Company Quick10K Filing
First Hartford
Price2.45 EPS3
Shares2 P/E1
MCap6 P/FCF-13
Net Debt-9 EBIT18
TEV-3 TEV/EBIT-0
TTM 2018-07-31, in MM, except price, ratios
10-Q 2018-07-31 Filed 2018-09-28
10-K 2018-04-30 Filed 2018-07-30
10-Q 2018-01-31 Filed 2018-03-29
10-Q 2017-10-31 Filed 2017-12-28
10-Q 2017-07-31 Filed 2017-10-10
10-K 2017-04-30 Filed 2017-07-31
10-Q 2017-01-31 Filed 2017-04-24
10-Q 2016-10-31 Filed 2017-01-17
10-Q 2016-07-31 Filed 2016-10-07
10-K 2016-04-30 Filed 2016-08-05
10-Q 2016-01-31 Filed 2016-04-05
10-Q 2015-10-31 Filed 2015-12-28
10-Q 2015-07-31 Filed 2015-09-29
10-K 2015-04-30 Filed 2015-08-05
10-Q 2015-01-31 Filed 2015-04-15
10-Q 2014-10-31 Filed 2015-02-04
10-Q 2014-07-31 Filed 2014-12-12
10-K 2014-04-30 Filed 2014-10-27
10-Q 2014-01-31 Filed 2014-08-07
10-Q 2013-10-31 Filed 2014-06-10
10-Q 2013-07-31 Filed 2014-05-09
10-K 2013-04-30 Filed 2014-03-25
10-Q 2013-01-31 Filed 2013-03-29
10-Q 2012-10-31 Filed 2012-12-19
10-Q 2012-07-31 Filed 2012-10-05
10-K 2012-04-30 Filed 2012-09-06
10-Q 2012-01-31 Filed 2012-04-20
10-Q 2011-10-31 Filed 2012-01-27
10-Q 2011-07-31 Filed 2011-12-14
10-K 2011-04-30 Filed 2011-11-02
10-Q 2011-01-31 Filed 2011-03-31
10-Q 2010-10-31 Filed 2011-01-11
10-Q 2010-07-31 Filed 2010-10-06
10-K 2010-04-30 Filed 2010-08-05
10-Q 2010-01-31 Filed 2010-03-26
10-Q 2009-10-31 Filed 2010-01-13
8-K 2018-10-19

FHRT 10Q Quarterly Report

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Concluded):
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
EX-31 exhibit31-1.htm
EX-31 exhibit31-2.htm
EX-32 exhibit32-1.htm

First Hartford Earnings 2018-07-31

Balance SheetIncome StatementCash Flow
2501951408530-252013201520172019
Assets, Equity
352719113-42013201520172019
Rev, G Profit, Net Income
1593-3-9-152013201520172019
Ops, Inv, Fin

10-Q 1 fh10q073118.htm Prepared by EDGARX.com

 

 UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.  20549

 

FORM 10-Q

(Mark One)

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

For the quarterly period ended July 31, 2018.

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

For the transition period from                                                                          to                                                                                           

Commission File Number:                  0-8862                                                                                                                                                  

                                                                                                First Hartford Corporation                                                                               
(Exact name of registrant as specified in its charter)

 

                                         Maine                                                                                                                   01-0185800                                                
(State or other jurisdiction of incorporation or organization)                                         (I.R.S. Employer Identification No.)

149 Colonial Road, Manchester, CT                                                                                                                      06042                                               
(Address of principal executive offices)                                                                                                          (Zip Code)

(860) 646-6555                                                                                                                                                                                                                   
(Registrant’s telephone number including area code)
                                                                                                                                                                                                                                              
(Former name, former address and former fiscal year if changed since last report)

 

Indicate by check mark whether the registrant (1) has filed all reports 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 X       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 X

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company.  See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth 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 X

Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act).

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

                                                                                                                                                                                                                Yes          No X

Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of the latest practicable date.

2,315,599 as of September 28, 2018

1

 


 

 

FIRST HARTFORD CORPORATION AND SUBSIDIARIES

INDEX

 

PART I.

FINANCIAL INFORMATION

PAGE

 

Item 1.

Financial Statements (Unaudited)

 

 

 

Condensed Consolidated Balance Sheets –
July 31, 2018 and April 30, 2018

 

 

3 - 4

 

Condensed Consolidated Statements of Income for the
Three Months Ended July 31, 2018 and 2017

 

 

5

 

Condensed Consolidated Statements of Comprehensive Income for the
Three Months Ended July 31, 2018 and 2017

 

6

 

Condensed Consolidated Statements of Cash Flows for the
Three Months Ended July 31, 2018 and 2017

 

 

7 - 8

 

Notes to Condensed Consolidated Financial Statements

 

9 – 18

Item 2.

Management’s Discussion and Analysis of Financial Condition
and Results of Operations

 

 

19 - 24

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

 

24

Item 4.

Controls and Procedures

 

24

PART II.

OTHER INFORMATION

 

 

Item 1.

Legal Proceedings

 

25

Item 1A.

Risk Factors

 

25

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

25

Item 3.

Defaults Upon Senior Securities

 

25

Item 4.

Mine Safety Disclosures

 

25

Item 5.

Other Information

 

25

Item 6.

Exhibits

25

 

 

Signatures

 

26

 

 

 

2

 


 

 

FIRST HARTFORD CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)

ASSETS

 

July 31, 2018

 

April 30, 2018
(As Adjusted)

 

 

 

 

Real estate and equipment:

 

 

 

Developed properties and property under construction (including
$80,163,881 in July and $79,969,791 in April for VIEs)

$259,992,927

 

$251,892,715

Equipment and tenant improvements (including $2,558,471 in July and
$2,551,778 in April for VIEs)

4,285,110

 

4,274,824

 

264,278,037

 

256,167,539

 

 

 

 

Less accumulated depreciation and amortization (including $18,573,141 in
July and $18,042,184 in April for VIEs)

 

(54,060,738)

 

 

(52,650,839)

 

210,217,299

 

203,516,700

 

 

 

 

Property held for sale

-0-

 

7,465,163

 

Cash and cash equivalents (including $2,939,223 in July and $2,689,207 in
April for VIEs)

7,688,661

 

7,206,445

 

 

 

 

Cash and cash equivalents – restricted (including $388,892 in July and
$386,505 in April for VIEs)

1,150,691

 

992,923

 

 

 

 

Marketable securities (including $620,280 in July and $619,432 in April for VIEs)

