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 10K Annual Report

Part I
Item 1. Business
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 2. Properties
Item 3. Legal Proceedings
Item 4. Mine Safety Disclosures
Part II
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Item 6. Selected Financial Data
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 8. Financial Statements and Supplementary Data
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A. Controls and Procedures
Item 9B. Other Information
Part III
Item 10. Directors, Executive Officers and Corporate Governance
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Item 13. Certain Relationships and Related Transactions and Director Independence
Item 14. Principal Accounting Fees and Services
Part IV
Item 15. Exhibits, Financial Statement Schedules
EX-31 exhibit31-1.htm
EX-31 exhibit31-2.htm
EX-32 exhibit32-1.htm

First Hartford Earnings 2017-04-30

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

10-K 1 fh10k.htm Prepared by EDGARX.com

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

FORM 10-K

x        ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
            ACT OF 1934.

For the fiscal year ended April 30, 2017

¨         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

 

(I.R.S. Employer Identification Number)

Incorporation or Organization)

 

 

 

 

 

149 Colonial Road, Manchester, Connecticut

06042

860-646-6555

(Address of Principal Executive Offices)

(Zip Code)

(Registrant's telephone number)

 

Securities registered pursuant to Section 12(b) of the Act:       None

Securities registered pursuant to Section 12(g) of the Act:       Common Stock, par value of $1 per share

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

                                                                                                                        ¨  Yes              x  No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

                                                                                                                        ¨  Yes              x  No

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

                                                                                                                        x  Yes             ¨  No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, 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              x  No 

Annual Report on Form 10-K

Page 1

First Hartford Corporation


 

 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of the Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.   ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an “emerging growth company”.  See definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.  (Check one):

            Large accelerated filer             ¨                                             Accelerated filer                        ¨ 

            Non-accelerated filer               ¨                                            Smaller reporting company        x 

            (Do not check if a smaller reporting company)

            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 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).  ¨  Yes   x  No

As of October 31, 2016, the aggregate market value of the registrant’s common stock (based upon $2.25 closing price on that date on the OTC Securities Market) held by non-affiliates (excludes shares reported as beneficially owned by directors and officers – and does not constitute an admission as to affiliate status) was $2,300,038.

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date:  2,315,799 as of June 30, 2017.

Documents Incorporated by Reference:        None.

Cautionary Statement Concerning Forward Looking Statements

This Annual Report on Form 10-K contains forward looking statements that are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995.  Forward-looking statements involve risks, uncertainties and assumptions as described from time to time in registration statements, annual reports, and other periodic reports and filings of First Hartford Corporation and Subsidiaries (the Company) filed with the Securities and Exchange Commission.  All statements, other than statements of historical facts, which address the Company’s expectations of sources of capital or which express the Company’s expectation for the future with respect to financial performance or operating strategies can be identified as forward-looking statements.  As a result, there can be no assurance that the Company’s future results will not be materially different from those described herein as “believe”, “anticipate”, “estimate” or “expect”, which reflect the current view of the Company with respect to future events.  We caution readers that these forward-looking statements speak only as of the date hereof.  The Company hereby expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any such statement to reflect any change in the Company’s expectations or any change in events, conditions or circumstances on which such statement is based.

 

Annual Report on Form 10-K

Page 2

First Hartford Corporation


 

 PART I

ITEM 1.          BUSINESS

First Hartford Corporation, which was incorporated in Maine in 1909, and its subsidiaries (collectively, 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”).

Business Narrative:

First business segment:

The principal activity of the Company’s first segment of business is the purchase, development, ownership, management and sale of real estate.  The real estate, owned and/or managed by the Company through various subsidiaries and joint ventures, is located in Connecticut, Delaware, Louisiana, Massachusetts, Missouri, New York, New Jersey, Rhode Island, and Texas.  Non-residential tenants are obtained through brokers and employed representatives of the Company, by means of Industry Trade Shows, direct contacts with retail stores and other potential commercial tenants, and an occasional inquiry by potential tenants at the Company’s on-site offices.  Residential tenants are obtained through advertisements and inquiry at on-site offices.

The Company has a comprehensive investment strategy when it comes to new projects or acquisitions.  Before investing, the Company conducts comprehensive due diligence that includes researching demographics, traffic, nearby vacancies, competition, and nearby market conditions.  After a potential investment has been fully vetted, a decision is made.

The Company’s real estate business is diversified by geographical locations, type of commercial property, and form of ownership or management.  The commercial real estate business is not divided further into significant separate classes of products or services.

When profitable opportunities arise, the Company will buy and sell certain properties.

The only facilities the Company owns and operates are a single movie theater and a single liquor store at one of its properties.  In all other cases, the tenants of the Company’s properties are third-parties.

Please also see Note 11 of the Financial Statements included within.

Second business segment:

The principal activity of the Company’s second segment of business is providing preferred developer services to CVS Health (CVS) and Cumberland Farms Inc. in certain geographic areas.

CVS: The Company has an agreement with CVS to be a preferred developer in Texas within the Rio Grande Valley, Houston, and Western Texas (excluding El Paso and Austin), in New York within Long Island and portions of Rockland County, in Northern New Jersey, in most of Connecticut, and in Louisiana.  This is a fee for service agreement by which the Company will locate a site, negotiate a letter of intent, prepare store development budgets, demographics, arrange traffic counts and submit for CVS Real Estate Committee approval.  Once so approved, the Company will negotiate a purchase or lease of such property and obtain permits.  The Company will invoice 75% of the total fee when the property is purchased or leased, and a building permit is issued.  Fees vary based on location and style of the store.  A CVS pre-qualified third party contractor is selected who will work through the Company.  The Company will manage the construction and administrate the contracts and payments.  When a Certificate of Occupancy is obtained, the Company will invoice 15% of the total fee.  After the store is opened and all the open construction items are completed, the Company will invoice the final 10% of the total fee. Income is recognized as required services, as outlined in the development agreement, are completed.  The entire process will normally take 1-3 years. The volume of revenue from this fee for service agreement is in excess of 10% of the Company’s annual revenue (excluding sales of real estate).  The loss of the CVS contract would have a material adverse effect on the revenues and operations of the Company.

 

Annual Report on Form 10-K

Page 3

First Hartford Corporation


 

 

 

Cumberland Farms: The Company is also a preferred developer for Cumberland Farms Inc. within Connecticut, New York, and Western Massachusetts.  Its scope of work is less than the CVS arrangement above as the Company is not involved in the construction management of the store.  This is a fee for service agreement by which the Company will locate a site, negotiate a letter of intent, prepare store development budgets, demographics, arrange traffic counts and submit for Cumberland Farms Real Estate Committee approval.  Once so approved, the Company will negotiate a purchase or lease of such property and obtain state and local approval and associated permits for construction.  The Company will invoice 100% of the total fee when the property is purchased or leased and a building permit is issued. Income is recognized as required services, as outlined in the development agreement, are completed.  The entire process will normally take 1-2 years.   The loss of the Cumberland Farms contract would have a material adverse effect on the revenues and operations of the Company.

Please also see Note 11 of the Financial Statements included within.

Miscellaneous Business Reporting:

The Company does not produce or offer any products, and as such, it has no foreign operations, no inventory (except a small amount at the liquor store), and does not export products or services. Its present business segments are not seasonal in nature.  The Company does not have any patents, licenses, franchises, concessions, or royalty agreements.  The Company is not conducting any research and development.  The Company's subsidiaries involved with residential rental properties have some contracts or subcontracts, including loans, with the United States government via Housing & Urban Development (HUD). 

The Company’s operations and property are subject to various federal, state and local laws and regulations concerning the protection of the environment, including air and water quality, hazardous or toxic substances and human health safety.  There is no significant environmental litigation involving any of the Company’s properties. 

The Company has a backlog, or pipeline, of potential development projects with CVS and Cumberland Farms.  The Company does not believe backlog is a useful measure of past performance or continuing performance because the life of each project ranges from one to three years and the number of future projects is not predictable.

The Company’s economic performance and the value of its real estate are subject to the risks incidental to the development, construction and ownership of real estate properties, as well as the economic well-being of its tenants.

Employment: On April 30, 2017, the Company employed 111 people full-time and 29 people part-time.

Competition: The Company competes with many other established companies and entities, many of which are larger and possess substantially greater financial resources and substantially larger staffs.

ITEM 1A.       RISK FACTORS

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

ITEM 1B.        UNRESOLVED STAFF COMMENTS

None.

 

Annual Report on Form 10-K

Page 4

First Hartford Corporation


 

ITEM 2.          PROPERTIES

The following table shows the location, general character, ownership status, and cost (including leasing cost) of the materially important physical properties of the Company.

Consolidated Subsidiaries – Commercial Properties

 Company

Managed

 Location of

Properties

 Use

Available Space

or Facilities and

Major Tenants

 Ownership Status

 Cost

           

X

Edinburg, TX

Shopping
Center

460,195 sq. ft.

JC Penney 22%

Academy Sports 17%

Burlington Coat Factory 17%, Effective rent per sq. ft. occupied, exclusive of JC Penney (JC Penney owns its building) is $9.70, occupied 100%

100% owned by a subsidiary of the Company, except JC Penney building. Lender to get extra interest if available (50% of cash flow) plus 50% of cash proceeds from sale or refinancing. See Note 3 of the Financial Statements included within.

$50,394,810

 

 

 

 

 

 

X

West Springfield, MA

 

 

 

 

Shopping
Center

144,350 sq. ft.

Price Rite 28%

Big Lots 21%

Harbor Freight 12%, Effective rent per sq. ft. occupied is $9.67, 92.15% occupied

100% owned by a subsidiary of the Company.

8,072,125

 

 

 

 

 

 

X

North Adams, MA

Shopping
Center

131,691 sq. ft.

Steeple City Cinema 20% (Company owned);

Steeple City Liquor 11% (Company owned);

Peebles 14%

Planet Fitness 8%

Effective rent per sq. ft. occupied – net of 41,067 sq. ft. Company owned $8.58, 82.51% occupied

100% owned by a subsidiary of the Company. 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.

7,480,974

 

 

 

 

 

 

X

Plainfield, CT

Strip
Shopping
Center

 

60,154 sq. ft.

Big Y 76%,

effective rent per sq. ft. occupied is $12.05, 100% occupied

 

100% owned by a subsidiary of the Company.

4,966,216

 

 

 

 

 

 

 

 

 

 

 

 

 

Annual Report on Form 10-K

Page 5

First Hartford Corporation


 

 

Consolidated Subsidiaries - Commercial Properties (continued):

 

Cranston, RI

Shopping
Center

259,218 sq. ft.

Kmart 40%

Stop & Shop 25%

Effective rent per sq. ft. occupied is $14.67

90.94% occupied

50% owned by a subsidiary of the Company.

27,476,742

 

 

 

 

 

 

 

Cranston, RI

College

60,000 sq. ft. Career Education College

Effective rent per sq. ft. is $26.68

Currently vacant-leased to 12/31/18

50% owned by a subsidiary of the Company.

10,124,263

 

 

 

 

 

 

 

Cranston, RI

Restaurant

Texas Roadhouse

Land Lease

100% occupied

50% owned by a subsidiary of the Company.

