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EX-32.2 - CERTIFICATION - Straight Path Communications Inc.f10q0117ex32ii_straightpath.htm
EX-32.1 - CERTIFICATION - Straight Path Communications Inc.f10q0117ex32i_straightpath.htm
EX-31.2 - CERTIFICATION - Straight Path Communications Inc.f10q0117ex31ii_straightpath.htm
EX-31.1 - CERTIFICATION - Straight Path Communications Inc.f10q0117ex31i_straightpath.htm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

 

FORM 10-Q

 

 

 

   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

FOR THE QUARTERLY PERIOD ENDED JANUARY 31, 2017

 

or

 

   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

Commission File Number: 1-36015

 

STRAIGHT PATH COMMUNICATIONS INC.

(Exact Name of Registrant as Specified in its Charter)

 

 

  

Delaware   46-2457757
(State or other jurisdiction of
incorporation or organization)
  (I.R.S. Employer
Identification Number)

 

5300 Hickory Park Drive, Suite 218,
Glen Allen, Virginia
  23059
(Address of principal executive offices)   (Zip Code)

 

(804) 433-1522

(Registrant’s telephone number, including area code)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes  ☒    No  ☐

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes  ☒     No  ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer Accelerated filer
Non-accelerated filer (Do not check if a smaller reporting company) Smaller reporting company

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.):  Yes  ☐     No  ☒

 

As of March 10, 2017, the registrant had outstanding 787,163 shares of Class A common stock and 11,701,349 shares of Class B common stock. Excluded from these numbers are 39,693 shares of Class B common stock held in treasury by Straight Path Communications Inc.

 

 

 

 

 

 

Straight Path Communications Inc.

 

TABLE OF CONTENTS

 

PART I. FINANCIAL INFORMATION     3
     
Item 1.   Financial Statements (Unaudited)     3
Item 2.   Management’s Discussion and Analysis of Financial Condition and Results of Operations   21
Item 3.   Quantitative and Qualitative Disclosures About Market Risks   31
Item 4.   Controls and Procedures   31
         
PART II. OTHER INFORMATION   32
     
Item 1.   Legal Proceedings   32
Item 1A.   Risk Factors   32
Item 2.   Unregistered Sales of Equity Securities and Use of Proceeds   33
Item 3.   Defaults Upon Senior Securities   33
Item 4.   Mine Safety Disclosures   33
Item 5.   Other Information   33
Item 6.   Exhibits   33
     
SIGNATURES   34

 

 2 

 

 

PART I. FINANCIAL INFORMATION

 

Item 1. Financial Statements (Unaudited)

 

STRAIGHT PATH COMMUNICATIONS INC.
CONSOLIDATED BALANCE SHEETS
(In Thousands, except per share data)

  

   January 31,
2017
   January 31,
2017
   July 31,
2016
 
   (Actual)
(Unaudited)
   (Pro forma - Note 12)     
      (Unaudited)     
Assets   
Current assets:            
Cash and cash equivalents  $7,837   $10,337   $11,361 
Restricted cash   -    15,000    - 
Trade accounts receivable, net of allowance for doubtful accounts of $7 and $0, respectively   40    40    40 
Inventory   643    643    - 
Prepaid expenses and other current assets   919    919    1,627 
Total current assets   9,439    26,939    13,028 
Intangible assets   365    365    365 
Other assets   111    111    104 
Total assets  $9,915   $27,415   $13,497 
                
Liabilities and Equity (Deficiency)  
Current liabilities:               
Trade accounts payable (related party of $43 and $0)  $1,016   $1,016   $684 
Accrued expenses   368    368    1,042 
Loan payable, net of debt discount   -    13,460      
FCC consent decree payable   15,000    15,000    - 
Deferred revenue   197    197    73 
Income taxes payable   221    221    225 
Total current liabilities   16,802    30,262    2,024 
Settlement payable - stockholders   7,200    7,200    - 
Deferred revenue - long-term portion   80    80    92 
Total liabilities   24,082    37,542    2,116 
Commitments and contingencies               
Equity (Deficiency)               
Straight Path Communications Inc. stockholders' equity:               
Preferred stock, $0.01 par value; 3,000 shares authorized; no shares issued and outstanding   -    -    - 
Class A common stock, $0.01 par value; 2,000 shares authorized;787 shares issued and outstanding   8    8    8 
Class B common stock, $0.01 par value; 40,000 shares authorized; 11,741 and 11,431 shares issued, 11,701 and 11,391 shares outstanding as of January 31, 2017 and July 31, 2016   117    117    114 
Additional paid-in capital   26,073    30,113    21,589 
Accumulated deficit   (37,781)   (37,781)   (8,225)
Treasury stock, 40 shares at cost   (428)   (428)   (428)
Total Straight Path Communications Inc. stockholders' equity (deficiency)   (12,011)   (7,971)   13,058 
Noncontrolling interests   (2,156)   (2,156)   (1,677)
Total equity (deficiency)   (14,167)   (10,127)   11,381 
Total liabilities and equity (deficiency)  $9,915   $27,415   $13,497 

 

See accompanying notes to consolidated financial statements.

 

 3 

 

 

STRAIGHT PATH COMMUNICATIONS INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In Thousands, except per share amounts)

 

   Three Months Ended   Six Months Ended 
   January 31,   January 31, 
   2017   2016   2017   2016 
                 
Revenues  $165   $112   $324   $1,815 
                     
Costs and expenses:                    
Direct cost of revenues   26    13    67    795 
Research and development   129    374    289    374 
Selling, general and administrative (related party of $205, $0, $205, and $0)   3,596    2,346    7,831    3,958 
                     
Total costs and expenses   3,751    2,733    8,187    5,127 
                     
Loss from operations before item listed below   (3,586)   (2,621)   (7,863)   (3,312)
                     
Civil penalty – FCC decree   (15,000)   -    (15,000)   - 
Stockholder settlement   (7,200)   -    (7,200)   - 
                     
Loss from operations   (25,786)   (2,621)   (30,063)   (3,312)
                     
Other income:                    
Interest income   6    10    13    20 
Other income   -    390    22    390 
                     
Total other income   6    400    35    410 
                     
Loss before income taxes   (25,780)   (2,221)   (30,028)   (2,902)
Provision for income taxes   -    -    (7)   (6)
                     
Net loss   (25,780)   (2,221)   (30,035)   (2,908)
Net loss attributable to noncontrolling interests   355    195    479    250 
                     
Net loss attributable to Straight Path Communications Inc.  $(25,425)  $(2,026)  $(29,556)  $(2,658)
                     
Loss per share attributable to Straight Path Communications Inc. stockholders:                    
Basic and diluted  $(2.10)  $(0.17)  $(2.45)  $(0.23)
                     
Weighted-average number of shares used in calculation of loss per share:                    
Basic and diluted   12,132    11,854    12,075    11,832 

 

See accompanying notes to consolidated financial statements.

 

 4 

 

 

STRAIGHT PATH COMMUNICATIONS INC.

CONSOLIDATED STATEMENT OF EQUITY (DEFICIENCY)

Six Months Ended January 31, 2017

(Unaudited)

(In Thousands)

 

   Class A   Class B   Additional                 
   Common Stock   Common Stock   Paid-In   Accumulated   Treasury   Noncontrolling     
   Shares   Amount   Shares   Amount   Capital   Deficit   Stock   Interests   Total 
                                     
Balance as of August 1, 2016   787   $8    11,431   $114   $21,589   $(8,225)  $(428)  $(1,677)  $11,381 
                                              
Common stock issued for exercises of stock options   -    -    1    -    8    -    -    -    8 
                                              
Common stock issued for compensation   -    -    309    3    4,283    -    -    -    4,286 
                                              
Stock-based compensation   -    -    -    -    193    -    -    -    193 
                                              
Net loss   -    -    -    -    -    (29,556)   -    (479)   (30,035)
                                              
Balance as of January 31, 2017   787   $8    11,741   $117   $26,073   $(37,781)  $(428)  $(2,156)  $(14,167)

 

See accompanying notes to consolidated financial statements.

 

 5 

 

 

STRAIGHT PATH COMMUNICATIONS INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In Thousands)

 

   Six Months Ended 
   January 31, 
   2017   2016 
         
Operating activities:        
Net loss  $(30,035)  $(2,908)
Adjustments to reconcile net loss to net cash used in operating activities:          
Common stock issued for compensation   4,286    1,586 
Stock-based compensation   193    - 
Allowance for doubtful accounts   7    - 
Changes in assets and liabilities:          
Trade accounts receivable, net   (7)   34 
Inventory   -    - 
Prepaid expenses – related to IP settlements and licensing   -    783 
Prepaid expenses and other current assets   65    1 
Prepaid expenses – development agreement   -    (700)
Other assets   1    8 
Trade accounts payable   324    (114)
Accrued expenses   (674)   (359)
FCC consent decree payable   15,000    - 
Deferred revenue   112    (1,546)
Income taxes payable   (4)   - 
Settlement payable - stockholders   7,200    - 
Net cash used in operating activities   (3,532)   (3,215)
           
Investing activities:          
Purchases of property and equipment   -    (56)
Net cash used in investing activities   -    (56)
           
Financing activities:          
Common stock issued upon exercise of stock options   8    1 
Net cash provided by financing activities   8    1 
           
Net decrease in cash and cash equivalents   (3,524)   (3,270)
Cash and cash equivalents at beginning of period   11,361    18,620 
Cash and cash equivalents at end of period  $7,837   $15,350 
           
Supplemental schedule of noncash activities          
Reclassification of prepaid marketing to inventory  $643   $- 
Unpaid deferred loan costs  $8   $- 
           
Supplemental cash flow information          
Cash paid during the period for income taxes  $7   $3 

 

See accompanying notes to consolidated financial statements.

 

 6 

 

 

STRAIGHT PATH COMMUNICATIONS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

Note 1—Basis of Presentation

 

The accompanying unaudited consolidated financial statements of Straight Path Communications Inc. (“Straight Path”) and its subsidiaries have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and six months ended January 31, 2017 are not necessarily indicative of the results that may be expected for the fiscal year ending July 31, 2017. The balance sheet at July 31, 2016 has been derived from Straight Path’s audited financial statements at that date but does not include all of the information and footnotes required by U.S. GAAP for complete financial statements. For further information, please refer to the combined and consolidated financial statements and footnotes thereto included in Straight Path’s Annual Report on Form 10-K for the fiscal year ended July 31, 2016, as filed with the U.S. Securities and Exchange Commission (the “SEC”).

 

Straight Path, a Delaware corporation, was incorporated in April 2013. Straight Path owns 100% of Straight Path Spectrum, Inc. (“Straight Path Spectrum”) and Straight Path Ventures, LLC (“Straight Path Ventures”), and 84.5% of Straight Path IP Group, Inc. (“Straight Path IP Group”). In these financial statements, the terms “the Company,” “Straight Path,” “we,” “us,” and “our” refer to Straight Path, Straight Path Spectrum, Straight Path Ventures, Straight Path IP Group, and their respective subsidiaries on a consolidated basis. All material intercompany balances and transactions have been eliminated in consolidation.

 

Straight Path was formerly a subsidiary of IDT Corporation (“IDT”). On July 31, 2013, Straight Path was spun-off by IDT to its stockholders and became an independent public company (the “Spin-Off”). Straight Path authorized the issuance of two classes of its common stock, Class A (“Class A common stock”) and Class B (“Class B common stock”).

 

On January 11, 2017, the Company entered into a consent decree with the Federal Communications Commission (the “FCC” or the “Commission”) settling the FCC’s investigation regarding Straight Path Spectrum’s spectrum licenses (the “Consent Decree”). The Company agreed to pay an initial civil penalty of $15 million (the “Initial Civil Penalty”). For a further discussion, see Note 11 – Regulatory Enforcement.