620,280

 

619,432

 

 

 

 

Accounts and notes receivable (including $92,546 in July and $49,668 in April
for VIEs), less allowance for doubtful accounts of $58,525 as of July 31, 2018
and $56,930 as of April 30, 2018

 

 

5,349,987

 

 

 

3,041,624

 

 

 

 

Other receivables

3,304,699

 

4,494,150

 

 

 

 

Deposits and escrow accounts (including $6,541,790 in July and $7,356,807
in April for VIEs)

 

14,094,425

 

 

15,284,884

 

 

 

 

Prepaid expenses (including $624,404 in July and $361,206 in April for VIEs)

2,426,387

 

1,726,281

 

 

 

 

Deferred expenses (including $146,197 in July and $150,412 in April for VIEs)

3,385,512

 

3,242,200

 

 

 

 

Investments in affiliates

429,847

 

429,847

 

 

 

 

Due from related parties and affiliates

2,997

 

199,101

 

 

 

 

Deferred tax asset

-0-

 

-0-

 

 

 

 

Total assets

$248,670,785

 

$248,218,750

 

See accompanying notes.

 

3

 


 

 

FIRST HARTFORD CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (continued)
(Unaudited)

LIABILITIES AND SHAREHOLDERS’ EQUITY (DEFICIENCY)

 

 

July 31, 2018

 

April 30, 2018
(As Adjusted)

Liabilities:

 

 

 

Mortgages and notes payable:

 

 

 

Construction loans payable

$31,308,826

 

$32,168,786

Mortgages payable (including $63,418,412 in July and $63,617,980 in April for
VIEs)

187,909,346

 

191,597,383

Notes payable (including $1,704,697 in July and $1,704,697 in April for VIEs)

1,704,697

 

1,704,697

Lines of credit

5,283,330

 

4,760,000

Less: Deferred debt issuance costs, net (including $1,503,684 in July and
$1,515,252 in April for VIEs)

(2,937,606)

 

(2,975,038)

 

223,268,593

 

227,255,828

 

 

 

 

Accounts payable (including $919,779 in July and $1,017,870 in April for VIEs)

3,922,441

 

3,295,223

Other payables

5,221,825

 

6,556,675

Accrued liabilities (including $3,533,231 in July and $3,557,776 in April for VIEs)

8,370,459

 

7,456,930

Derivative liability

222,394

 

659,780

Deferred income (including $219,636 in July and $221,296 in April for VIEs)

1,145,024

 

1,235,635

Other liabilities

880,470

 

1,007,642

Due to related parties and affiliates (including $467,762 in July and $464,608 in
April for VIEs)

619,840

 

616,516

Deferred tax liability

805,114

 

210,215

Total liabilities

244,456,160

 

248,294,444

 

 

 

 

Shareholders’ Equity (Deficiency):

 

 

 

First Hartford Corporation:

 

 

 

Preferred stock, $1 par value; $.50 cumulative and convertible; authorized
4,000,000 shares; no shares issued and outstanding

-0-

 

-0-

Common stock, $1 par value; authorized 6,000,000 shares; issued 3,211,843
shares and outstanding 2,315,799 shares

3,211,843

 

3,211,843

Capital in excess of par

5,043,779

 

5,043,779

Accumulated earnings (deficit)

119,671

 

(4,166,755)

Accumulated other comprehensive income

-0-

 

-0-

Treasury stock, at cost, 896,044 shares

(4,989,384)

 

(4,989,384)

Total First Hartford Corporation

3,385,909

 

(900,517)

Noncontrolling interests

828,716

 

824,823

 

 

 

 

Total shareholders’ equity (deficiency)

4,214,625

 

(75,694)

 

 

 

 

Total liabilities and shareholders’ equity (deficiency)

$248,670,785

 

$248,218,750

 

See accompanying notes.

4

 


 

 

FIRST HARTFORD CORPORATION AND SUBSIDIARIES
 CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)

 

 

Three Months Ended

 

July 31, 2018

 

July 31, 2017

Operating revenues:

 

 

 

Rental income

$7,824,876

 

$7,796,540

Service income

4,876,640

 

640,563

Sales of real estate

13,662,078

 

21,360,000

Other revenues

1,451,925

 

1,222,265

 

27,815,519

 

31,019,368

 

 

 

 

Operating costs and expenses:

 

 

 

Rental expenses

4,996,126

 

4,974,166

Service expenses

4,001,806

 

1,239,990

Cost of real estate sales

7,702,061

 

18,623,718

Other expenses

1,649,927

 

1,363,102

Selling, general and administrative expenses

1,192,441

 

1,560,962

 

19,542,361

 

27,761,938

 

 

 

 

Income from operations

8,273,158

 

3,257,430

 

 

 

 

Non-operating income (expense):

 

 

 

Interest expense

(2,632,510)

 

(2,629,789)

Other income (loss)

18,481

 

(83,418)

Gain (loss) on derivatives

437,385

 

(203,905)

Equity in earnings of unconsolidated subsidiaries

217,172

 

162,860

 

(1,959,472)

 

(2,754,252)

 

 

 

 

Income before income taxes

6,313,686

 

503,178

 

 

 

 

Income tax expense

1,791,385

 

365,489

 

 

 

 

Consolidated net income

4,522,301

 

137,689

 

 

 

 

Net (income) loss attributable to noncontrolling interests

(235,875)

 

104,573

 

 

 

 

Net income attributable to First Hartford Corporation

$4,286,426

 

$242,262

 

 

 

 

Net income per share – basic

$1.85

 

$0.10

 

 

 

 

Net income per share – diluted

$1.85

 

$0.10

 

 

 

 

Shares used in basic per share computation

2,315,799

 

2,328,299

 

 

 

 

Shares used in diluted per share computation

2,315,799

 

2,328,299

See accompanying notes.

 

5

 


 

 

 FIRST HARTFORD CORPORATION AND SUBSIDIARIES
 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)

 

 

Three Months Ended

 

July 31, 2018

 

July 31, 2017

 

 

 

 

Consolidated net income

$4,522,301

 

$137,689

 

 

 

 

Other comprehensive income (loss), net of taxes:

 

 

 

Unrealized gains (losses) on marketable securities

848

 

100,386

 

 

 

 

Total comprehensive income

4,523,149

 

238,075

 

 

 

 

Amounts attributable to noncontrolling interests:

 

 

 

Net (income) loss

(235,875)

 

104,573

Unrealized (gains) losses on marketable securities

(848)

 

(100,386)

 

 

 

 

 

(236,723)

 

4,187

 

 

 

 

Comprehensive income attributable to First Hartford Corporation

$4,286,426

 

$242,262

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See accompanying notes.