239,414

 

 

 

 

 

 

 

Cranston, RI

Police
Station

60,000 sq. ft. Leased to City of Cranston

Effective rent per sq. ft. occupied is $17.75

100% occupied

50% owned by a subsidiary of the Company.

10,132,902

 

 

 

 

 

 

X

Lubbock, TX

Shopping
Center

160,570 sq. ft.

Steinmart 26%

Mardel 25%

TJ Maxx 19%

Effective rent per

sq. ft. occupied is $9.86 96.37% occupied

2.0% owned by a subsidiary of the Company.

5,505,361

 

The properties listed above contain approximately 1,336,178 rentable sq. ft., of which approximately 67,952 sq. ft., or approximately 5.1%, was vacant at April 30, 2017.  Over the next 10 years, 75 of the current 83 leases will expire as follows:

 Year Ended

Number of
Leases

 Sq. Ft.

 Base Rent

Percentage of
Base Rent

4/30/18

10

50,173

$618,271

4.46%

4/30/19

15

223,537

$3,378,569

24.36%

4/30/20

9

132,783

$1,309,350

9.44%

4/30/21

9

111,567

$975,560

7.03%

4/30/22

14

140,857

$2,157,450

15.55%

4/30/23

8

108,800

$1,125,807

8.12%

4/30/24

2

18,626

$113,528

0.82%

4/30/25

2

38,754

$365,721

2.64%

4/30/26

4

33,909

$381,134

2.75%

4/30/27

2

14,200

$174,000

1.25%

 

Annual Report on Form 10-K

Page 6

First Hartford Corporation


 

 

Total rental income of these properties for the year ended April 30, 2017 was $17,955,156, of which $4,071,861 is allocated for reimbursement of real estate taxes, common area expenses, and insurance expenses.

The Company does not have any individual tenants that account for 5% or more of the Company’s revenues.

Consolidated Subsidiaries – Residential Properties

 Company

Managed

 Location of

Properties

 Use

Available Space

or Facilities and

Major Tenants

 Ownership Status

 Cost

 

 

 

 

 

 

X

Rockland, MA

Apartments

204 units, low to moderate income, 91% occupied, effective sq. ft. rent - $22.77

.01% owned by a 75% owned subsidiary of the Company.

25,624,630

 

 

 

 

 

 

X

Somerville, MA

Apartments

501 units, low to moderate income, 99% occupied, effective sq. ft. rent - $24.48

.0049% owned by a 75% owned subsidiary of the Company.

 

49,063,026

Non-Consolidated Subsidiaries

 

 

 Company

Managed

 Location of

Properties

 Use

Available Space

or Facilities and

Major Tenants

 Ownership Status

 Cost

 

 

 

 

 

 

X

Claymont, DE

Apartments

208 units, senior housing, 100% sec 8 subsidized, 98% occupied, effective sq. ft. rent - $20.93

Nonconsolidated,

.01% owned by a 75% owned subsidiary of the Company.

7,707,909

 

 

 

 

 

 

 

Dover Township, NJ

Shopping Center

108,084 sq. ft.

Stop & Shop 52%

Dollar Tree 9%

Plus Outparcels

50% owned by a subsidiary of the Company.

14,256,449

 

In addition to the materially important physical properties of the Company listed above, the Company owns several other properties that are being developed or may be developed in the future as opportunities arise. Many of these other properties involve ground lease or build-to-suit deals. In some cases, the land being developed is solely for a single entity, in other cases the land is primarily for a single entity with some excess land retained for future development, and in other cases the land is banked for future potential development. Generally, the Company sells the properties within twelve months after development is completed.

 

 

Annual Report on Form 10-K

Page 7

First Hartford Corporation


 

Location of Properties

Use

Anticipated
Completion
Date

Cost Incurred
to Date

 

 

 

 

New Orleans, LA

Single entity build-to-suit plus shopping center

FY 2018 Q1

18,031,749

 

 

 

 

Brentwood, NY

Single tenant build-to-suit

FY 2018 Q3

6,498,348

 

 

 

 

Austin, TX

Single tenant build-to-suit

FY 2018 Q4

3,749,219

 

 

 

 

Buda, TX

12.1 acres of land – can support 40,000 sq. ft. development

FY 2019

3,997,275

 

 

 

 

Conroe, TX

3.4 acres of land – can support 20,000 sq. ft. development

FY 2019

2,210,304

 

 

 

 

Del Valle, TX

15.6 acres of land – can support 52,000 sq. ft. development

FY 2019

1,452,091

 

 

 

 

All Other Properties Held

 

 

1,846,418

 

 

 

 

Total cost of developed properties and property under construction (excludes non-consolidated subsidiaries)

$236,865,867

The Company also owns properties it is currently holding for sale.  The properties include vacant land in East Providence, RI, two single-tenant properties in Austin, TX, and a single-tenant property in St. Louis, MO.  The total cost of these properties as of April 30, 2017 was $11,389,591.

ITEM 3.          LEGAL PROCEEDINGS

The Company is involved in legal proceedings which arise during the normal course of its business, including disputes over tax assessments, commercial contracts, lease agreements, construction contracts, employee disputes and personal injuries. The Company does not believe the outcome of any of these proceedings will have a material impact on its consolidated financial statements.

On September 7, 2016, the Company was notified it lost the first of two companion lawsuits against a former tenant for wrongful termination of its separate leases at two of the Company’s commercial shopping centers.  After evaluating its options, the Company settled both lawsuits with the plaintiff by agreeing to pay $200,000 to cover all claims, including reimbursement of defendant’s claimed legal fees and costs.  The parties mutually released each other from any other liability relating to this case.

Other proceedings

The Company is not aware of any material legal proceedings which would need to be cited herein.

There are no proceedings involving officers and directors; see Item 10(f) on Page 20.

ITEM 4.          MINE SAFETY DISCLOSURES

Not Applicable.

 

Annual Report on Form 10-K

Page 8

First Hartford Corporation


 

 PART II

ITEM 5.          MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

The Company trades on the OTC Securities Market under the symbol FHRT.  Investors can find current financial disclosures and quotes for the Company on Yahoo Finance and other financial sites.

STOCK PRICE AND DIVIDEND INFORMATION

 

Stock Price

 

2017

High

Low

Dividends Paid Per
Common Share

First Quarter

$2.68

$2.35

None

Second Quarter

$2.50

$2.01

None

Third Quarter

$3.25

$2.25

None

Fourth Quarter

$2.90

$2.25

None

 

 

 

 

2016

 

First Quarter

$3.05

$2.00

None

Second Quarter

$3.25

$2.75

None

Third Quarter

$3.00

$2.25

None

Fourth Quarter

$3.00

$2.30

None

         

No dividends have been paid in the past two fiscal years and the Company has no plans or intentions to institute payment of dividends in the foreseeable future.

Publicly traded sales of common stock on the open-market occur sporadically.  A recent reported public sale was for $3.00 per share on May 24, 2017 for a total of 1,400 shares.

The Company did not sell any unregistered shares of securities during the year ended April 30, 2017.

Shareholders of Record, and Potential Termination of SEC Reporting: There were approximately 318 shareholders of record for the Company’s common stock as of April 30, 2017.  A trend the Company has noticed is the number of shareholders of record has been consistently attenuating each quarter.  The Company anticipates the number of shareholders of record will fall below 300 in the very near term.  Upon that occurring, the Company will have the opportunity to suspend and terminate its SEC reporting obligations, colloquially known as “going dark”.  Management has expressed interest in “going dark” since doing so would create savings in the Company’s accounting, legal, and professional expenses since the SEC compliance obligations would cease.  The Company anticipates, provided one or more market makers continue to participate in the Company’s trading market and other conditions are met, that the Company’s common stock shares would continue to be eligible to trade on the OTC Securities Markets.  However, it is anticipated that the Company’s shares would have less visibility and the current limited liquidity may be further constrained in the market.  Once the Company is eligible to “go dark”, the matter will be brought before its Board of Directors and shareholders for a vote; assuming an affirmative vote, the Company intends it would then voluntarily file a current report on a Form 8-K approximately two weeks in advance of suspending and terminating its Exchange Act reporting obligations in order to provide specific advance notice and additional explanation.

 

 

 

Annual Report on Form 10-K

Page 9

First Hartford Corporation


 

 

10b5-1 Private Repurchase Stock Plan: On January 5, 2017, the Company’s Board of Directors amended and approved the Amended and Restated 10b5-1 Private Repurchase Stock Plan (the “Repurchase Plan”), which was initially adopted on March 29, 2016.  The Company found less demand under the Repurchase Plan than expected and desired to broaden the eligibility requirements to increase participation in the Repurchase Plan.  The Company desired to amend the Repurchase Plan in order to permit shareholders holding five (5%) percent or more of the issued and outstanding common stock of the Company the ability to participate in the Repurchase Plan.  The Repurchase Plan provided 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 25,000 shares.  Eligible shareholders were those holding blocks of common stock of the Company in excess of fifteen thousand (15,000) shares and less than three hundred fifty thousand (350,000) shares.  Repurchases could 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 could not exceed 1.5 times the highest independent bid or the last independent transaction price and in no event be higher than five ($5.00) dollars per share.  The purchases and negotiations could resume 15 days after filing of the 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 filing.  The repurchase program expired on March 28, 2017.  Any shares acquired under this program were retired.

Please see the below table for information with respect to repurchases by the Company:

Issuer Repurchases of its Equity Securities

Month of Transactions

Total number of
shares purchased

Average price
paid per share

Total number of
shares purchased as
part of publicly
announced plans or
programs

Number of potential
shares that went
unpurchased under
the plans or
programs

 

 

 

 

150,000

May 1, 2016 – April 30, 2017a

2,025

$2.45

0

0

May 11, 2016 b

25,000

$3.00

25,000

(25,000)

February 1, 2017 b

25,000

$2.50

25,000

(25,000)

March 1, 2017 b

5,100

$2.50

5,100

(5,100)

March 7, 2017 b

6,666

$2.50

6,666

(6,666)

May 25, 2017 b,c

25,000

$3.00

25,000

(25,000)

TOTAL

88,791

$2.78

86,766

63,234

a:         The transactions comprised of the acquisition of the 2,025 shares were not conducted pursuant to a publicly announced program, and therefore are discontinued.

b:         The transactions comprised of the acquisition of these shares were made pursuant to the publicly announced 10b5-1 Private Repurchase Stock Plan.

c:         The offer to sell these shares was initiated by the shareholder on February 21, 2017.

ITEM 6.          SELECTED FINANCIAL DATA

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

 

Annual Report on Form 10-K

Page 10

First Hartford Corporation


 

 

ITEM 7.          MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

The discussion and analysis below provides information that the Company believes is relevant to an assessment and understanding of its consolidated financial position, results of operations and cash flows.  This discussion and analysis should be read in conjunction with the consolidated financial statements and related notes included elsewhere herein.

This and certain other sections of the Company’s Annual Report on Form 10-K 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.  Readers should consider that various factors, including changes in general economic conditions, interest rates and the availability of funds, and competition and relationships with key customers and their financial condition, may affect the Company’s performance.  The Company undertakes no obligation to update publicly any forward-looking statements as a result of new information, future events, or otherwise.

