COMMITMENTS AND CONTINGENCIES | 9 Months Ended |
Mar. 31, 2015 |
Commitments and Contingencies Disclosure [Abstract] | |
Commitments and Contingencies Disclosure [Text Block] | NOTE 5 - COMMITMENTS AND CONTINGENCIES |
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Leases |
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In February 2011, we entered into a lease agreement for a tasting room and winery. The lease is for five years, commencing on March 1, 2011 and ending on February 29, 2016, and contains one option to extend for an additional period of five years. We have the right of first refusal in the event the lessor desires to sell the leased property. Beginning on September 1, 2012 and annually thereafter, tasting room and winery rent is increased by 3%. Additionally, the winery rent is increased if actual case production exceeds a specified number of cases. Current and anticipated production levels are below this minimum and as such the winery rent increase is controlled by the annual 3% increase clause. Lease expense is accounted for on a straight-line basis. |
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In October 2013, we entered into a lease agreement for administrative office space. The lease commenced on October 15, 2013 and ends on October 31, 2016, and contains three one-year renewal options with adjustment to market rents. |
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Lease payments for these facilities was $0.1 million and $0.2 million for the three-month and nine-month periods of FY15 compared to $0.08 million and $0.2 million for the same prior-year periods of FY14, respectively. At March 31, 2015, future lease payment commitments for these facilities totaled approximately $0.3 million. |
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Credit Facilities and Notes Payable |
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Since June 30, 2014, there have been no material changes with respect to our credit facilities and/or borrowings as disclosed in the “Notes to the Financial Statements - Commitments and Contingencies” in our Annual Report on Form 10-K for the fiscal year ended June 30, 2014. |
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The credit facilities, which mature on July 31, 2015, include (a) a revolving line of credit with a maximum commitment of $9.0 million which accrues interest at 1.75% above the London Interbank Offered Rate (“LIBOR”), (b) a capital equipment line with a maximum commitment of $0.5 million which carries an interest rate of 2.25% above floating One-Month LIBOR, and (c) a foreign exchange facility with a maximum commitment of $0.1 million which allows to enter into any spot or forward transaction to purchase from or sell to our bank a foreign currency. We did not use the foreign exchange facility during the three and nine-month periods ended March 31, 2015. As of March 31, 2015 we had availability under our revolving credit facility of $0.6 million. The outstanding balances on the components of the credit facilities are: |
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| | March 31, 2015 | | June 30, 2014 | | | | |
| | ( in thousands) | | | | |
Credit Facilities | | | | | | | | | | |
Line of credit | | $ | 8,365 | | $ | 8,648 | | | | |
Equipment line of credit | | | 500 | | | 37 | | | | |
Total credit facilities | | $ | 8,865 | | $ | 8,685 | | | | |
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The credit facilities are secured by a pledge of substantially all of our assets and availability is subject to compliance with certain covenants, including, without limitation, a minimum current assets to current liabilities ratio (measured quarterly), a debt to effective tangible net worth ratio (measured quarterly) and a debt service coverage ratio (measured annually at our fiscal year end). We were in compliance in all material aspects with all such covenants at March 31, 2015. |
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We are currently working with our lender and we believe that we will be able to renew our credit facilities prior to July 31, 2015. |
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Long-term debt consisted of the following: |
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| | | March 31, 2015 | | June 30, 2014 | | | |
| | | ( in thousands, except payments in footnotes) | | | |
Long term debt: | | | | | | | | | | |
Note 1 | -1 | | $ | 3,022 | | $ | 3,122 | | | |
Note 2 | -2 | | | 33 | | | 70 | | | |
Note 3 | -3 | | | 210 | | | 263 | | | |
Note 4 | -4 | | | 346 | | | 405 | | | |
Note 5 | -5 | | | 113 | | | - | | | |
Total notes payable | | | | 3,724 | | | 3,860 | | | |
Less current maturities | | | | -379 | | | -333 | | | |
Total long term debt | | | $ | 3,345 | | $ | 3,527 | | | |
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| -1 | Note payable to a bank, secured by a deed of trust on property, payable monthly with principal payments of $11,270 plus interest, matures May 31, 2022, variable interest of 2.25% above LIBOR. | | | | | | | | |