6

 


 

 

 FIRST HARTFORD CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

 

 

Three Months Ended

 

July 31, 2018

 

July 31, 2017

Operating activities:

 

 

 

Consolidated net income

$4,522,301

 

$137,689

Adjustments to reconcile consolidated net income to net cash provided by
   (used in) operating activities:

 

 

 

Equity in earnings of unconsolidated subsidiaries, net of distributions of
   $90,000 in 2018 and $90,000 in 2017

(127,172)

 

(72,859)

Gain on sale of real estate

(5,960,017)

 

(2,736,282)

Depreciation of real estate and equipment

1,431,091

 

1,366,512

Amortization of deferred expenses

147,915

 

135,663

Deferred income taxes

594,899

 

271,759

(Gain) loss on derivatives

(437,386)

 

203,905

Changes in operating assets and liabilities:

 

 

 

Accounts, notes and other receivables

(1,118,912)

 

32,360

Deposits and escrow accounts

1,190,459

 

232,025

Prepaid expenses

(700,106)

 

(465,654)

Deferred expenses

(253,795)

 

1,119,012

Accrued liabilities

913,529

 

943,948

Deferred income

(90,611)

 

(129,732)

Accounts and other payables

(707,632)

 

(920,990)

 

 

 

 

Net cash provided by (used in) operating activities

(595,437)

 

117,356

 

 

 

 

Investing activities:

 

 

 

Investments in marketable securities

-0-

 

(96,946)

Proceeds from sale of marketable securities

-0-

 

374,359

Purchase of equipment and tenant improvements

(31,478)

 

(647,699)

Proceeds from sale of real estate

13,662,078

 

21,360,000

Additions to developed properties and properties under construction

(8,337,110)

 

(11,461,232)

 

 

 

 

Net cash provided by investing activities

5,293,490

 

9,528,482

 

 

 

 

 

 

 

 

See accompanying notes.

 

 

7

 


 

 

 FIRST HARTFORD CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(Unaudited)

 

 

Three Months Ended

 

July 31, 2018

 

July 31, 2017

Financing activities:

 

 

 

Distributions to noncontrolling interests

$(232,830)

 

$(138,256)

Repurchase of common stock

-0-

 

(75,000)

Proceeds from:

 

 

 

Construction loans

7,040,812

 

7,793,353

Mortgage loans

-0-

 

2,876,407

Notes

-0-

 

-0-

Credit lines

3,000,000

 

-0-

Principal payments on:

 

 

 

Construction loans

(7,900,772)

 

(1,127,899)

Mortgage loans

(3,688,037)

 

(13,469,006)

Notes

-0-

 

-0-

Credit lines

(2,476,670)

 

(5,000,000)

Payments (to) from related parties and affiliates, net

199,428

 

151,271

 

 

 

 

Net cash used in financing activities

(4,058,069)

 

(8,989,130)

 

 

 

 

Net change in cash and cash equivalents and restricted cash

639,984

 

656,708

 

 

 

 

Cash and cash equivalents and restricted cash, beginning of period

8,199,368

 

6,776,769

 

 

 

 

Cash and cash equivalents and restricted cash, end of period

$8,839,352

 

$7,433,477

 

 

 

 

 

Cash paid during the period for interest

$2,632,510

 

$2,672,437

 

 

 

 

Cash paid during the period for income taxes

$44,540

 

$60,750

       

 Debt refinancing in 1st quarter:

 

 

 

New mortgage loans

$-0-

 

$8,565,000

Debt reduced

(0)

 

(5,567,673)

Escrow funded

(0)

 

(120,920)

Net cash from refinancing in 1st quarter

$-0-

 

$2,876,407

 

 

 

See accompanying notes.

 

 

8

 


 

 

FIRST HARTFORD CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

1.       Business and Significant Accounting Policies:

 

Business

 

First Hartford Corporation, which was incorporated in Maine in 1909, and its subsidiaries (the Company), is engaged in two business segments: 1) the purchase, development, ownership, management and sale of real estate and 2) providing preferred developer services for two corporate franchise operators (i.e., “Fee for Service”).

 

Principles of Consolidation

 

The accompanying unaudited condensed consolidated financial statements include the accounts of the Company, its wholly owned subsidiaries, and all other entities in which the Company has a controlling financial interest, including those where the Company has been determined to be a primary beneficiary of a variable interest entity or meets certain criteria as a sole general partner or managing member in accordance with the consolidation guidance of the Financial Accounting Standards Board Accounting Standards Codification.  As such, included in the unaudited condensed consolidated financial statements are the accounts of Rockland Place Apartments Limited Partnership and Clarendon Hill Somerville Limited Partnership, in which the Company is the sole general partner.  The Company’s ownership percentage in these variable interest entity partnerships is nominal.  All significant intercompany balances and transactions have been eliminated.

 

Basis of Presentation

 

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Rule 8.03 of Regulation S-X.  Accordingly, they do not include all of the information and footnotes required by U.S. generally accepted accounting principles for complete financial statements.  In the opinion of management, all adjustments (consisting of normal recurring accruals and adjustments) considered necessary for a fair presentation have been included.  Operating results for the interim periods are not necessarily indicative of the results that may be expected for the entire year.  The condensed consolidated balance sheet as of April 30, 2018 was derived from the audited financial statements for the year then ended.  For further information, refer to the consolidated financial statements and footnotes thereto included in the Company’s annual report on Form 10-K for the fiscal year ended April 30, 2018.

 

Because the Company is engaged in the development and sale of real estate at various stages of construction, the operating cycle may extend beyond one year.  Accordingly, following the usual practice of the real estate industry, the accompanying condensed consolidated balance sheets are unclassified.

 

 

 

9

 


 

 

FIRST HARTFORD CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

1.       Business and Significant Accounting Policies (continued):

 

Revenue Recognition

 

We account for revenue in accordance with Accounting Standards Codification (ASC) Topic 606, “Revenue from Contracts with Customers” (Topic 606). We adopted new revenue recognition guidance on May 1, 2018, using the full retrospective method (see Note 2).  Revenue is recognized when or as control of the promised services or goods is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those services.

 

The following is a description of our revenue recognition policies, updated for the effects of Topic 606, for the Company’s principal activities, separated by our reportable segments as discussed further within this Note 1.