RESULTS OF OPERATIONS

Rental Income

Rental income for the years ended April 30, by type of tenant, follows:

 

2017

2016

Residential

$12,171,608

$12,117,191

Commercial

   19,813,217

   18,299,709

 

$31,984,825

$30,416,900

 

 

 

Residential rental income was up slightly compared to the prior year.  The increase reflected more Section 8-eligible tenants with fewer plan of action concessions at the Somerville, MA (i.e., Clarendon) property, partially offset by lower revenue at the Rockland, MA property due to vacancies  from converted  apartments needed for the ongoing renovation project.

The increase in commercial rental income was caused by rents received on the Company’s development properties (e.g., New Orleans, LA; Olathe, KS; Conroe, TX; etc.) and additional rents from new tenants at the West Springfield, MA and Edinburg, TX properties, partially offset by the impact of the voluntary foreclosure of the Putnam, CT property on June 5, 2015.

Service Income

Service income for the years ended April 30 is made up of the following:

 

2017

2016

Preferred Developer Fees

$4,839,500

$6,298,250

Management and Other Fees

      614,419

      492,845

 

$5,453,919

$6,791,095

 Preferred developer fees are from CVS and Cumberland Farms.  The decrease in preferred developer fees reflected lower fees received from both CVS and Cumberland Farms.  The decrease in CVS fees was the result of a recent acquisition by CVS that has impacted in the slowing of their pipeline for new stores.  The smaller decrease in Cumberland Farms was the result of timing of closings based on the construction schedule.

Management fees are mainly from the Claymont, DE project. 

 

Annual Report on Form 10-K

Page 11

First Hartford Corporation


 

 

 

Sales (and Cost of Sales) of Real Estate

When profitable opportunities arise, the Company will buy and sell certain properties.  The Company had several purchases and sales of real estate in fiscal years 2017 and 2016.  While the Company expects to continue to discover more opportunities going forward, there are no guarantees that they will be discovered or, if discovered, be of the magnitude and profitability of recent real estate sales.

FY 2017

On June 29, 2016, the Company sold a property in Stanhope, NJ for $10,000,051 (cost of $8,294,103).  A construction loan with a balance of $6,329,667 was paid off with the proceeds.

On June 30, 2016, the Company sold a portion of its property in Edinburg, TX (i.e., Texas Roadhouse) for $2,210,000 (cost of $1,355,597).  A mortgage loan with a balance of $1,279,136 was paid off with the proceeds.

On August 16, 2016, the Company sold a condominium in Wethersfield, CT for $285,000 (cost of $277,191).  The net proceeds were used to reduce a mortgage loan on this property.  The Company currently owns three other condominiums at this site.

On September 20, 2016, the Company sold a parcel of land in Austin, TX for $6,100,000 (cost of $4,185,023) that was previously ground leased.  The Company continued to own land attached to the sold parcel and oversaw construction of a single-tenant retail building of approximately 6,900 square feet on this property.  The remainder of this property was sold subsequent to April 30, 2017.

On December 14, 2016, the Company sold a property in Conroe, TX for $8,778,442 (cost of $6,730,715).  A mortgage loan with a balance of $5,363,913 was paid off with the proceeds.

On December 28, 2016, the Company sold a property in Olathe, KS for $7,000,000 (cost of $6,867,228).  A mortgage loan with a balance of $5,335,000 was paid off with the proceeds.

There were also costs incurred in fiscal year 2017 related to property sales that occurred in the fiscal year ended April 30, 2016 totaling $13,943 that were not anticipated as of the prior fiscal year end.

FY 2016

On May 28, 2015, the Company sold a parcel of land in Pearland, TX for $1,104,161 (cost of $766,786).

On August 6, 2015, the Company sold a property in Austin, TX for $10,246,021 (cost of $7,800,521).  A construction loan with a balance of $6,106,437 was paid off with the proceeds.

On February 3, 2016, the Company sold a property in Vernon, NJ for $9,750,000 (cost of $8,906,639). 

There were also costs incurred in fiscal year 2016 related to property sales that occurred in the fiscal year ended April 30, 2015 totaling $199,077 that were not anticipated as of the prior fiscal year end.

Other Income

The increase in other income 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.  Income from the liquor store has been steadily increasing since obtaining the license. 

 

 

Annual Report on Form 10-K

Page 12

First Hartford Corporation


 

Operating Costs and Expenses

Rental Expenses

Rental expense for the years ended April 30, by type of tenant, follows:

Residential

2017

2016

Depreciation and Amortization

$2,274,234

$2,218,905

Other Rental Expenses

      8,128,427

      8,305,098

 

$10,402,661

$10,524,003

Commercial

 

 

Depreciation and Amortization

$3,393,939

$3,300,138

Other Rental Expenses

     6,293,904

     6,904,291

 

$9,687,843

$10,204,429

 

 

 

Total

$20,090,504

$20,728,432

Residential rental expenses were lower compared to the prior year.  The most notable year-over-year items were voucher incentive payments made to tenants at the Rockland, MA property in the prior year that did not occur in the current year and decreases in building repair costs and pool closure due in part to renovation project at Rockland, MA property, partially offset by higher insurance premiums and building repair costs at the Somerville, MA (i.e., Clarendon) property.

The decrease in commercial rental expenses was mainly due to higher costs related to the initial expansion of our shopping center in Edinburg, TX in the prior year and prior year professional and legal expenses incurred as part of the initial effort to refinance the debt at the Cranston, RI shopping center, largely offset by a legal settlement of $200,000 with a former tenant (see Item 3 included within for further discussion) and accelerated amortization expense of deferred commissions arising from the sale of a portion of its property in Edinburg, TX (i.e., Texas Roadhouse).

Service Expenses

Service expenses for the years ended April 30 is made up of the following:

 

2017

2016

Preferred Developer Expenses

$5,011,262

$5,695,793

Construction and Other Costs

         87,637

        95,382

 

$5,098,899

$5,791,175

 

 

 

The decrease in preferred developer expenses and fees primarily reflects lower commissions paid commensurate with the lower service revenue offset by higher compensation expense. 

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

The increase in SG&A expenses was primarily due to writing-off costs relating to abandoned projects, higher expenses at the liquor store commensurate with the higher volume, expenses related to the Company’s development properties (e.g., New Orleans, LA; Olathe, KS, Conroe, TX, etc.), and higher legal and professional fees. 

 

Annual Report on Form 10-K

Page 13

First Hartford Corporation


 

Non-Operating Income (Expense):

Equity in Earnings (Losses) of Unconsolidated Subsidiaries

The equity in earnings (losses) of unconsolidated subsidiaries is broken down as follows:

       2017         2016

Income from Operations

$325,452

$306,851

Distributions

   360,000

   360,000

Equity in Earnings of Unconsolidated Subsidiary

$685,452

$666,851

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.

Other Income

Other income is broken down as follows:

             2017          2016

Investment Income

$137,186

$416,811

Clarendon Residual Funds

              -0-

    189,912

Total

$137,186

$606,723

 The decrease in investment income reflected realized gains on sales of securities in the prior year that did not repeat in the current year.

During the year ended April 30, 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.

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.

Gain on Voluntary Foreclosure

On November 1, 2014, a payment was due for the mortgage of the shopping center in Putnam, CT in the amount of approximately $4,700,000.  The rentable space of the shopping center was 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 $-0- and $44,645 for the years ended April 30, 2017 and 2016, respectively.

 

Annual Report on Form 10-K

Page 14

First Hartford Corporation


 

Loss on Impairment

During the year ended April 30, 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.

Loss on Defeasance

In FY 2017, the Company paid a defeasance premium of $437,776 when refinancing its mortgage loan on its shopping center in Lubbock, TX as discussed in Note 3 of the Financial Statements included within.

Interest Expense

Interest expense for the years ended April 30, by type of tenant, follows:

 

2017

2016

Residential

$2,892,724

$2,516,383

Commercial

     7,501,274

     6,852,573

 

$10,393,998

$9,368,956

The increase in commercial interest expense was the result of expense related to loans for the Company’s development properties (e.g., New Orleans, LA; Olathe, KS, etc.), partially offset by savings from the prior year refinancings at Cranston and CP Associates.

The increase in residential interest expense was the result of the refinancing at Rockland as discussed in Note 3 of the Financial Statements included within as the loans paid off as part of this refinancing did not accrue interest.

Income Tax Expense (Benefit)

See Note 7 to the Company’s financial statements for information about the effective income tax rate.

As of April 30, 2017, the Company has a net deferred tax asset in the amount of $671,147. The net deferred tax asset includes Federal net operating loss carryforwards of $1,152,929 that are available to offset future Federal taxable income. The Company has recorded $449,642 as the potential tax effect.  In addition, the Company has recorded a net deferred asset in the amount of $250,042, which represents a basis difference in real estate assets owned by the Company. It also has an Alternative Minimum Tax (AMT) credit of $311,917.  Offsetting these, the Company has recorded a net deferred liability of $381,301 for untaxed rental income.  Lastly, no valuation allowance has been recorded based on anticipated future profitability being able to fully utilize the net operating loss carryforwards and future depreciation benefits.

CAPITAL RESOURCES AND LIQUIDITY

At April 30, 2017, the Company had $6,250,757 of unrestricted cash and cash equivalents.  This includes $3,819,450 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 $129,651 and tenant security deposits held by VIEs of $396,361 are included in restricted cash and cash equivalents. 

At April 30, 2017, the Company had $1,538,839 of investments in marketable securities, all of which belongs to partner entities.

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. 

Annual Report on Form 10-K

Page 15

First Hartford Corporation


 

On July 30, 2015, the Company obtained a credit line with a regional bank.   This $2,760,000 line of credit is used from time to time primarily to fund initial investments related to development opportunities.  The interest rate on these loans is 3.00% plus One Month ICE LIBOR rate up to maturity date (i.e., twelve months from issuance of proceeds) and 12.0% thereafter.  As of April 30, 2017, the Company had borrowings of $2,650,000 against this credit line.

On December 7, 2015, the Company entered into a $2,000,000 revolving demand loan agreement (“line of credit”) with a regional bank.  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 is used from time to time primarily to fund initial investments related to development opportunities.  As of April 30, 2017, the Company had borrowings of $2,000,000 against this credit line.

On April 19, 2017, the Company entered into a $2,000,000 unsecured line of credit with a regional bank.  Terms of the line of credit are as follows:

Term:

3 years

Rate:

LIBOR + 3.25%

Fee:

0.50% (One Time)

Unused Fee:     

0.25% annually on the unused line

Guarantee:

Full guarantee by the Chairman of the Company (Individual)

Deposits:

Must maintain a minimum of $500,000 at bank

Other:

Each funding request to be at the sole discretion of the bank and only to acquire credit tenanted properties.

Clean Up:

Borrower to be out of debt once each year for at least 30 days.

 

As of April 30, 2017, the Company had borrowings of $1,750,000 against this credit line.

 

Recently Issued Accounting Guidance:

For a description of recently issued accounting pronouncements, see Note 1 to the consolidated financial statements included in Item 8 as presented in Item 15.  Summary of Significant Accounting Policies.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES:

For a discussion of accounting policies see Note 1 to the consolidated financial statements included in Item 8 as presented in Item 15, Summary of Significant Accounting Policies.

