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 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Mine Safety Disclosures
Item 5. Other Information
Item 6. Exhibits
EX-31 ex31-1.htm
EX-31 ex31-2.htm
EX-32 ex32-1.htm

First Hartford Earnings 2016-01-31

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 fhc10q.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 January 31, 2016.

[  ]   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 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, or a smaller reporting company.  See definition of “large accelerated filer”, “accelerated filer”, and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer                                                                                                          Accelerated filer

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

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

Yes          No X

APPLICABLE ONLY TO CORPORATE ISSUERS

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

2,404,590 as of March 25, 2016


FIRST HARTFORD CORPORATION AND SUBSIDIARIES

INDEX

PART I.

FINANCIAL INFORMATION

PAGE

 

     

Item 1.

Financial Statements (Unaudited)

 

     

 

Condensed Consolidated Balance Sheets

     January 31, 2016 and April 30, 2015

 3 - 4

     

 

Condensed Consolidated Statements of Operations for the

     Three and Nine Months Ended January 31, 2016 and 2015

 5

     

 

Condensed Consolidated Statements of Comprehensive Income (Loss) for

     the Three and Nine Months Ended January 31, 2016 and 2015

6

     

 

Condensed Consolidated Statements of Cash Flows for the

     Three and Nine Months Ended January 31, 2016 and 2015

 7 - 8

     

 

Notes to Condensed Consolidated Financial Statements

9 - 16

     

Item 2.

Management’s Discussion and Analysis of Financial Condition

     and Results of Operations

 17 - 23

     

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

23

     

Item 4.

Controls and Procedures

23

     

PART II.

OTHER INFORMATION

 

     

Item 1.

Legal Proceedings

24

     

Item 1A.

Risk Factors

24

     

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

24

     

Item 3.

Defaults Upon Senior Securities

24

     

Item 4.

Mine Safety Disclosures

24

     

Item 5.

Other Information

25

     

Item 6.

Exhibits

25

     

 

Signatures

26

     

 

Exhibits

27 - 29

 

2


 

 

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

ASSETS

 

January 31, 2016

 

April 30, 2015

Real estate and equipment:

 

 

 

Developed properties and property under construction (including
$74,273,765 in January and $72,621,441 in April for VIEs)

$227,313,894

 

$211,318,882

Equipment and tenant improvements (including $2,396,187 in January and
$2,353,355 in April for VIEs)

3,733,974

 

3,663,080

 

231,047,868

 

214,981,962

 

 

 

 

Less accumulated depreciation and amortization (including $13,314,027 in
January and $11,786,480 in April for VIEs)

 41,409,738

 

39,149,517

 

189,638,130

 

175,832,445

 

Property held for sale

 

8,578,719

 

 

342,175

 

Cash and cash equivalents (including $1,643,078 in January and $1,067,182
in April for VIEs)

5,464,686

 

9,698,341

 

 

 

 

Cash and cash equivalents – restricted (including $399,623 in January and
    $418,110 in April for VIEs)

2,559,437

 

948,721

 

 

 

 

Marketable securities (including $1,366,924 in January and $2,029,684 in
April for VIEs)

1,366,924

 

3,964,398

 

 

 

 

Accounts and notes receivable, less allowance for doubtful accounts of

$696,868 as of January 31, 2016 and $694,849 as of April 30, 2015
(including $443,830 in January and $687,468 in April for VIEs)

 

 

3,858,513

 

 

 

4,848,217

 

 

 

 

Other receivables

4,993,463

 

12,080,979

 

 

 

 

Deposits and escrows (including $4,788,424 in January and $5,125,568 in
April for VIEs)

 

8,819,421

 

 

9,671,401

 

 

 

 

Prepaid expenses (including $248,841 in January and $275,419 in April for
    VIEs)

1,521,051

 

1,184,170

 

 

 

 

Deferred expenses (including $1,359,733 in January and $1,420,572 in April
for VIEs)

4,858,326

 

6,004,980

 

 

 

 

Investments in affiliates

100

 

100

 

Due from related parties and affiliates

 

160,071

 

 

664,909

 

Deferred tax asset

2,050,172

 

2,802,007

 

 

 

 

Total assets

$233,869,013

 

$228,042,843

 

See accompanying notes.

 

3

 


 

 

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

LIABILITIES AND EQUITY (DEFICIENCY)

 

January 31, 2016

 

April 30, 2015

Liabilities:

 

 

 

Mortgages and notes payable:

 

 

 

Construction loans payable

$68,999,283

 

$55,553,207

Mortgages payable (including $56,779,363 in January and $57,364,872 in April
for VIEs)

140,757,261

 

146,507,036

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

1,744,697

 

1,744,697

Line of credit

1,682,928

 

-0-

 

213,184,169

 

203,804,940

 

 

 

 

Accounts payable (including $1,760,624 in January and $1,224,988 in April for
     VIEs)

4,628,725

 

3,399,900

Other payables

8,381,209

 

13,588,295

Accrued liabilities (including $3,144,711 in January and $3,178,121 in April for
VIEs)

5,271,918

 

5,852,198

Accrued cost of derivatives

3,060,408

 

2,515,330

Deferred income (including $236,236 in January and $241,216 in April for VIEs)

570,063

 

546,313

Other liabilities

1,678,546

 

1,961,212

Due to related parties and affiliates (including $427,334 in January and $415,018
in April for VIEs)

598,951

 

486,951

 

237,373,989

 

232,155,139

 

 

 

 

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 3,298,609

     shares; outstanding 2,405,090 shares as of January 31, 2016 and 2,409,840 as
  of April 30, 2015

3,298,609

 

3,298,609

Capital in excess of par

5,198,928

 

5,198,928

Accumulated deficit

(8,348,499)

 

(10,368,421)

Accumulated other comprehensive income

-0-

 

95,815

Treasury stock, at cost, 893,519 shares as of January 31, 2016 and 888,769 as of
  April 30, 2015

(4,983,166)

 

(4,970,082)

Total First Hartford Corporation

(4,834,128)

 

(6,745,151)

Noncontrolling interests

1,329,152

 

2,632,855

 

 

 

 

Total shareholders’ equity (deficiency)

(3,504,976)

 

(4,112,296)

 

 

 

 

Total liabilities and shareholders’ equity (deficiency)

$233,869,013

 

$228,042,843

 

 See accompanying notes.

