Summary of Significant Accounting Policies (Policies)

12 Months Ended

Jul. 31, 2014

Basis of Consolidation and Presentation

The consolidated financial statements include the accounts of the Company and its subsidiaries. All significant intercompany accounts and transactions have been eliminated. As part of the Asset Sale, the Company sold its subsidiaries in Shanghai, the Netherlands and Japan. In conjunction with the Dissolution, the Company merged its Delaware and Massachusetts subsidiaries into Sycamore Networks, Inc.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the dates of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from these estimates.

The condensed consolidated financial statements for the eight month period ended March 23, 2013 were prepared on the going concern basis of accounting, which contemplates realization of assets and satisfaction of liabilities in the normal course of business. Following the Company’s filing of the Certificate of Dissolution, on March 24, 2013 the Company adopted the liquidation basis of accounting. See “Liquidation Basis of Accounting” below for further information regarding the Company’s adoption of the liquidation basis of accounting.

Cash Distributions

Cash Distributions

On July 29, 2014, the Company paid a liquidating distribution to stockholders of $0.24 per share of Common stock, or $6.93 million in the aggregate. The liquidating distribution decreased net assets in liquidation. The Company paid a total of $413.3 million in cash distributions to stockholders in fiscal 2013. As a result of having an accumulated deficit, the cash distributions were recorded as reductions to additional paid-in capital.

Liquidation Basis of Accounting

Liquidation Basis of Accounting

On March 24, 2013, the beginning of the fiscal month following the filing of the Certificate of Dissolution, the Company began reporting on a liquidation basis of accounting. Under the liquidation basis of accounting, assets are measured to reflect the estimated amount of cash or other consideration expected to be collected in settling or disposing of the assets. Liabilities are measured in accordance with the measurement provisions of Accounting Standard Codification Topics that otherwise apply. Additionally, the Company accrued estimated costs associated with carrying out the Plan of Dissolution. These estimates will be reviewed periodically and adjusted as appropriate.

The measurement of assets and liabilities represent estimates, based on present facts and circumstances, of the realizable value of the assets and the costs associated with carrying out the Plan of Dissolution. The actual values and costs associated with carrying out the Plan of Dissolution may differ from amounts reflected in the financial statements because of the inherent uncertainty in estimating future events. These differences may be material. In particular, the estimates of costs will vary with the length of time necessary to complete the Dissolution process and to resolve any claims. Accordingly, it is not possible to predict the timing or aggregate size of any amount which may ultimately be distributed to Company stockholders, and no assurance can be given that such distributions, if made, will equal or exceed the estimate of net assets presented in the accompanying Statement of Net Assets.

Cash Equivalents and Investments

Cash Equivalents and Investments

Cash equivalents are short-term, highly liquid investments with original or remaining maturity dates of three months or less at the date of acquisition. Cash equivalents are carried at cost plus accrued interest, which approximates fair market value. As of July 31, 2014 and 2013, aggregate cash and cash equivalents consisted of (in thousands):


July 31, 2014:	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Market Value
Cash and cash equivalents	$	12,241	$	—	$	—	$	12,241

Total	$	12,241	$	—	$	—	$	12,241


July 31, 2013:	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Market Value
Cash and cash equivalents	$	21,041	$	—	$	—	$	21,041

Total	$	21,041	$	—	$	—	$	21,041

Revenue Recognition

Revenue Recognition

Prior to the Asset Sale, the Company sold primarily bundled hardware and software products that function together to deliver the tangible products’ essential functionality (referred to herein collectively as “hardware” products), as well as services related to those hardware products. Services included maintenance arrangements for the products with terms typically of one year, as well as to a lesser extent, professional services and training services. The Company sold a limited amount of stand-alone software products.

The Company recognized revenue when all of the following criteria were met:

•

Persuasive evidence of an arrangement existed. Evidence of an arrangement generally consisted of sales contracts or agreements and customer purchase orders;

•

Delivery occurred. Delivery occurred when title and risk of loss were transferred to the customer or the Company received written evidence of customer acceptance, when applicable, to verify delivery or performance;

•

Sales price was fixed or determinable. The Company assessed whether the sales price was fixed or determinable based on payment terms and whether the sales price was subject to refund or adjustment; and

•

Collectability was reasonably assured. Collectability was assessed based on the creditworthiness of the customer as determined by credit checks and the customer’s payment history with the Company.