ITEM 7A.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

ITEM 8.       FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Financial statements begin at page 31.  See the index to Financial Statements in Item 15.

ITEM 9.       CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

Annual Report on Form 10-K

Page 16

First Hartford Corporation


 

ITEM 9A.       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 President 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 the President and Treasurer, of the effectiveness of the design and operation of 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 this Evaluation, our President 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.

Management’s Annual Report on Internal Control over Financial Reporting

The management of First Hartford Corporation is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a – 15(f).  The Company’s internal control over financial reporting is a process designed to provide reasonable assurance to the Company’s management and Board of Directors regarding the reliability of financial reporting and the preparation of the financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America.

The Company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal controls over financial reporting may not prevent or detect misstatements.  All internal control systems, no matter how well designed, have inherent limitations, including the possibility of human error and the circumvention of overriding controls.  Accordingly, even effective internal control over financial reporting can provide only reasonable assurance with respect to financial statement preparation.  Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Our management assessed the effectiveness of the Company’s internal control over financial reporting as of April 30, 2017.  In making this assessment, it used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework.  Based on our assessment, we believe that, as of April 30, 2017, the Company’s internal control over financial reporting was not effective due to the existence of the material weaknesses identified by management and disclosed below:

Lack of Appropriate Independent Oversight.  There are no independent members of the Board of Directors who could provide an appropriate level of oversight, including challenging management’s accounting for and reporting of transactions.

Although the Company has identified a lack of appropriate independent oversight as a material weakness, an independent board of directors is not required by The OTC Markets (the electronic quotation system that trades the Company’s securities) and the Company does not intend to remediate this material weakness at this time.

The Company has engaged a consultant to assist the Company with certain complex, non-routine and unusual accounting issues and transactions when they are encountered.

Annual Report on Form 10-K

Page 17

First Hartford Corporation


 

Changes in Internal Control over Financial Reporting

During the years ended April 30, 2017 and 2016, there have been no changes in internal control over financial reporting that materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

ITEM 9B.        OTHER  INFORMATION

None.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Annual Report on Form 10-K

Page 18

First Hartford Corporation


 

 PART III

ITEM 10.        DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

(a)        Identification of Directors:

The directors of First Hartford Corporation, their ages and the periods during which each has served as such are as follows:

Name

Age

Period of Service

Neil H. Ellis

89

1966 – Present

David B. Harding

72

1998 – Present

Jeffrey Carlson

62

2015 – Present

John Toic

45

2015 – Present

William Connolly

68

2015 – Present

There are no arrangements or understandings between any of the foregoing and any other person pursuant to which such person was or is to be selected director or officer.

The directors of the Company are each elected to one-year terms.  

(b)        Identification of Executive Officers:

The names and ages of all executive officers of First Hartford Corporation, their positions and the periods during which each has served as such are as follows:

Name

Age

Position

Period of Service

John Toic

45

President

2015 – Present

Neil H. Ellis

89

Chairman of the Board

1966 – Present

Jeffrey Carlson

62

Secretary

2015 – Present

Eric J. Harrington

47

Treasurer

2015 – Present

David B. Harding

72

Vice President

1998 – Present

There are no arrangements or understandings between any of the foregoing and any other person pursuant to which such person was or is to be selected director or officer.

(c)        Identification of Certain Significant Employees:

Name

Age

Position

Period of Service

N/A

 

 

 

(d)        Family Relationships:

There are no family relationships among any directors or executive officers.

 

Annual Report on Form 10-K

Page 19

First Hartford Corporation


 

 

(e)        Business Experience:

1.   Following is a brief description of the background of each director and executive officer:

Mr. Ellis served as President and as a director of the Company since 1966 until 2015, at which time he resigned as President and continued as Chairman of the Board.  He is also President and Director of Green Manor Corporation, a holding company (which includes Journal Publishing Inc., Lubbock Parkade Inc. and MIP 16A Corp.) owned by him and his wife.

Mr. Harrington was appointed the role of Treasurer in 2015.  Mr. Harrington was hired in 2015 as the Manager of Accounting; he now serves as the Treasurer and as the principal financial officer of the Company.  Mr. Harrington has been a CPA since 1995; he holds a B.S. in Business Administration, 1991, from Western New England College.  His recent prior business experience has been:  Director of Accounting at FM Facility Maintenance from 2012 to January 2015; United Technologies from 2005 through 2012 in various manager of accounting and controller positions at several of its subsidiaries; Gerber Scientific 1995 through 2005 in various manager of accounting and controller positions; and at Price Waterhouse from 1991 through 1995 as an accountant.

Mr. Harding has served as Vice President and as a director of the Company since 1998.  Additionally, he was the President or Vice President of Richmond Realty, LLC (“Richmond”) a real estate management company owned by him and his wife from January 1996 until it was dissolved.  Prior to 1998, he had worked for the Company in the finance area for three years.  In the past, Richmond had managed certain properties of the Company.

Mr. Toic was elected President of the Company in 2015.  Previously, he served as Vice President of Municipal Affairs and CVS Development at the Company since 2005.  He was elected as a director in 2015. 

Mr. Carlson was appointed to be Secretary of the Company in 2015.  Mr. Carlson has been serving as General Counsel since 2000, and has been counsel to the Company since 1981; he was admitted to practice law in the State of Connecticut in 1981.  Mr. Carlson holds a B.A. from Fairfield University, and a law degree from Southwestern University School of Law.

Mr. Connolly has been the Managing Partner of Connolly and Partners, LLC since 2005.  He has been involved in the management, development and redevelopment of real estate since 1972.  He was elected as a director in 2015.

2.   Directorships:

No directors hold any other directorships, except directorships in subsidiaries of the Company, and Mr. Ellis for the aforementioned Green Manor Corporation.

(f)         Involvement in Certain Legal Proceedings:

No director or executive officer has been involved in any material legal proceedings required to be disclosed under item 401(f) of Regulation S-K promulgated by the Commission.

(g)        Promoter and Control Persons:

      Not applicable.

 

Annual Report on Form 10-K

Page 20

First Hartford Corporation


 

(h)        Audit Committee Financial Expert:

 

The Company does not have an audit committee and does not have a committee charter because it does not have any independent members on its Board of Directors.  Instead, its entire Board of Directors attempts to fulfill the functions of an audit committee. From time to time, the Board of Directors will seek guidance from outside independent consultants. Mr. Ellis, Mr. Harding, Mr. Toic, and Mr. Carlson are members of the Company’s management and Mr. Connolly is an employee of the Company. In addition, Mr. Ellis holds a majority ownership in the Company, see Item 12 herein, and he has various business relationships with the Company described under “Certain Relationships and Related Transactions”, in Item 13.  Thus, none of the members of the Board of Directors meet the criteria for independence established by the New York Stock Exchange or other self-regulating stock exchanges.  The Company does not otherwise meet the eligibility requirements for listing on the NYSE or with such other self-regulating stock exchanges.

 

(i)         Section 16(a) of the Exchange Act - Beneficial Ownership Reporting Compliance:

 

Section 16(a) of the Exchange Act requires the Company’s directors and executive officers, and persons who own more than 10% of a registered class of the Company’s equity securities, to file with the Commission initial reports of beneficial ownership on Form 3 and reports of changes in beneficial ownership of the Company’s equity securities on Forms 4 and 5.  The rules promulgated by the Commission under Section 16(a) of the Exchange Act require those persons to furnish the Company with copies of all reports filed with the Commission pursuant to Section 16(a). 

 

Based solely upon a review of such forms 3, 4, and 5 actually furnished to the Company, and written representations of the Company’s directors and executive officers that no forms were required to be filed, the Company believes that during fiscal year 2017, all directors and executive officers of the Company have not had to file any reports under Section 16(a) of the Exchange Act.

 

Based solely upon a review of such forms 3, 4, and 5 actually furnished to the Company by one 10% shareholder and his wife, the Company believes that during fiscal year ended April 30, 2017 that: Mr. John Filippelli filed three Form 5 filings on a late basis correcting his missed filings required to have been filed on Form 4 at the times of such transactions during fiscal years ended April 2014, 2015 and 2016 by filing a late filed Form 5 for each such fiscal year; the late filings report 15 late filed transactions.  Additionally, Barbara K. Filippelli timely filed on a Form 5 for fiscal year ended April 2017 that five transactions should have been filed on Form 4 at the times of such transactions and thus the filing reports such as late filed transactions. 

 

(j)         Code of Ethics:

The Company’s Code of Ethics, applicable to the Company’s principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, was included in the second quarter 10-Q filed on December 19, 2005.  The Company will provide any person, without charge, a copy of any portion of the Code of Ethics upon request directed to the Treasurer of the Company.

 

Annual Report on Form 10-K

Page 21

First Hartford Corporation


 

ITEM 11.        EXECUTIVE COMPENSATION

(a)   Summary Compensation Table:

Name & Principal Position

Year

Salary

Bonus

Stock
Awards

Option
Awards

Non-Equity
Incentive
Plan
Compensation

Non-qualified
Deferred
Compensation
Earnings

All
Other
Compensation

Total

Neil H. Ellis,
Chairman

2017

$399,989

$-0-

$-0-

$-0-

$-0-

$-0-

 

$-0-

$399,989

 

2016

$400,000

$-0-

$-0-

$-0-

$-0-

$-0-

$-0-

$400,000

John Toic,
President

2017

$400,000

$75,000

$-0-

$-0-

$-0-

$-0-

401(k)

$8,477

$483,477

 

2016

$201,455

$299,166

$-0-

$-0-

$-0-

$-0-

$11,090

$511,711

Jeffrey Carlson,
General Counsel & Secretary

 

2017

$175,000

$25,000

$-0-

$-0-

$-0-

$-0-

401(k)

$7,710

$207,710

 

2016

$175,000

$25,000

$-0-

$-0-

$-0-

$-0-

$7,682

$207,682

David B. Harding,
Vice President

2017

$113,738

$-0-

$-0-

$-0-

$-0-

$-0-

401(k)

$-0-

$113,738

 

2016

$150,010

$-0-

$-0-

$-0-

$-0-

$-0-

$5,681

$155,691

Eric Harrington,
Treasurer

2017

$140,000

$-0-

$-0-

$-0-

$-0-

$-0-

401(k)

$5,616

$145,616

 

2016

$134,616

$-0-

$-0-

$-0-

$-0-

$-0-

$4,457

$139,073

William Connolly,
Managing Director of
Connolly and Partners, LLC

2017

$149,993

$55,460

$-0-

$-0-

$-0-

$-0-

401(k)

$6,358

$211,811

 

2016

$149,988

$72,243

$-0-

$-0-

$-0-

$-0-

$4,979

$227,210

 

Directors Compensation

 

Directors have not received any compensation for serving on the Board since each of the directors is either an officer or employee of the Company and, therefore, not independent, and are each compensated as employees for their officer and employee positions.

(b)        Stock Options:

The Company does not have a stock option plan.  

 

Annual Report on Form 10-K

Page 22

First Hartford Corporation


 

 

(c)        No Compensation Committee:

The Company does not have a compensation committee and does not have a committee charter because it does not have independent members on its Board of Directors.  Instead its entire Board of Directors attempts to fulfill the functions of a compensation committee.  From time to time, the Board of Directors may seek guidance from outside independent consultants.  Mr. Ellis, Mr. Harding, Mr. Toic, and Mr. Carlson are members of the Company’s management and Mr. Connolly is an employee of the Company.  In addition, Mr. Ellis, the majority owner of the Company, has various business relationships with the Company described under “Certain Relationships and Related Transactions”, in Item 13. 