 

On March 7, 2017, the Company and lead plaintiff in Zacharia v. Straight Path Communications Inc. et al., No. 2:15-cv-08051-JMV-MF (D.N.J.), entered into a binding memorandum of understanding to settle the putative shareholder class action and dismiss the claims that were filed against the Defendants in that action.  Under the agreed terms, the Company will provide for a $2.25 million initial payment (the “Initial Payment”) which will be fully covered by insurance policies maintained by the Company and a $7.2 million additional payment (the “Additional Payment”). For a further discussion, see Note 11 – Putative Class Action and Shareholder Derivative Action.

 

The Company’s fiscal year ends on July 31 of each calendar year. Each reference below to a fiscal year refers to the fiscal year ending in the calendar year indicated (e.g., Fiscal 2017 refers to the fiscal year ending July 31, 2017).

 

Note 2—Summary of Significant Accounting Policies and Recent Pronouncements

 

The Company’s significant accounting policies are described in Note 1 of the Notes to Combined and Consolidated Financial Statements in the Annual Report on Form 10-K for the year ended July 31, 2016.

 

In May 2014, ASU No. 2014-09, “Revenue from Contracts with Customers” (“ASU 2014-09”) was issued. The comprehensive new standard will supersede existing revenue recognition guidance and require revenue to be recognized when promised goods or services are transferred to customers in amounts that reflect the consideration to which the Company expects to be entitled in exchange for those goods or services. The guidance will also require that certain contract costs incurred to obtain or fulfill a contract, such as sales commissions, be capitalized as an asset and amortized as revenue is recognized. Adoption of the new rules could affect the timing of both revenue recognition and the incurrence of contract costs for certain transactions. The guidance permits two implementation approaches, one requiring retrospective application of the new standard with restatement of prior years and one requiring prospective application of the new standard with disclosure of results under old standards.

 

 7 

 

 

ASU 2014-09 was scheduled to be effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. Early application is not permitted. In August 2015, the FASB issued ASU 2015-14, “Revenue from Contracts with Customers (Topic 606): Deferral of Effective Date” (“ASU 2015-14”) which defers the effective date of ASU 2014-09 by one year. ASU 2014-09 is now effective for annual reporting periods beginning after December 15, 2017 including interim periods within that reporting period.  Earlier application is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. The Company will adopt the new standard effective August 1, 2018. The Company is currently evaluating the impact of adoption and the implementation approach to be used.

 

In June 2014, ASU 2014-15, “Presentation of Financial Statements – Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern” (“ASU 2014-15”) was issued.  Before the issuance of ASU 2014-15, there was no guidance in U.S. GAAP about management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern or to provide related footnote disclosures. This guidance is expected to reduce the diversity in the timing and content of footnote disclosures. ASU 2014-15 requires management to assess an entity’s ability to continue as a going concern by incorporating and expanding upon certain principles that are currently in U.S. auditing standards as specified in the guidance. ASU 2014-15 becomes effective for the annual period ending after December 15, 2016 (year ended July 31, 2017 for the Company) and for annual and interim periods thereafter. Early adoption is permitted. The Company is currently evaluating the effects of adopting ASU 2014-15 on its consolidated financial statements but the adoption is not expected to have a significant impact on the Company’s consolidated financial statements.

 

Effective August 1, 2016, the Company adopted ASU 2015-01, “Income Statement – Extraordinary and Unusual Items (Subtopic 225-20): Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items” (“ASU 2015-01”). ASU 2015-01 eliminates from GAAP the concept of extraordinary items. ASU 2015-01 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. A reporting entity may apply the amendments prospectively. A reporting entity also may apply the amendments retrospectively to all prior periods presented in the financial statements. The adoption of ASU 2015-01 did not have a significant impact on the Company’s consolidated financial statements.

 

Effective August 1, 2016, the Company adopted ASU 2015-02, “Consolidation (Topic 810): Amendments to the Consolidation Analysis” (“ASU 2015-02”). The amendments in ASU 2015-02 change the analysis that reporting entity must perform to determine whether it should consolidate certain types of legal entities. The amendments in ASU 2015-02 are effective for fiscal years beginning after December 15, 2015. A reporting entity may apply the amendments in ASU 2015-02 using a modified retrospective approach by recording a cumulative-effect adjustment to equity as of the beginning of the fiscal year of adoption. A reporting entity also may apply the amendments retrospectively. The adoption of ASU 2015-02 did not have a material impact on the Company’s consolidated financial statements.

  

Effective August 1, 2016, the Company adopted ASU 2015-03, “Interest – Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs” (“ASU 2015-03”) as part of its initiative to reduce complexity in accounting standards (the Simplification Initiative). The Board received feedback that having different balance sheet presentation requirements for debt issuance costs and debt discount and premium creates unnecessary complexity. Recognizing debt issuance costs as a deferred charge (that is, an asset) also is different from the guidance in International Financial Reporting Standards, which requires that transaction costs be deducted from the carrying value of the financial liability and not recorded as separate assets. Additionally, the requirement to recognize debt issuance costs as deferred charges conflicts with the guidance in FASB Concepts Statement No. 6, “Elements of Financial Statements,” which states that debt issuance costs are similar to debt discounts and in effect reduce the proceeds of borrowing, thereby increasing the effective interest rate. FASB Concepts Statement No. 6 further states that debt issuance costs cannot be an asset because they provide no future economic benefit. To simplify presentation of debt issuance costs, the amendments in this Update require that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected by the amendments in this Update. The adoption of ASU 2015-03 did not have a material impact on the Company’s consolidated financial statements.

 

 8 

 

 

In January 2016, the FASB issued ASU 2016-01, “Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities” (“ASU 2016-01”). The amendments require all equity investments to be measured at fair value with changes in the fair value recognized through net income (other than those accounted for under the equity method of accounting or those that result in consolidation of the investee). The amendments also require an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments. In addition, the amendments eliminate the requirement to disclose the fair value of financial instruments measured at amortized cost for entities that are not public business entities and the requirement to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet for public business entities. This guidance is effective for fiscal years beginning after December 15, 2017 (quarter ended October 31, 2018 for the Company), including interim periods within those fiscal years. The Company will evaluate the effects of adopting ASU 2016-01 if and when it is deemed to be applicable.

 

In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842)” (“ASU 2016-02”) which supersedes existing guidance on accounting for leases in “Leases (Topic 840).”  The standard requires lessees to recognize the assets and liabilities that arise from leases on the balance sheet.  A lessee should recognize in the balance sheet a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term.  The new guidance is effective for annual reporting periods beginning after December 15, 2018 (quarter ended October 31, 2019 for the Company) and interim periods within those fiscal years. The amendments should be applied at the beginning of the earliest period presented using a modified retrospective approach with earlier application permitted as of the beginning of an interim or annual reporting period. The Company is currently evaluating the effects of adopting ASU 2016-02 on its consolidated financial statements.

 

In March 2016, the FASB issued ASU 2016-09, “Improvements to Employee Share-Based Payment Accounting” (“ASU 2016-09”). ASU 2016-09 affects entities that issue share-based payment awards to their employees. ASU 2016-09 is designed to simplify several aspects of accounting for share-based payment award transactions which include – the income tax consequences, classification of awards as either equity or liabilities, classification on the statement of cash flows and forfeiture rate calculations. This guidance is effective for annual periods beginning after December 15, 2016 (quarter ended October 31, 2017 for the Company), including interim periods within those fiscal years. The Company is currently evaluating the impact of ASU 2016-09 on its consolidated financial statements.

 

In April 2016, the FASB issued ASU 2016-10, “Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing” (“ASU 2016-10”) related to identifying performance obligations and licensing. ASU 2016-10 is meant to clarify the guidance in FASB ASU 2014-09, “Revenue from Contracts with Customers.” Specifically, ASU 2016-10 addresses an entity’s identification of its performance obligations in a contract, as well as an entity’s evaluation of the nature of its promise to grant a license of intellectual property and whether or not that revenue is recognized over time or at a point in time. The pronouncement has the same effective date as the new revenue standard, which is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2017 (quarter ended October 31, 2018 for the Company). The Company is currently evaluating the impact of ASU 2016-10 on its consolidated financial statements.

 

In May 2016, the FASB issued ASU 2016-12, “Revenue from Contracts with Customers (Topic 606): Narrow Scope Improvements and Practical Expedients” (“ASU 2016-12”). The amendments in ASU 2016-12 affect the guidance in ASU 2014-09 by clarifying certain specific aspects of the guidance, including assessment of collectability, treatment of sales taxes and contract modifications, and providing certain technical corrections. ASU 2016-12 will have the same effective date and transition requirements as the ASU 2014-09. The Company is currently evaluating the impact of ASU 2016-12 on its consolidated financial statements.

 

In August 2016, the FASB issued ASU 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments” (“ASU 2016-15”). ASU 2016-15 will make eight targeted changes to how cash receipts and cash payments are presented and classified in the statement of cash flows. ASU 2016-15 is effective for fiscal years beginning after December 15, 2017 (quarter ended October 31, 2018 for the Company). The new standard will require adoption on a retrospective basis unless it is impracticable to apply, in which case it would be required to apply the amendments prospectively as of the earliest date practicable. The Company is currently in the process of evaluating the impact of adoption on its consolidated financial statements but the adoption is not expected to have a significant impact as of the filing of this report.

 

 9 

 

 

In November 2016, the FASB issued ASU 2016-18, “Statement of Cash Flows (Topic 230): Restricted Cash” (“ASU 2016-18”). ASU 2016-18 require that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. ASU 2016-18 is effective for fiscal years beginning after December 15, 2017 (quarter ended October 31, 2018 for the Company). Early adoption is permitted. The Company will evaluate the effects of adopting ASU 2016-18 if and when it is deemed to be applicable.

 

In January 2017, the FASB issued ASU 2017-01, “Business Combinations (Topic 805): Clarifying the Definition of a Business” (“ASU 2017-01”). ASU 2017-01 clarifies the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The definition of a business affects many areas of accounting including acquisitions, disposals, goodwill, and consolidation. The guidance is effective for annual periods beginning after December 15, 2017 (quarter ended October 31, 2018 for the Company), including interim periods within those periods. The Company is currently evaluating the impact of adopting ASU 2017-01 on its consolidated financial statements but the adoption is not expected to have a significant impact as of the filing of this report.

 

The Company does not believe that any other recently issued, but not yet effective, accounting standards if currently adopted would have a material effect on the accompanying consolidated financial statements.

 

Note 3— Fair Value Measures

 

At January 31, 2017 and July 31, 2016, the Company did not have any assets or liabilities measured at fair value on a recurring basis.

 

At January 31, 2017 and July 31, 2016, the carrying amounts of the financial instruments included in cash and cash equivalents, trade accounts receivable, prepaid expenses and other current assets, trade accounts payable, and accrued expenses approximated fair value due to their short-term nature.

 

Note 4— Inventory

 

Inventory, consisting solely of finished goods, is valued at the lower of cost or market.

 

Note 5—Equity

 

Issuances of Class B Common Stock: 

 

Class B common stock activity for the six months ended January 31, 2017 was as follows:

 

  1. The Company issued 120,000 shares to Davidi Jonas, the Company’s Chief Executive Officer and President, as compensation.
  2. The Company issued 108,000 shares to officers and 56,000 shares to other employees as compensation.
  3. The Company issued 24,000 shares to directors as compensation.
  4. The Company issued 1,250 shares to a consultant as compensation.
  5. The Company issued 1,440 shares for the exercise of stock options and received proceeds of approximately $8,000.

 

No shares of Class B common stock have been issued subsequent to January 31, 2017 to the date of the filing of this report.

 

See Note 6 - Stock-Based Compensation below for a further discussion.

 

Issuances of Warrants: 

 

No warrants were issued in the six months ended January 31, 2017.

 

On February 6, 2017, the Company issued warrants to purchase 252,161 shares of the Company’s Class B common stock as part of a loan agreement with a syndicate of investors. For a further discussion, see Note 12 – Subsequent Events.