 

Real Estate Operations Segment

 

Rental Income – Rental income is recognized on a straight-line basis over the terms of the respective leases and consists of base rent and reimbursements for certain costs such as real estate taxes, utilities, insurance, common maintenance and other recoverable costs as provided in the lease agreements.  There are no contingent rents. If conditions of rent are not met, certain tenants may have rights to pay percentage rent not to exceed stated rent. Currently, there are a very limited number of tenants on percentage rent.

 

Management Services – The Company provides management and maintenance services to third parties, primarily the Company’s unconsolidated Claymont, DE and Bronx, NY properties.  The Company is compensated for such services through a monthly management fee earned based on a specified percentage of the monthly rental income generated from the property under management. Property management services represent a series of distinct daily services rendered over time.

 

Sales of Real Estate – The Company recognizes sales of real estate as revenue at a point in time when control is transferred and the Company has satisfied its performance obligation.  

 

Development Services – The Company typically satisfies its performance obligation as services are rendered over time, measured by the ratio of costs incurred up to a given date to estimated total costs for each contract. This cost to cost measure is used because management considers it to be the best available measure of progress on these contracts.

 

 

 

 

 

 

 

 

 

10

 


 

 

FIRST HARTFORD CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

1.       Business and Significant Accounting Policies (continued):

 

Construction Income – Construction revenues are recognized as performance obligations are satisfied over time (formerly known as percentage-of-completion method), measured by the ratio of costs incurred up to a given date to estimated total costs for each contract. This cost to cost measure is used because management considers it to be the best available measure of progress on these contracts.

Other Revenues – Other revenues represents retail sales at the Company’s three retail establishments it owns at its shopping centers. The Company recognizes these revenues at a point in time when control of the goods is transferred to its customers.

 

Fee for Service Segment:

Preferred Developer Services – The Company is party to preferred developer agreements with CVS and Cumberland Farms.  Under these agreements, the Company satisfies its performance obligation over time as services are provided. Fees are typically payable upon contractually defined events, like project milestones.

 

Accounts Receivable and Allowance for Doubtful Accounts

We record accounts receivable for our unconditional rights to consideration arising from our performance under contracts with customers. The carrying value of such receivables, net of the allowance for doubtful accounts, represents their estimated net realizable value. We estimate our allowance for doubtful accounts for specific accounts receivable balances based on historical collection trends, the age of outstanding accounts receivables and existing economic conditions associated with the receivables. Past-due accounts receivable balances are written off when our internal collection efforts have been unsuccessful. As a practical expedient, we do not adjust the promised amount of consideration for the effects of a significant financing component when we expect, at contract inception, that the period between our transfer of a promised service to a customer and when the customer pays for that service will be one year or less. We do not typically include extended payment terms in our contracts with customers.

 

Remaining Performance Obligations

Remaining performance obligations represent the aggregate transaction prices for contracts where our performance obligations have not yet been satisfied. On July 31, 2018, we had $4,950,557 of remaining performance obligations relating to construction projects.  We expect to recognize approximately 100% of our remaining performance obligation as revenue during the remainder of fiscal 2019.

 

 

 

 

 

11

 


 

 

FIRST HARTFORD CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

1.       Business and Significant Accounting Policies (continued):

 

Contract Assets and Contract Liabilities

 

Contract assets represent assets for revenue that has been recognized in advance of billing the customer and for which the right to bill is contingent upon something other than the passage of time. Included in contract assets are costs and estimated earnings in excess of billings, uninstalled materials, and other costs related to long-term construction contracts.

 

When we receive consideration, or such consideration is unconditionally due, from a customer prior to transferring services to the customer under the terms of the services contract, we record a contract liability. Included in contract liabilities are billings in excess of costs and estimated earnings and deferred revenue. Such deferred revenue typically results from milestone payments pertaining to future services not yet rendered. We recognize the contract liability as revenue once we have transferred control of service to the customer and all revenue recognition criteria are met.

 

Contract assets and contract liabilities are determined for each contract on a net basis.  As of July 31, 2018, contract liabilities of $343,050 are included in deferred income in the accompanying consolidated balance sheets.

 

Contract Costs 

 

Contract costs include all direct material, direct labor and benefits, materials unique to or installed in the project, subcontract costs and allocations of indirect construction costs. Provisions for estimated losses on contracts in progress are made in the period in which such losses are determined.

 

As long-term contracts extend over one or more years, revisions in estimates of costs and earnings during the course of the contract are reflected in the accounting period in which the facts, which require the revision, become known.

 

Applying the contract cost practical expedient, we recognize the incremental costs of obtaining contracts as an expense when incurred if the amortization period of the assets that we otherwise would have recognized is one year or less.

 

Net Income (Loss) Per Common Share

Basic income (loss) per share is computed by dividing the net income (loss) attributable to the common stockholders (the numerator) by the weighted average number of shares of common stock outstanding (the denominator) during the reporting periods.  Diluted income (loss) per share is computed by increasing the denominator by the weighted average number of additional shares that could have been outstanding from securities convertible into common stock, such as stock options and warrants (using the “treasury stock” method).

 

There were no common stock equivalents outstanding at July 31, 2018 or July 31, 2017.  

 

 

12


 

 

FIRST HARTFORD CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

1.       Business and Significant Accounting Policies (concluded):

 

Financial Instruments and Fair Value

 

The Company’s financial instruments include cash and cash equivalents, accounts receivable, marketable securities, accounts payable, accrued expenses, and debt.  The fair values of accounts receivable, accounts payable and accrued expenses are estimated to approximate their carrying amounts because of their relative short-term nature.  In general, the carrying amount of variable rate debt approximates its fair value.  Further, the carrying amount of fixed rate debt approximates fair value since the interest rates on the debt approximates the Company’s current incremental borrowing rate.  Marketable securities consist of equity securities and are stated at fair value based on the last sale of the period obtained from recognized stock exchanges (i.e. Level 1). Accumulated other comprehensive (loss) income consists solely of unrealized gains (losses) on marketable securities.

