Summary of Significant Accounting Policies (Policies) | 12 Months Ended |
Jun. 30, 2014 |
Notes to Financial Statements | ' |
Principles of Consolidation | ' |
Basis of Presentation and Principles of Consolidation |
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The Company maintains its accounting records on an accrual basis in accordance with generally accepted accounting principles in the United States of America ("U.S. GAAP"). |
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The consolidated financial statements include the accounts of Seed Holding, LLC and its other wholly-owned subsidiaries, S&W Australia which owns 100% of SGI, and Stevia California, LLC. All significant intercompany balances and transactions have been eliminated. |
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Use of Estimates | ' |
Use of Estimates |
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The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make certain estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Estimates are adjusted to reflect actual experience when necessary. Significant estimates and assumptions affect many items in the financial statements. These include allowance for doubtful trade receivables, sales returns and allowances, inventory valuation and obsolescence, asset impairments, provisions for income taxes, grower accruals (an estimate of amounts payable to farmers who grow seed for the Company), contingencies and litigation. Significant estimates and assumptions are also used to establish the fair value and useful lives of depreciable tangible and certain intangible assets as well as valuing stock-based compensation. Actual results may differ from those estimates and assumptions, and such results may affect income, financial position or cash flows. |
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Certain Risks and Concentrations | ' |
Certain Risks and Concentrations |
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The Company's revenue is principally derived from the sale of alfalfa seed, the market for which is highly competitive. The Company depends on a core group of significant customers. Two customers accounted for 21% of its net revenue for the year ended June 30, 2014 and one customer accounted for 24% of its net revenue for the year ended June 30, 2013. |
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One customer accounted for 32% of the Company's accounts receivable at June 30, 2014. Three customers accounted for 41% of the Company's accounts receivable at June 30, 2013. |
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Sales direct to international customers represented 81% and 73% of revenue during the years ended June 30, 2014 and 2013, respectively. As of June 30, 2014, approximately 3% of the net book value of fixed assets were located outside of the United States. |
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The following table shows revenues from external customers by country: |
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| | | Years Ended June 30, | |
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Saudi Arabia | | $ | 13,015,864 | 25% | | $ | 17,671,705 | 47% | |
United States | | | 9,553,198 | 19% | | | 8,952,824 | 24% | |
Libya | | | 5,341,139 | 10% | | | 3,129,918 | 8% | |
Australia | | | 4,526,552 | 9% | | | 599,945 | 2% | |
France | | | 1,501,955 | 3% | | | 357,108 | 1% | |
Other | | | 17,594,935 | 34% | | | 6,626,758 | 18% | |
Total | | $ | 51,533,643 | 100% | | $ | 37,338,258 | 100% | |
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International Operations | ' |
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International Operations |
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The Company translates its foreign operations' asset and liabilities denominated in foreign currencies into U.S. dollars at the current rates of exchange as of the balance sheet date and income and expense items at the average exchange rate for the reporting period. Translation adjustments resulting from exchange rate fluctuations are recorded in the cumulative translation account, a component of accumulated other comprehensive income. Gains or losses from foreign currency transactions are included in the consolidated statement of operations. |
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Revenue Recognition | ' |
Revenue Recognition |
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The Company derives its revenue primarily from sale of seed and other crops and milling services. Revenue from seed and other crop sales is recognized when risk and title to the product is transferred to the customer, which usually occurs at the time of shipment. |
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When the right of return exists in the Company's seed business, sales revenue is reduced at the time of sale to reflect expected returns. In order to estimate the expected returns, management analyzes historical returns, economic trends, market conditions and changes in customer demand. At June 30, 2014, no customers had the right of return. |
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The Company recognizes revenue from milling services according to the terms of the sales agreements and when delivery has occurred, performance is complete, no right of return exists and pricing is fixed or determinable at the time of sale. |