(d)        Benefits and Perquisites:

Medical Insurance:

All employees, including executive officers, working over 30 hours a week are entitled to Company-paid medical insurance of which the employee pays, family $82 a week, employee and spouse $73 a week, and employee alone $33 a week. 

Mr. Ellis has opted out of the Company plan and is covered by Medicare.

Disability Insurance:

Short-Term: Non-management employees receive the first week week’s pay at 100% of their salary or rate of pay when out on short term disability. The following weeks (based on years of service - one week per year of service) are paid at 70% of salary or rate of pay.   Any additional weeks are paid at 60% of salary or rate of pay.  The maximum benefit will not exceed $6,000 a month and ends at the 180th day of disability, at which time the long-term disability insurance takes effect.

Management employees, as defined by the Company and including executive officers, receive 100% of their pay for the first 180 days of disability and, thereafter, the long-term disability insurance takes effect.

Long-Term: After 180 days of disability, employees receive 60% of their regular straight-time salary for absences due to long-term illness or injury until they reach eligibility for Social Security or death.   Management employees, as defined by the Company and including executive officers, will have the difference between the long-term disability benefits and normal full salary paid for by the Company as determined by the Board of Directors.

Life Insurance:

Each employee of First Hartford, including each executive officer, is eligible to receive life insurance until such employee reaches the age of 70 that, in the event of such employee’s death, will provide proceeds of two times the annual salary of each employee.  At the age of 70, the amount of life insurance proceeds each employee is entitled to receive upon his death is equal to one times such employee’s annual salary.

(e)        Automobiles:

To assist management of the Company in carrying out its responsibilities and to improve job performance, the Company provides its executive officers with automobiles.  The Company cannot specifically or precisely ascertain the amount of personal benefit, if any, derived by those officers from such automobiles.  However, after reasonable inquiry, the Company has concluded that the amount of any such benefit is immaterial and does not in any event exceed $10,000 to any officer.  No provision had therefore been made for any such benefit.  All of the above mentioned officers are provided automobiles.

 

Annual Report on Form 10-K

Page 23

First Hartford Corporation


 

 

(f)        Deferred Compensation Plan:

On December 1, 2014, the Company adopted a Deferred Bonus Plan that awarded six employees an annual payment of $21,667 each for three years.  Included in these six employees are Mr. Harding, Mr. Toic, and Mr. Carlson.  All of the six employees satisfied the vesting requirement and received the first two annual payments as of April 30, 2017.  The total expense recorded for this bonus was $390,000, of which $195,000 related to the three named executives.

On March 6, 2014, the Company adopted a Deferred Bonus Plan for Mr. Harding agreeing to pay him 7% of the amount of any remaining Operating Reserve held at Clarendon, as defined, payable to the Company upon approved distribution of the Operating Reserve upon termination of the Partnership Agreement.  There has been no expense recognized as of April 30, 2017 as the event needed to trigger this payment has not yet occurred.

(g)        Bonuses:

Prior to December 31, 2015, Mr. Toic’s base salary was $105,019.  In addition, Mr. Toic had an agreement to receive a $7,500 bonus on each CVS / Cumberland Farms fee for service closing, with a minimum of $175,000 for any calendar year.  During fiscal years 2017 and 2016, Mr. Toic received bonuses of $-0- and $174,167, respectively, under this agreement.  In addition, in fiscal years 2017 and 2016, Mr. Toic received bonuses totaling $75,000 and $125,000, respectively, for his work on the sale of several properties.  Beginning on January 1, 2016, Mr. Toic no longer receives bonuses prospectively (he may still be paid for certain identified property sales that have not yet occurred as of that date) and his base salary was increased to $400,000.

In fiscal years 2017 and 2016, Mr. Carlson received $25,000 bonuses, respectively, for his work on the sale of several properties.

Mr. Connolly receives commissions equal to 8% of gross management fees paid by the three residential properties.  In fiscal years 2017 and 2016, he received $55,460 and $72,243, respectively.

 

 

 

 

 

Annual Report on Form 10-K

Page 24

First Hartford Corporation


 

ITEM 12.      SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND 
MANAGEMENT AND RELATED STOCKHOLDER MATTERS

(a-b)      Security Ownership of Certain Beneficial Owners, Directors and Executive Officers:

The following table sets forth information as of fifteen days prior to the date hereof, based upon beneficial owner reported filings with the SEC, with respect to all persons known to the Company to be beneficial owners of more than 5% of the Company’s outstanding shares of common stock, by each director, by each officer named in the Summary Compensation Table, and by all officers and directors of the Company as a group: 

Title

of

Class

Name & Address of

Beneficial Owner of

Identity of Group

Amount and Nature
of Beneficial

Ownerships

 

Percent

Of Class

 

 

 

 

 

Officers and Directors

 

 

 

 

 

 

Common Stock

Neil H. Ellis

1,355,326 (1)

58.5%

 

43 Butternut Road

 

 

 

Manchester, CT 06040

 

 

 

 

 

 

Common Stock

All Directors and Officers

1,355,426 (1)

58.5%

 

as a Group

(6 persons of which only 1 holds 5% or greater)

 

 

 

 

 

 

 

Other 5% Beneficial Owners

 

 

 

 

 

 

Common Stock

John Filippelli

280,458 (2)

12.1%

 

23 Lakeview Drive

 

 

 

Pawling, NY 12564

 

 

 

 

 

 

Common Stock

Joel Lehrer

200,000

8.6%

 

231 Atlantic Street, Unit 58

 

 

 

Keyport, NJ 07735

 

 

 

 

 

 

(1)    Includes 417,183 shares owned by a corporation, which is wholly owned by Mr. & Mrs. Ellis; 18,593 shares owned beneficially and of record by Mr. Ellis’ wife; 53,412 shares held as Trustee for his daughters in which he disclaims beneficial ownership.  Excludes 14,250 shares held as trustee for the Jonathan G. Ellis Leukemia Foundation (a charitable foundation).

(2)     Included in Mr. Filippelli’s shares are 279,806 shares over which he has Shared Dispositive Power with Mr. Filippelli’s wife and 652 shares owned by Mr. Filippelli’s wife.

(c)        Changes in Control:

The Company is aware of no arrangements, which may result at a subsequent date in change in control of the Company.

(d)        Equity Compensation Plan Information:

None.

 

Annual Report on Form 10-K

Page 25

First Hartford Corporation


 

 

ITEM 13.        CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND
DIRECTOR INDEPENDENCE

(a)         Parkade Center Inc. (a wholly owned subsidiary of First Hartford Corporation) has a 1.99% interest in Hartford Lubbock Parkade LP II, a partnership, which owns a shopping center in Lubbock, TX.  Lubbock Parkade Inc., a wholly owned subsidiary of Journal Publishing Inc., owns 98.01% of the Partnership.  Journal Publishing Inc. is owned by Neil H. Ellis, the Chairman of First Hartford Corporation, and his wife Elizabeth, through their ownership of Green Manor Corporation. First Hartford Realty Corporation manages the property and receives a 4% management fee, which is the industry norm for a shopping center.

For the years ended April 30, 2017 and 2016, Parkade Center Inc. and First Hartford Realty Corporation earned the following:

                                                               2017                 2016

Management Fee (at 4%)         $70,554            $71,217

For the years ended April 30, 2017 and 2016, Parkade Center Inc. received distributions of $17,802 and $7,264, respectively. For the years ended April 30, 2017 and 2016, Lubbock Parkade Inc. received distributions of $962,378 and $312,000, respectively, from Hartford Lubbock LP II.

(b)         Certain Business Relationships:

Refer to (a) above.

(c)         Indebtedness of Management:

There is none.

(d)         Transactions with Promoters:

There is none.

(e)         Director Independence:

All of the Directors of the Company are executives and/or employees of the Company and by definition are not independent.  Further, Mr. Ellis owns in excess of fifty percent of the outstanding stock of the Company.  The Company does not have any directors that meet the independence standards for audit, nominating or compensation committee.

The Company’s securities are listed on The OTC Markets (the electronic quotation system that trades the Company’s securities) and such exchanges and systems do not impose requirements that a majority of the Board of Directors be independent.

 

 

Annual Report on Form 10-K

Page 26

First Hartford Corporation


 

 ITEM 14.        PRINCIPAL ACCOUNTING FEES AND SERVICES

On December 5, 2013, the Company engaged Mahoney Sabol & Company, LLP to audit 2013 and 2012.  This agreement has been renewed for 2014-2017.

The 2017 and 2016 amounts in the table below represent expenses for Mahoney Sabol & Company, LLP.                                              

 

 

 

2017

2016

Audit Fees (1)

$128,000

$125,000

Audit Related Fees (2)

19,000

-0-

Tax Fees

-0-

-0-

All Other Fees (3)

4,922

-0-

 

 

 

(1)  Fees for the audit of the Company’s annual financial statements included in its Annual Report on Form 10-K, and Form 10-Q’s filed Quarterly.

(2)  Fees for the audit of one of the Company’s subsidiaries.

(3)  Fees for the review of CAM charges at one of the Company’s subsidiaries.

Due to the fact that the Company does not have a formal audit committee, the Board of Directors has:

(a)        Reviewed and discussed the Company’s audited financial statements with the independent auditors;

(b)        Discussed with the independent auditors the matters required to be discussed by professional standards; and

(c)        Reviewed and discussed the independence of the auditors and received a written disclosure from the audit firm confirming its independence.

Based on the review and discussions described above, the Board of Directors approved the inclusion of the Company’s audited financial statements in its Annual Report on Form 10-K for the fiscal year ended April 30, 2017.

      By its Board of Directors:

Neil H. Ellis

David B. Harding

William Connolly

John Toic

Jeffrey Carlson

 

Annual Report on Form 10-K

Page 27

First Hartford Corporation


 

 PART IV

ITEM 15.        EXHIBITS, FINANCIAL STATEMENT SCHEDULES

 

Pages

(a)             (1)  The following items are included in Part II, Item 8 as presented in Item 15:

 

 

 

Report of Independent Registered Public Accounting Firm

30

 

 

Financial Statements:

 

 

 

Consolidated Balance Sheets – April 30, 2017 and 2016

31-32

 

 

Consolidated Statements of Income for the Years

 

    Ended April 30, 2017 and 2016

33

 

 

Consolidated Statements of Comprehensive Income for the Years

 

     Ended April, 30, 2017 and 2016

34

 

 

Consolidated Statements of Changes in Shareholders’ Deficiency

 

      for the Years Ended April 30, 2017 and 2016

35

 

 

Consolidated Statements of Cash Flows for the Years

 

     Ended April 30, 2017 and 2016

36-37

 

 

Notes to Consolidated Financial Statements

38-56

 (2)     Financial statement schedules

All financial statement schedules are omitted because they are not required.

(b)           Exhibits

(3)      Articles of Incorporation and by-laws.

Exhibits (3) to Form-K for the Fiscal Year ended April 30, 1984, Pages 1-18 of
            Exhibits Binders, incorporated by reference to Securities File Number 0-8862.