 

4


 

 

 

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

 

Three Months Ended

 

Nine Months Ended

 

Jan. 31, 2016

 

Jan. 31, 2015

 

Jan. 31, 2016

 

Jan. 31, 2015

Operating revenues:

 

 

 

 

 

 

 

Rental income

$7,696,324

 

$7,256,324

 

$22,686,977

 

$22,217,123

Service income

1,123,763

 

1,757,597

 

4,693,656

 

5,510,122

Sales of real estate

-0-

 

10,570,000

 

11,350,182

 

10,570,000

Other income

1,013,047

 

751,309

 

2,721,605

 

1,944,333

 

9,833,134

 

20,335,230

 

41,452,420

 

40,241,578

 

 

 

 

 

 

 

 

Operating costs and expenses:

 

 

 

 

 

 

 

Rental expenses

5,383,445

 

4,343,323

 

15,858,695

 

15,043,303

Service expenses

955,683

 

1,120,311

 

4,033,933

 

3,218,291

Cost of real estate sales

33,246

 

6,884,962

 

8,708,136

 

6,884,962

Selling, general and administrative expenses

1,895,622

 

1,724,110

 

5,274,167

 

5,096,293

 

8,267,996

 

14,072,706

 

33,874,931

 

30,242,849

 

 

 

 

 

 

 

 

Income from operations

1,565,138

 

6,262,524

 

7,577,489

 

9,998,729

 

 

 

 

 

 

 

 

Non-operating income (expense):

 

 

 

 

 

 

 

Interest expense

(2,201,569)

 

(2,589,126)

 

(6,853,324)

 

(7,657,786)

Gain on voluntary foreclosure

Other income

-0-

216,746

 

-0-

41,695

 

2,649,850

597,962

 

-0-

397,037

Gain on forgiveness of debt

-0-

 

-0-

 

-0-

 

5,315,423

Gain (loss) on derivatives

606,601

 

(160,623)

 

(545,078)

 

(49,277)

Loss on impairment

(330,700)

 

-0-

 

(330,700)

 

-0-

Equity in earnings of unconsolidated subsidiaries

195,538

 

173,172

 

552,666

 

589,927

 

(1,513,384)

 

(2,534,882)

 

(3,928,624)

 

(1,404,676)

 

 

 

 

 

 

 

 

Income before income taxes

51,754

 

3,727,642

 

3,648,865

 

8,594,053

 

 

 

 

 

 

 

 

Income tax expense (benefit)

(526,893)

 

2,145

 

1,067,218

 

314,082

 

 

 

 

 

 

 

 

Consolidated net income

578,647

 

3,725,497

 

2,581,647

 

8,279,971

 

 

 

 

 

 

 

 

Net (income) loss attributable to noncontrolling interests

(706,132)

 

(361,129)

 

(561,725)

 

362,875

 

 

 

 

 

 

 

 

Net income (loss) attributable to First Hartford Corporation

$(127,485)

 

$3,364,368

 

$2,019,922

 

$8,642,846

 

 

 

 

 

 

 

 

Net income (loss) per share – basic

$(0.05)

 

$1.39

 

$0.84

 

$3.58

Net income (loss) per share – diluted

$(0.05)

 

$1.39

 

$0.84

 

$3.58

 

 

 

 

 

 

 

 

Shares used in basic per share computation

2,406,679

 

2,411,778

 

2,408,260

 

2,411,890

Shares used in diluted per share computation

2,406,679

 

2,411,778

 

2,408,260

 

2,411,890

 

See accompanying notes.

5


 

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

 

 

Three Months Ended

 

Nine Months Ended

 

Jan. 31, 2016

 

Jan. 31, 2015

 

Jan. 31, 2016

 

Jan. 31, 2015

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated net income

$578,647

 

$3,725,497

 

$2,581,647

 

$8,279,971

 

 

 

 

 

 

 

 

Other comprehensive income (loss), net of taxes:

 

 

 

 

 

 

 

     Unrealized gains (losses) on marketable securities

(416,087)

 

96,496

 

(572,347)

 

206,642

 

 

 

 

 

 

 

 

Consolidated comprehensive income

162,560

 

3,821,993

 

2,009,300

 

8,486,613

 

 

 

 

 

 

 

 

Amounts attributable to noncontrolling interests:

 

 

 

 

 

 

 

     Net (income) loss

(706,132)

 

(361,129)

 

(561,725)

 

362,875

     Unrealized (gains) losses on marketable securities

317,497

 

(78,299)

 

476,532

 

(142,768)

 

 

 

 

 

 

 

 

 

(388,635)

 

(439,428)

 

(85,193)

 

220,107

Comprehensive income (loss) attributable to First
  Hartford Corporation

$(226,075)

 

$3,382,565

 

$1,924,107

 

$8,706,720

 

 

  

 

See accompanying notes.