Pursuant to the guidance of Accounting Standards Update (“ASU”) No. 2009-13, Revenue Recognition (Topic 605): Multiple-Deliverable Revenue Arrangements (“ASU 2009-13”),, when a sales arrangement contains multiple elements, particularly hardware products and related services, revenue is allocated to each element based on a selling price hierarchy, using a relative selling price allocation approach. The selling price for a deliverable was based on our vendor-specific objective evidence (“VSOE”), if available, third-party evidence (“TPE”) if VSOE was not available, or best estimate of selling price (“BESP”) if neither VSOE nor TPE was available. The Company established VSOE for its services based on the price charged for each service element when sold separately. The Company was typically not able to determine TPE for its hardware products or services because the Company’s various product and service offerings contained a significant level of differentiation and, therefore, comparable pricing of competitors’ products and services with similar functionality could not be obtained. The Company determined BESP for products and services based on an assessment of multiple factors, including, but not limited to, pricing practices, customer classes and distribution channels. We then recognized revenue allocated to each deliverable in accordance with the four criteria identified above. Our multiple element arrangements typically included both products and services, with maintenance being the most common service element. Maintenance services were delivered over the contractual support period which varied in length, but typically was twelve months. In those limited instances where both hardware and stand-alone software products were included in a multiple element arrangement, the hardware and related services and the software and related services were separated and then allocated a pro rata portion of the total transaction value based upon BESP of each of the hardware and software groups, using a relative selling price allocation approach. The hardware group was then accounted for under the ASC Topic 605 guidance described above and the software group was accounted for under the ASC Topic 985 guidance.

Service revenues included revenue from maintenance, training, and installation services. Revenue from maintenance service contracts was deferred and recognized ratably over the contractual support period. Revenue from training and installation services was recognized as the services were completed or ratably over the service period.

Share-Based Compensation

Share-Based Compensation

Upon effectiveness of the Certificate of Dissolution, the Company cancelled all outstanding stock option awards under the Company’s stock plans. During the period when the Company had stock-based compensation programs, the Company accounted for share-based compensation expense for all share-based payment awards made to employees and directors based on estimated fair values. The Company estimated the fair value of share-based options on the date of grant using the Black-Scholes pricing model, which was affected by our stock price as well as assumptions regarding a number of complex and subjective variables. These variables included our expected stock price volatility over the term of the awards, actual and projected employee option exercise behaviors, risk free interest rate and expected dividends. The Company was also required to estimate forfeitures at the time of grant and revise those estimates in subsequent periods if actual forfeitures differed from those estimates.

Impairment of Long-Lived Assets

Impairment of Long-Lived Assets

Under the going concern basis of accounting, the Company evaluated the recoverability of long-lived assets whenever events or changes in circumstances indicated that the carrying amount of an asset may not be fully recoverable. This periodic review may have resulted in an adjustment of estimated depreciable lives or asset impairment. When indicators of impairment were present, the carrying values of the asset were evaluated in relation to the operating performance and future undiscounted cash flows of the underlying business. If the future undiscounted cash flows were less than the book value, impairment existed. The impairment was measured as the difference between the book value and the fair value of the underlying asset. Fair values were based on estimates of market prices and assumptions concerning the amount and timing of estimated future cash flows and assumed discount rates, reflecting varying degrees of perceived risk.

Property and Equipment

Property and Equipment

Under the liquidation basis of accounting, property and equipment are stated at their estimated realizable values. Under the going concern basis of accounting, property and equipment were stated at cost and depreciated over the estimated useful lives of the assets using the straight-line method, based upon the following asset lives:


Computer and telecommunications equipment		2 to 3 years
Computer software		3 years
Furniture and office equipment		5 years
Leasehold improvements		Shorter of lease term or useful life of asset

The costs of significant additions and improvements were capitalized and depreciated while expenditures for maintenance and repairs were charged to expense as incurred. Costs related to internal use software were capitalized. Upon retirement or sale of an asset, the cost and related accumulated depreciation of the assets were removed from the accounts and any resulting gain or loss is reflected in the determination of net income or loss. See Note 5. “Property and Equipment.”