(12)      Subsidiaries of the Registrant.

Name of Subsidiary

State in which Incorporated

First Hartford Realty Corporation

Delaware

Lead Tech, Inc.

Connecticut

Parkade Center, Inc.

Texas

Plainfield Parkade, Inc.

Connecticut

EH&N Construction Company

Delaware

Dover Parkade, LLC

Delaware

DE 150 Corp.

Delaware

Brewery Parkade, Inc.

Rhode Island

Cranston Parkade, LLC

Rhode Island

Tri-City Plaza, Inc.

Delaware

1150 Union Street Corp.

Massachusetts

CP Associates, LLC

Rhode Island

Trolley Barn Associates, LLC

Rhode Island

Main Street NA Parkade, LLC

Connecticut

 

Annual Report on Form 10-K

Page 28

First Hartford Corporation


 

  Name of Subsidiary  

State in which Incorporated

Connolly & Partners, LLC 

Massachusetts

Cranston/BVT Associates Limited Partnership

Rhode Island

CP/BVT Inc.  

Rhode Island

FHRC Management Corp.

Delaware

The Shoppes at Rio Grande Valley, LP 

Texas

Edinburg SRGV, LLC

Delaware

Rockland Place Apartments, LLC 

Massachusetts

Rockland Place Developers, LLC   

Massachusetts 

Rockland Place Apartments, LP 

Massachusetts

EH&NU Inc. 

Massachusetts

First BTS, LLC  

Texas

First BTS Claiborne, LLC 

Louisiana

First GL Conroe, LLC 

Texas

First BTS Avondale, LLC 

Louisiana

First BTS Austin, LLC

Texas

First GL Buda, LLC  

Texas

First BTS Stanhope, LLC 

New Jersey

First BTS N Carrollton LLC  

Louisiana

First BTS Mid-City, LLC 

Louisiana

First BTS Vernon, LLC 

New Jersey

First BTS Conroe, LLC 

Texas

First BTS MLK & 183, LLC

Texas

First BTS Parmer, LLC 

Texas

First BTS West Lake, LLC 

Texas

First BTS Brentwood, LLC 

New York

First Sappington WAG, LLC  

Missouri

First BTS Little Ferry, LLC 

New Jersey

First GL Cedar Park, LLC 

Texas

1813 W. Parmer Associates, LLC  

Texas

FHRC Plumbing, Inc. 

Massachusetts

Prosperity EB5 Holdings, LLC

Texas

Pharmacy EB5 Holdings, LLC  

Connecticut

999 Realty, LLC 

Delaware

The Robert Company, LLC

Texas

SATIS Corporation

Connecticut

First Hartford Rio Grande Valley, Inc.

Texas

Del Valle Parkade, LLC 

Texas

EPFH, LLC 

Texas  

Clarendon Hill Somerville Limited Partnership

Massachusetts

Clarendon Developer, LLC

Massachusetts

Clarendon Hill Somerville, LLC 

Massachusetts

LTI Environmental Services, Inc.

Massachusetts

Steeple City Cinemas, Inc.

Massachusetts

Steeple City Liquors, Inc.

Massachusetts

Hartford Lubbock Limited Partnership II

Texas

Connolly Claymont, LLC

Delaware

B’nai B’rith Claymont LP

Delaware
   

(31.1) Exhibit 31.1     CEO Certification

(31.2) Exhibit 31.2     CFO Certification

(32.1) Exhibit 32.1     CEO and CFO Certification as to 18 U.S.C. 1350

(c)         Other Financial Statements

None.

Annual Report on Form 10-K

Page 29

First Hartford Corporation


 

 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and
Stockholders of First Hartford Corporation

We have audited the accompanying consolidated balance sheets of First Hartford Corporation as of April 30, 2017 and 2016, and the related consolidated statements of income, comprehensive income, changes in shareholders’ deficiency, and cash flows for each of the years in the two-year period ended April 30, 2017. First Hartford Corporation’s management is responsible for these financial statements. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of First Hartford Corporation as of April 30, 2017 and 2016, and the consolidated results of its operations and its cash flows for each of the years in the two-year period ended April 30, 2017, in conformity with accounting principles generally accepted in the United States of America.

/s/ Mahoney Sabol & Company, LLP

Glastonbury, Connecticut

July 31, 2017

 

 

 

 

Annual Report on Form 10-K

Page 30

First Hartford Corporation


 

 FIRST HARTFORD CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

APRIL 30, 2017 AND 2016

ASSETS

 

2017

 

2016

Real estate and equipment:

 

 

 

Developed properties and property under construction (including $77,898,958 in 2017 and $74,693,823 in 2016 for VIEs)

$236,865,867

  

$228,733,956

Equipment and tenant improvements (including $2,424,964 in 2017 and $2,425,896 in 2016 for VIEs)

3,689,442

 

3,763,420

 

240,555,309

 

232,497,376

Less accumulated depreciation and amortization (including $15,918,495 in 2017 and $13,827,009 in 2016 for VIEs)

(47,449,316)

 

(42,654,076)

 

193,105,993

 

189,843,300

 

 

 

 

 

 

 

 

Property held for sale

11,389,591

 

15,422,312

 

 

 

 

Cash and cash equivalents (including $2,063,103 in 2017 and $1,507,163 in 2016 for VIEs)

6,250,757

 

5,982,506

 

 

 

 

Cash and cash equivalents – restricted (including $396,361 in 2017 and $406,749 in 2016 for VIEs)

526,012

 

2,070,963

 

 

 

 

Marketable securities (including $1,538,839 in 2017 and $1,601,795 in 2016 for VIEs)

1,538,839

 

1,601,795

 

 

 

 

Accounts and notes receivable, less allowance for doubtful accounts of $135,002 in 2017 and $769,961 in 2016 (including $66,543 in 2017 and $27,651 in 2016 for VIEs)

3,505,541

 

3,959,574

 

 

 

 

Other receivables

4,064,876

 

5,956,103

 

 

 

 

Deposits and escrow accounts (including $8,866,586 in 2017 and $4,137,450 in 2016 for VIEs)

15,930,999

 

9,937,588

 

 

 

 

Prepaid expenses (including $327,481 in 2017 and $306,547 in 2016 for VIEs)

1,644,320

 

1,438,759

 

 

 

 

Deferred expenses, net (including $167,273 in 2017 and $184,722 in 2016 for VIEs)

5,712,547

 

2,952,630

 

 

 

 

Investment in affiliates

100

 

100

 

 

 

 

Due from related parties and affiliates

152,776

 

159,954

 

 

 

 

Deferred tax asset

671,147

 

2,130,776

 

 

 

 

Total assets

$244,493,498

 

$241,456,360

 See accompanying notes.

Annual Report on Form 10-K

Page 31

First Hartford Corporation


 

 FIRST HARTFORD CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

APRIL 30, 2017 AND 2016

(continued)

LIABILITIES AND SHAREHOLDERS’ DEFICIENCY

 

2017

   

2016

Liabilities:

 

 

 

Mortgages and other notes payable:

 

 

 

Construction loans payable

$26,929,537

 

$68,031,502

Mortgages payable (including $64,598,997 in 2017 and $56,580,047 in 2016 for VIEs)

195,763,409

 

149,119,630

Notes payable (including $1,704,697 in 2017 and $1,704,697 in 2016 for VIEs)

1,704,697

 

1,744,697

Lines of credit

6,400,000

 

2,652,091

Less: Deferred debt issuance costs (including $1,575,494 in 2017 and $1,151,746 in 2016 for VIEs)

(3,067,098)

 

(1,837,083)

 

227,730,545

 

219,710,837

 

 

 

 

Accounts payable (including $569,600 in 2017 and $961,884 in 2016 for VIEs)

2,915,400

 

3,701,702

Other payables

4,966,246

 

8,843,015

Accrued liabilities (including $3,382,307 in 2017 and $3,254,953 in 2016 for VIEs)

5,699,875

 

6,124,930

Derivative liability

2,023,793

 

4,693,209

Deferred income (including $227,936 in 2017 and $254,576 in 2016 for VIEs)

622,461

 

677,694

Other liabilities

1,328,909

 

1,654,361

Due to related parties and affiliates (including $446,990 in 2017 and $430,269 in 2016 for VIEs)

598,843

 

602,121

Total liabilities

245,886,072

 

246,007,869

 

 

 

 

Commitments and Contingencies

 

 

 

 

 

 

 

Shareholders’ Deficiency:

 

 

 

First Hartford Corporation

 

 

 

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

-0-

 

-0-

Common stock, $1 par value; authorized 6,000,000 shares: issued 3,236,843 in 2017 and 3,298,609 in 2016, outstanding 2,340,799 and 2,404,590 in 2017 and 2016, respectively

3,236,843

 

3,298,609

 

 

 

 

Capital in excess of par

5,093,779

 

5,198,928

Accumulated deficit

(5,612,263)

 

(8,600,495)

Accumulated other comprehensive income (loss)

-0-

 

-0-

Treasury stock, at cost, 896,044 and 894,019 shares in 2017 and 2016, respectively

(4,989,384)

 

(4,984,416)

Total First Hartford Corporation

(2,271,025)

 

(5,087,374)

 

 

 

 

Noncontrolling interests

878,451

 

535,865

Total shareholders’ deficiency

(1,392,574)

 

(4,551,509)

 

 

 

 

Total liabilities and shareholders’ deficiency

$244,493,498

 

$241,456,360

See accompanying notes.

Annual Report on Form 10-K

Page 32

First Hartford Corporation


 

  FIRST HARTFORD CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

FOR THE YEARS ENDED APRIL 30, 2017 AND 2016

 

2017

 

2016

Revenues:

 

 

 

Rental income

$31,984,825

 

$30,416,900

Service income

5,453,919

 

6,791,095

Sales of real estate

34,373,493

 

21,100,182

Other revenues

3,858,059

   

3,555,335

 

75,670,296

 

61,863,512

 

 

 

 

Operating costs and expenses:

 

 

 

Rental expenses (includes depreciation and amortization of $5,668,173 and $5,519,043 in 2017 and 2016, respectively)

20,090,504

 

20,728,432

Service expenses

5,098,899

 

5,791,175

Cost of real estate sales

27,723,800

 

17,673,023

Selling, general and administrative expenses

9,078,059

 

7,141,236

 

61,991,262

 

51,333,866

 

 

 

 

Income from operations

13,679,034

 

10,529,646

 

 

 

 

Non-operating income (expense):

 

 

 

Equity in earnings of unconsolidated subsidiaries

685,452

 

666,851

Other income

137,186

 

606,723

Gain / (loss) on derivatives (non-cash)

2,669,416

 

(2,177,879)

Loss on defeasance

(437,776)

 

-0-

Gain on voluntary foreclosure

-0-

 

2,649,850

Loss on impairment

-0-

 

(330,700)

Interest expense

(10,393,998)

 

(9,368,956)

 

(7,339,720)

 

(7,954,111)

 

 

 

 

Income before income taxes

6,339,314

 

2,575,535

 

 

 

 

Income tax expense

1,859,941

 

932,147

 

 

 

 

Consolidated net income

4,479,373

 

1,643,388

 

 

 

 

Net (income) / loss attributable to noncontrolling interests

(1,491,141)

 

124,538

 

 

 

 

Net income attributable to First Hartford Corporation

$2,988,232

 

$1,767,926

 

 

 

 

Net income per share – basic

$1.26

 

$0.73

 

 

 

 

Net income per share – diluted

$1.26

 

$0.73

 

 

 

 

Shares used in basic per share computation

2,375,617

 

2,407,526

Shares used in diluted per share computation

2,375,617

 

2,407,526

 See accompanying notes.