 

 10 

 

 

Treasury Stock for Payroll Tax Withholding:

 

Treasury stock consists of shares of Class B common stock that were tendered by employees of ours to satisfy the employees’ tax withholding obligations in connection with the lapsing of restrictions on awards of restricted stock. The fair market value of the shares tendered was based on the trading day immediately prior to the vesting date and the proceeds utilized to pay the withholding taxes due upon such vesting event.

 

At both January 31, 2017 and July 31, 2016, there were 39,693 shares of treasury stock totaling approximately $428,000.

 

Note 6—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”). As of January 31, 2017, there are 1,503,532 shares of the Company’s Class B common stock reserved for the grant of awards under the 2013 Plan.

 

No stock options were issued in the six months ended January 31, 2017.

 

Stock-based compensation is included in selling, general and administrative and, with respect to stock options granted, amounted to approximately $96,000 and $0 for the three months ended January 31, 2017 and 2016, respectively, and approximately $193,000 and $0 for the six months ended January 31, 2017 and 2016, respectively.

 

Issuances of Class B common stock included in stock-based compensation for the six months ended January 31, 2016 are as follows:

 

In October 2016, the Company granted officers and employees 164,000 restricted shares of Class B common stock. The shares will vest over a two-to-four-year period. The aggregate fair value of the grant was approximately $4,392,000 which is being charged to expense on a straight-line basis over the vesting periods.

 

In addition, in October 2016, the Company issued 120,000 restricted shares of Class B common stock to Davidi Jonas as compensation as follows:

 

  1. 60,000 shares which vested immediately. The aggregate fair value of the grant was $1,866,000 which was charged to expense in the period issued.
     
  2. 60,000 shares which will vest over a three-year period. The aggregate fair value of the grant was $1,866,000 which is being charged to expense on a straight-line basis over the vesting period.

 

On September 9, 2016, the Company issued 1,250 restricted shares of Class B common stock to a consultant as compensation. The shares vest over a 13-month period. The aggregate fair value of the grant is being charged to expense on a straight-line basis over the vesting period.

 

On January 5, 2017, 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 $886,000.

 

Stock-based compensation is included in selling, general and administrative expense and, with respect to restricted stock granted, amounted to approximately $1,869,000 and $988,000 for the three months ended January 31, 2017 and 2016, respectively, and approximately $4,286,000 and $1,586,000 for the six months ended January 31, 2017 and 2016, respectively. As of January 31, 2017, there was approximately $7,065,000 of total unrecognized compensation cost related to non-vested restricted shares. The Company expects to recognize the unrecognized compensation cost as follows: Fiscal 2017 - $1,616,000, Fiscal 2018 - $2,781,000, Fiscal 2019 - $1,990,000, Fiscal 2020 - $615,000 and Fiscal 2021 - $63,000.

 

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Note 7—Earnings (Loss) Per Share

 

Basic (loss) earnings per share is computed by dividing net (loss) 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 during the applicable period. Diluted earnings per share is computed in the same manner as basic earnings per share, except that the number of shares is increased to include restricted stock still subject to risk of forfeiture and to assume exercise of potentially dilutive stock options using the treasury stock method, unless the effect of such increase would be anti-dilutive.

 

The following table sets forth the number of Class B shares of common stock issuable upon the exercise of stock options which were excluded from the diluted (loss) earnings per share calculation even though the exercise price was less than the average market price of the Class B common shares and non-vested restricted Class B common stock because the effect of including these potential shares was anti-dilutive due to the net loss incurred during that period:

 

   Three Months Ended
January 31,
   Six Months Ended
January 31,
 
   2017   2016   2017   2016 
   (in thousands) 
Stock options   9    6    8    4 
Non-vested restricted Class B common stock   111    35    138    173 
                     
Shares excluded from the calculation of diluted (loss) earnings per share   120    41    146    177 

 

The following table sets forth the number of stock options to purchase Class B common stock which were excluded from the diluted per share calculation because the exercise price was greater than the average market price of the Class B common shares:

 

   Three Months Ended
January 31,
   Six Months Ended
January 31,
 
   2017   2016   2017   2016 
   (in thousands) 
Stock options   88    -    88    - 

 

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Note 8—Related Party Transactions

 

Legal Fees

The Company retained the services of a law firm to perform legal services.  One of the partners of the firm is a non-employee director of the Company.  Legal fees incurred amounted to approximately $205,000 for the three and six months ended January 31, 2017. There were no fees incurred in fiscal year 2016. At January 31, 2017 and July 31, 2016, the Company owed the law firm $42,967 and $0, respectively.

 

IDT

In connection with the Spin-Off, the Company and IDT entered into a Separation and Distribution Agreement and a Tax Separation Agreement to complete the separation of the Company’s businesses from IDT, to distribute the Company’s common stock to IDT’s stockholders and set forth certain understandings related to the Spin-Off. These agreements govern the relationship between the Company and IDT after the distribution and also provide for the allocation of employee benefits, taxes and other liabilities and obligations attributable to periods prior to the distribution. These agreements reflect terms between affiliated parties established without arms-length negotiation. The Company believes that the terms of these agreements equitably reflect the benefits and costs of the Company’s ongoing relationships with IDT.

  

Pursuant to the Separation and Distribution Agreement, the Company has agreed to indemnify IDT and IDT has agreed to indemnify the Company for losses related to the failure of the other to pay, perform or otherwise discharge, any of the liabilities and obligations set forth in the agreement. The Separation and Distribution Agreement includes, among other things, that IDT is obligated to reimburse the Company for the payment of any liabilities of the Company arising or related to the period prior to the Spin-Off. No payments were received in Fiscal 2016 or through January 31, 2017.

 

At the Spin-Off, the Company entered into a Transition Services Agreement (“TSA”) with IDT, pursuant to which IDT has provided certain services, including, but not limited to information and technology, human resources, payroll, tax, accounts payable, purchasing, treasury, financial systems, investor relations, legal, corporate accounting, internal audit, and facilities for an agreed period following the Spin-Off. As of January 1, 2015, all of these services are provided by other vendors. The Company and IDT extended the TSA enabling the Company to seek input from IDT on an ad hoc basis if the Company deemed it necessary. No services were provided under the TSA in the three and six months ended January 31, 2017 and 2016.

 

 Note 9—Income Taxes

 

The Company recorded no federal income tax expense for Fiscal 2017 and Fiscal 2016 because the estimated annual effective tax rate was zero. As of January 31, 2017, the Company continues to provide a valuation allowance against its net deferred tax assets since the Company believes it is more likely than not that its deferred tax assets will not be fully realized.

 

The provision for both the three and six months ended January 31, 2017 and 2016 represents state income taxes.

 

The federal return of Straight Path for the year ended July 31, 2015 is currently under audit by the Internal Revenue Service (“IRS”). No significant issues have been raised but as the audit has not been completed, the Company cannot determine if the IRS will assess additional tax, interest, and penalties.

 

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Note 10—Business Segment Information

 

Prior to November 1, 2015, the Company had two reportable business segments, Straight Path Spectrum, which holds fixed and mobile wireless spectrum, and Straight Path IP Group, which holds intellectual property primarily related to communications over computer networks, and the licensing and other businesses related to this intellectual property. Effective November 1, 2015, a third segment, referred to as Straight Path Ventures was designated. Straight Path Ventures, whose results were previously included in our Straight Path Spectrum segment, focuses on developing next generation wireless technology for 39 GHz at the Company’s Gigabit Mobility Lab in Plano, Texas.

 

The Company’s reportable segments are distinguished by types of service, customers and methods used to provide their services. The operating results of these business segments are regularly reviewed by the Company’s chief operating decision maker.

 

The accounting policies of the segments are the same as the accounting policies of the Company as a whole. The Company evaluates the performance of its business segments based primarily on income (loss) from operations. There are no significant asymmetrical allocations to segments.

 

The Company allocates all of the corporate general and administrative expenses of Straight Path to Straight Path IP Group, Straight Path Spectrum, and Straight Path Ventures based upon the relative time of management and other corporate resources expended relative to each business as well as the revenues earned by each division. For all periods through January 31, 2016, these were allocated 80% to Straight Path IP Group and 20% to Straight Path Spectrum. No expenses were allocated to Straight Path Ventures because the amount of management’s time and other resources dedicated to Straight Path Ventures were deemed to be immaterial. Commencing on February 1, 2016, these expenses are being allocated 20% to Straight Path IP Group and 80% to Straight Path Spectrum, except for the following:

 

1.Expenses related to the Gigabit Mobility Lab are being allocated 100% to Straight Path Ventures;

 

2.Employment expenses of our Chief Technology Officer are being allocated 20% to Straight Path IP Group, 20% to Straight Path Spectrum, and 60% to Straight Path Ventures;

 

3.Employment expenses related to one employee are being allocated 20% to Straight Path Spectrum and 80% to Straight Path Ventures;

 

4.Employment expenses related to several other employees are being allocated 100% to Straight Path Spectrum.

 

The changes in allocations were brought about by the expiration of the licensed patents held by Straight Path IP Group and the increase in activities of Straight Path Ventures. Straight Path IP Group recognized revenues over the terms of the settlements and license agreements related to such patents entered into in prior periods. With the expiration of the key patents and the increase in activities of Straight Path Ventures, the Company determined to modify the allocation, and in light of the anticipated level of activity in Straight Path IP Group’s enforcement activities and Straight Path Ventures’ development activities, the Company determined that a general 20% allocation to Straight Path IP Group, subject to the specific allocations listed above, represented the appropriate split in light of all factors.

 

Operating results for the business segments of the Company were as follows:

 

   Straight Path Spectrum   Straight Path IP   Straight Path Ventures   Total 
   (in thousands) 
Three Months Ended January 31, 2017                
Revenues  $165   $-   $-   $165 
Loss from operations before FCC Decree and stockholder settlement   (2,305)   (856)   (425)   (3,586)
Three Months Ended January 31, 2016                    
Revenues  $112   $-   $-   $112 
Loss from operations before FCC Decree and stockholder settlement   (965)   (1,656)   -    (2,621)
Six Months Ended January 31, 2017                    
Revenues  $324   $-   $-   $324 
Loss from operations before FCC Decree and stockholder settlement   (5,290)   (1,731)   (842)   (7,863)
Six Months Ended January 31, 2016                    
Revenues  $217   $1,598   $-   $1,815 
Loss from operations before FCC Decree and stockholder settlement   (1,299)   (2,013)   -    (3,312)

 

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Total assets for the business segments of the Company were as follows:

 

   Straight   Straight   Straight     
   Path   Path   Path     
   Spectrum   IP Group   Ventures   Total 
   (in thousands) 
Total assets                
January 31, 2017  $7,099   $1,716   $1,100   $9,915 
July 31, 2016   10,174    2,223    1,100    13,497 

 

None of the Company’s revenues were generated outside of the United States for either Fiscal 2017 or Fiscal 2016. The Company did not have any assets outside the United States at January 31, 2017 or July 31, 2016.

 

Note 11—Commitments and Contingencies

 

Legal Proceedings

 

Regulatory Enforcement

 

Allegations were made in an anonymous report released in November 2015 regarding the circumstances under which certain of our spectrum licenses were renewed by the FCC in 2011 and 2012. The Company conducted an independent investigation into these allegations. We met with the FCC and shared the Company’s conclusions, and the Company subsequently provided certain additional information requested by the FCC.

 

On January 11, 2017, the Company entered into the Consent Decree with the FCC settling the FCC’s investigation regarding Straight Path Spectrum’s spectrum licenses on the terms specified therein. Material terms of the Consent Decree include the following:

 

1.The FCC agreed to terminate its investigation.

 

2.Straight Path Spectrum agreed to surrender 93 of its 828 39 GHz economic area spectrum licenses to the FCC, as well as 103 rectangular service area licenses that the Company does not believe were material assets of the Company.

 

3.Straight Path Spectrum keeps all of its 28 GHz spectrum leases.