 

 

 

6


 

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

 

 

Nine Months Ended

 

January 31, 2016

 

January 31, 2015

Operating activities:

 

 

 

 

 

 

 

Consolidated net income

$2,581,647

 

$8,279,971

 

 

 

 

Adjustments to reconcile consolidated net income to net cash provided by
operating activities:

 

 

 

Equity in earnings of unconsolidated subsidiaries, net of distributions of

   $270,000 in 2016 and $750,000 in 2015

(282,666)

 

160,073

Gain on sale of property

(2,642,046)

 

(3,685,038)

Gain on voluntary foreclosure

(2,649,850)

 

-0-

Loss on impairment

330,700

 

-0-

Depreciation

3,918,524

 

4,029,815

Amortization

280,963

 

275,823

Forgiveness of debt

-0-

 

(5,315,423)

Deferred income taxes

751,835

 

-0-

Changes in operating assets and liabilities:

 

 

 

Accounts, notes and other receivables

8,062,456

 

6,063,528

Deposits and escrows

658,663

 

(1,192,324)

Prepaid expenses

(342,823)

 

(431,334)

Deferred expenses

860,782

 

(845,984)

Cash and cash equivalents – restricted

(1,610,716)

 

158,649

Accrued liabilities

(580,280)

 

17,817

Accrued cost of derivatives

545,078

 

49,278

Deferred income

61,767

 

(168,227)

Accounts and other payables

(3,978,261)

 

(4,033,187)

 

 

 

 

Net cash provided by operating activities

5,965,773

 

3,363,437

 

 

 

 

Investing activities:

 

 

 

Investments in marketable securities

(3,059,611)

 

(367,501)

Proceeds from sale of marketable securities

5,084,737

 

938,911

Purchase of equipment and tenant improvements

(70,894)

 

(35,730)

Proceeds from sale of real estate

11,350,182

 

10,570,000

Additions to developed properties and properties under construction

(36,662,700)

 

(30,888,458)

 

 

 

 

Net cash (used in) investing activities

(23,358,286)

 

(19,782,778)

 

See accompanying notes.

7


 

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

 

 

Nine Months Ended

 

January 31, 2016

 

January 31, 2015

Financing activities:

 

 

 

Distributions to noncontrolling interests

$(1,388,895)

 

$(726,951)

Purchase of treasury stock

(13,084)

 

(1,199)

Proceeds from:

 

 

 

Construction loans payable

19,552,513

 

17,846,081

Mortgage loans payable

1,312,500

 

4,290,602

Notes payable

-0-

 

-0-

Line of credit

1,682,928

 

-0-

Principal payments on:

 

 

 

Construction loans payable

(6,106,437)

 

(3,115,331)

Mortgage loans payable

(2,497,505)

 

(1,960,502)

Notes payable

-0-

 

(301,335)

Line of credit

-0-

 

-0-

Repayments from related parties and affiliates, net

616,838

 

11,404

 

 

 

 

Net cash provided by financing activities

13,158,858

 

16,042,769

 

 

 

 

Net change in cash and cash equivalents

(4,233,655)

 

(376,572)

 

 

 

 

Cash and cash equivalents, beginning of period

9,698,341

 

6,500,885

 

 

 

 

Cash and cash equivalents, end of period

$5,464,686

 

$6,124,313

 

 

 

 

 

Cash paid during the period for interest

$6,689,475

 

$7,467,455

 

 

 

 

Cash paid during the period for income taxes

$727,223

 

$114,542

 

 

 

 

Supplemental Non-Cash Disclosures:

 

 

 

Debt refinancing in 1st quarter:

 

 

 

New mortgage loans

$39,000,000

 

$-0-

Debt reduced

(39,723,828)

 

(-0-)

Net cash from refinancing in 1st quarter

$(723,828)

 

$-0-

       
Debt refinancing in 2nd quarter:      
New mortgage loan

$-0-

 

$10,500,000

Debt reduced

(-0-)

 

(7,794,014)

Net cash from refinancing in 2nd quarter

$-0-

 

$2,705,986

       
Debt refinancing in 3rd quarter:      
New mortgage loan

$-0-

 

$1,289,449

Debt reduced

(0)

 

(1,029,833)

Net cash from refinancing in 3rd quarter

$-0-

 

$259,616

 

 

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, 2015 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, 2015.

 

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.

 

Currently, there are no Accounting Standards Updates (ASUs) that the Company is required to adopt which are likely to have a material effect on its financial statements. For further discussions on Accounting Standard Updates, refer to the Company’s annual report on Form 10-K for the fiscal year ended April 30, 2015.

 

 9


 

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

1.   Business and Significant Accounting Policies (continued):

 

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 January 31, 2016 or January 31, 2015.  

 

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

 

Nine Months Ended

 

January 31

 

January 31

 

2016

 

2015

 

2016

 

2015

Revenues:

 

 

 

 

 

 

 

Real Estate Operations

$8,864,634

 

$18,695,569

 

$37,141,920

 

$35,077,795

Fee for Service

968,500

 

1,639,661

 

4,310,500

 

5,163,783

Total

$9,833,134

 

$20,335,230

 

$41,452,420

 

$40,241,578

 

 

 

 

 

 

 

 

Operating Costs & Expenses:

 

 

 

 

 

 

 

Real Estate Operations

$5,235,185

 

$11,277,160

 

$24,626,681

 

$21,977,140

Fee for Service

1,137,189

 

1,071,436

 

3,974,083

 

3,169,416

Administrative Expenses

1,895,622

 

1,724,110

 

5,274,167

 

5,096,293

Total

$8,267,996

 

$14,072,706

 

$33,874,931

 

$30,242,849

 

 

10


 

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

1.   Business and Significant Accounting Policies (concluded):

 

Segment Information (concluded):

 

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 $2,159,814 on January 31, 2016 and $530,611 on April 30, 2015 and receivables of $4,993,463 on January 31, 2016 and $12,080,979 on April 30, 2015.