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Additional conditions for recognition of revenue for all sales include the requirements that the collection of sales proceeds must be reasonably assured based on historical experience and current market conditions, the sales price is fixed and determinable and that there must be no further performance obligations under the sale. |
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The Company also recognizes revenue from the sale of its products to customers on bill-and-hold arrangements when all of the following have been satisfied: (i) risk of ownership must be passed to the buyer; (ii) customer must have a fixed commitment to purchase the goods; (iii) buyer, not the Company, must request that the transaction be on bill-and-hold basis; (iv) There must be a fixed schedule for delivery of goods; (v) The Company must not have specific performance obligations such that the earning process is not complete; (vi) ordered goods must be segregated from the Company's inventory and not subject to being used to fill other orders and (vii) product must be complete and ready for shipment. Sales related to bill-and-hold arrangements were $5.0 and $2.5 million for the years ended June 30, 2014 and 2013, respectively. |
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Shipping and Handling Costs | ' |
Shipping and Handling Costs |
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The Company records purchasing and receiving costs, inspection costs and warehousing costs in cost of goods sold. In some instances, the Company is not obligated to pay for shipping or any costs associated with delivering its products to its customers. In these instances, costs associated with the shipment of products are not included in the Company's consolidated financial statements. When the Company is required to pay for outward freight and/or the costs incurred to deliver products to its customers, the costs are included in cost of goods sold. |
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Cash and Equivalents | ' |
Cash and Cash Equivalents |
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For financial statement presentation purposes, the Company considers time deposits, certificates of deposit and all highly liquid investments with original maturities of three months or less to be cash and cash equivalents. Cash and cash equivalents consist of the following: |
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| | | June 30, | | | June 30, | | | |
| | | 2014 | | | 2013 | | | |
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Cash | | $ | 1,046,201 | | $ | 10,356,527 | | | |
Money market funds | | | 121,302 | | | 1,424,547 | | | |
| | $ | 1,167,503 | | $ | 11,781,074 | | | |
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The Company maintains cash balances at financial institutions that are insured by the Federal Deposit Insurance Corporation ("FDIC"). Accounts are guaranteed by the FDIC up to $250,000 under current regulations. Cash equivalents held in money market funds are not FDIC insured. Cash deposits with these banks may exceed the amount of insurance provided on such deposits; however, these deposits typically may be redeemed upon demand and, therefore, bear minimal risk. The Company had approximately $796,201 and $10,106,527 in excess of FDIC insured limits at June 30, 2014 and 2013, respectively. |
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Accounts Receivable | ' |
Accounts Receivable |
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The Company provides an allowance for doubtful trade receivables equal to the estimated uncollectible amounts. That estimate is based on historical collection experience, current economic and market conditions and a review of the current status of each customer's trade accounts receivable. The allowance for doubtful trade receivables was $72,556 and $22,869 at June 30, 2014 and 2013, respectively. |
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Inventories | ' |
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Inventories |
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Inventory |
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Inventories consist of alfalfa seed purchased from the Company's growers under production contracts, alfalfa seed produced from its own farming operations, and packaging materials. |
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Inventories are stated at the lower of cost or market, and an inventory reserve would permanently reduce the cost basis of inventory. Inventories are valued as follows: Actual cost is used to value raw materials such as packaging materials, as well as goods in process. Costs for substantially all finished goods, which include the cost of carryover crops from the previous year, are valued at actual cost. Actual cost for finished goods includes plant conditioning and packaging costs, direct labor and raw materials and manufacturing overhead costs based on normal capacity. The Company records abnormal amounts of idle facility expense, freight, handling costs and wasted material (spoilage) as current period charges and allocates fixed production overhead to the costs of finished goods based on the normal capacity of the production facilities. |
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The Company's subsidiary SGI does not fix the final price for seed payable to its growers until the completion of a given year's sales cycle pursuant to its standard contract production agreement. SGI records an estimated unit price; accordingly, inventory, cost of goods sold and gross profits are based upon management's best estimate of the final purchase price to growers. |