 

4.The Company agreed to pay the Initial Civil Penalty of $15 million in four installments as follows - $4 million on or before February 11, 2017; $4 million on or before April 11, 2017; $3.5 million on or before July 11, 2017; and $3.5 million on or before October 11, 2017. If the Company sells its remaining spectrum licenses (see below) prior to the due date of any installation payment, any remaining installation payments will become due on the date of such closing.

 

5.The Company agreed to sell its remaining 39 GHz and 28 GHz spectrum licenses on or before January 11, 2018 and pay the FCC 20% of the proceeds from such the sale(s).

 

6.If the Company does not sell its remaining spectrum licenses on or before January 11, 2018, the Company will pay an additional penalty of $85 million or surrender its remaining spectrum licenses.

 

As such, the Company accrued the Initial Civil Penalty of $15 million as of January 31, 2017. The liability is classified as “FCC consent decree payable” on the consolidated balance sheet and the associated expense is classified as “civil penalty – FCC decree” on the consolidated statement of operations. The first installment of $4 million was paid on February 7, 2017.

 

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Putative Class Action and Shareholder Derivative Action

 

On November 13, 2015, a putative shareholder class action was filed in the federal district court for the District of New Jersey against Straight Path Communications Inc., and Davidi Jonas and Jonathan Rand (the “individual defendants”). The case is captioned Zacharia v. Straight Path Communications, Inc. et al., No. 2:15-cv-08051-JMV-MF, and is purportedly brought on behalf of all those who purchased or otherwise acquired the Company’s common stock between October 29, 2013, and November 5, 2015. The complaint alleges violations of (i) Section 10(b) of the Exchange Act of 1934, as amended (the “Exchange Act”) and Rule 10b-5 of the Exchange Act against the Company for materially false and misleading statements that were designed to influence the market relating to the Company’s finances and business prospects; and (ii) Section 20(a) of the Exchange Act against the individual defendants for wrongful acts by controlling persons. The allegations center on the claim that the Company made materially false and misleading statements in its public filings and conference calls during the relevant class period concerning the Company’s spectrum licenses and the prospects for its spectrum business. The complaint seeks certification of a class, unspecified damages, fees, and costs. The case was reassigned to Judge John Michael Vasquez on March 3, 2016. On April 11, 2016, the court entered an order appointing Charles Frischer as lead plaintiff and approving lead plaintiff’s selection of Glancy Prongay & Murray LLP as lead counsel and Schnader Harrison Segal & Lewis LLP as liaison counsel. On June 17, 2016, lead plaintiff filed his amended class action complaint, which alleges the same claims described above. The defendants filed a joint motion to dismiss the complaint on August 17, 2016; the plaintiff opposed that motion on September 30, 2016, and the defendants filed their reply brief in further support of their motion to dismiss on October 31, 2016.

 

On March 7, 2017, the Company and lead plaintiff in Zacharia v. Straight Path Communications Inc. et al., No. 2:15-cv-08051-JMV-MF (D.N.J.), entered into a binding memorandum of understanding to settle the putative shareholder class action and dismiss the claims that were filed against the defendants in that action.  Under the agreed terms, the Company will provide for a $2.25 million initial payment (the “Initial Payment”) and a $7.2 million additional payment (the “Additional Payment”). The Initial Payment will be paid into an escrow account within 15 days following preliminary court approval of the settlement, and will be fully covered by insurance policies maintained by the Company.  The Additional Payment of $7.2 million will be paid within 60 days after the closing of a transaction to sell the Company’s spectrum licenses as specified in the Consent Decree with the Federal Communications Commission dated January 11, 2017 (the “Consent Decree”), or, in the event that the Company pays the non-transfer penalty specified in the Consent Decree, within 60 days after that payment is paid.  In any event, the Additional Payment will be payable no later than December 31, 2018. The settlement remains subject to entering in a definitive agreement and court approval.

 

On January 29, 2016, a shareholder derivative action captioned Hofer v. Jonas et al., No. 2:16-cv-00541-JMV-MF, was filed in the federal district court for the District of New Jersey against Howard Jonas, Davidi Jonas, Jonathan Rand, and the Company’s current independent directors William F. Weld, K. Chris Todd, and Fred S. Zeidman. Although the Company is named as a nominal defendant, the Company’s bylaws generally require the Company to indemnify its current and former directors and officers who are named as defendants in these types of lawsuits. The allegations are substantially similar to those set forth in the Zacharia complaint discussed above. The complaint alleges that the defendants engaged in (i) breach of fiduciary duties owed to the Company by making misrepresentations and omissions about the Company and failing to correct the Company’s public statements; (ii) abuse of control of the Company; (iii) gross mismanagement of the Company; and (iv) unjust enrichment. The complaint seeks unspecified damages, fees, and costs, as well as injunctive relief. On April 26, 2016, the case was reassigned to Judge John Michael Vasquez. On June 9, 2016, the court entered a stipulation previously agreed to by the parties that, among other things, stays the case on terms specified therein.

 

The Company is aware of press reports regarding the filing of additional complaints for putative class actions revolving around the same alleged facts and circumstances as the Zacharia and Hofer complaints, but the Company is not aware of any other complaint that was filed or served.

 

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Sipnet Appeal and Related IPRs

 

On April 11, 2013, Sipnet EU S.R.O. (“Sipnet”), a Czech company, filed a petition for an inter partes review (“IPR”) at the Patent Trial and Appeal Board of the United States Patent and Trademark Office (the “PTAB”) for certain claims of U.S. Patent No. 6,108,704 (the “‘704 Patent”). On October 9, 2014, the PTAB held that claims 1-7 and 32-42 of the ‘704 Patent are unpatentable. Straight Path IP Group appealed. On November 25, 2015, the U.S. Court of Appeals for the Federal Circuit (the “CAFC”) reversed the PTAB’s cancellation of all challenged claims, and remanded the matter back to the PTAB for proceedings consistent with the CAFC’s opinion. On May 23, 2016, the PTAB issued a final written decision finding that Sipnet failed to show that any of the challenged claims were unpatentable.

 

As discussed in more detail below, following the CAFC’s decision in Sipnet, the PTAB denied all then-pending petitions for IPR of Straight Path IP Group’s patents, and the petitioners have appealed those denials to the CAFC.

 

On August 22, 2014, Samsung Electronics Co., Ltd. (“Samsung”) filed three petitions with the PTAB for IPR of certain claims of the ‘704 Patent and U.S. Patent Nos. 6,009,469 (the “‘469 Patent”) and 6,131,121 (the “‘121 Patent”). On March 6, 2015, the PTAB instituted the requested IPR. On June 15, 2015, Cisco Systems, Inc. (“Cisco”) and Avaya, Inc. (“Avaya”) joined this instituted IPR. On March 4, 2016, the PTAB issued a final written decision holding that Samsung failed to show that any claims of the ‘704 and ‘121 Patents were unpatentable. The PTAB also held that Samsung failed to show that the majority of the claims of the ‘469 Patent were unpatentable. On May 5, 2016, Samsung filed a notice of appeal to the CAFC. On May 6, 2016, Cisco and Avaya also filed notices of appeal.

 

On October 31, 2014, LG Electronics Inc. et al. (“LG”), Toshiba Corporation et al. (“Toshiba”), Vizio, Inc. (“Vizio”), and Hulu LLC (“Hulu”) filed three petitions with the PTAB for IPR of certain claims of the ‘704, ‘469, and ‘121 Patents. On May 15, 2015, the PTAB instituted the requested IPRs. On November 10, 2015, the PTAB granted petitions filed by Cisco and Avaya to join these IPRs. On November 24, 2015, the PTAB granted related petitions filed by Verizon Services Corp. and Verizon Business Network Services Inc. (the “Verizon affiliates”) to join for the ‘704 and ‘469 Patents. On May 9, 2016, the PTAB issued a final written decision holding that the petitioners failed to show that any claims of the ‘704 Patent were unpatentable. The PTAB also held that the petitioners failed to show that the majority of the claims of the ‘469 and ‘121 Patents were unpatentable. On May 20, 2016, the petitioners filed a notice of appeal to the CAFC, and this appeal was consolidated with the appeal of the Samsung IPR discussed above. On October 14, 2016, the appellants filed their opening brief. The respondents filed their opposition brief on December 7, 2016, and the appellants filed their reply brief on January 4, 2017.

 

On September 28, 2015, Cisco, Avaya, and the Verizon affiliates filed a petition for an IPR with the PTAB for all claims of U.S. Patent No. 6,701,365 (the “‘365 Patent”). On April 6, 2016, the PTAB denied the petition, finding that the petitioners had not demonstrated a reasonable likelihood that any challenged claim was unpatentable. This decision was not appealed to the CAFC.

 

Patent Enforcement

 

Following the CAFC’s decision in Sipnet and the PTAB’s decisions in the related IPRs, Straight Path IP Group has taken steps to re-commence its patent enforcement actions in federal district court that had been stayed or dismissed without prejudice during the pendency of the Sipnet Appeal and related IPRs.

 

On August 1, 2013, Straight Path IP Group filed complaints in the United States District Court for the Eastern District of Virginia against LG, Toshiba, and Vizio alleging infringement of the ‘704, ‘469, and ‘121 Patents and seeking damages related to such infringement. The actions were consolidated (the “consolidated action”) and assigned to Judge Anthony J. Trenga. In October 2014, Hulu intervened in the consolidated action as to Hulu’s streaming functionality in the accused products. In that same month, Amazon.com, Inc. (“Amazon”) moved to intervene, sever, and stay claims related to Amazon’s streaming functionality in the accused products. On October 13, 2014, Amazon filed an action in the United States District Court for the Northern District of California seeking declaratory relief of non-infringement of the ‘704, ‘469, and ‘121 Patents based in part on the allegations related to the consolidated action in Virginia (the “Amazon action”). On December 5, 2014, Straight Path IP Group filed a motion to dismiss Amazon’s complaint, or in the alternative, to transfer venue to the Eastern District of Virginia. On May 28, 2015, the California court transferred the Amazon action to Virginia, and the Virginia court later formally severed the Amazon action from the consolidated action. In November 2014, the parties jointly moved to stay the consolidated action and the Amazon action pending the completion of the Sipnet Appeal and related IPRs. On November 4, 2014, the court granted the stay. On May 23, 2016, Straight Path IP Group filed status reports with the court in both the consolidated action and the Amazon action requesting that the stay be lifted, and the defendants filed a statement and request for leave to file a motion to continue the stay. The court held oral argument, and on August 8, 2016, the court continued the stay pending the outcome of the defendants’ appeals of the PTAB’s denial of their IPRs.  

 

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On August 23, 2013, Straight Path IP Group filed a complaint in the United States District Court for the Eastern District of Texas against Samsung alleging infringement of the ‘704, ‘469, and ‘121 Patents and seeking damages related to such infringement. In September 2014, Straight Path IP Group and Samsung jointly filed a motion to stay the action. On October 29, 2014, the court granted the motion and stayed the action pending the outcome of the Sipnet Appeal and the Samsung IPR petitions. On May 31, 2016, Straight Path IP Group filed a notice informing the court of the results of the Samsung IPR and the Sipnet Appeal and requesting that the stay be lifted. On June 2, 2016, the defendants filed a notice asserting that the stay should remain pending their appeal of the PTAB’s decision in the Samsung IPR.  The court has not ruled on Straight Path IP Group’s request.