 

2.   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:

 

January 31, 2016

 

April 30, 2015

 

 

 

 

Real estate and equipment, net

$65,827,630

 

$65,746,701

Other assets

10,266,406

 

11,041,856

Total assets

76,094,036

 

76,788,557

Intercompany profit elimination

(2,892,344)

 

(2,974,130)

Total assets

$73,201,692

 

$73,814,427

 

 

 

 

Mortgages and other notes payable

$58,484,060

 

$59,069,569

Other liabilities

5,135,466

 

4,644,325

Total liabilities

$63,619,526

 

$63,713,894

 

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

Nine Months Ended

 

January 31, 2016

 

January 31, 2015

 

January 31, 2016

 

January 31, 2015

 

 

 

 

 

 

 

 

Dover Parkade, LLC:

 

 

 

 

 

 

 

Revenue

$639,762

 

$665,384

 

$1,964,558

 

$1,984,084

Expenses

428,685

 

499,041

 

1,399,226

 

1,504,917

Defeasance & refinancing

-0-

 

-0-

 

-0-

 

799,313

Net income (loss)

$211,077

 

$166,343

 

$565,332

 

($320,146)

 

 

 

11


 

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

3.   Income Taxes:

In the three and nine months ended January 31, 2016, the Company had net operating loss carryforwards to offset operating taxable income generated during the period. On its recently filed tax returns, the Company reduced the tax basis of the Main Street NA Parkade property for the forgiveness of debt by the mortgage holder. As a result, this allowed the Company to preserve its net operating loss carryforwards into the current year. In addition to the benefits of preserving the net operating losses, the Company generated an Alternative Minimum Tax Credit for the taxes it paid. These items are being recognized as a tax benefit during the current quarter by the Company.

 

However, as a result of the first quarter gain on the voluntary foreclosure of the Putnam, CT shopping center along with gains from sales of real estate, the Company will record current tax expense of $315,000, which included an Alternative Minimum Tax of $72,000 and state income tax of $243,000. The gains from the voluntary disclosure and real estate sales will reduce the net operating losses available to the Company. The utilization of these tax attributes will reduce the Company’s deferred tax asset. The change in the deferred tax asset results in a tax expense of $752,000. 

 

In the three and nine months ended January 31, 2015, the Company had significant net operating loss carryforwards so it was not expected to pay Federal income taxes in the near term.  However, as a result of a forgiveness of debt by the mortgage holder of the Main Street NA Parkade LLC, the Company recorded a gain through debt forgiveness of $5,315,423.  As a result, the Company recorded tax expense of $250,000, which included an Alternative Minimum Tax of $100,000 and state income tax of $150,000. 

4.   Litigation:

 

There has been no change in litigation since April 30, 2015.

 

5.   Refinancings:

 

West Springfield, MA – Refinance: On August 15, 2014, the Company refinanced the mortgage on their shopping center in West Springfield, MA in the amount of $10,500,000.  A prior mortgage with a remaining balance of $7,794,014 with an interest rate of 5.52% was paid from the proceeds.  The new mortgage has an interest rate of 4.60% with a 30 year amortization and duration of 10 years, calls for interest only payments for the first two years.  Transaction costs of approximately $110,000 are being amortized over the life of the loan.

 

Rockland, MA – Refinance: On December 18, 2014, the Company refinanced two mortgages on Rockland in the amount of $1,289,449.  The two prior mortgages with a combined remaining balance of $1,029,833 and interest rates of 7.937% and 11.0% were paid from the proceeds.  The two new mortgages both have an interest rate of 3.0% and have maturity dates of December 1, 2016 and March 1, 2018.  Transaction costs of $108,111 are being amortized over the life of the loans.

Somerville, MA – Refinance: On February 23, 2015, the Company refinanced a mortgage on Clarendon in the amount of $17,564,600.  A prior mortgage with a remaining balance of $13,045,612 with an interest rate of 5.59% was paid from the proceeds.  The new mortgage has an interest rate of 3.75%, calls for monthly payments of $85,088, and has a maturity date of November 1, 2042.  Transaction costs of $312,413 are being amortized over the life of the loan.

 

 

12


 

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

 

Cranston, RI – Refinance: On May 28, 2015, the Company refinanced the mortgage on their shopping center in Cranston, RI in the amount of $33,500,000.  A prior mortgage with a remaining balance of $30,235,368 with an interest rate of 5.603% was paid from the proceeds.  The new mortgage has a variable interest rate of 30 day LIBOR plus 1.90% (2.33% at January 31, 2016) and calls for 119 monthly principal payments of $57,279 (along with interest) and one final lump-sum payment of $26,683,779 in May 2025.  Simultaneously, the Company entered into a floating-to-fixed interest rate swap agreement with the bank fixing the interest rate at 4.15%.  Transaction costs of $275,679 are being amortized over 10 years.

CP Associates – Refinance: On June 9, 2015, the Company refinanced a mortgage on their Career Education building in Cranston, RI in the amount of $5,500,000.  A prior mortgage with a remaining balance of $9,442,011 with an interest rate of 1.25% plus 30 day LIBOR (fixed at an effective interest rate of 6.11% through a floating-to-fixed interest rate swap agreement that was also retired) was paid from the proceeds and cash on-hand.  The new mortgage has a fixed interest rate of 3.00% through November 8, 2018, after which it adjusts to be a variable rate equal to 2.50% plus 30 day LIBOR.  Principal payments of $250,000 are due quarterly, with interest payable monthly.  The final payment is due on June 9, 2020, if not sooner paid (there is no prepayment penalty).  Transaction costs of $78,361 are being amortized over 5 years.

