 87,707 shares of Class B common stock. These options vest ratably over a one-year service period, expire three years from the date of grant, and have a weighted average exercise price of $50.00 per share.

The following table summarizes all stock option activity during Fiscal 2014 through Fiscal 2016.

	Stock Options			Weighted- average Exercise Price		Weighted- average Remaining Contractual Term (in years)		Aggregate Intrinsic Value (in thousands)
Outstanding as of August 1, 2013		—		$	—		—	$	—
Granted		32,155			5.67		—		—
Exercised		(3,065	)		5.67		—		—
Cancelled/Forfeited		(2,542	)		5.67		—		—
Outstanding as of July 31, 2014		26,548		$	5.67		5.7	$	112
Granted		—			—		—		—
Exercised		(12,053	)		5.67		—		—
Cancelled/Forfeited		(472	)		5.67		—		—
Outstanding as of July 31, 2015		14,023		$	5.67		5.4	$	251
Granted		87,707			50.00		—		—
Exercised		(1,631	)		5.67		—		—
Cancelled/Forfeited		(298	)		5.67		—		—
Outstanding as of July 31, 2016		99,801		$	44.63		3.1	$	152
Vested and expected to vest as of July 31, 2016		99,801		$	44.63		3.1	$	152
Exercisable as of July 31, 2016		13,723		$	29.28		3.3	$	81

The following table summarizes information about options outstanding and exercisable at July 31, 2016:

		Options Outstanding and Exercisable
		Number Outstanding		Weighted- Average Remaining Life In Years		Weighted- Average Exercise Price		Number Exercisable
Range of exercise prices:
$	5.67		12,094		4.4	$	5.67		6,414
$	50.00		87,707		2.9		50.00		7,309
			99,801		3.1	$	44.51		13,723

The total fair value of stock options that vested during Fiscal 2016, Fiscal 2015, and Fiscal 2014 was $32,233, $0 and $0, respectively. As of July 31, 2016, there was approximately $355,000 of total unrecognized compensation cost related to non-vested stock options that the Company expects to recognize over a weighted-average period of 0.92 years.

The weighted-average grant date fair value of stock options granted during Fiscal 2016 was $4.41 per share and $0 for Fiscal 2014. There were no grants during Fiscal 2015. The Company estimated the fair value of options granted in Fiscal 2016 using the Black-Scholes option pricing model with the following assumptions:

Risk-free interest rate	0.65	%
Dividend yield	0	%
Volatility	65.6	%
Expected term (in years)	1.8

The expected life is the number of years that the Company estimates, based upon history, that options will be outstanding prior to exercise or forfeiture. Expected life is determined using the “simplified method” permitted by Staff Accounting Bulletin No. 107. The Company did not use the volatility rate of its common stock price. Instead, the volatility rate was based on a blended rate of the stock prices of companies deemed comparable to the Company.

The total intrinsic value of options exercised during Fiscal 2016, Fiscal 2015, and Fiscal 2014 was $45,727, $203,640 and $13,195, respectively.  The aggregate intrinsic value in the table above represents the total intrinsic value, based on the Company’s closing stock price of $18.24 as of July 31, 2016, $23.57 as of July 31, 2015, and $9.87 as of July 31, 2014, which would have been received by the option holders had all option holders exercised their options as of that date.  

Common Stock

In May 2011, Straight Path IP Group entered into an employment agreement with its then Chief Executive Officer (the “Former SPIP CEO”), pursuant to which Straight Path IP Group committed to grant options to the Former SPIP CEO to purchase shares of Straight Path IP Group’s common stock representing 5.0% of Straight Path IP Group’s outstanding equity, at an exercise price of approximately $0.4 million. The options vested monthly from May 2011 through April 2015. The estimated value of this grant was $0.2 million which Straight Path IP Group was recognizing using the straight-line method over the vesting period. The fair value of the options was estimated using a Black-Scholes valuation model and the following assumptions: (1) expected volatility of 49% based on the historical volatility of a comparable company and other factors, (2) a discount rate of 2.2%, and (3) an expected term of six years. The fair value of the underlying Straight Path IP Group shares was determined using the income approach. The Company recorded stock-based compensation expense related to this grant of $13,000 and $52,000 in Fiscal 2013 and Fiscal 2012, respectively. The Company ceased recording stock-based compensation upon the termination of the Former SPIP CEO, and such options are now subject to dispute by us, as discussed in Note 7.

On April 15, 2013, a consultant was granted a stock option to purchase up to 0.5% of the outstanding shares of common stock of Straight Path IP Group. The option vested 33.2% immediately, 33.4% on May 31, 2013, and 33.4% on May 31, 2014. The estimated value of this grant was $13,318 which Straight Path IP Group recognized using the straight-line method over the vesting period. The fair value of the options was estimated using a Black-Scholes valuation model and the following assumptions: (1) expected volatility of 51% based on the historical volatility of comparable companies and other factors, (2) a discount rate of 0.8%, and (3) an expected term of four years. The estimated fair value of the underlying Straight Path IP Group shares was determined using the income approach based on expected future royalties.