 

On September 24, 2014, Straight Path IP Group filed complaints against each of Apple, Inc. (“Apple”), Avaya, and Cisco in the United States District Court for the Northern District of California. Straight Path IP Group claims that (a) Apple’s telecommunications products, including FaceTime software, infringe four of Straight Path IP Group’s patents (the ‘704, ‘469, and ’121 Patents and U.S. Patent No. 7,149,208); (b) Avaya’s IP telephony, video conference, and telepresence products such as its Aura Platform infringe four of the Straight Path IP Group’s patents (the ‘704, ‘469, ‘121, and ‘365 Patents); and (c) Cisco’s IP telephony, video conference, and telepresence products such as the Unified Communications Solutions infringe four of Straight Path IP Group’s patents (the ‘704, ‘469, ‘121, and ‘365 Patents). On December 24, 2014, Straight Path IP Group dismissed the complaints against Avaya and Cisco without prejudice. On January 5, 2015, Straight Path IP Group dismissed the complaint against Apple without prejudice. On June 21, 2016, Straight Path IP Group filed new complaints against Avaya and Cisco alleging that certain of their products infringe four of Straight Path IP Group’s patents. On August 5, 2016, Avaya filed its answer, affirmative defenses, and counterclaims for declaratory judgments of noninfringement and invalidity of Straight Path IP Group’s patents, and the parties have commenced discovery. Also on August 5, 2016, Cisco filed its answer and affirmative defenses, and the parties have commenced discovery. On June 24, 2016, Straight Path IP Group filed a new complaint against Apple alleging that its FaceTime product infringes five of Straight Path IP Group’s patents. On August 5, 2016, Apple filed a partial motion to dismiss as well as its answer, affirmative defenses, and counterclaims for declaratory judgments of noninfringement and invalidity of Straight Path IP Group’s patents, and the parties have commenced discovery. Following oral argument, on October 21, 2016, the court granted in part and denied in part Apple’s motion. The court dismissed one claim as to the ‘469 Patent but denied Apple’s motion with respect to the other four patents at issue in the litigation. On January 19, 2017, Avaya filed voluntary petitions under chapter 11 of the U.S. Bankruptcy Code in the U.S. Bankruptcy Court for the Southern District of New York.

 

On September 26, 2014, Straight Path IP Group filed a complaint against the Verizon affiliates and Verizon Communications in the United States District Court for the Southern District of New York. Straight Path IP Group claims the defendants’ telephony products such as its Advanced Communications Products, including Unified Communications and Collaboration and VOIP infringe on the ‘704, ‘469, and ‘365 Patents. On November 24, 2014, Straight Path IP Group dismissed the complaint without prejudice subject to a confidential standstill agreement with the defendants. On June 7, 2016, Straight Path IP Group filed a new complaint in the United States District Court for the Southern District of New York against the original Verizon parties as well as Verizon affiliate Cellco Partnership d/b/a Verizon Wireless, alleging that defendants’ IP telephony products such as FIOS Digital Voice, Unified Communications and Collaboration, Verizon Enterprise Solutions VoIP, Virtual Communications Express, Voice over LTE, and related hardware and software infringe the ‘704, ‘469 and ‘365 Patents. On August 5, 2016, Verizon filed its answer and affirmative defenses, and the parties commenced discovery. On September 13, 2016, Verizon filed a motion to stay the litigation pending a decision from the CAFC in the appeal of the Samsung IPR. On October 18, 2016, the court granted Verizon’s motion and stayed the litigation.

 

Straight Path IP Group generally pays law firms that represent it in litigation against alleged infringers of its intellectual property rights a percentage of the amounts recovered ranging from 0% to 40% depending on several factors.

 

FCC License Renewal

 

Our spectrum licenses in the local multipoint distribution service (“LMDS”) and 39 GHz bands have historically been granted for ten-year terms. On April 20, 2016, and based on our submission of a renewal application and substantial service demonstration, the FCC granted our application to renew our LMDS BTA license for the LMDS A1 band (27.5 – 28.35 GHz) that covers parts of the New York City BTA for a ten-year period, until February 1, 2026. We have 15 other LMDS A1 licenses; nine of these licenses currently have a renewal date of August 10, 2018, and six of these licenses have a renewal date of September 21, 2018. However, following the adoption of the Upper Microwave Flexible Use (“UMFU”) Report and Order, we are only required to submit an application for renewal at those deadlines; we are not required to submit a substantial service demonstration for these licenses until the next build-out date specified in the UFMU Report and Order, which is June 1, 2024.

 

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It is likely that the FCC will separate the renewal and substantial service deadlines for licenses that contain both A1 spectrum (for which mobile capabilities were adopted in the UMFU Report and Order) and A2 and A3 spectrum (for which mobile capabilities were not added). Of the 15 BTAs in which we hold LMDS A2 band (29.1 – 29.25 GHz) and A3 band (31.075 – 31.225 GHz) spectrum, nine licenses currently have a renewal and possible substantial service deadline of August 10, 2018 and six of these licenses currently have a renewal and possible substantial service deadline of September 21, 2018. The UMFU Report and Order does not affect the LMDS B band spectrum – the substantial service deadlines remain the same as the renewal deadlines. Of our 117 LMDS B band (31.0 – 31.075 GHz and 31.225 – 31.300 GHz) spectrum, five licenses currently have a renewal and substantial service deadline of August 10, 2018 and 112 licenses currently have a renewal and substantial service deadline of September 21, 2018. 

 

The UMFU Report and Order substantial service deadline of June 1, 2024 also applies to our 735 39 GHz licenses, which currently have a renewal deadline of October 18, 2020.

 

For further discussion, please see “Regulatory Enforcement” above in this Note 11 to the Consolidated Financial Statements. 

 

Other Commitments and Contingencies

 

The Former Chief Executive Officer of Straight Path Spectrum (the “Former SPSI CEO”) is entitled to receive payments from future revenues generated from the leasing, licensing or sale of rights in certain of Straight Path Spectrum’s wireless spectrum licenses. Those payments are to be made out of 50% of the covered revenue and are in a maximum aggregate amount of $3.25 million. The payments arise under the June 2013 settlement of certain claims and disputes with the Former SPSI CEO and parties related to the Former SPSI CEO.

 

Approximately $22,000 and $30,000 was incurred to the Former SPSI CEO for this obligation for the three months ended January 31, 2017 and 2016, respectively, and approximately $39,000 and $30,000 for the six months ended January 31, 2017 and 2016, respectively.

 

Note 12—Subsequent Event

 

On February 6, 2017, the Company entered into a Loan Agreement with a syndicate of investors (the “Lenders”) pursuant to which the Company borrowed $17.5 million (the “Loan Amount”). The loan matures on December 29, 2017. Interest accrues at a rate of 5% per annum until June 30, 2017 and then increases to a rate of 10% per annum. Other significant terms of the Loan Agreement include the following:

 

1.$15 million of the Loan Amount will be used to pay the Initial Civil Penalty provided for in the Consent Decree in accordance with the payment requirements set forth in the Consent Decree. The remainder of the Loan Amount will be used for general corporate purposes and working capital needs. The first installment of $4 million was paid on February 7, 2017.

 

2.The Lenders received warrants to purchase 252,161 shares of the Company’s Class B common stock with an aggregate exercise price equal to $7.5 million based on an exercise price of $34.70 per share. The exercise price was based on the weighted average trading price for the Class B common stock for the five trading days preceding the funding date. The warrants expire at the earlier of December 31, 2018 or a liquidation event (as defined).

 

3.If any portion of the Loan Amount remains outstanding after June 30, 2017, the Lenders will receive additional warrants on a monthly basis with an aggregate exercise price equal to 10% (dropping to 7.5% in September 2017) of the then outstanding Loan Amount. The exercise price will be based on the weighted average trading price for the Class B common stock for the ten trading days preceding the warrant issue date.

 

4.To the extend the warrants are held by a Lender at the time of exercise, the exercise price will paid by reduction of the outstanding Loan Amount.

 

The fair value of the warrants totaled approximately $4,040,000 and will be amortized to interest expense over the term of the Loan Agreement. The Company estimated the fair value of the warrants using the Black-Scholes option pricing model with the following assumptions: Risk-free rate – 1.16%; dividend yield – 0%; Volatility – 96.68% and expected term – 1.92 years.

 

Expected volatility is based on historical volatility of the Company’s common stock; the expected term until exercise represents the weighted-average period of time that options granted are expected to be outstanding giving consideration to vesting schedules and the Company’s historical exercise patterns; and the risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant for periods corresponding with the expected life of the option. The Company has not paid any dividends since its inception and does not anticipate paying any dividends for the foreseeable future, so the dividend yield is assumed to be zero.

 

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The unaudited condensed consolidated pro forma balance sheet of the Company below has been prepared as if the Loan Agreement had occurred on January 31, 2017:

 

STRAIGHT PATH COMMUNICATIONS INC.
UNAUDITED CONSOLIDATED BALANCE SHEET
(In thousands)

 

        Pro Forma Adjustments     
   Historical    Notes   Amount   Pro Forma 
                  
Assets  
Current assets:                 
Cash and cash equivalents  $7,837   

(A)

  $2,500   $10,337 
Restricted cash   -    (A)    15,000    15,000 
Trade accounts receivable, net   40         -    40 
Inventory   643         -    643 
Prepaid expenses and other current assets   919         -    919 
Total current assets   9,439         17,500    26,939 
Intangible assets   365         -    365 
Other assets   111         -    111 
Total assets  $9,915        $17,500   $27,415 
                     
Liabilities and Equity (Deficiency)   
Current liabilities:                    
Trade accounts payable  $1,016        $-   $1,016 
Accrued expenses   368         -    368 
Loan payable, net of debt discount   -    (A)    17,500    13,460 
         (B)    (4,040)     
FCC consent decree payable   15,000         -    15,000 
Deferred revenue   197         -    197 
Income taxes payable   221         -    221 
Total current liabilities   16,802         13,460    30,262 
Settlement payable - stockholders   7,200         -    7,200 
Deferred revenue - long-term portion   80         -    80 
Total liabilities   24,082         13,460    37,542 
Equity (Deficiency)                    
Straight Path Communications Inc. stockholders' equity:                    
Preferred stock   -         -    - 
Class A common stock   8         -    8 
Class B common stock   117         -    117 
Additional paid-in capital   26,073    (B)    4,040    30,113 
Accumulated deficit   (37,781)        -    (37,781)
Treasury stock   (428)        -    (428)
Total Straight Path Communications Inc. stockholders' equity (deficiency)   (12,011)        4,040    (7,971)
Noncontrolling interests   (2,156)        -    (2,156)
Total equity (deficiency)   (14,167)        4,040    (10,127)
Total liabilities and equity (deficiency)  $9,915        $17,500   $27,415 

 

Notes to Pro Forma Consolidated Balance Sheet

 

  (A) To record the proceeds from the Loan Agreement. According to the terms of the Loan Agreement, $15 million of the Loan Amount will be used to pay the Initial Civil Penalty. As such, $15 million has been classified as restricted cash.

 

  (B) To record the value of the warrants issued under the Loan Agreement. The value of the warrants will be amortized to interest expense over the term of the Loan Agreement.

 

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Item 2.      Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

The following information should be read in conjunction with the accompanying consolidated financial statements and the associated notes thereto of this Quarterly Report, and the audited consolidated financial statements and the notes thereto and our Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in our Annual Report on Form 10-K for the year ended July 31, 2016, as filed with the U.S. Securities and Exchange Commission (the “SEC”).

 

As used below, unless the context otherwise requires, the terms “the Company,” “Straight Path,” “we,” “us,” and “our” refer to Straight Path Communications Inc., a Delaware corporation, and its subsidiaries, collectively.

 

Forward-Looking Statements

 

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including statements that contain the words “believes,” “anticipates,” “expects,” “plans,” “intends,” and similar words and phrases. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from the results projected in any forward-looking statement. In addition to the factors specifically noted in the forward-looking statements, other important factors, risks and uncertainties that could result in those differences include, but are not limited to, those discussed under Item 1A to Part I “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended July 31, 2016 and under the heading “Risk Factors” below in this Quarterly Report. The forward-looking statements are made as of the date of this report and we assume no obligation to update the forward-looking statements, or to update the reasons why actual results could differ from those projected in the forward-looking statements. Investors should consult all of the information set forth in this report and the other information set forth from time to time in our reports filed with the SEC pursuant to the Securities Act of 1933 and the Securities Exchange Act of 1934, including our Annual Report on Form 10-K for the year ended July 31, 2016.

 

Overview

 

We were formerly a subsidiary of IDT Corporation (“IDT”). On July 31, 2013, we were spun-off from IDT to its stockholders and became an independent public company (the “Spin-Off”).