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Inventory is periodically reviewed to determine if it is marketable, obsolete or impaired. Inventory that is determined to not be marketable is written down to market value. Inventory that is determined to be obsolete or impaired is written off to expense at the time the impairment is identified. Because the germination rate, and therefore the quality, of alfalfa seed improves over the first year of proper storage, inventory obsolescence for alfalfa seed is not a material concern. The Company sells its inventory to distributors, dealers and directly to growers. |
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Growing Crops |
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Expenditures on growing crops are valued at the lower of cost or market and are deferred and charged to cost of products sold when the related crop is harvested and sold. The deferred growing costs included in inventories in the consolidated balance sheets consist primarily of labor, lease payments on land, interest expense on farmland, cultivation, on-going irrigation, harvest and fertilization costs. Costs included in growing crops relate to the current crop year. Costs that are to be realized over the life of the crop are reflected in crop production costs. |
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Components of inventory are: |
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| | | June 30, | | | June 30, | | | |
| | | 2014 | | | 2013 | | | |
Raw materials and supplies | | $ | 173,922 | | $ | 39,654 | | | |
Work in progress and growing crops | | | 3,990,678 | | | 4,187,755 | | | |
Finished goods | | | 24,320,984 | | | 21,595,058 | | | |
| | $ | 28,485,584 | | $ | 25,822,467 | | | |
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Crop Production Costs | ' |
Crop Production Costs |
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Expenditures on crop production costs are valued at the lower of cost or market and are deferred and charged to cost of products sold when the related crop is harvested and sold. The deferred crop production costs included in the consolidated balance sheets consist primarily of the cost of plants and the transplanting, stand establishment costs, intermediate life irrigation equipment and land amendments and preparation. Crop production costs are estimated to have useful lives of three to five years depending on the crop and nature of the expenditure and are amortized to growing crop inventory each year over the estimated life of the crop. |
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Components of crop production costs are: |
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| | | June 30, | | | June 30, | | | |
| | | 2014 | | | 2013 | | | |
Alfalfa seed production | | $ | 1,747,429 | | $ | 1,497,695 | | | |
Alfalfa hay | | | 16,885 | | | 84,904 | | | |
Wheat and triticale | | | 187,786 | | | - | | | |
Total crop production costs, net | | $ | 1,952,100 | | $ | 1,582,599 | | | |
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Property, Plant and Equipment | ' |
Property, Plant and Equipment |
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Property, plant and equipment are stated at cost less accumulated depreciation. The cost of plant and equipment is depreciated using the straight-line method over the estimated useful life of the asset - periods of approximately 18-28 years for buildings, 3-7 years for machinery and equipment and 3-5 years for vehicles. Long-lived assets are reviewed for impairment whenever in management's judgment conditions indicate a possible loss. Such impairment tests compare estimated undiscounted cash flows to the recorded value of the asset. If an impairment is indicated, the asset is written down to its fair value or, if fair value is not readily determinable, to an estimated fair value based on discounted cash flows. Fully depreciated assets are retained in property, plant and equipment and accumulated depreciation accounts until they are removed from service. In case of disposals of assets, the assets and related accumulated depreciation are removed from the accounts, and the net amounts after proceeds from disposal are credited or charged to income. |
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Intangible Assets | ' |
Intangible Assets |
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Intangible assets acquired in business acquisitions are reported at their initial fair value less accumulated amortization. Intangible assets acquired in the acquisition of the customer list in July 2011 and the acquisition of proprietary alfalfa germ-plasm in August 2012 are reported at their initial cost less accumulated amortization. See Note 3 and Note 4 for further discussion. The intangible assets are amortized based on useful lives ranging from 3-20 years. |
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Goodwill and Other Intangible Assets Not Subject to Amortization | ' |
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Goodwill and Other Intangible Assets Not Subject to Amortization |