 

Segment Information

 

The factors used by the Company to identify reportable segments include differences in products and services and segregated operations within the Company. The first segment, “Real Estate Operations” participates in the purchase, development, management, ownership and sale of real estate. Within its second segment, “Fee for Service”, the Company provides preferred developer services to CVS and Cumberland Farms Inc. in certain geographic areas.  Summary financial information for the two reportable segments is as follows:

 

 

Three Months Ended

 

July 31,

 

2018

 

2017

Revenues:

 

 

 

Real Estate Operations

$26,848,019

 

$30,506,118

Fee for Service

967,500

 

513,250

Total

$27,815,519

 

$31,019,368

 

 

 

 

Operating Costs & Expenses:

 

 

 

Real Estate Operations

$17,321,517

 

$25,324,567

Fee for Service

1,028,403

 

876,409

Administrative Expenses

1,192,441

 

1,560,962

Total

$19,542,361

 

$27,761,938

 

All costs after operating expenses are costs of the real estate operation.

 

The only assets in the balance sheet belonging to the Fee for Service segment is restricted cash of $334,147 on July 31, 2018 and $375,501 on April 30, 2018 and receivables of $3,319,079 on July 31, 2018 and $4,516,807 on April 30, 2018.

 

13


 

 

FIRST HARTFORD CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

2.       New Accounting Pronouncements

The FASB previously issued five ASUs related to revenue recognition (“new revenue recognition guidance”). The ASUs issued were: (1) in May 2014, ASU 2014-09, “Revenue from Contracts with Customers (Topic 606);” (2) in March 2016, ASU 2016-08, “Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net);” (3) in April 2016, ASU 2016-10, “Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing;” (4) in May 2016, ASU 2016-12, “Revenue from Contracts with Customers (Topic 606): Narrow-scope Improvements and Practical Expedients;” and (5) in December 2016, ASU 2016-20, “Technical Corrections and Improvements to Topic 606, Revenue From Contracts with Customers.” As mentioned in Note 1, we adopted the new revenue recognition guidance in the first quarter of fiscal 2019 using the full retrospective transition method. This resulted in a cumulative adjustment of $129,097 to the accumulated deficit balance reflected in the accompanying consolidated balance sheet at April 30, 2018, which represents the impact from restating the statement of operations for the year ended April 30, 2018. There was no impact on the Company’s consolidated balance sheet as of April 30, 2017. The impact of the application of the new revenue recognition guidance resulted in a deceleration of revenues and a corresponding deferral of project costs related to an agreement that did not meet the criteria for a contract under the scope of Topic 606. Under the new revenue guidance, because this agreement does not meet the criteria for a contract, revenue cannot be recognized until the Company has satisfied all performance obligations. In addition, the deceleration of these revenues and expenses resulted in an increase in total assets and liabilities to reflect contract assets and liabilities.

 

The following table presents the effects of the adoption of the new revenue recognition guidance on our consolidated balance sheet as of April 30, 2018:

 

 

 

 

 

As Reported

Adoption of
New Revenue
Recognition
Guidance

 

 

 

As Adjusted

 

 

 

 

Deferred Expenses

$3,064,329

$177,871

$3,242,200

Total Assets

248,040,879

177,871

248,218,750

Deferred Revenue

885,635

350,000

1,235,635

Total Liabilities

247,944,444

350,000

248,294,444

Accumulated Deficit

4,037,658

129,097

4,166,755

Noncontrolling Interests

867,855

(43,032)

824,823

Total Liabilities and Equity

248,040,879

177,871

248,218,750

 

The adoption of the new revenue recognition guidance did not have an effect on the Company’s condensed consolidated statements of income or cash flows for the three months ended July 31, 2017.

 

In August 2016, the FASB issued ASU 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments.”  This ASU addressed eight specific cash flow issues with the objective of reducing the existing diversity in practice. We adopted ASU 2016-15 in the first quarter of fiscal 2019. 

 

 

14

 


 

 

FIRST HARTFORD CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

2.       New Accounting Pronouncements (concluded):

In November 2016, the FASB issued ASU 2016-18, “Statement of Cash Flows (Topic 230): Restricted Cash.”  This ASU requires 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. We adopted ASU 2016-18 in the first quarter of fiscal 2019 and, as a result, restricted cash has been 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.

 

Recent Accounting Pronouncements Pending Adoption

Currently, there are no Accounting Standards Updates that the Company is required to adopt that are likely to have a material effect on its financial statements that have not been previously discussed in the Company’s annual report on Form 10-K for the fiscal year ended April 30, 2018.

 

3.       Consolidated Variable Interest Entities and Investments in Affiliated Partnerships:

The Company has consolidated both Rockland and Clarendon based on the express legal rights and obligations provided to it by the underlying partnership agreements and its control of their business activity.  The assets of these partnerships that can only be used to settle their obligations and their liabilities for which creditors (or beneficial interest holders) do not have recourse to the general credit of the Company are shown parenthetically in the line items of the consolidated balance sheets.  A summary of the assets and liabilities of Rockland and Clarendon included in the Company’s condensed consolidated balance sheets follows:

 

 

July 31, 2018

 

April 30, 2018

 

 

 

 

Real estate and equipment, net

$67,172,393

 

$66,691,049

Other assets

11,330,457

 

11,607,936

Total assets

78,502,850

 

78,298,985

Intercompany profit elimination

(3,415,086)

 

(2,603,570)

 

$75,087,764

 

$75,695,415

 

 

 

 

Mortgages and other notes payable

$63,619,425

 

$63,807,424

Other liabilities

4,650,112

 

4,796,289

Total liabilities

$68,269,537

 

$68,603,713

 

 

 

15

 


 

 FIRST HARTFORD CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

3.       Consolidated Variable Interest Entities and Investments in Affiliated Partnerships (concluded):

 

The Company accounts for its 50% ownership interest in Dover Parkade, LLC under the equity method of accounting.  A summary of the operating results for this entity follows:

 

Three Months Ended

 

July 31,

 

2018

 

2017

Dover Parkade, LLC:

 

 

 

Revenue

$721,528

 

$701,909

Expenses

(467,184)

 

(556,190)

Net income

$254,344

 

$145,719

 

In August 2017, the Company finalized an agreement to invest in an affiliated limited liability company called Ware Seguin 1518, LLC.  The Company accounts for its 50% interest in Ware Seguin 1518, LLC under the equity method of accounting.  Ware Seguin 1518, LLC owns property in Schertz, TX that it plans to develop into approximately 285 single family residential lots and approximately 15 acres of commercial or other uses.  The operating and financial policies of Ware Seguin 1518, LLC are not controlled by the Company.  The Company’s initial investment was $326,498 and the Company committed to invest an additional amount up to $500,000, of which an additional $103,149 was made as of July 31, 2018.  Additional future investments may be required if agreed by the Members.  The Company is also a guarantor of 50% of a $1,000,000 bank loan obtained by Ware Sequin 1518, LLC that was used to purchase the property. There has been no income statement activity as of July 31, 2018.