 

Straight Path Communications Inc. is a communications asset company. We own, via intermediate wholly-owned entities, 100% of Straight Path Spectrum, Inc. (“Straight Path Spectrum”) and 100% of Straight Path Ventures, LLC (“Straight Path Ventures”), and we own 84.5% of Straight Path IP Group, Inc. (“Straight Path IP Group”).

 

Straight Path Spectrum’s wholly-owned subsidiary, Straight Path Spectrum, LLC, holds fixed and mobile wireless spectrum. Straight Path Ventures is developing next generation wireless technology for 39 GHz. Straight Path IP Group owns intellectual property primarily related to communications over the Internet, and the licensing and other businesses related to this intellectual property.  

 

Recent Activity Related to Straight Path Spectrum

 

Federal Communications Commission (“FCC”) Regulatory Enforcement

 

Allegations were made in an anonymous report released in November 2015 regarding the circumstances under which certain of our spectrum licenses were renewed by the FCC in 2011 and 2012. The Company conducted an independent investigation into these allegations. We met with the FCC and shared the Company’s conclusions, and the Company subsequently provided certain additional information requested by the FCC.

 

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On January 11, 2017, the Company entered into a consent decree with the FCC settling the FCC’s investigation regarding Straight Path Spectrum’s spectrum licenses (the “Consent Decree”). Material terms of the Consent Decree include the following:

 

1.The FCC agreed to terminate its investigation.

 

2.Straight Path Spectrum agreed to surrender 93 of its 828 39 GHz economic area spectrum licenses to the FCC, as well as 103 rectangular service area licenses that the Company does not believe were material assets of the Company.

 

3.Straight Path Spectrum keeps all of its 28 GHz spectrum leases.

 

4.The Company agreed to pay a $15 million civil penalty (the “Initial Civil Penalty”) in four installments as follows - $4 million on or before February 11, 2017; $4 million on or before April 11, 2017; $3.5 million on or before July 11, 2017; and $3.5 million on or before October 11, 2017. If the Company sells its remaining spectrum licenses (see below) prior to the due date of any installation payment, any remaining installation payments will become due on the date of such closing.

 

5.The Company agreed to sell its remaining 39 GHz and 28 GHz spectrum licenses on or before January 11, 2018 and pay the FCC 20% of the proceeds from such the sale(s).

 

6.If the Company does not sell its remaining spectrum licenses on or before January 11, 2018, the Company will pay an additional penalty of $85 million or surrender its remaining spectrum licenses.

 

The Consent Decree also bars the Company from entering into any new leases of its spectrum, which will limit our ability to increase our leasing revenue in the future. The first installment of $4 million was paid on February 7, 2017 and the remaining $11 million of the Initial Civil Penalty will be paid from the proceeds of the Loan Agreement.

 

FCC advances approval of mobile services in millimeter wave (“mmW”) bands, including adopting the Upper Microwave Flexible Use (“UMFU”) Report and Order

 

We hold a significant number of FCC licenses that permit the use of the spectrum for fixed and mobile wireless services in the United States, providing broad geographic coverage and a large amount of total bandwidth in many areas. These include licenses in what are known as the 39 GHz band (38.6 – 40 GHz) and the 28 GHz A1 band (27.5 – 28.35 GHz). We also hold FCC licenses that permit the use of the spectrum for fixed wireless services in other parts of the LMDS band (29.1 – 29.25 GHz, 31.075 – 31.225 GHz, 31.0 – 31.075 GHz and 31.225 – 31.300 GHz). Our 39 GHz spectrum licenses cover the entire continental U.S. with an average of more than 600 megahertz (“MHz”) of bandwidth in the top 30 U.S. markets (measured by population according to the 2010 U.S. Census), as well as LMDS licenses in many key markets. The FCC initially allocated these frequency bands for fixed and mobile services, but established rules only for fixed services.

 

On July 14, 2016, the FCC adopted the UMFU Report and Order, which opens four millimeter-wave bands for flexible mobile and fixed wireless services. The rules apply to the LMDS A1 and 39 GHz bands, as well as the 37 GHz band and a new unlicensed band at 60 GHz (64.0-71.0 GHz). Among other things, the UMFU Report and Order changed the substantial service deadline for our 735 39 GHz licenses and 15 of our LMDS A1 licenses to June 1, 2024. For a further discussion, see Note 11 to the Consolidated Financial Statements contained in Item 1 of this Quarterly Report under the heading “FCC License Renewal.”

 

Straight Path is also participating in standard setting, namely through 3GPP, as a contributing member.

 

Innovation in Fixed Wireless Applications: Accelerating Point-to-Multipoint (“PMP”) Platform in 39 GHz

 

On September 11, 2015, Straight Path entered into an agreement with Cambridge Broadband Networks Ltd. (“CBNL”) to expedite production of a 39 GHz PMP radio (“Radios”). Straight Path agreed to a $1,000,000 non-recurring engineering fee, and the product is expected to be commercially available by early 2017. The Company signed a purchase order to CBNL for the acquisition of 500 PMP radios for $2,100,000 and has paid a deposit of $630,000.

 

In November 2016, the FCC approved CBNL’s 39 GHz VectaStar® 600 PMP (“PMP Radios”) for commercial use in the U.S.

 

In December 2016, the Company and CBNL agreed to reduce the purchase order to 250 PMP Radios for $1,050,000. The Company expects to receive these radios in March 2017, and pay approx. $420,000 upon receipt of the Radios to the Company.

 

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Recent Activity Related to Straight Path Ventures

 

Straight Path Ventures is developing next generation wireless technology primarily for 39 GHz at its Gigabit Mobility Lab in Plano, Texas. Although work is at an early stage, the Company decided in Q3 2016 that this activity warrants a separate reportable business segment.

 

On August 22, 2016, Straight Path Ventures filed a provisional patent application with the United States Patent and Trademark Office (“USPTO”) for new beam training technologies in millimeter-wave gigabit broadband systems. On October 12, 2016, Straight Path Ventures filed a patent application with the USPTO for new millimeter-wave transceiver technologies.

 

On September 19, 2016, Straight Path Ventures performed an indoor demonstration of our prototype 39 GHz Gigarray® transceivers. Our Gigabit Mobility Lab continues to refine the Gigarray® for Fixed 5G®.

 

Recent Activity Related to Straight Path IP Group

 

On October 9, 2014, the Patent Trial and Appeals Board of the United States Patent and Trademark Office (the “PTAB”) issued an administrative decision stating that claims 1-7 and 32-42 of U.S. Patent No. 6,108,704 (the “‘704 Patent”) are unpatentable. Straight Path IP Group appealed that decision. On November 25, 2015, the U.S. Court of Appeals for the Federal Circuit (the “CAFC”) reversed the PTAB’s decision and remanded the case back to the PTAB for further proceedings. On May 23, 2016, the PTAB issued a final written decision finding none of the challenged claims unpatentable.

 

Following the favorable CAFC decision, the PTAB denied pending petitions for inter partes review (“IPR”) of the ‘704 Patent and other patents held by Straight Path IP Group. As well, the PTAB found nearly all the claims patentable over the prior art in pending IPRs. The petitioners have appealed to the CAFC. 

 

In civil actions pending in federal district courts for the Eastern District of Virginia and Eastern District of Texas, Straight Path IP Group has requested that the courts lift the stays previously put in place pending the outcome of the IPRs. The Eastern District of Virginia denied the request and continued the stay pending a decision on the CAFC appeal. The Eastern District of Texas has not yet ruled. Straight Path IP Group has filed a complaint for patent infringement against several Verizon affiliates in the U.S. District Court for the Southern District of New York, but the court granted Verizon’s motion to stay the litigation pending the outcome of the CAFC appeal. Straight Path IP Group has also filed complaints in the U.S. District Court for the Northern District of California against Apple, Inc., Avaya Inc., and Cisco Systems, Inc. Avaya Inc. recently filed voluntary petitions under chapter 11 of the U.S. Bankruptcy Code in the U.S. Bankruptcy Court for the Southern District of New York.

 

For further discussion of these actions and other legal proceedings, please see Note 11 to the Consolidated Financial Statements in Part I of this Quarterly Report.

 

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Critical Accounting Policies

 

Our consolidated financial statements and accompanying notes are prepared in accordance with accounting principles generally accepted in the United States of America, or U.S. GAAP. Our significant accounting policies are described in Note 1 to the consolidated financial statements included in our Annual Report on Form 10-K for the year ended July 31, 2016. The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses as well as the disclosure of contingent assets and liabilities. Critical accounting policies are those that require application of management’s most subjective or complex judgments, often as a result of matters that are inherently uncertain and may change in subsequent periods. Our critical accounting policy relates to the valuation of intangible assets with indefinite useful lives. Management bases its estimates and judgments on historical experience and other factors that are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions. For additional discussion of our critical accounting policies, see our Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended July 31, 2016 and the notes to our consolidated financial statements.

 

Emerging Growth Company

 

We qualify as an “emerging growth company” as defined in the Jumpstart our Business Startups Act of 2012, or the JOBS Act. An emerging growth company may take advantage of reduced reporting and other burdens that are otherwise applicable generally to public companies. These provisions include:

 

  an extended transition period to comply with new or revised accounting standards applicable to public companies; and
     
  an exemption from the auditor attestation requirement in the assessment of our internal control over financial reporting pursuant to the Sarbanes-Oxley Act of 2002.

 

We may take advantage of these provisions until the end of the fiscal year ending after the fifth anniversary of our initial registration statement, July 31, 2017, or such earlier time that we are no longer an emerging growth company and, if we do, the information that we provide stockholders may be different than you might receive from other public companies in which you hold equity. We would cease to be an emerging growth company if we have more than $1.0 billion in annual revenue, have more than $700 million in market value of our shares of common stock held by non-affiliates, or issue more than $1.0 billion of non-convertible debt over a three-year period.

 

The JOBS Act permits an “emerging growth company” like us to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies.

 

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Results of Operations

 

We evaluate the performance of our operating business segments based primarily on income (loss) from operations. Accordingly, the income and expense line items below income (loss) from operations are only included in our discussion of the consolidated results of operations.

 

Three and Six Months Ended January 31, 2017 (“Fiscal 2017”) Compared to Three and Six Months Ended January 31, 2016 (“Fiscal 2016”)

 

Consolidated

 

   Three Months Ended     
   January 31,   Change 
   2017   2016   $ 
   (in thousands) 
Revenues  $165   $112   $53 
Direct cost of revenues   26    13    13 
Research and development   129    374    (245)
Selling, general and administrative   3,596    2,346    1,250 
Civil penalty – FCC decree   15,000    -    15,000 
Stockholder settlement   7,200    -    7,200 
Loss from operations   (25,786)   (2,621)   (23,165)
Interest and other income   6    400    (394)
Loss before income taxes   (25,780)   (2,221)   (23,559)
Provision for income taxes   -    -    - 
Net loss   (25,780)   (2,221)   (23,5598)
Net loss attributable to noncontrolling interests   355    195    160 
Net loss attributable to Straight Path Communications Inc.  $(25,425)  $(2,026)  $(23,399)

 

   Six Months Ended     
   January 31,   Change 
   2017   2016   $ 
   (in thousands) 
Revenues  $324   $1,815   $(1,491)
Direct cost of revenues   67    795    (728)
Research and development   289    374    (85)
Selling, general and administrative   7,831    3,958    3,873 
Civil penalty – FCC decree   15,000    -    15,000 
Stockholder settlement   7,200    -    7,200 
(Loss) income from operations   (30,063)   (3,312)   (26,751)
Interest and other income   35    410    (375)
(Loss) income before income taxes   (30,028)   (2,902)   (27,126)
Provision for income taxes   (7)   (6)   (1)
Net (loss) income   (30,035)   (2,908)   (27,127)
Net loss (income) attributable to noncontrolling interests   479    250    229 
Net (loss) income attributable to Straight Path Communications Inc.  $(29,556)  $(2,658)  $(26,898)

 

Revenues. Revenues generated by Straight Path Spectrum were $165,000 and $324,000 in the three and six months of Fiscal 2017, respectively, and $112,000 and $217,000 in the three and six months of Fiscal 2016, respectively. Revenues increased in Fiscal 2017 as the result of the leasing of spectrum to new customers (wireless network operators) prior to the Consent Decree with the FCC. The Consent Decree prohibits the Company from entering into new spectrum leases.