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The Company periodically reviews the carrying value of intangible assets not subject to amortization, including goodwill, to determine whether impairment may exist. Goodwill and certain intangible assets are assessed annually, or when certain triggering events occur, for impairment using fair value measurement techniques. These events could include a significant change in the business climate, legal factors, a decline in operating performance, competition, sale or disposition of a significant portion of the business, or other factors. The Company has the option to review goodwill on a qualitative basis first. If it is more likely than not that impairment is present the Company, then must evaluate Goodwill for impairment using a two-step process. The first step of the goodwill impairment test is used to identify potential impairment by comparing the fair value of a reporting unit with its carrying amount, including goodwill. The Company uses Level 3 inputs and a discounted cash flow methodology to estimate the fair value of a reporting unit. A discounted cash flow analysis requires one to make various judgmental assumptions including assumptions about future cash flows, growth rates, and discount rates. The assumptions about future cash flows and growth rates are based on the Company's budget and long-term plans. Discount rate assumptions are based on an assessment of the risk inherent in the respective reporting units. If the fair value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is considered not impaired and the second step of the impairment test is unnecessary. If the carrying amount of a reporting unit exceeds its fair value, the second step of the goodwill impairment test is performed to measure the amount of impairment loss, if any. The second step of the goodwill impairment test compares the implied fair value of the reporting unit's goodwill with the carrying amount of that goodwill. If the carrying amount of the reporting unit's goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to that excess. The implied fair value of goodwill is determined in the same manner as the amount of goodwill recognized in a business combination. That is, the fair value of the reporting unit is allocated to all of the assets and liabilities of that unit (including any unrecognized intangible assets) as if the reporting unit had been acquired in a business combination and the fair value of the reporting unit was the purchase price paid to acquire the reporting unit. The Company conducted a qualitative assessment of goodwill and other intangibles and determined that it was more likely than not there was no impairment. |
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Purchase Accounting | ' |
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Purchase Accounting |
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The Company accounts for acquisitions pursuant to Accounting Standards Codification ("ASC") No. 805, Business Combinations. The Company records all acquired tangible and intangible assets and all assumed liabilities based upon their estimated fair values. |
Research and Development Costs | ' |
Research and Development Costs |
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The Company is engaged in ongoing research and development ("R&D") of proprietary seed and stevia varieties. The Company accounts for R&D under standards issued by the Financial Accounting Standards Board ("FASB"). Under these standards, all R&D costs must be charged to expense as incurred. Accordingly, internal R&D costs are expensed as incurred. Third-party R&D costs are expensed when the contracted work has been performed or as milestone results have been achieved. The costs associated with equipment or facilities acquired or constructed for R&D activities that have alternative future uses are capitalized and depreciated on a straight-line basis over the estimated useful life of the asset. The amortization and depreciation for such capitalized assets are charged to R&D expenses. |
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Stock-Based Compensation | ' |
Stock-Based Compensation |
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The Company has in effect a stock incentive plan under which incentive stock options have been granted to employees and non-qualified stock options, restricted stock, and restricted stock units ("RSUs") have been granted to employees and non-employees, including members of the Board of Directors. The Company accounts for its stock-based compensation plan by expensing the estimated fair value of stock-based awards over the requisite service period, which is the vesting period. The measurement of stock-based compensation expense for option grants is based on several criteria including, but not limited to, the valuation model used and associated input factors such as expected term of the award, stock price volatility, dividend rate, risk-free interest rate, attrition rate and exercise price. The input factors to use in the valuation model are based on subjective future expectations combined with management judgment. The Company estimates the fair value of stock options using the lattice valuation model and the assumptions shown in Note 11. Restricted stock and RSUs are valued based on the Company's stock price on the day the awards are granted. The excess tax benefits recognized in equity related to equity award exercises are reflected as financing cash inflows. See Note 12 for a detailed discussion of stock-based compensation. |
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The Company has adopted ASC 718, Stock Compensation, ("ASC 718"). ASC 718 requires companies to measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award. That cost will be recognized over the period during which an employee is required to provide services in exchange for the award. |