 

4.       Revenue from Contracts with Customers:

 

Disaggregated Revenue:

The following tables represent a disaggregation of revenue from contracts with customers for the three months ended July 31, 2018 and 2017 by type of service:

 

 

Three Months Ended July 31, 2018

Real Estate
Operations
Segment

 

 

Fee for Service
Segment

 

 

 

Total

Topic 606 Revenue:

 

 

 

 

 

Rental Income

$7,824,876

 

$-0-

 

$7,824,876

Management Services

518,943

 

-0-

 

518,943

Preferred Developer Services

-0-

 

967,500

 

967,500

Construction Income

3,390,197

 

-0-

 

3,390,197

Sales of Real Estate

13,662,078

 

-0-

 

13,662,078

Other Revenues

1,451,925

 

-0-

 

1,451,925

     Total Revenues

$26,848,019

 

$967,500

 

$27,815,519

 

 

16

 


 

 

FIRST HARTFORD CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

 

4.       Revenue from Contracts with Customers (concluded):

 

Disaggregated Revenue (concluded):

 

 

Three Months Ended July 31, 2017

Real Estate
Operations
Segment

 

 

Fee for Service
Segment

 

 

 

Total

Topic 606 Revenue:

 

 

 

 

 

Rental Income

$7,796,540

 

$-0-

 

$7,796,540

Management Services

127,313

 

-0-

 

127,313

Preferred Developer Services

-0-

 

513,250

 

513,250

Construction Income

-0-

 

-0-

 

-0-

Sales of Real Estate

21,360,000

 

-0-

 

21,360,000

Other Revenues

1,222,265

 

-0-

 

1,222,265

     Total Revenues

$30,506,118

 

$513,250

 

$31,019,368

 

The adoption of the new revenue recognition guidance did not have an effect on the Company’s condensed consolidated statements of income for the three months ended July 31, 2017.

 

5.       Income Taxes:

The Company files a Federal consolidated tax return to report all income and deductions for its subsidiaries. The Company and its subsidiaries file income tax returns in several states. The tax returns are filed by the entity that owns the real estate or provides services in such state. Some states do not allow a consolidated or combined tax filing. This sometimes creates income taxes to be greater than expected as income for some subsidiaries cannot be offset by other subsidiaries with operating losses.

On October 26, 2017, the Company was informed that its fiscal year 2016 Federal tax return was selected for examination.  This examination is currently in process.

6.       Litigation:

There have been no significant changes in litigation since April 30, 2018.

17

 


 

 

FIRST HARTFORD CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

 

7.       Construction Loan:

Edinburg, TX – Construction Loan: On May 1, 2018, the Company obtained a $3,233,937 construction loan to finance construction of a commercial building at its Edinburg, TX property.  The initial construction draw was for $2,818,156 with another $415,781 available to draw as construction is completed.  The net cash received by the Company at closing was $455,737.  Of the initial construction draw, $2,310,000 was used to repay Protective Life against their remaining loan to release the lot the building is being constructed on.  The interest rate on the loan is the Prime Rate per Wall Street Journal plus 1.25% with a floor of 6.00% and a ceiling of 9.00%.  The monthly loan payments are interest only for the first twelve months then convert to monthly principal and interest payments calculated using a 20 year amortization period with a final balloon payment due on April 30, 2023.  The Company is also a guarantor on this loan.

8.       Purchases of Real Estate:

Katy, TX: On May 3, 2018, the Company purchased a parcel of land in Katy, TX for $2,386,648 including closing costs.  This purchase was financed with proceeds from a construction loan of $1,487,973, cash of $823,496, and working capital of $75,179. Key terms of the construction loan are as follows:  

 

Maximum Loan Amount:     

$4,325,000

Maturity Date:

May 3, 2022

Interest Rate:

2.50% plus One Month ICE LIBOR rate, as defined, for first year and 6.5% through the maturity date; 12.0% thereafter.

Payments:

Interest only payable monthly during the first year.  Thereafter, principal and interest payable monthly using a 25-year amortization.

Guarantee:

The Company (Corporate).

 

Katy, TX (Cane Island): On July 25, 2018, the Company purchased a 5.32 acre parcel of land in Katy, TX for $2,977,851 including closing costs.  This purchase was primarily financed through utilization of the Company’s credit lines.  The Company expects to obtain a construction loan for this property in the near future.

 

9.       Subsequent Events:

The Company has evaluated for subsequent events through September 28, 2018, the date the financial statements were issued.

Wethersfield, CT – Sale of Condominium: On August 28, 2018, the Company sold its final condominium in Wethersfield, CT for $260,000 (cost of approximately $254,718). 

Houma, LA – Sale of Property: On September 20, 2018, the Company sold its single tenant property in Houma, LA for $7,895,000 (cost of approximately $6,405,114).  A construction loan with a balance of $4,563,084 and a line of credit with a balance of $285,695 were paid off with the proceeds.

 

 

18

 


 

 

Item 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The financial and business analysis below provides information which the Company believes is relevant to an assessment and understanding of the Company’s financial position, results of operations and cash flows.  This analysis should be read in conjunction with the condensed consolidated financial statements and related notes.

The following discussion and certain other sections of this Report on Form 10-Q contain statements reflecting the Company’s views about its future performance and constitute “forward-looking statements” under the Private Securities Litigation Reform Act of 1995.  These views may involve risk and uncertainties that are difficult to predict and may cause the Company’s actual results to differ materially from the results discussed in such forward-looking statements.  Readers should consider how various factors including changes in general economic conditions, cost of materials, interest rates and availability of funds, and the nature of competition and relationship with key tenants may affect the Company’s performance.  The Company undertakes no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or other.

Critical Accounting Policies

There have been no significant changes in the Company’s critical accounting policies from those included in Item 7 of its Annual Report on Form 10-K for the year ended April 30, 2018 under the subheading “Critical Accounting Policies and Estimates”. 

Results of Operations

Rental Income:

Rental income for the three months ended July 31, by type of tenant, follows:

 

 

Three Months Ended

 

July 31,

 

2018

 

2017

Residential

$3,090,437

 

$3,037,106

Commercial

4,734,439

 

4,759,434

 

$7,824,876

 

$7,796,540

 

The slight increase in residential rental income was primarily the result of lower vacancies at the Rockland, MA property due to substantial completion of the renovation project in the first quarter of the current year.