Research and Development and Software Development Costs

Research and Development and Software Development Costs

Under the going concern basis of accounting, the Company’s research and development costs were expensed as incurred. Software development costs incurred prior to the establishment of technological feasibility were charged to expense. Technological feasibility was demonstrated by the completion of a working model. Software development costs incurred subsequent to the establishment of technological feasibility were capitalized until the product was available for general release to customers and amortized based on the greater of (i) the ratio that current gross revenue for a product bears to the total of current and anticipated future gross revenue for that product or (ii) the straight-line method over the remaining estimated life of the product. The period between achieving technological feasibility and the general availability of the related products was short and software development costs qualifying for capitalization were not material. Accordingly, the Company did not capitalize any software development costs.

Income Taxes

Income Taxes

Income taxes are accounted for under the liability method. Under this method, deferred tax assets and liabilities are recorded based on temporary differences between the financial statement amounts and the tax bases of assets and liabilities measured using enacted tax rates in effect for the year in which the differences are expected to reverse. The Company periodically evaluates the realization of its net deferred tax assets and records a valuation allowance if, based on the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized.

We account for uncertain tax positions by prescribing the minimum recognition threshold a tax position must meet before being recognized in the Company’s financial statements. Generally, recognition is limited to situations where, based solely on the technical merits of the tax position, the Company has determined that the tax position is more likely than not to be sustained on audit.

Concentration of Credit Risks

Concentration of Credit Risks

Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of cash equivalents and investments. The Company invests its excess cash primarily in deposits with commercial banks, high-quality corporate securities and U.S. government securities.

Allowance for Doubtful Accounts

Allowance for Doubtful Accounts

Prior to the Asset Sale, the Company evaluated its outstanding accounts receivable balances on an ongoing basis to determine whether an allowance for doubtful accounts should be recorded. Activity in the Company’s allowance for doubtful accounts is summarized as follows (in thousands):


	July 31, 2013
Beginning balance	$	42
Adjustment		(42	)
Write off		—

Ending balance	$	—

Accumulated Other Comprehensive Loss

Accumulated Other Comprehensive Loss

Under the going concern basis of accounting, the unrealized gain or loss on investments was included in accumulated other comprehensive loss for all operating periods presented. For foreign subsidiaries where the functional currency was the local currency, assets and liabilities were translated into U.S. dollars at the current exchange rate on the balance sheet date. Revenue and expenses were translated at average rates of exchange prevailing during each period. Translation adjustments for these subsidiaries, which are immaterial for all periods presented, are included in accumulated other comprehensive income (loss).

Net Loss Per Share

Net Loss Per Share

Under the going concern basis of accounting, basic and diluted net loss per share were computed by dividing the net loss for the period by the weighted average number of common shares outstanding during the period less unvested restricted stock. The following table sets forth the computation of basic and diluted net loss per share (in thousands, except per share data):


	Eight Months Ended March 23, 2013
Net loss	$	(3,512	)
Denominator:
Weighted-average shares of common stock outstanding		28,882
Weighted-average shares subject to repurchase		—

Shares used in per-share calculation—basic		28,882

Weighted-average shares of common stock outstanding		28,882
Weighted common stock equivalents		—

Shares used in per-share calculation—diluted		28,882

Net loss per share:
Basic	$	(0.12	)

Diluted	$	(0.12	)

Employee stock options to purchase 9.55 million shares of common stock were not included in the computation of diluted net loss per share for the eight months ended March 23, 2013 because their effect would have been antidilutive.

Segment Information

Segment Information

The Company’s chief operating decision maker was its former President and Chief Executive Officer. Decisions regarding resource allocation and assessing performance were made at the Company level, as one segment. The Company has not had any operating revenue since the Asset Sale. Prior to the Asset Sale, for the eight months ended March 23, 2013, the geographical distribution of revenue was as follows: United States – 80%, Korea – 5%, and all other countries – 15%.