On August 2, 2013, the Company granted its non-employee directors a total of 3,750 shares of the Company’s Class B common stock with an aggregate fair value of $21,263. These shares vested immediately upon grant. In addition, on August 2, 2013, the Company granted Jonas 229,608 restricted shares of Class B Common Stock, and Jonathan Rand (“Rand”), the Company’s Chief Financial Officer and Treasurer, 38,268 restricted shares of Class B Common Stock. Jonas’ grants of restricted shares vest as to one-third of the granted shares on each of August 2, 2014, 2015, and 2016, unless otherwise determined by the Compensation Committee of the Company’s Board of Directors. Rand’s grants of restricted shares originally vested as to one-third of the granted shares on each of August 2, 2014, 2015, and 2016, unless otherwise determined by the Compensation Committee of the Company’s Board of Directors. On June 2, 2016, the vesting for the third tranche was changed from August 3, 2016 to October 16, 2016. The aggregate fair value of the grant was approximately $1,519,000 which is being charged to expense on a straight-line basis over the vesting period.

On August 6, 2013, the Company granted various consultants an aggregate of 10,100 restricted shares of its Class B common stock. These restricted shares vest as to one-third of the granted shares in each of August 2014, 2015 and 2016, unless otherwise determined by the Compensation Committee of the Company’s Board of Directors. The aggregate grant date fair value of the grant was $50,000, which is being charged to expense on a straight-line basis over the vesting period.

In January 2014, the Company granted its non-employee directors an aggregate of 24,000 shares of the Company’s Class B common stock with an aggregate fair value on the date of grant of $197,000.  These shares vested immediately upon grant.

On July 30, 2014, the Company granted Jonas 71,000 restricted shares of Class B common stock and Rand 52,000 restricted shares of Class B common stock. One-third of both grants of restricted shares vested on March 30, 2015 and the remaining vest as to approximately one-third of the granted shares on each of February 1, 2016 and 2017. The aggregate fair value of the grant was approximately $1,214,000 which is being charged to expense on a straight-line basis over the vesting period.

On July 31, 2014, the Company granted a consultant 5,500 restricted shares of its Class B common stock.  These restricted shares vested as to one-half of the granted shares on each of January 31, 2015 and July 31, 2015, unless otherwise determined by the Compensation Committee of the Company’s Board of Directors. The aggregate grant date fair value of the grant was approximately $91,000, which was charged to expense on a straight-line basis over the vesting period.

On September 1, 2014, the Company granted Zhouyue (Jerry) Pi (“Pi”), its Chief Technology Officer, 60,000 restricted shares of Class B common stock. These restricted shares originally vested as to one-third of the granted shares on each of October 16, 2015, September 1, 2016, and September 1, 2017. On June 2, 2016, the vesting for the second tranche was changed from September 1, 2016 to October 16, 2016 and the vesting for the third tranche was changed from September 1, 2017 to October 16, 2017. The aggregate fair value of the grant was $573,000 which is being charged to expense on a straight-line basis over the vesting period.

On January 5, 2015, the Company granted three of its directors an aggregate of 24,000 restricted shares of Class B common stock. These grants are the annual grants to non-employee directors provided for in the Plan. The shares vested immediately. The aggregate fair value of the grant was approximately $438,000.

On July 23, 2015, the Company granted Pi 30,000 restricted shares of Class B common stock. These restricted shares vest as to one-third of the granted shares on each of October 16, 2016, 2017, and 2018. The aggregate fair value of the grant was $914,400 which is being charged to expense on a straight-line basis over the vesting period.

On July 23, 2015, the Company granted two employees a total of 22,500 restricted shares of Class B common stock. These restricted shares vest as to one-third of the granted shares on each of October 16, 2015, 2016, and 2017. The aggregate fair value of the grant was $685,800 which is being charged to expense on a straight-line basis over the vesting period.

On July 23, 2015, the Company granted one employee a total of 5,000 restricted shares of Class B common stock. These restricted shares vest as to one-half of the granted shares on each of October 16, 2016 and 2017. The aggregate fair value of the grant was $152,400 which is being charged to expense on a straight-line basis over the vesting period.

On July 23, 2015, the Compensation Committee of the Board approved the issuance to Jonas of 60,000 shares of Class B common stock for services performed for the entire Fiscal 2015, subject to ratification by Rand. The shares were to vest immediately upon ratification. The aggregate fair value of the issuance was $1,494,900 and was charged as stock compensation in Fiscal 2015. The shares were issued on August 7, 2015. As of July 31, 2015, such shares were classified as common stock to be issued.

In October 2015, the Company granted an employee 28,000 restricted shares of Class B common stock. 4,000 of the shares vested on April 4, 2016. The balance of the shares will vest as to one-third of the granted shares on each of October 16, 2016, 2017, and 2018. The aggregate fair value of the grant was $1,052,000 which is being charged to expense on a straight-line basis over the vesting period.

On January 5, 2016, the Company granted three of its directors an aggregate of 24,000 restricted shares of Class B common stock. These grants are the annual grants to non-employee directors provided for in the Plan. The shares vested immediately upon grant. The aggregate fair value of the grant was approximately $418,000.

On March 15, 2016, the Company granted David Breau, its General Counsel, 8,000 restricted shares of Class B common stock. 4,000 of the shares will vest on October 16, 2016 and 4,000 shares will vest on March 16, 2017. The aggregate fair value of the grant was $285,000 which is being charged to expense on a straight-line basis over the vesting period.

Stock-based compensation is included in selling, general and administrative expense and amounted to approximately $2.77 million, $3.35 million, and $758,000 for the years ended July 31, 2016, 2015 and 2014, respectively. 

As of July 31, 2016, there were 257,584 restricted shares of Class B common stock that had not vested. As of July 31, 2016, there was approximately $2.3 million of total unrecognized compensation cost related to non-vested restricted shares. The Company expects to recognize the unrecognized compensation cost as follows: Fiscal 2017 - $1.47 million, Fiscal 2018 - $707,000, and Fiscal 2019 - $127,000.