The slight decrease in commercial rental income was primarily caused by the partial sale of the New Orleans, LA late in the prior year first quarter, largely offset by normal recurring rent increases.

Service Income

Service income for the three months ended July 31 follows:

 

Three Months Ended

 

July 31,

 

2018

 

2017

Management and other fees

$518,943

 

$127,313

Construction

3,390,197

 

-0-

Preferred developer fees

967,500

 

513,250

 

$4,876,640

 

$640,563

 

 

19

 


 

 

Item 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
               OPERATIONS (continued):

Service Income (concluded):

Management fees are received primarily from the Company’s unconsolidated Claymont, DE and Bronx, NY properties.  In the first quarter of fiscal 2019, the Company also received commissions, finders and other fees not received previously.

Construction revenue was generated from the Company’s unconsolidated Bronx, NY affordable housing development project.

The increase in preferred developer fees reflected higher fees received from both CVS and Cumberland Farms.  The increase in CVS fees was largely due to timing; the Company still anticipates this revenue stream to decrease over the next few years as a result of an acquisition that has impacted in the slowing of their pipeline for new stores.  The increase in Cumberland Farms was the result of timing of closings based on the construction schedule; this revenue stream is expected to remain steady.

Sales (and Cost of Sales) of Real Estate

Three months ended July 31, 2018:

Montgomery, TX – Partial Property Sale: On May 23, 2018, the Company sold a single-tenant property in Montgomery, TX for $2,930,499 (cost of $856,510).  The Company continues to own 22.70 acres of land attached to this sold parcel that can support approximately 130,000 square feet of additional development.

 

Cedar Park, TX – Property Sale: On June 14, 2018, the Company sold a single-tenant property in Cedar Park, TX for $2,631,579 (cost of $1,979,963).  A mortgage loan with a balance of $1,353,974 was paid off with the proceeds.

 

Houston, TX – Partial Property Sale: On June 14, 2018, the Company sold a single-tenant property in Houston, TX for $8,100,000 (cost of $5,047,464).  The Company continues to own 18.58 acres of land attached to this sold parcel that can support approximately 100,000 square feet of additional development.

 

There were also favorable adjustments of $181,876 made in fiscal year 2019 related to property sales that occurred in previous fiscal years as actual costs came in slightly lower than expected.

Three months ended July 31, 2017:

St. Louis, MO – Sale of Property: On May 30, 2017, the Company sold its single-tenant property in St. Louis, MO for $6,800,000 (cost of $6,567,195).  A loan with a balance of $5,120,000 and a credit line of $1,000,000 were paid off with the proceeds.

 

New Orleans, LA – Sale of Property: On June 7, 2017, the Company sold a parcel of its property in New Orleans, LA for $11,350,000 (cost of $9,002,022).  A loan with a balance of $7,436,745 was paid off with the proceeds.  The Company continues to hold the parcel of the property that includes the shopping center.

 

Austin, TX – Sale of Property: On June 15, 2017, the Company sold its single-tenant property in Austin, TX for $3,210,000 (cost of $2,968,692).  A loan with a balance of $1,102,899 was paid off with the proceeds. 

 

There were also costs incurred in fiscal year 2018 related to property sales that occurred in the fiscal year ended April 30, 2017 totaling $85,809 that were not anticipated as of the prior fiscal year end.

Other Revenues (and Expenses)

The increase in other income was due to higher sales by the Company’s new restaurant it built and owns at its Edinburg, TX property.  This store was opened late in the prior year first quarter. 

20

 


 

 

 

Item 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
                
OPERATIONS (continued):

Operating Costs and Expenses:

Rental Expenses

Rental expenses for the three months ended July 31, by type of tenant, follows:

 

 

Three Months Ended

 

July 31,

 

2018

 

2017

Residential

$2,663,072

 

$2,562,745

Commercial

2,333,054

 

2,411,421

 

$4,996,126

 

$4,974,166

 

The increase in residential rental expenses were mainly from higher expenses at the Somerville, MA (i.e., Clarendon) property for health insurance, repairs and maintenance and higher expenses at the Rockland, MA facility to make the units rental-ready (e.g., painting of decks), partially offset by lower asbestos remediation and related legal fees as the renovation project was substantially completed in FY 2019 Q1.

The decrease in commercial rental expenses was mainly due to a fee paid to a tenant in the prior year first quarter at its Edinburg, TX shopping center to allow the Company to lease to another tenant. 

Service Expenses

Service expenses for the three months ended July 31 follows:

 

Three Months Ended

 

July 31,

 

2018

 

2017

Preferred Developer
Expenses and Fees

 

$1,028,403

 

 

$876,409

Construction and Other Cost

2,973,403

 

363,581

 

$4,001,806

 

$1,239,990

 

The increase in preferred developer expenses and fees primarily reflects lower commissions paid commensurate with the higher revenue. 

The increase in construction expenses is from the Company’s unconsolidated Bronx, NY affordable housing development project.  This is partially offset by unbudgeted costs (i.e., overruns) incurred in the prior year at the renovation project at the Company’s Rockland, MA property. 

 

 

21

 


 

 

Item 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
               
OPERATIONS (continued):

Selling, General and Administrative (“SG&A”)

The decrease in SG&A expenses relates primarily to costs incurred in the prior year first quarter to resolve issues with the renovation project at the Company’s Rockland, MA property, as well as lower salaries due to attrition. 

Non-Operating Income (Expense):

Interest Expense

Interest expense for the three months ended July 31, by type of tenant, follows:

 

Three Months Ended

 

July 31,

 

2018

 

2017

Commercial

$1,861,182

 

$1,900,783

Residential

771,328

 

729,006

 

$2,632,510

 

$2,629,789

 

The change in commercial interest expense was minimal; there were no individually significant changes.

The increase in residential interest expense was the result of the end of monthly interest subsidy payments upon a loan payoff in March 2018.

Other Income / (Loss)

Other income / (loss) for the three months ended July 31 follows:

 

Three Months Ended

 

July 31,

 

2018

 

2017

Investment Income (loss)

$18,481

 

$(83,418)

 

The change in investment income reflected realized losses on sales of securities in the prior year.