Annual Report on Form 10-K

Page 33

First Hartford Corporation


 

  FIRST HARTFORD CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

FOR THE YEARS ENDED APRIL 30, 2017 AND 2016

 

 

 

2017

 

2016

 

 

 

 

Consolidated net income

$4,479,373

 

$1,643,388

 

 

 

 

 

 

 

 

Other comprehensive income / (loss), net of taxes:

 

 

 

Unrealized gains / (losses) on marketable securities

112,813

 

(466,872)

 

 

 

 

Total comprehensive income

4,592,186

 

1,176,516

 

 

 

 

Amounts attributable to noncontrolling interests:

 

 

 

Net (income) / loss

(1,491,141)

 

124,538

Unrealized (gains) / losses on marketable securities

(112,813)

 

371,057

 

 

 

 

 

(1,603,954)

 

495,595

 

 

 

 

Comprehensive income attributable to First Hartford Corporation

$2,988,232

 

$1,672,111

 

See accompanying notes.

 

Annual Report on Form 10-K

Page 34

First Hartford Corporation


 

 FIRST HARTFORD CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ DEFICIENCY

FOR THE YEARS ENDED APRIL 30, 2017 AND 2016

 

 

Common

Stock

Capital in

Excess of

Par

Accumulated

Deficit

Accumulated

Other

Comprehensive

(Loss) Income*

Treasury

Stock

Total First

Hartford

Corporation

Noncontrolling

Interests

Total

 

 

 

 

 

 

 

 

 

Balance, April 30, 2015

$3,298,609

$5,198,928

$(10,368,421)

$95,815

$(4,970,082)

$(6,745,151)

$2,632,855

$(4,112,296)

 

 

 

 

 

 

 

 

 

Distribution

-0-

-0-

-0-

-0-

-0-

-0-

(1,601,395)

(1,601,395)

 

 

 

 

 

 

 

 

 

Purchase of common stock

-0-

-0-

-0-

-0-

(14,334)

(14,334)

-0-

(14,334)

 

 

 

 

 

 

 

 

 

Net income (loss)

-0-

-0-

1,767,926

-0-

-0-

1,767,926

(124,538)

1,643,388

 

 

 

 

 

 

 

 

 

Unrealized loss on
marketable securities

-0-

-0-

-0-

(95,815)

-0-

(95,815)

(371,057)

(466,872)

 

 

 

 

 

 

 

 

 

Balance, April 30, 2016

3,298,609

5,198,928

(8,600,495)

-0-

(4,984,416)

(5,087,374)

535,865

(4,551,509)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Distribution

-0-

-0-

-0-

-0-

-0-

-0-

(1,261,368)

(1,261,368)

 

 

 

 

 

 

 

 

 

Purchase of common stock

(61,766)

(105,149)

-0-

-0-

(4,968)

(171,883)

-0-

(171,883)

 

 

 

 

 

 

 

 

 

Net income

-0-

-0-

2,988,232

-0-

-0-

2,988,232

1,491,141

4,479,373

 

 

 

 

 

 

 

 

 

Unrealized gain on
marketable securities

-0-

-0-

-0-

-0-

-0-

-0-

112,813

112,813

 

 

 

 

 

 

 

 

 

Balance, April 30, 2017

$3,236,843

$5,093,779

$(5,612,263)

$ -0-

$(4,989,384)

$(2,271,025)

$878,451

$(1,392,574)

 

*Consists exclusively of net unrealized gains (losses) on available-for-sale marketable securities.

 

See accompanying notes.

 

 

Annual Report on Form 10-K

Page 35

First Hartford Corporation


 

 FIRST HARTFORD CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED APRIL 30, 2017 AND 2016
 

 

2017

  

2016

Operating activities:

 

 

 

 

 

 

 

Consolidated net income

$4,479,373

 

$1,643,388

Adjustments to reconcile consolidated net income

 

 

 

to net cash provided by operating activities:

 

 

 

Equity in earnings of unconsolidated subsidiaries, net of

 

 

 

distributions of $360,000 in 2017 and $360,000 in 2016

(325,452)

 

(306,851)

Gain on sale of real estate

(6,649,693)

 

(3,427,159)

Gain on voluntary foreclosure

-0-

 

(2,649,850)

Loss on impairment

-0-

 

330,700

Depreciation of real estate and equipment

5,453,963

 

5,210,982

Amortization of deferred expenses

868,263

 

388,414

Deferred income taxes

1,459,629

 

671,231

(Gain) / loss on derivatives

(2,669,416)

 

2,177,879

Changes in operating assets and liabilities:

 

 

 

Accounts, notes and other receivables

2,345,260

 

6,998,755

Deposits and escrows

4,519,094

 

(459,504)

Prepaid expenses

(205,561)

 

(260,531)

Deferred expenses

(4,858,195)

 

821,944

Cash and cash equivalents – restricted

1,544,951

 

(1,122,242)

Accrued liabilities

(425,055)

 

272,732

Deferred income

(55,233)

 

169,398

Accounts and other payables

(4,663,071)

 

(4,443,478)

Net cash provided by operating activities

818,857

 

6,015,808

 

 

 

 

Investing activities:

 

 

 

Investments in marketable securities

(466,827)

 

(3,189,006)

Proceeds from sale of marketable securities

642,596

 

5,084,737

Purchases of equipment and tenant improvements

(169,283)

 

(193,541)

Proceeds from sales of real estate

34,373,493

 

21,100,182

Additions to developed properties and property under construction

(32,238,452)

 

(53,846,161)

Net cash provided by (used in) investing activities

2,141,527

 

(31,043,789)

 See accompanying notes.

 

Annual Report on Form 10-K

Page 36

First Hartford Corporation


 

 FIRST HARTFORD CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED APRIL 30, 2017 AND 2016

(continued)

 

2017

 

2016

Financing activities:

 

 

 

 

 

 

 

Purchase of common stock

$(171,883)

 

$(14,334)

Distributions to noncontrolling interests

(1,261,368)

 

(1,601,395)

Proceeds from:

 

 

 

Construction loans

12,282,080

 

24,343,442

Mortgages

11,929,657

 

11,752,500

Notes

-0-

 

-0-

Credit lines

5,775,000

 

3,140,928

Principal payments on:

 

 

 

Construction loans

(15,051,475)

 

(11,865,147)

Mortgages

(14,130,953)

 

(4,575,136)

Notes

(40,000)

 

-0-

Credit lines

(2,027,091)

 

(488,837)

Advances to related parties and affiliates, net

3,900

 

620,125

Net cash provided by / (used in) financing activities

(2,692,133)

 

21,312,146

 

 

 

 

Net change in cash and cash equivalents

268,251

 

(3,715,835)

Cash and cash equivalents, beginning of year

5,982,506

 

9,698,341

 

 

 

 

Cash and equivalents, end of year

$6,250,757

 

$5,982,506

 

 

 

 

Cash paid during the year for interest

$10,189,862

 

$8,952,062

       

Cash paid during the year for income taxes

$434,890

 

$762,994

       

Debt refinancing in 1st quarter:

     

New mortgage loan

$14,300,000

 

$39,000,000

Debt reduced

(5,359,713)

 

(39,723,828)

Escrow funded

(8,019,977)

 

(-0-)

Net cash from refinancing in 1st quarter

$920,310

 

$(723,828)

 

 

 

 

Debt refinancing in 2nd quarter:

 

 

 

New mortgage loan

$32,500,000

 

$-0-

Debt reduced

(31,030,767)

 

(-0-)

Escrow funded

(1,100,000)

 

(-0-)

Net cash from refinancing in 2nd quarter

$369,233

 

$-0-

 

 

 

 

Debt refinancing in 3rd quarter:

 

 

 

New mortgage loan

$21,186,745

 

$-0-

Debt reduced

(18,139,103)

 

(-0-)

Escrow funded

(1,392,528)

 

(-0-)

Net cash from refinancing in 3rd quarter

$1,655,114

 

$-0-

       

Debt refinancing in 4th quarter:

 

 

 

New mortgage loan

$-0-

 

$-0-

Debt reduced

(-0-)

 

(-0-)

Net cash from refinancing in 4th quarter

$-0-

 

$-0-

 See accompanying notes.

Annual Report on Form 10-K

Page 37

First Hartford Corporation


 

 FIRST HARTFORD CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED APRIL 30, 2017 AND 2016

1.   Summary of Significant Accounting Policies:

Description of Business

First Hartford Corporation (the Company) was incorporated in Maine in 1909 and is engaged in the purchase, development, ownership, management and sale of real estate, all of which is considered the “Real Estate Operation” segment.  The Company has a second segment “Fee for Service” in which the Company is engaged as a preferred developer for CVS and Cumberland Farms (see Service Income to follow).

Principles of Consolidation

The accompanying 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.  The latter includes those in which the Company has been determined to be the primary beneficiary of a variable interest entity or otherwise meets certain criteria as a sole general partner or managing member in accordance with the consolidation guidance of the Financial Accounting Standards Board (FASB) Accounting Standards Codification.  As such, included in the consolidated financial statements are the accounts of Rockland Place Apartments Limited Partnership and Clarendon Hill Somerville Limited Partnership.  The Company’s ownership percentage in these variable interest entity partnerships is nominal.  All intercompany balances and transactions have been eliminated in consolidation.

Estimates

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities as of the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period.  Actual results could differ from those estimates.

Financial Statement Presentation

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 consolidated balance sheets are unclassified.

Statements of Cash Flows

For purposes of the statements of cash flows, the Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents.

Revenue Recognition

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.

 

 

Annual Report on Form 10-K

Page 38

First Hartford Corporation


 

FIRST HARTFORD CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED APRIL 30, 2017 AND 2016

 

1.   Summary of Significant Accounting Policies (continued):

Revenue Recognition (concluded):

Service Income - The Company is party to preferred developer agreements with CVS and Cumberland Farms.  Under these agreements, the Company’s fee for such services provided is recognized as earned when services, as outlined in the development agreements, are provided. Fees earned related to the development of pharmacy stores for CVS during the years ended April 30, 2017 and 2016 were $3,394,500 and $4,767,000, respectively.  Fees earned for Cumberland Farms during the years ended April 30, 2017 and 2016 were $1,445,000 and $1,531,250, respectively.  These fees are included in service income in the consolidated statements of income. 

The Company also provides management and maintenance services to others.  Fees for such services provided are recognized in service income as earned when services are provided.

Sales of Real Estate – The Company recognizes sales of real estate as revenue upon the transfer of title and when substantially all performance requisites have been fulfilled.  For the years ended April 30, 2017 and 2016, the Company had sales of $34,373,493 and $21,100,182, respectively.  The cost of the property sold was $27,723,800 and $17,673,023 for 2017 and 2016, respectively.  None of the property sold was otherwise providing significant ongoing cash flows to the Company.