 

6.   Gain on Forgiveness of Debt:

During the nine months ended January 31, 2015, a 100% owned subsidiary of the Company, Main Street NA Parkade, LLC signed an agreement that the Mortgage loan secured by the property of Main Street NA Parkade located in North Adams, would be reduced from $12,575,423 to $7,260,000.  As of the date hereof, the Note reflects an outstanding principal balance of $7,260,000 due to a reduction of principal indebtedness through debt forgiveness by Lender, which resulted in a gain in the amount of $5,315,423 during the year ended April 30, 2015. During the year ended April 30, 2014, the Company recorded an impairment loss of $4,027,053 on this property.  This impairment reflected the continuing overall economic decline in the geographical area and retail industry that thwarted the Company’s efforts to replace terminating tenants and generate sufficient cash flows to recover the carrying amount of the shopping center.

TERMS:

Commencing October 1, 2014 through and including January 1, 2020.  Interest shall be 200 basis points in excess of the thirty day LIBOR rate.

Amortization commencing February 1, 2020 through October 1, 2030 (“Maturity Date”) on the basis of a 25 year schedule of amortization with a balloon payment due on October 1, 2030.  Interest during this period shall be 5.5% per annum. 

Call Option – Lender may elect to accelerate this Note and require the Company to prepay without premium the entire unpaid principal balance at any time after March 1, 2017.

The Note is non-recourse.

Amended and Restated Escrow and Security Agreement

Beginning October 1, 2014 and including September 30, 2015 all net cash flow of the property shall be deposited in the Escrow account.

Additional Interest Agreement (AIA) was amended as follows:

 

13


 

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

Commencing on October 1, 2015 and continuing through September 30, 2019 the Company will remit 50% of the cash flow of the property to Lender.  Lender will apply all such payments received to the outstanding amount due on the date of the next installment due under the loan.

7.   Purchase of Land:

New Orleans, LA – Land Purchase: On May 29, 2015, the Company purchased a parcel of land in New Orleans, LA, for $7,999,901 including closing costs.  The Company plans to subdivide this lot and oversee construction of a shopping plaza with the goal of either leasing or selling these parcels shortly after construction is completed.  This purchase was financed with advances from new promissory notes of $4,383,502 and working capital of $3,616,399.  Key terms of the construction loans, which in total amount to $13,210,000, are as follows:

 

Note #1

Note #2

Note Amount:

$7,436,645

$5,773,355

 

Initial Term Maturity Date:

April 28, 2016

May 28, 2017

 

Interest Rate:

Lesser of a) thirty day LIBOR plus applicable margin (3.50% prior to subdivision of land, 2.50% after) or b) highest lawful rate, as defined.

Lesser of a) thirty day LIBOR plus applicable margin (3.50% prior to subdivision of land, 2.75% after) or b) highest lawful rate, as defined.

 

Renewal Option:

Initial Term Maturity Date shall be renewed and extended at borrower’s option to November 28, 2016 if agreed-upon conditions are met.

Initial Term Maturity Date shall be renewed and extended at borrower’s option to May 28, 2018 and again until May 28, 2019 if agreed-upon conditions are met.

 

Austin, TX – Land Purchase: On July 30, 2015, the Company purchased a parcel of land in Austin, TX for $1,874,309 including closing costs.  The Company plans to oversee construction of a retail store with the goal of selling the property shortly after construction is completed.  This purchase was financed with a loan of $1,312,500 and working capital of $561,809.  Key terms of the mortgage loan are as follows:

 

Maturity Date:

Balloon payment due January 2017

Interest Rate:

1.00% above the Prime Rate, as defined

Interest Payments:

Monthly

Prepayment Penalty:

None

Guarantee:

Guaranteed by Chairman of the Company

 

Vernon, NJ – Land Purchase: On September 8, 2015, the Company purchased a parcel of land in Vernon, NJ, for $4,175,985 including closing costs.  The Company plans to oversee construction of a retail store with the goal of selling the property shortly after construction is completed.  This purchase was financed with an advance from a new construction loan of $2,959,018 and working capital of $1,216,967.  Key terms of the construction loan are as follows:

Maximum Loan Amount:    

$6,281,250

Maturity Date:

September 1, 2026

Interest Rate:

2.50% above the LIBOR rate, as defined, but in no event less than 2.90% through September 1, 2016.  Thereafter, 1.85% above the LIBOR rate, as defined.

 

14


 

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

 

7.   Purchase of Land (continued):

        Payments:

Interest only payable monthly through September 1, 2016.  Thereafter, interest plus principal in the amount necessary to amortize the then outstanding principal balance in full over a 30 year period payable monthly.  If not sooner paid, all remaining interest and principal payable on September 1, 2026.

  Prepayment Fee:             

0.50% prior to September 1, 2018.

 

Conroe, TX – Land Purchase: On December 23, 2015, the Company purchased a parcel of land in Conroe, TX, for $3,125,470 including closing costs.  The Company plans to oversee construction of a retail store with the goal of selling the property shortly after construction is completed.  This purchase was financed with an advance from a new construction loan of $2,253,880, advances from a line of credit (see below) of $694,081, and working capital of $177,509.  Key terms of the construction loan are as follows:

 

Maximum Loan Amount:    

$5,650,000

Maturity Date:

December 24, 2019

Interest Rate:

One Month ICE LIBOR rate, as defined, plus a margin of 2.50% per annum.

Payments:

Interest only payable monthly through February 5, 2017.  Thereafter, interest plus principal based on a 25-year amortization at an assumed interest rate payable monthly. 