 

No revenues were generated by Straight Path IP Group in fiscal 2017 because no new licenses or settlements were entered into and the revenue from prior licenses were fully realized in prior periods due to the expiration of the licensed patents. Revenues generated were $0 and $1.6 million in the three and six months of Fiscal 2016, respectively. Primarily all of the revenue was recognized as of September 30, 2015. 

 

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Direct cost of revenues. Direct cost of revenues decreased in Fiscal 2017 compared to Fiscal 2016.

 

Straight Path Spectrum incurred all of the direct costs of revenue in Fiscal 2017. Direct cost of revenues includes governmental fees and connectivity costs. No such costs were incurred in Fiscal 2016.

 

In Fiscal 2017, Straight Path IP Group had no revenues or cost of revenues because all licenses or settlements were fully realized in prior periods. The Straight Path IP Group direct cost of revenues were costs related to enforcement efforts and litigation settlements and licensing arrangements, increased generally proportionally to the increase in settlement revenues, and are recognized over the same time period as corresponding revenues.

 

Research and development. Research and development in Fiscal 2017 consists of expenses related to development by our Gigabit Mobility Lab of next generation wireless technology for 39 GHz. Research and development in Fiscal 2016 consists primarily of expenses related to an agreement to expedite production of a PMP radio for a total fee of $1,000,000. For the three and six months in Fiscal 2016, expenses recognized under the agreement totaled $300,000.

 

Selling, general and administrative. Selling, general and administrative expenses increased in Fiscal 2017 compared to Fiscal 2016 primarily as a result of the increase in the number of employees and salaries, an increase of non-cash stock-based compensation charges related to the issuances of restricted common stock to employees, and increased legal costs due to Straight Path IP Group’s appeal of the PTAB’s decision on the ‘704 Patent and related IPRs and the putative shareholder class action, derivative action, and regulatory enforcement activity.

 

Stock-based compensation is included in selling, general and administrative expense and, with respect to restricted stock granted, amounted to approximately $1,869,000 and $988,000 for the three months of Fiscal 2017 and 2016, respectively, and approximately $4,286,000 and $1,586,000 for the six months of Fiscal 2017 and 2016, respectively. As of January 31, 2017, there was approximately $7,065,000 of total unrecognized compensation cost related to non-vested restricted shares. The Company expects to recognize the unrecognized compensation cost as follows: Fiscal 2017 - $1,616,000, Fiscal 2018 - $2,781,000, Fiscal 2019 - $1,990,000, Fiscal 2020 - $615,000 and Fiscal 2021 - $63,000.

 

Stock-based compensation expense related to the options issued in June 2016 is included in selling, general and administrative and amounted to approximately $96,000 and $193,000 for the three and six months of Fiscal 2017, respectively.

 

Civil penalty – FCC decree. As discussed above, the Company signed the Consent Decree with the FCC on January 11, 2017. The Company incurred a $15 million civil penalty to be paid over a nine-month period. For a further discussion, see Note 11 to the Consolidated Financial Statements contained in Item 1 of this Quarterly Report under the heading– “Regulatory Enforcement.”

 

Stockholder settlement. As discussed above, On March 7, 2017, the Company and lead plaintiff in Zacharia v. Straight Path Communications Inc. et al., No. 2:15-cv-08051-JMV-MF (D.N.J.), entered into a binding memorandum of understanding to settle the putative shareholder class action and dismiss the claims that were filed against the Defendants in that action.  Under the agreed terms, the Company will provide for a $2.25 million initial payment (the “Initial Payment”) and a $7.2 million additional payment (the “Additional Payment”). For a further discussion, see Note 11 to the Consolidated Financial Statements contained in Item 1 of this Quarterly Report under the heading– “Regulatory Enforcement.”

 

Interest and other income. Interest and other income in the three months of Fiscal 2017 consisted of interest income of $6,000. Interest and other income in the six months of Fiscal 2017 included the reversal of prior period accruals of $22,000 and interest income of $13,000. Interest and other income in the three months of Fiscal 2016 included the reversal of prior period accruals of $390,000 and interest income of $10,000. Interest and other income for the six months of Fiscal 2016 included the reversal of prior period accruals of $390,000 and interest income of $20,000. Interest expense will increase in coming quarters due to interest payments due on the Loan Amount.

 

Income taxes. Straight Path Spectrum files its own tax returns. There is no provision for Straight Path Spectrum for Fiscal 2017 and Fiscal 2016 as it incurred a taxable loss in both periods. In addition, there is a 100% valuation allowance against the net operating losses generated by Straight Path Spectrum at both January 31, 2017 and 2016.

 

The provision in Fiscal 2017 and Fiscal 2016 represents state income taxes.

 

Net loss attributable to noncontrolling interests. The change in net loss attributable to noncontrolling interests was due to Straight Path IP Group incurring losses in the Fiscal 2017 periods compared to the loss in Fiscal 2016.

 

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Straight Path Spectrum Segment

  

   Three Months Ended     
   January 31,   Change 
   2017   2016   $ 
   (in thousands) 
Revenues  $165   $112   $53 
Direct cost of revenues   26    13    13 
Research and development   -    374    (374)
Selling, general and administrative   2,444    690    1,754 
Loss from operations before FCC decree and stockholder settlement  $(2,305)  $(965)  $(1,340)

  

   Six Months Ended     
   January 31,   Change 
   2017   2016   $ 
   (in thousands) 
Revenues  $324   $217   $107 
Direct cost of revenues   67    13    54 
Research and development   -    374    (374)
Selling, general and administrative   5,547    1,129    4,418 
Loss from operations before FCC decree and stockholder settlement  $(5,290)  $(1,299)  $(3,991)

 

Revenues.   Revenues generated by Straight Path Spectrum were $165,000 and $324,000 in the three and six months of Fiscal 2017, respectively, and $112,000 and $217,000 in the three and six months of Fiscal 2016, respectively. Revenues increased in Fiscal 2017 as the result of the leasing of spectrum to new customers (wireless network operators) prior to the Consent Decree with the FCC. The Consent decree prohibits the Company from entering into new spectrum leases.

 

Direct cost of revenues. Direct cost of revenues includes governmental fees and connectivity costs.

 

Research and development. Research and development in Fiscal 2016 consisted primarily of expenses related to an agreement to expedite production of a PMP radio for a total fee of $1,000,000. For the three and six months in Fiscal 2016, expenses recognized under the agreement totaled $300,000.

 

Selling, general and administrative.  Selling, general and administrative expense increased in Fiscal 2017 compared to Fiscal 2016 primarily as a result of the increase in the number of employees and increases in salaries including the change in allocation of corporate level compensation costs between entities, an increase of non-cash stock-based compensation charges related to the issuances of restricted common stock and stock options to employees, marketing expenses related to the installation of radio links, and increased legal costs due to the putative shareholder class action, derivative action, and regulatory enforcement activity.

 

 27 

 

 

Straight Path IP Group Segment

 

   Three Months Ended     
   January 31,   Change 
   2017   2016   $ 
   (in thousands) 
Revenues  $-   $-   $- 
Direct cost of revenues   -    -    - 
Research and development   -    -    - 
Selling, general and administrative   856    1,656    (800)
Loss from operations before FCC decree and stockholder settlement  $(856)  $(1,656)  $(800)

 

   Six Months Ended     
   January 31,   Change 
   2017   2016   $ 
   (in thousands) 
Revenues  $-   $1,598   $(1,598)
Direct cost of revenues   -    782    (782)
Research and development   -    -    - 
Selling, general and administrative   1,731    2,829    (1,098)
Loss from operations before FCC decree and stockholder settlement  $(1,731)  $(2,013)  $282 

 

Revenues.  We have filed a series of lawsuits claiming infringement of a number of our key patents seeking both damages and injunctive relief. Many of these actions were settled and we had entered into licensing arrangements with the former defendants. In connection with the settlements and licenses, Straight Path IP Group recognized revenue of approximately $1.6 million in Fiscal 2016. The gross payments under settlement and licensing agreements that had been secured since the Company’s Spin-Off (the beginning of Fiscal 2014) totaled $18.3 million as of October 31, 2015, all of which has been collected. Most of these settlement agreements included license fees for the duration of the license term (which was over the remaining life of the covered patents), and had been allocated across Fiscal 2014, 2015 and 2016 in the amounts of $4.2 million, $12.5 million and $1.6 million respectively, based on the settlement dates and if the settlement included a look back period for damages. All of the revenue from these settlements has been recognized as of September 30, 2015.

 

The PTAB’s October 2014 decision on the ‘704 Patent previously had a materially adverse impact on our ongoing enforcement efforts. During the pendency of the appeal from that decision and related IPRs, a number of pending civil actions brought by Straight Path IP Group against various defendants were stayed or dismissed without prejudice. In light of the favorable outcome on appeal and the favorable PTAB rulings in the related IPR proceedings, Straight Path IP Group has re-commenced four civil actions (one of which has been stayed) and has requested to lift the stays in two other actions (one request was denied). For further discussion of these actions, please see Note 11 to the Consolidated Financial Statements in Part I of this Quarterly Report.

 

Direct cost of revenues. Direct cost of revenues consisted of legal expenses directly related to revenues from the litigation settlements described above. We incurred an aggregate of $9.0 million in expenses directly related to these settlements, which was recognized ratably in proportion to the recognition of the related revenue. We generally paid law firms that represented us in litigation against alleged infringers of our intellectual property rights a percentage of the amounts recovered ranging from 0% to 40% depending on several factors. In addition, there were other directly related legal expenses, such as expert testimony, travel, filing fees, and others.

 

Selling, general and administrative.  Selling, general and administrative expenses decreased in Fiscal 2017 compared to Fiscal 2016 primarily as a result of the change in the allocation of corporate level compensation costs between entities, including stock-based compensation for the issuances of restricted common stock and stock options to officers and employees, and decreased legal costs due to Straight Path IP Group’s appeal of the PTAB’s decision on the ‘704 Patent and related IPRs.

 

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Straight Path Venture Segment

 

   Three Months Ended     
   January 31,   Change 
   2017   2016   $ 
   (in thousands) 
Revenues  $-   $-   $- 
Direct cost of revenues   -    -    - 
Research and development   129    -    129 
Selling, general and administrative   296    -    296 
Loss from operations before FCC decree and stockholder settlement  $(425)  $-   $(425)

 

   Six Months Ended     
   January 31,   Change 
   2017   2016   $ 
   (in thousands) 
Revenues  $-   $-   $- 
Direct cost of revenues   -    -    - 
Research and development   289    -    289 
Selling, general and administrative   553    -    553 
Loss from operations before FCC decree and stockholder settlement  $(842)  $-   $(842)

 

Research and development. Research and development consists of expenses related to development by our Gigabit Mobility Lab of next generation wireless technology for 39 GHz, and the filing of one provisional patent applications and one patent application.

 

Selling, general and administrative. Selling, general and administrative expenses consist primarily of payroll and related payroll taxes and benefits as well as stock-based compensation expenses.

 

Liquidity and Capital Resources

 

General

 

Historically, we have primarily satisfied our cash requirements through the initial funding provided in connection with the Spin-Off, proceeds from the sale or lease of rights in spectrum licenses, and settlements or licensing fees received. In connection with the Spin-Off, IDT transferred cash to us such that we had approximately $15 million in cash at the time of the Spin-Off. Since that time, we have satisfied our cash requirements through Straight Path IP Group’s settlement and licensing agreements and Straight Path Spectrum’s revenue from spectrum leases. In February 2017, the Company borrowed $17.5 million (the “Loan Amount”) pursuant to a loan agreement with a syndicate of investors (the “Lenders”). For a further discussion, see Note 12 to the Consolidated Financial Statements contained in Item 1 of this Quarterly Report. We currently expect that our cash and cash equivalents on-hand at January 31, 2017 will be sufficient to meet our anticipated cash requirements during the twelve months ending January 31, 2018.