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The Company accounts for equity instruments, including stock options, issued to non-employees in accordance with authoritative guidance for equity-based payments to non-employees (FASB ASC 505-50). Stock options issued to non-employees are accounted for at their estimated fair value. The fair value of options granted to non-employees is re-measured as they vest. |
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For stock-based awards granted, the Company amortizes stock-based compensation expense on a straight-line basis over the requisite service period. |
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The fair value of employee option grants are estimated on the date of grant and the fair value of options granted to non-employees are re-measured as they vest. Fair value is calculated using a lattice model. |
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Net Income (Loss) Per Common Share Data | ' |
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Net Income (Loss) Per Common Share Data |
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Basic net income (loss) per common share, or earnings per share ("EPS"), is calculated by dividing net income (loss) by the weighted average number of common shares outstanding during the year. Diluted EPS is calculated by adjusting outstanding shares, assuming any dilutive effects of options, restricted stock awards and common stock warrants calculated using the treasury stock method. Under the treasury stock method, an increase in the fair market value of the Company's common stock results in a greater dilutive effect from outstanding options, restricted stock awards and common stock warrants. |
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| | | Years Ended | | | |
| | | June 30, | | | |
| | | 2014 | | | 2013 | | | |
Net income (loss) | | $ | 373,100 | | $ | -2,516,027 | | | |
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Net income (loss) per common share: | | | | | | | | | |
Basic | | $ | 0.03 | | $ | -0.29 | | | |
Diluted | | $ | 0.03 | | $ | -0.29 | | | |
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Weighted average number of common shares outstanding: | | | | | | | | | |
Basic | | | 11,572,406 | | | 8,770,975 | | | |
Diluted | | | 11,733,621 | | | 8,770,975 | | | |
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Potentially dilutive securities not included in the calculation of diluted net income (loss) per share because to do so would be anti-dilutive are as follows: |
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| | | June 30, | | | |
| | | 2014 | | | 2013 | | | |
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Class B warrants | | | 1,421,000 | | | 1,410,500 | | | |
Underwriter warrants - units (common share equivalent) | | | 238,000 | | | 259,000 | | | |
Class A warrants underlying underwriter warrants - units | | | 119,000 | | | 129,500 | | | |
Class B warrants underlying underwriter warrants - units | | | 119,000 | | | 129,500 | | | |
Underwriter warrants | | | - | | | 50,000 | | | |
Stock options | | | 212,500 | | | 827,000 | | | |
Nonvested restricted stock | | | 24,332 | | | 48,666 | | | |
Nonvested RSUs | | | 191,336 | | | 280,000 | | | |
Total | | | 2,325,168 | | | 3,134,166 | | | |
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Income Taxes | ' |
Income Taxes |
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The Company accounts for income taxes in accordance with standards of disclosure propounded by the FASB and any related interpretations of those standards sanctioned by the FASB. Accordingly, deferred tax assets and liabilities are determined based on differences between the financial statement and tax bases of assets and liabilities, as well as a consideration of net operating loss and credit carry forwards, using enacted tax rates in effect for the period in which the differences are expected to impact taxable income. A valuation allowance is established, when necessary, to reduce deferred tax assets to the amount that is more likely than not to be realized. |
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Impairment of Long-lived Assets | ' |
Impairment of Long-Lived Assets |
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The Company has adopted Accounting Standards Codification subtopic 360-10, Property, Plant and Equipment ("ASC 360-10"). ASC 360-10 requires that long-lived assets and certain identifiable intangibles held and used by the Company be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The Company evaluates its long-lived assets for impairment annually or more often if events and circumstances warrant. Events relating to recoverability may include significant unfavorable changes in business conditions, recurring losses or a forecasted inability to achieve break-even operating results over an extended period. The Company evaluates the recoverability of long-lived assets based upon forecasted undiscounted cash flows. Should impairment in value be indicated, the carrying value of long-lived assets will be adjusted, based on estimates of future discounted cash flows resulting from the use and ultimate disposition of the asset. ASC 360-10 also requires assets to be disposed of be reported at the lower of the carrying amount or the fair value less costs to sell. The Company evaluated its long-live assets for impairment and none existed as of June 30, 2014. |
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Foreign Exchange Contracts | ' |