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| -2 | Note payable to a bank, secured by equipment, payable monthly with principal and interest payments of $4,226, matures November 1, 2015 at 3.75% interest. | | | | | | | | |
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| -3 | Note payable to a bank, secured by equipment, payable monthly with principal and interest payments of $6,535, matures January 15, 2018 at 3.75% interest. | | | | | | | | |
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| -4 | Note payable to a bank, secured by equipment, payable monthly with principal and interest payments of $7,783, matures March 1, 2019; at 3.75% interest. | | | | | | | | |
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| -5 | On November 30, 2014, we acquired the unrestricted use of the Stonegate trademark in exchange for a trademark release payment which is to be made over time and is accounted for as a note payable. The note payable has three equal installments: a) within five days of November 30, 2014, b) on October 15, 2015, and c) on July 31, 2016. The note does not accrue interest outstanding on the principal. An imputed interest rate of 5.5% was assessed under GAAP and the impact was considered immaterial. | | | | | | | | |
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Long-term debt future principal and interest payments are as follows: |
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Years ending June 30: | | | | | | |
( in thousands) | | | | | | |
2015 (remaining three months) | | $ | 84 | | | | | | | |
2016 | | | 368 | | | | | | | |
2017 | | | 353 | | | | | | | |
2018 | | | 269 | | | | | | | |
2019 | | | 204 | | | | | | | |
Thereafter | | | 2,446 | | | | | | | |
| | | 3,724 | | | | | | | |
Add: Estimated interest | | | 768 | | | | | | | |
Total | | $ | 4,492 | | | | | | | |
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Related Party Note |
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Other than payments, there have been no material changes with respect to our related party loan as disclosed in the “Notes to the Consolidated Financial Statements - Commitments and Contingencies” in our Annual Report on Form 10-K for the fiscal year ended June 30, 2014. |
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Related party future principal and interest payments are as follows: |
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| | | March 31, 2015 | | June 30, 2014 | | | |
| | | ( in thousands, except payments in footnotes) | | | |
Related party note: | | | | | | | | | | |
Note | -1 | | $ | 12 | | $ | 67 | | | |
Less current maturities | | | | -12 | | | -67 | | | |
Total related party note | | | $ | - | | $ | - | | | |
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| -1 | Note payable to a member for the repurchase of a certain percentage of their ownership interest in the LLC; pursuant to exercise of put right; unsecured; payable monthly in principal and interest payments of $6,245; matures in May 2015, at which time a lump sum payment for any remaining principal and interest is due; fixed interest rate of 4.5%. | | | | | | | | |
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Supply Contract |
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At March 31, 2015, total future purchase commitments for finished goods total approximately $4.0 million and are expected to be fulfilled during fiscal 2015 to 2017. |
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We enter into short and long-term contracts to supply a portion of our future grapes and bulk wine inventory requirements with third parties and related party growers. As of March 31, 2015, future minimum inventory commitments are as follows: |
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Years ending June 30: | | Third Parties | | Related Parties | | Total | |
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2015 | | $ | 3,710 | | $ | 273 | | $ | 3,983 | |
2016 | | | 666 | | | 273 | | | 939 | |
2017 | | | 91 | | | 273 | | | 364 | |
2018 | | | - | | | 273 | | | 273 | |
Thereafter | | | - | | | - | | | - | |
Total | | $ | 4,467 | | $ | 1,092 | | $ | 5,559 | |
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Subsequent to March 31, 2015, we have entered into additional grape contracts totaling approximately $0.7 million payable during FY16 and FY17. |
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Guarantees |
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There have been no material changes with respect to our guarantees as disclosed in the “Notes to the Consolidated Financial Statements - Commitments and Contingencies” in our Annual Report on Form 10-K for the fiscal year ended June 30, 2014. |
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Litigation |
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From time to time, we may be subject to various litigation matters arising in the ordinary course of business. We are not aware of any current pending legal matters or claims, individually or in the aggregate, that are expected to have a material adverse impact on our consolidated financial position, results of operations, or cash flows. |