Gain / (Loss) on Derivatives (Non-Cash)

The Company, through its 50% owned consolidated subsidiaries, has entered into two separate floating-to-fixed interest rate swap agreements with banks that expire in May 2025 and July 2031.  The Company has determined that these derivative instruments do not meet the requirements of hedge accounting and have therefore recorded the change in fair value of these derivative instruments through income.  Note that the change in fair value recorded through income is a non-cash item.

The aggregate fair value of the Company’s interest rate swap agreements as of July 31, 2018 and April 30, 2018 were liabilities of $222,394 and $659,780, respectively.

22

 


 

 

Item 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
                
OPERATIONS (continued):

Equity in Earnings of Unconsolidated Subsidiary

The equity in earnings of unconsolidated subsidiary for the three months ended July 31 follows:

 

Three Months Ended

 

July 31,

 

2018

 

2017

Income from Operations

$127,172

 

$72,860

Distributions

90,000

 

90,000

 

$217,172

 

$162,860

 

The Company has an investment in an affiliated limited liability entity Dover Parkade, LLC, (Dover).  The Company has a 50% interest in Dover, which owns a shopping center in Dover Township, NJ.  The operating and financial policies of Dover are not controlled by the Company.  For years prior to May 1, 2009, the Company was committed to provide funding to this equity method investee.  The Company’s investment was recorded at cost and subsequently adjusted for its share of their net income and losses and distributions.  Through April 30, 2009, losses and distributions from Dover exceeded the Company’s investment and the Company’s investment balance was reduced below $0 and recorded as a liability.  Beginning May 1, 2009, distributions from Dover have been credited to income and any additional losses have not been allowed to further reduce the investment balance.  The Company does not control the rate of distributions of Dover.  Such distributions are in excess of Dover’s net assets since its accumulated net losses (including significant amounts for depreciation and amortization) have exceeded capital contributions.

Income Taxes

The Company files a Federal consolidated tax return to report all income and deductions for its subsidiaries. The Company and its subsidiaries file income tax returns in several states. The tax returns are filed by the entity that owns the real estate or provides services in such state. Some states do not allow a consolidated or combined tax filing. This sometimes creates income taxes to be greater than expected as income for some subsidiaries cannot be offset by other subsidiaries with operating losses.

On October 26, 2017, the Company was informed that its fiscal year 2016 Federal tax return was selected for examination.  This examination is currently in process.

Capital Resources and Liquidity

At July 31, 2018, the Company had $7,688,661 of unrestricted cash and cash equivalents. This includes $5,008,354 belonging to partner entities in which the Company’s financial interests range from .01% (VIEs) to 50%.  Funds received from CVS, which are to be paid out in connection with CVS developments, of $334,147, tenant security deposits held by VIEs of $388,892, and cash held in a lender-controlled lockbox account for our Edinburg, TX property of $427,652 are included in restricted cash and cash equivalents.

At July 31, 2018, the Company had $620,820 of investments in marketable securities, all of which belongs to partner entities.

 The Company has three separate credit lines that allows for borrowings up to $9,760,000.  At July 31, 2018, the Company had borrowings of $5,283,330 against these credit lines.

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Item 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
                
OPERATIONS (concluded):

Capital Resources and Liquidity (concluded):

The sources of future borrowings that may be needed for new construction loans, property purchases, or balloon payments on existing loans are unclear at this time.  As a result of the decreasing CVS fee-for-service business and the increasingly difficult environment surrounding commercial real estate, the Company has become more dependent on its ability to buy, develop, and sell real estate at a profit.  Failure to do so would have an adverse impact on the Company’s liquidity.  The Company’s liquidity could also be adversely impacted by higher interest rates, regulatory changes in Federal affordable housing programs, and lack of improvement in the financial performance of the Company’s new restaurant in Edinburg, TX.

Item 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Smaller reporting companies are not required to provide the information required by this item.

Item 4.  CONTROLS AND PROCEDURES 

Evaluation of Disclosure Controls and Procedures

We maintain “disclosure controls and procedures”, as such term is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”), that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and forms, and that such information is accumulated and communicated to our management, including our Chairman and Treasurer, as appropriate, to allow timely decisions regarding required disclosure.  We conducted an evaluation (the “Evaluation”), under the supervision and with the participation of our Chairman and Treasurer, of the effectiveness of the design and operation of our disclosure controls and procedures (“Disclosure Controls”) as of the end of the period covered by this report pursuant to Rule 13a-15(b) of the Exchange Act.  Based on the Evaluation, our Chairman and Treasurer concluded that because of weaknesses in our control environment, our disclosure controls were not effective as of the end of the period covered by this report.  Notwithstanding weaknesses in our control environment, as of July 31, 2018, we believe that the condensed consolidated financial statements contained in this report present fairly the Company’s financial condition, results of operations and cash flows for the periods presented.

Changes in Internal Control over Financial Reporting

 

As of the end of the period covered by this report, there have been no changes in internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) during the period covered by this report, that materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

 

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PART II  

OTHER INFORMATION

     

Item 1.

LEGAL PROCEEDINGS

     

 

There have been no significant changes in litigation since April 30, 2018. 

     

Item 1A.

RISK FACTORS

     

 

Smaller reporting companies are not required to provide the information required by this item.

     

Item 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

     

 

None

     

Item 3.

DEFAULTS UPON SENIOR SECURITIES

     

 

None

     

Item 4. 

MINE SAFETY DISCLOSURES

     

 

Not applicable

     

Item 5.

OTHER INFORMATION

     

 

None

     

 

SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     

 

None

     

Item 6.

EXHIBITS

     

 

a)      Exhibits:

     

 

        Exhibit 31.1

Certification of Chief Executive Officer, pursuant to Rule 13a-14(c) under the

 

 

Securities Exchange Act of 1934.

 

 

 

 

        Exhibit 31.2

Certification of Chief Financial Officer, pursuant to Rule 13a-14(c) under the

 

 

Securities Exchange Act of 1934.

 

 

 

 

        Exhibit 32.1 

Certification of Chief Executive Officer and Chief Financial Officer, pursuant to
18 U.S.C. Section 1350.

 

 

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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.

 

 

 

 

First Hartford Corporation

 

(Registrant)

 

 

 

 

                September 28, 2018          

/s/ Neil H. Ellis                                  

                    Date   

Neil H. Ellis, 

 

Chairman of the Board

 

and Chief Executive Officer

 

 

 

 

                September 28, 2018         

/s/ Eric J. Harrington                         

                    Date 

Eric J. Harrington, Treasurer

 

and Chief Financial Officer          

 

 

 

 

 

 

 

 

 

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