 

8.   Gain on Voluntary Foreclosure:

Putnam, CT – Transfer to Lender: On November 1, 2014, a payment was due for the mortgage of the shopping center in Putnam, Connecticut in the amount of approximately $4,700,000.  The rentable space of the shopping center is 57,529 square feet, 46% of which was leased to one store.  That store informed the Company that they were not renewing their lease, which expired on January 31, 2015, and, as a result, the Company found it impossible to refinance the mortgage without finding a replacement tenant.  Therefore, on June 5, 2015, the Company agreed to transfer title of the property to the lender.  The Company recognized a gain of $2,649,850 since the mortgage was non-recourse and was in excess of the book value.  Pre-tax income for this shopping center was $44,645 for the three and nine months ended January 31, 2016 and $5,811 and $93,500 for the three and nine months ended January 31, 2015, respectively.

 

9.    Line of Credit:

On December 7, 2015, the Company entered into a $2,000,000 revolving demand loan agreement (“line of credit”) with a regional bank.  There were no borrowings made at inception.  The interest rate on this loan is Wall Street Journal Prime, with a floor of 3.25%.  The loan is unsecured and there are no guarantors.  Interest is to be paid monthly; principal is to be repaid within twelve months or on demand, at the bank’s discretion.  There are no prepayment penalties.  This line of credit will primarily be used from time to time to fund initial investments related to development opportunities.  As of January 31, 2016, the Company had borrowings of $1,682,928 against this credit line.

 

 15


 

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

 

10.  Subsequent Events:

On February 3, 2016, the Company sold a property in Vernon, NJ for $9,750,000 that had a cost basis of approximately $8,856,621.  A construction loan with a balance of $5,745,741 was paid off with the proceeds.

On March 23, 2016, the Company purchased a parcel of land adjacent to another Company property in Austin, TX for $3,200,000.  Simultaneously, loan proceeds of $4,512,500 were obtained on both properties to finance the new acquisition and pay off an existing loan of $1,312,500 on the adjacent property.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 16

 

 

 


 

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, 2015 under the subheading “Critical Accounting Policies and Estimates”. 

Results of Operations:

Rental Income

Rental income for the three and nine months ended January 31, 2016 and 2015, by type of tenant, follows:

 

 

Three Months Ended

 

Nine Months Ended

 

January 31,

 

January 31,

 

2016

2015

 

2016

2015

Residential

$3,128,168

$2,815,395

 

$9,130,176

$8,393,912

Commercial

4,568,156

4,440,929

 

13,556,801

13,823,211

 

$7,696,324

$7,256,324

 

$22,686,977

$22,217,123

 

The increase in residential rental income for the three and nine months ended January 31, 2016 compared with the prior year was primarily caused by an increase in the subsidy received for the Rockland, MA property, partially offset by increases in concessions and vacancies.

There were no individually significant variances in commercial rental income in the three and nine months ended January 31, 2016 compared with the prior year.  Normal rent rate increases were offset by the impact of the voluntary foreclosure of the Putnam, CT property on June 5, 2015 (see Note 8 of the Financial Statements included within for discussion).

 

 17


 

 

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

Service Income

Service income for the three and nine months ended January 31, 2016 and 2015 follows:

 

Three Months Ended

Nine Months Ended

 

January 31,

January 31,

 

2016

2015

 

2016

2015

Management & other fees

$155,263

$122,847

 

$383,156

$357,123

Preferred developer fees

968,500

1,634,750

 

4,310,500

5,152,999

 

$1,123,763

$1,757,597

 

$4,693,656

$5,510,122

 

The decrease in preferred developer fees for the three and nine months ended January 31, 2016 compared to the prior year reflected lower fees received from both CVS and Cumberland Farms.  The decrease for CVS was the result of a recent acquisition that has resulted in them slowing their pipeline for new stores.  This slowdown will continue until CVS determines the impact of this acquisition on new market expansion.  The decrease for Cumberland Farms, primarily in the third quarter, was the result of their desire to halt construction of new stores until the winter weather passes (i.e., late March through June of 2016).   

Sales (and Cost of Sales) of Real Estate

On May 28, 2015, the Company sold a parcel of land in Pearland, TX for $1,104,161 (cost of $747,610). 

On August 6, 2015, the Company sold a property in Austin, TX for $10,246,021 (cost of $7,761,449).  A construction loan with a balance of $6,106,437 was paid off with the proceeds.

There were costs related to property sales that occurred in the second half of the fiscal year ended April 30, 2015 totaling $199,077 that were recorded in the nine months ended January 31, 2016 as they were not anticipated as of the prior fiscal year end.

In the three and nine months ended January 31, 2015, the Company sold a parcel of land in Huntsville, TX for $6,695,000  (cost of $4,378,062) and another parcel of land in Conroe, TX for $3,875,000 (cost of $2,506,900).

Other Income

The increase in other income for the three and nine months ended January 31, 2016 compared to the prior year was primarily at the liquor store, which obtained a liquor license in December 2014.  Prior to obtaining the liquor license, the store only sold beer and wine. 

 

 

18


 

 

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 and nine months ended January 31, 2016 and 2015, by type of tenant, follows:

 

Three Months Ended

Nine Months Ended

 

January 31,

January 31,

 

2016

2015

 

2016

2015

Residential

$2,624,714

$1,781,353

 

$7,961,559

$7,494,557

Commercial

2,758,731

2,561,970

 

7,897,136

7,548,746

 

$5,383,445

$4,343,323

 

$15,858,695

$15,043,303

 

The increase in residential rental expenses for the three and nine months ended January 31, 2016 from the prior year reflected the capitalization of previously expensed asbestos remediation costs at the Clarendon property in the prior year third quarter as these costs, which are ongoing, were determined to improve the condition and safety of the property and mitigate and prevent environmental contamination that has yet to occur and that otherwise may result from future operations or activities.  Also contributing to the increase were higher voucher incentive payments made to Rockland’s tenants in an effort to maximize subsidy income.  Partially offsetting these increases were non-recurring sprinkler and fire damage-related expenses at Clarendon in the prior year. 