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Exchange Agreement |
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Prior to the completion of the IPO, we entered into an exchange agreement with the existing owners of the LLC, several of whom are directors and/or officers. Under the exchange agreement, each existing owner (and certain permitted transferees thereof) may (subject to the terms of the exchange agreement), exchange their LLC Units for shares of Class A common stock of the Company on a one-for-one basis, subject to customary conversion rate adjustments for stock splits, stock dividends and reclassifications, or for cash, at our election. As a holder exchanges their LLC Units, our interest in the LLC will be correspondingly increased. During FY14, certain members exchanged 0.9 million LLC units, on a one-for-one basis, for shares of Class A common stock of the Company, under the exchange agreement. |
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Thus far during FY15, certain LLC members have exchanged a cumulative total of 0.2 million LLC units, on a one-for-one basis, for shares of our Class A common stock, under the exchange agreement. See Note 8 – Stockholders’ Equity for the total LLC units converted during the third quarter of FY15. |
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Tax Receivable Agreement |
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We entered into a tax receivable agreement with the LLC unit holders which provides for payment by the Company to the LLC unit holders who convert their units to shares, an amount equal to 90% of the amount of the benefit, if any, that are realized as a result of (i) increases in tax basis associated with the election effected under Section 754 of the Code, and (ii) certain other tax benefits related to our entering into the tax receivable agreement, including tax benefits attributable to payments under the tax receivable agreement. Any payments under the tax receivable agreement will depend upon whether we have taxable income to utilize the benefit. |
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We will be required to pay the counterparties to the tax receivable agreement for certain tax benefits we may claim arising in connection with current exchanges, future purchases or exchanges of LLC Units and related transactions, and the amounts we may pay could be significant. |
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H.D.D. LLC intends to make an election under Section 754 of the Internal Revenue Code (the “Code”) effective for each taxable year in which an exchange of LLC Units for shares of Class A common stock as described above occurs, which may result in an adjustment to the tax basis of the assets of H.D.D. LLC at the time of an exchange of LLC Units. As a result of these exchanges, THI will become entitled to a proportionate share of the existing tax basis of the assets of H.D.D. LLC. In addition, the purchase of LLC Units and subsequent exchanges are expected to result in increases in the tax basis of the assets of H.D.D. LLC that otherwise would not have been available. |
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Both this proportionate share and these increases in tax basis may reduce the amount of tax that THI would otherwise be required to pay in the future. These increases in tax basis may also decrease gains (or increase losses) on future dispositions of certain capital assets to the extent tax basis is allocated to those capital assets. |
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During the third quarter of FY15, we recorded deferred tax assets of $0.01 million related to the exchange of 0.09 million LLC units for an equal amount of THI Class A common stock. As of March 31, 2015, we recorded a $0.01 million long-term liability due to LLC unit holders who converted their units to shares which represents 90% of the estimated tax benefits and an immaterial amount related to the difference in the recorded deferred tax asset and computed TRA liability and recorded as an adjustment to equity. As of March 31 2015, we recorded a valuation allowance on our deferred tax assets for $0.01 million as it was determined that it was more likely than not that the tax benefits would not be realized which resulted in corresponding adjustments to the TRA liability and equity as mentioned above. |
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Generally, a maximum obligation under these contracts is not explicitly stated. Because the specific amounts associated with these types of agreements are stated, the overall maximum amount of the obligation cannot be reasonably estimated. Historically, we have not been required to make payments under these obligations, and no liabilities have been recorded at March 31, 2015 and June 30, 2014, for these obligations on our balance sheets. |
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