 

As discussed above, the Company signed a Consent Decree with the FCC and incurred an Initial Civil Penalty of $15 million which is payable in four installments through October 11, 2017 unless the Company sells its spectrum licenses before such date. To fund the payments of the Initial Civil Penalty, the Company entered into a loan agreement with the Lenders pursuant to which the Company borrowed the $17.5 million Loan Amount, which matures on December 29, 2017. $15 million of the Loan Amount will be used to pay the Initial Civil Penalty provided for in the Consent Decree in accordance with the payment requirements set forth in the Consent Decree. The remainder of the Loan Amount will be used for general corporate purposes and working capital needs. The first installment of $4 million was paid on February 7, 2017. The Company expects to repay the Loan Amount through a combination of exercise of warrants issued to the Lenders and other possible funding sources.

 

As discussed above, On March 7, 2017, the Company and lead plaintiff in Zacharia v. Straight Path Communications Inc. et al., No. 2:15-cv-08051-JMV-MF (D.N.J.), entered into a binding memorandum of understanding to settle the putative shareholder class action and dismiss the claims that were filed against the Defendants in that action.  Under the agreed terms, the Company will provide for a $2.25 million initial payment (the “Initial Payment”) and a $7.2 million additional payment (the “Additional Payment”). The Initial Payment will be paid into an escrow account within 15 days following preliminary court approval of the settlement, and will be fully covered by insurance policies maintained by the Company.  The Additional Payment of $7.2 million will be paid within 60 days after the closing of a transaction to sell the Company’s spectrum licenses as specified in the Consent Decree with the Federal Communications Commission dated January 11, 2017 (the “Consent Decree”), or, in the event that the Company pays the non-transfer penalty specified in the Consent Decree, within 60 days after that payment is paid.  In any event, the Additional Payment will be payable no later than December 31, 2018. The settlement remains subject to entering in a definitive agreement and court approval.

 

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We previously projected, filed on Form 10-Q for the quarter ending October 31, 2016, an additional increase in spending of $1–$1.5 million for hardware and advisors and that our earlier projection of $3 million of increased spending for hardware and advisors had been incurred totaling $3.1 million. Of the $1.5 million additionally projected, we incurred approximately $300 hundred thousand dollars on advisors in this current quarter.

 

As of January 31, 2017, we had cash and cash equivalents of $7.8 million. In connection with the Spin-Off, we and IDT entered into various agreements prior to the Spin-Off including a Separation and Distribution Agreement to effect the separation and provide a framework for our relationship with IDT after the Spin-Off. The Separation and Distribution Agreement includes, among other things, that IDT is obligated to reimburse us for the payment of liabilities arising or related to the period prior to the Spin-Off. For Fiscal 2016 and through the date of the filing of this report, no payments were made by IDT pursuant to this obligation.

 

The Former SPSI CEO is entitled to receive payments from future revenues generated from the leasing, licensing, or sale of rights in certain a Straight Path Spectrum’s wireless spectrum licenses. Those payments are to be made out of 50% of the covered revenue and are in a maximum aggregate amount of $3.25 million. The payments arise under the June 2013 settlement of certain claims and disputes with the Former SPSI CEO and parties related to the Former SPSI CEO. Approximately $22,000 and $30,000 was incurred to the Former SPSI CEO for this obligation for the three months ended January 31, 2017 and 2016, respectively, and approximately $39,000 and $30,000 for the six months ended January 31, 2017 and 2016, respectively.

 

Operating Activities

 

Cash flows used in operating activities in Fiscal 2017 totaled approximately $3.5 million and was used to fund the loss for the year.

  

Financing Activities

 

Cash flows provided by financing activities in Fiscal 2017 totaled approximately $8,000 received for the exercise of stock options.

 

We do not anticipate paying dividends on our common stock until we achieve sustainable profitability after satisfying all of our operational needs, including payments to the Former SPSI CEO, and retain certain minimum cash reserves. The payment of dividends in any specific period will be at the sole discretion of our Board of Directors.

 

Contractual Obligations and Other Commercial Commitments

 

There are no material changes from the contractual obligations previously disclosed in Item 7 to Part I of our Annual Report on Form 10-K for the year ended July 31, 2016.

 

Off-Balance Sheet Arrangements

 

As of January 31, 2017, we did not have any “off-balance sheet arrangements,” as defined in relevant SEC regulations that are reasonably likely to have a current or future effect on our financial condition, results of operations, liquidity, capital expenditures or capital resources, other than the following.

 

In connection with the Spin-Off, we and IDT entered into various agreements prior to the Spin-Off including a Separation and Distribution Agreement to effect the separation and provide a framework for our relationship with IDT after the Spin-Off, and a Tax Separation Agreement, which sets forth the responsibilities of us and IDT with respect to, among other things, liabilities for federal, state, local and foreign taxes for periods before and including the Spin-Off, the preparation and filing of tax returns for such periods and disputes with taxing authorities regarding taxes for such periods. Pursuant to the Separation and Distribution Agreement, we indemnify IDT and IDT indemnifies us for losses related to the failure of the other to pay, perform or otherwise discharge, any of the liabilities and obligations set forth in the agreement. The Separation and Distribution Agreement includes, among other things, that IDT is obligated to reimburse us for the payment of any liabilities arising or related to the period prior to the Spin-Off.

 

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Item 3.       Quantitative and Qualitative Disclosures About Market Risks

 

The Company is not exposed to economic risk from foreign exchange rates, interest rates, credit risk, equity prices or commodity prices for the following reasons:

 

  1. All of the Company’s transactions are in US dollars.

 

  2. The Company has no outstanding debt payable.

 

  3. The Company does not own any marketable securities.

 

  4. The Company does not purchase any commodities.

 

Item 4.       Controls and Procedures

 

Evaluation of Disclosure Controls and Procedures

 

Our Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act, as amended), as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective as of January 31, 2017.

 

Management’s Report on Internal Control over Financial Reporting

 

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Our internal control over financial reporting includes those policies and procedures that:

 

  1. pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets;

 

  2. provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and

 

  3. provide reasonable assurance regarding prevention or timely detections of unauthorized acquisition, use, or disposition of our assets that could have a material effect on the financial statements.

 

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting as of January 31, 2017 based on the guidelines established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission as adopted in 2013 (COSO). Our internal control over financial reporting includes policies and procedures that provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external reporting purposes in accordance with US GAAP. Based on the results of our evaluation, our management concluded that our internal control over financial reporting was effective as of January 31, 2017.

 

Changes in Internal Control over Financial Reporting

 

There were no changes in our internal control over financial reporting during the quarter ended January 31, 2017 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

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PART II. OTHER INFORMATION

 

Item 1.       Legal Proceedings

 

Legal proceedings in which we are involved are more fully described in Note 11 to the Consolidated Financial Statements included in Part I of this Quarterly Report on Form 10-Q.

 

Item 1A.    Risk Factors

 

Please see the discussion above regarding the Company’s status as an Emerging Growth Company. There are no material changes from the risk factors previously disclosed in Item 1A to Part I of our Annual Report on Form 10-K for the year ended July 31, 2016.

 

Our failure to either sell our spectrum licenses, obtain financing to pay the civil penalty imposed on us by the FCC, or repay the $17.5 million loan could adversely affect our financial condition.

 

As discussed in this Quarterly Report, we are currently subject to a Consent Decree with the FCC that requires us to pay $15 million in installments over a nine-month period ending October 12, 2017 and, if we do not submit applications to the FCC seeking consent to the sale of our remaining spectrum licenses by January 12, 2018, we will be obligated to pay an additional $85 million to the FCC or surrender our remaining spectrum licenses. We have secured financing to pay the $15 million penalty, but there is no guarantee that if we do not sell the remaining spectrum licenses by January 12, 2018 that we will be able to obtain sufficient financing to pay the additional $85 million or repay the $17.5 million loan from the syndicate of investors, led by CF Special Situation Fund I, LP. Such failure could lead to a default under the Consent Decree, loss of the remaining spectrum licenses and will have a material adverse effect on our financial condition or results of operations.

 

The FCC may cancel or revoke our licenses for certain past or future violations of the FCC’s rules, or for failure to comply with the Consent Decree, which could limit our operations and growth.

 

Our wireless operations and wireless licenses are subject to significant government regulation and oversight, primarily by the FCC and, to a certain extent, by Congress, other federal agencies and state and local authorities. In general, the FCC’s regulations impose potential limits on, among other things, the amount of foreign investment that may be made in some types of FCC licenses, on the transfer or sale of rights in licenses, on the construction and technical aspects of the operation of wireless communication systems, and on the nature of the services that can be provided within a particular frequency band. In addition, we are subject to certain regulatory and other fees levied by the FCC for certain classes of licenses and services. Under some circumstances, our licenses may be canceled or conditioned. We also may be fined for violation of the FCC’s rules, and in extreme cases, our licenses may be revoked.

 

As discussed in this Quarterly Report, we entered into a Consent Decree with the FCC settling the previously disclosed FCC investigation regarding our spectrum licenses. For further discussion of the Consent Decree, please see Item 2 in Part I of this Quarterly Report. If the FCC were to conclude that we have not complied with the Consent Decree or its rules, it may impose additional fines and/or additional reporting or operational requirements, condition or revoke our remaining spectrum licenses, and/or take other action. If the FCC were to revoke a significant portion of our remaining spectrum licenses or impose material conditions on the use of our licenses, it could have a material adverse effect on the value of our spectrum licenses and our ability to generate revenues from utilization or sale of our spectrum assets.

 

Under the terms of the Consent Decree, we are unable to enter into new leases of our spectrum, which could limit our operations and growth.

 

The Consent Decree prohibits us from entering into new leases for our spectrum licenses and as a result will likely have a material adverse effect on our revenue related to our spectrum assets as leases expire or lessees terminate leases.

 

If we are unable to overcome this obstacle, our business may never develop and it could have a material adverse effect on our business, prospects, results of operations, and financial condition.

 

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Item 2.       Unregistered Sales of Equity Securities and Use of Proceeds  

 

In December 2016 and January 2017, the Company received a total of approximately $8,000 for the exercise of stock options. The proceeds were used for general working capital purposes.

 

Item 3.       Defaults Upon Senior Securities

 

None

 

Item 4.       Mine Safety Disclosures

 

Not applicable

 

Item 5.       Other Information

 

None

 

Item 6.       Exhibits

 

Exhibit

Number

  Description
31.1*   Certification of Chief Executive Officer pursuant to 17 CFR 240.13a-14(a), as adopted pursuant to §302 of the Sarbanes-Oxley Act of 2002.
     
31.2*   Certification of Chief Financial Officer pursuant to 17 CFR 240.13a-14(a), as adopted pursuant to §302 of the Sarbanes-Oxley Act of 2002.
     
32.1*   Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002.
     
32.2*   Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002.
     
101.INS*   XBRL Instance Document
     
101.SCH*   XBRL Taxonomy Extension Schema Document
     
101.CAL*   XBRL Taxonomy Extension Calculation Linkbase Document
     
101.DEF*   XBRL Taxonomy Extension Definition Linkbase Document
     
101.LAB*   XBRL Taxonomy Extension Label Linkbase Document
     
101.PRE*   XBRL Taxonomy Extension Presentation Linkbase Document

 

* Filed or furnished herewith.

 

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SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

  STRAIGHT PATH COMMUNICATIONS INC.
     
March 10, 2017 By: /s/ DAVIDI JONAS
   

Davidi Jonas

Chief Executive Officer

     
March 10, 2017 By: /s/ JONATHAN RAND
   

Jonathan Rand

Chief Financial Officer

 

 

34