The increase in commercial rental expenses for the three and nine months ended January 31, 2016 from the prior year    were mainly due to increased costs related to the expansion of our shopping center in Edinburg, TX, partially offset by the impact of the voluntary foreclosure of the Putnam, CT property on June 5, 2015. 

Service Expenses

The increase in service expenses for the nine months ended January 31, 2016 from the prior year reflected higher preferred developer expenses and fees reflecting the ramp-up to full staffing that occurred in the second half of fiscal year 2015 and into fiscal year 2016, as well as salary increases.  The slight decrease in service expenses for the three months ended January 31, 2016 reflected the year-over-year leveling off of the preferred developer expenses.   

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

The increase in SG&A expenses for the three and nine months ended January 31, 2016 compared to the prior year was caused by higher expenses at the liquor store in North Adams, MA, which did not obtain a liquor license until December 2014, partially offset by several employees now focused on the Preferred Developer program and thus no longer performing SG&A duties.  On a full year basis, the increase was partially offset by several employees who were performing SG&A duties in the first six months of the prior year but have since been focused on the Preferred Developer program.

 

 19


 

 

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

Non-Operating Income (Expense):

Interest Expense

Interest expense for the three and nine months ended January 31, 2016 and 2015, by type of tenant, follows:

 

Three Months Ended

Nine Months Ended

 

January 31,

January 31,

 

2016

2015

 

2016

2015

Commercial

$1,589,866

$1,842,346

 

$5,020,149

$5,565,713

Residential

611,703

746,780

 

1,833,175

2,092,073

 

$2,201,569

$2,589,126

 

$6,853,324

$7,657,786

 

The decrease in commercial interest expense for the three and nine months ended January 31, 2016 compared to the prior year was primarily the result of the voluntary foreclosure of the Putnam, CT property on June 5, 2015 (see Note 8) and savings from the refinancings at Cranston and CP Associates (see Note 5 of the Financial Statements included within for discussion).

The decrease in residential interest expense for the three and nine months ended January 31, 2016 compared to the prior year was the result of the refinancings at Rockland and Clarendon that occurred in December 2014 and February 2015, respectively.

Gain on Voluntary Foreclosure

See Note 8 of the Financial Statements included within for discussion.

Other Income

Other income for the three and nine months ended January 31, 2016 and 2015 follows:

 

Three Months Ended

Nine Months Ended

 

January 31,

January 31,

 

2016

 

2015

 

2016

2015

Edinburg EDC contributions

$-0-

 

$86,200

 

$-0-

$286,200

Clarendon residual funds

-0-

 

-0-

 

189,912

-0-

Investment income

216,746

 

(44,505)

 

408,050

110,837

 

$216,746

 

$41,695

 

$597,962

$397,037

 

The Company does not expect any more Edinburg EDC contributions after April 30, 2015.  See Note 4 to the Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended April 30, 2015 for further discussion.

During the three and nine months ended January 31, 2016, the Company received $189,912 of residual funds that remained in a reserve account after payoff of the underlying bondholders securitized by the mortgage that was refinanced at Clarendon in February 2015.

 20


 

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

Gain on Forgiveness of Debt

During the nine months ended January 31, 2015, a 100% owned subsidiary of the Company, Main Street NA Parkade, LLC signed an agreement that the Mortgage loan secured by the property of Main Street NA Parkade located in North Adams, would be reduced from $12,575,423 to $7,260,000.  As of the date hereof, the Note reflects an outstanding principal balance of $7,260,000 due to a reduction of principal indebtedness through debt forgiveness by Lender, which resulted in a gain in the amount of $5,315,423 during the year ended April 30, 2015. During the year ended April 30, 2014, the Company recorded an impairment loss of $4,027,053 on this property.  This impairment reflected the continuing overall economic decline in the geographical area and retail industry that thwarted the Company’s efforts to replace terminating tenants and generate sufficient cash flows to recover the carrying amount of the shopping center.

TERMS:

Commencing October 1, 2014 through and including January 1, 2020.  Interest shall be 200 basis points in excess of the thirty day LIBOR rate.

Amortization commencing February 1, 2020 through October 1, 2030 (“Maturity Date”) on the basis of a 25 year schedule of amortization with a balloon payment due on October 1, 2030.  Interest during this period shall be 5.5% per annum. 

Call Option – Lender may elect to accelerate this Note and require the Company to prepay without premium the entire unpaid principal balance at any time after March 1, 2017.

The Note is non-recourse.

Amended and Restated Escrow and Security Agreement

Beginning October 1, 2014 and including September 30, 2015 all net cash flow of the property shall be deposited in the Escrow account.

Additional Interest Agreement (AIA) was amended as follows:

Commencing on October 1, 2015 and continuing through September 30, 2019 the Company will remit 50% of the cash flow of the property to Lender.  Lender will apply all such payments received to the outstanding amount due on the date of the next installment due under the loan.

Gain (Loss) on Derivatives

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.

Loss on Impairment

During the three and nine months ended January 31, 2016, the Company recorded an impairment loss of $330,700 on a non-core property it owns in Wethersfield, CT.  The amount of the impairment loss represented the excess of the cost over the estimated net sales proceeds from the property.