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Foreign Exchange Contracts |
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The Company's subsidiary SGI is exposed to foreign currency exchange rate fluctuations in the normal course of its business, which the Company at times manages through the use of foreign currency forward contracts. |
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The Company has entered into certain derivative financial instruments (specifically foreign currency forward contracts), and accounts for these instruments in accordance with ASC Topic 815, "Derivatives and Hedging", which establishes accounting and reporting standards requiring that derivative instruments be recorded on the balance sheet as either an asset or liability measured at fair value. Additionally, changes in the derivative's fair value are recognized currently in earnings unless specific hedge accounting criteria are met. If hedge accounting criteria are met for cash flow hedges, the changes in the derivative's fair value are recorded in shareholders' equity as a component of other comprehensive income ("OCI"), net of tax. The Company's foreign currency contracts are not designated as hedging instruments under ASC 815, accordingly, changes in the fair value are recorded in current period earnings. |
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Fair Values of Financial Instruments | ' |
Fair Value of Financial Instruments |
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In the first quarter of fiscal year 2009, the Company adopted Accounting Standards Codification subtopic 820-10, Fair Value Measurements and Disclosures ("ASC 820-10"). ASC 820-10 defines fair value, establishes a framework for measuring fair value and enhances fair value measurement disclosure. ASC 820-10 delays, until the first quarter of fiscal year 2009, the effective date for ASC 820-10 for all non-financial assets and non-financial liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually). The adoption of ASC 820-10 did not have a material impact on the Company's consolidated financial position or operations, but does require that the Company disclose assets and liabilities that are recognized and measured at fair value on a non-recurring basis, presented in a three-tier fair value hierarchy, as follows: |
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Level 1. Observable inputs such as quoted prices in active markets; |
Level 2. Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and |
Level 3. Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions. |
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No assets or liabilities were valued at fair value on a non-recurring basis as of June 30, 2014 or June 30, 2013. |
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Effective October 1, 2008, the Company adopted Accounting Standards Codification subtopic 820-10, Fair Value Measurements and Disclosures ("ASC 820-10") and Accounting Standards Codification subtopic 825-10, Financial Instruments ("ASC 825-10"), which permits entities to choose to measure many financial instruments and certain other items at fair value. Neither of these statements had an impact on the Company's financial position, results of operations or cash flows. The carrying value of cash and cash equivalents, accounts payable short-term and long-term borrowings, as reflected in the balance sheets, approximate fair value because of the short-term maturity of these instruments or interest rates commensurate with market rates. |
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The following table summarizes the valuation of financial instruments measured at fair value on a recurring basis as of June 30, 2014 and 2013. |
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| | | Fair Value Measurements as of June 30, 2014 Using: |
| | | Level 1 | | | Level 2 | | | Level 3 |
Foreign exchange contract asset | | $ | - | | $ | 627 | | $ | - |
Total | | $ | - | | $ | 627 | | $ | - |
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| | | Fair Value Measurements as of June 30, 2013 Using: |
| | | Level 1 | | | Level 2 | | | Level 3 |
Foreign exchange contract liability | | $ | - | | $ | 663,043 | | $ | - |
Total | | $ | - | | $ | 663,043 | | $ | - |
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Recent Accounting Pronouncements | ' |
Recent Accounting Pronouncements |
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In February 2013, the Financial Accounting Standards Board, or FASB, issued Accounting Standards Update, or ASU, 2013-02, Comprehensive Income: Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income, which requires companies to report, in one place, information about significant reclassifications out of accumulated other comprehensive income, or AOCI, and disclose more information about changes in AOCI balances. The Company adopted this ASU in the first quarter of fiscal 2014. The adoption of this standard did not have a material impact on its consolidated financial statements. |
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In July 2013, the FASB issued ASU 2013-11, Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists, which provides guidance for the financial statement presentation of an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists. The Company will adopt the standard effective July 1, 2014. The adoption of this ASU is not expected to have a material impact on its consolidated financial statements. |
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