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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 and nine months ended January 31, 2016 and 2015 follows: 

 

Three Months Ended

Nine Months Ended

 

January 31,

January 31,

 

2016

2015

 

2016

2015

Income from Operations

$105,538

$83,172

 

$282,666

$239,583

Defeasance and Refinancing

-0-

-0-

 

-0-

(399,656)

Distributions

90,000

90,000

 

270,000

750,000

 

$195,538

$173,172

 

$552,666

$589,927

 

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 the years prior to May 1, 2009, the Company was committed to providing 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. To 2009, losses and distributions from Dover exceeded the Company’s investment.  Since then, distributions from Dover have been credited to income.  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.

During the nine months ended January 31, 2015, the equity in earnings of Dover were charged $399,656, which represented 50% of the direct costs of defeasance on the refinancing of the prior mortgage plus some additional defeasance cost.  As a result of the refinancing, the Company received a distribution of $600,000.

Income Tax Expense (Benefit)

In the three and nine months ended January 31, 2016, the Company had net operating loss carryforwards to offset operating taxable income generated during the period. On its recently filed tax returns, the Company reduced the tax basis of the Main Street NA Parkade property for the forgiveness of debt by the mortgage holder. As a result, this allowed the Company to preserve its net operating loss carryforwards into the current year. In addition to the benefits of preserving the net operating losses, the Company generated an Alternative Minimum Tax Credit for the taxes it paid. These items are being recognized as a tax benefit during the current quarter by the Company.

 

However, as a result of the first quarter gain on the voluntary foreclosure of the Putnam, CT shopping center along with gains from sales of real estate, the Company will record current tax expense of $315,000, which included an Alternative Minimum Tax of $72,000 and state income tax of $243,000. The gains from the voluntary disclosure and real estate sales will reduce the net operating losses available to the Company. The utilization of these tax attributes will reduce the Company’s deferred tax asset. The change in the deferred tax asset results in a tax expense of $752,000.

 

In the three and nine months ended January 31, 2015, the Company had significant net operating loss carryforwards so it was not expected to pay Federal income taxes in the near term.  However, as a result of a forgiveness of debt by the mortgage holder of the Main Street NA Parkade LLC, the Company recorded a gain through debt forgiveness of $5,315,423.  As a result, the Company recorded tax expense of $250,000, which included an Alternative Minimum Tax of $100,000 and state income tax of $150,000. 

 

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

Capital Resource and Liquidity

At January 31, 2016, the Company had $5,464,686 of unrestricted cash and cash equivalents. This includes $3,668,389 belonging to partnership 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, amounted to $2,159,814 and tenant security deposits held by VIEs of $399,623, are included in restricted cash and cash equivalents.

At January 31, 2016, the Company had $1,366,924 of investments in marketable securities, all of which belongs to partner entities.

The Company believes it has sufficient cash and cash resources to fund operations and debt maturities in the next fiscal year without any new bank borrowings through January 31, 2017. Borrowings for new construction loans or property purchases are unclear at this time.  On December 7, 2015, the Company entered into a $2,000,000 revolving demand loan agreement (“line of credit”) with a regional bank.  There were no borrowings made at inception.  The interest rate on this loan is Wall Street Journal Prime, with a floor of 3.25%.  The loan is unsecured and there are no guarantors.  Interest is to be paid monthly; principal is to be repaid within twelve months or on demand, at the bank’s discretion.  There are no prepayment penalties.  This line of credit will primarily be used from time to time to fund initial investments related to development opportunities.  As of January 31, 2016, the Company had borrowings of $1,682,928 against this credit line.

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-15b 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 January 31, 2016, 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 has been no change in litigation since April 30, 2015.

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

                        (c). Private Repurchase Stock Plan

On March 29, 2016, the Company’s Board of Directors approved a 10b5-1 Private Repurchase Stock Plan for the repurchase of up to 150,000 shares of the Company's common stock in minimum blocks of 15,000 shares and maximum blocks of 70,000 shares.  All eligible shareholders shall at all times during the transaction hold less than 5% of the issued and outstanding common stock of the Company.  Repurchases may be made at management’s discretion from time-to-time only through privately negotiated transactions pursuant to the terms of the 10b5-1 plan to meet the requirements of Rule 10b5-1 under the Securities Exchange Act of 1934.

The privately negotiated purchase price may not to exceed five ($5.00) dollars per share.  The purchases and negotiations may start 15 days after filing of this quarterly report; the program will be suspended for 15 days before the due date of each next quarterly or annual report filing and will resume 15 days after the next successive filing.  The repurchase program may extend up to maximum of 12 months and may be suspended for periods or discontinued at any time.    Any shares acquired under this program will be retired.

The number of shares of common stock of the Company outstanding at a recent date are reflected on the cover sheet of this quarterly report on Form 10-Q.

 

Item 3.             DEFAULTS UPON SENIOR SECURITIES

                        None

 Item 4.            MINE SAFETY DISCLOSURES

                        Not applicable

 

 

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Item 5.             OTHER INFORMATION

None

                        SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

                        The Company’s annual meeting of shareholders was held on January 20, 2016 in Hartford, Connecticut.

                        The following nominees were elected as directors by vote indicated:

 

For Against

                         Neil Ellis

1,912,907 9,808

                         David Harding

1,913,005 9,710

                         Jeff Carlson

1,913,005 9,710

                         John Toic

1,913,005 9,710

                         William Connolly

1,913,005  9,710

 

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.

 

 

 

 25


 

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)
     

April 5, 2016

 
/s/ Neil H. Ellis

Date

  Neil H. Ellis,
    Chairman of the Board
    and Chief Executive Officer
     

April 5, 2016

 
/s/ Eric J. Harrington

Date

  Eric J. Harrington, Treasurer
    and Chief Financial Officer
     

                                                                                                                             

 

 

 

 

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