Construction Income - The Company primarily develops real estate for its own use.  However, revenues from long-term projects built for third parties are recognized on the percentage-of-completion method of accounting based on costs incurred to date in relation to total actual costs and estimated costs to complete.  Revisions in costs and profit estimates are reflected in operations during the accounting period in which the facts become known.  The Company provides for estimated losses on contracts in the year such losses become known.  There were no long-term construction projects or revenue for the years ended April 30, 2017 and 2016.

Other Receivables and Payables

Pursuant to the Company’s Preferred Developer Agreement with CVS, the Company is obligated to fund allowable costs incurred in connection with the identification and development of new retail pharmacy stores for which it receives direct reimbursements from CVS.  Payables for allowable costs incurred in connection with these activities but not yet funded were $4,363,317 and $7,478,581 as of April 30, 2017 and 2016 respectively, and have been included as “other payables” in the consolidated balance sheets.  Related reimbursements due from CVS were $4,064,876 and $5,956,103 as of April 30, 2017 and 2016, respectively, and have been included in “other receivables” in the consolidated balance sheets.

Cash and Cash Equivalents – Restricted

Cash and cash equivalents – restricted, consist of funds received from CVS in connection with the Company’s Preferred Developer Agreement.  Such amounts are to be used for the payment of costs incurred by the Company for the development and construction of CVS retail pharmacy stores. The restricted cash also includes Tenant Security Deposits held by the VIEs.

 

 

Annual Report on Form 10-K

Page 39

First Hartford Corporation


 

 FIRST HARTFORD CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED APRIL 30, 2017 AND 2016

1.   Summary of Significant Accounting Policies (continued):

Developed Properties, Equipment and Tenant Improvements

Developed properties, equipment and tenant improvements are recorded at cost.

Depreciation and amortization are provided using the straight-line method based on the following estimated useful lives.

Description

Years

Developed properties

15 – 40

Equipment

3 – 10

Tenant improvements

Lesser of improvement life
or lease term

Expenditures for major renewals and betterments, which extend the useful lives of developed properties, equipment and tenant improvements, are capitalized.  Expenditures for maintenance and repairs are charged to operations as incurred.

Property Under Construction

The Company capitalizes costs directly associated with property under construction. Such costs include materials, construction labor and payroll cost, allocation of salaries and payroll cost from direct activities such as engineering, purchasing and legal and services provided by subcontractors. Material carrying costs for property taxes, insurance and interest are also capitalized during the period of active construction until construction is substantially complete (see Note 3).

The Company capitalizes labor cost for direct work by offsite staff on specific projects.  In the year ended April 30, 2017, $52,500 was capitalized.  In the year ended April 30, 2016, $131,028 was capitalized.  

Property Held for Sale

The Company classifies property as “held for sale” if management commits to sell the property and actively markets the property to potential buyers at fair market value, the property is available for immediate sale in its present condition subject only to terms that are usual and customary for sales of such property, and the sale is probable within one year.  

Deferred Expenses

Expenditures directly related to real estate under consideration for development are deferred and included in deferred expenses in the consolidated balance sheets.  These costs include option payments, attorney’s fees, architect and engineering fees, consultants, etc., but only to the extent they are from outside sources.  If development of the real estate commences, all of the accumulated costs are reclassified to property under construction in the consolidated balance sheets.  If the project is later abandoned, all of the accumulated costs are charged to expense.

 

 

Annual Report on Form 10-K

Page 40

First Hartford Corporation


 

FIRST HARTFORD CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED APRIL 30, 2017 AND 2016

1.   Summary of Significant Accounting Policies (continued):

Deferred Expenses (concluded):

Leasing costs incurred, primarily commissions, are capitalized for signed leases and included in deferred expenses in the accompanying consolidated balance sheets.  Such costs are amortized using the straight-line method over the terms of the related leases.  The unamortized balance of such cost was $1,226,778 and $1,086,042 as of April 30, 2017 and 2016, respectively. 

Amortization expense for the next five years is expected to be as follows:

Year Ending April 30,

2018

$238,625

2019

196,538

2020

131,934

2021

117,048

2022

106,033

Thereafter

      436,600

Total

$1,226,778

Investment in Affiliated Entities

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 resulting carrying value of this investment of ($1,328,909) as of April 30, 2017 and ($1,654,361) as of April 30, 2016 is included in other liabilities.  The Company recorded equity in earnings of unconsolidated subsidiaries of $685,452 and $666,851 for the years ended April 30, 2017 and 2016, respectively, which includes distributions of $360,000 in each year.

On October 4, 2011, the Company entered into a partnership with a nonprofit entity which purchased a 99 year leasehold interest in a 208 unit subsidized housing project in Claymont, Delaware.  The Company is a non-controlling .01% limited partner in the entity.  The Company’s investment is carried at cost of $100. A subsidiary of the Company is the managing agent.

  

Annual Report on Form 10-K

Page 41

First Hartford Corporation


 

FIRST HARTFORD CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED APRIL 30, 2017 AND 2016

1.   Summary of Significant Accounting Policies (continued):

Fair Value Measurements

Certain assets and liabilities are presented at fair value on a recurring basis.  In addition, fair values are disclosed for certain other assets and liabilities.  In all cases, fair value is determined using valuation techniques based on a hierarchy of inputs.  A summary of the hierarchy follows:

  • Level 1 –  Quoted prices in active markets that are unadjusted and accessible at the measurement date for identical, unrestricted assets or liabilities.
     

  • Level 2 –  Quoted prices for identical assets and liabilities in markets that are not active, quoted prices for similar assets and liabilities in active markets or financial instruments for which significant observable inputs are available, either directly or indirectly such as interest rates and yield curves that are observable at commonly quoted intervals; and
     

  • Level 3 –  Prices or valuations that require inputs that are unobservable.

In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy.  In such cases, the level in the fair value hierarchy within which the fair value measurement in its entirety falls has been determined based on the lowest level input that is significant to the fair value measurement in its entirety.  The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset or liability.

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 debt since the interest rates on the debt approximates the Company’s current incremental borrowing rate.  Information about the fair values of marketable securities and derivative liabilities is presented below.

Level 1

Marketable Securities – Common and Preferred Stocks

The Company determines the appropriate classifications of its investments in marketable debt and equity securities at the time of purchase and re-evaluates such determinations at each balance sheet date.  As of April 30, 2017 and 2016, investments consist of equity securities, which are classified as available for sale.  Investments in marketable securities are stated at fair value.  Fair value for marketable securities is based on the last sale of the period obtained from recognized stock exchanges (i.e. Level 1).  Net unrealized holding gains and temporary losses on equity securities are included as a separate component of the deficiency. Net unrealized gains of $112,813 as of April 30, 2017 and losses of $466,872 as of April 30, 2016 are included in noncontrolling interests. Gains or losses on securities sold are based on the specific identification method.

 

Annual Report on Form 10-K

Page 42

First Hartford Corporation


 

FIRST HARTFORD CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED APRIL 30, 2017 AND 2016

1.   Summary of Significant Accounting Policies (continued):

Fair Value Measurements (concluded):

Level 2

Derivative Instruments

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 in the consolidated statement of operations.  The gain / (loss) on derivatives incurred during the years ended April 30, 2017 and 2016 totaled $2,669,416 and ($2,177,879), respectively, and the Company has recorded a liability of $2,023,793 and $4,693,209 in the consolidated balance sheets, which represents the fair value of the interest rate swaps as of April 30, 2017 and 2016, respectively.

Level 3

Debt

A VIE of the Company assumed a third mortgage note with Massachusetts Housing Finance Agency (MHFA) on November 1, 2006, having a balance of $18,315,482. The note bears interest at the rate of 5.36% per annum. The VIE has the right to purchase the note upon maturity for the fair value of the note as determined by an appraiser. The mortgage loan was recorded at its estimated fair value on the date of acquisition. The fair value of the third mortgage note has been determined based on the fair value of the property on the acquisition date less the primary loan balances.  As of April 30, 2017, the carrying amount of the loan was $1,828,910.

There were no gross realized and unrealized gains and losses on Level 3 assets and liabilities for the years ended April 30, 2017 and 2016. 

The Company recognizes transfers between levels within the hierarchy as of the beginning of the reporting period. There have been no significant transfers between levels within the hierarchy for the years ended April 30, 2017 and 2016.

Long-Lived Assets

Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that their carrying amount might not be recovered. 

  Income Taxes

Deferred income taxes are provided on the differences between the financial statement and income tax bases of assets and liabilities and on net operating loss carryforwards using the enacted tax rates.

A valuation allowance would be provided for deferred income tax assets for which realization is not likely in the near term.

 

Annual Report on Form 10-K

Page 43

First Hartford Corporation


 

FIRST HARTFORD CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED APRIL 30, 2017 AND 2016

1.   Summary of Significant Accounting Policies (continued):

  Income Taxes (concluded):

As of April 30, 2017 and 2016, the Company has no significant uncertain income tax positions.  The Company recognizes interest and penalties on any uncertain income tax positions as a component of income tax expense. During the years ended April 30, 2017 and 2016, the Company did not recognize any interest or penalties related to unrecognized tax benefits.

The statute of limitations is three years unless there is fraud or substantial understatement of income. Therefore, tax returns beginning with fiscal year 2014 are open to examination by Federal, local and state authorities.

Stock Compensation

Share-based compensation cost is measured at the grant date, based on the calculated fair value of the award, and is recognized as an expense over the employee’s requisite service period (generally the vesting period of the equity grant).

Earnings (loss) per share (EPS)

Basic earnings (loss) per share amounts are determined using the weighted-average outstanding common shares for the year.  Diluted earnings (loss) per share amounts include the weighted-average outstanding common shares as well as potentially dilutive common stock options and warrants using the “treasury stock” method. There were no options outstanding at April 30, 2017 or April 30, 2016.

New Accounting Pronouncements

In May 2014, the FASB issued a standard on revenue recognition providing a single, comprehensive revenue recognition model for all contracts with customers.  The revenue standard is based on the principle that revenue should be recognized to depict the transfer of promised goods or services to customers in an amount that reflects the consideration of which the entity expects to be entitled in exchanged for those goods or services. The standard is effective beginning January 1, 2017, with no early adoption permitted.  The amendments may be applied retrospectively to each prior period presented or retrospectively with the cumulative effect recognized as of the date of initial application.  We are currently evaluating the adoption method options and the impact of the new guidance on our consolidated financial statements.

In February 2015, the FASB issued a standard that amends the current consolidation guidance.  The amendments affect both the variable interest entity (VIE) and voting interest entity (VOE) consolidation models.  The changes are extensive and apply to all companies.  The need to assess an entity under the different consolidation model may change previous consolidation conclusions.  The standard is effective in fiscal periods beginning after December 15, 2015 with early adoption permitted.  The Company has evaluated the impact of the new guidance on its consolidated financial statements and concluded that it has no impact on its consolidated financial statements.

 

Annual Report on Form 10-K

Page 44

First Hartford Corporation


 

FIRST HARTFORD CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED APRIL 30, 2017 AND 2016

1.   Summary of Significant Accounting Policies (concluded):

New Accounting Pronouncements (concluded):

In February 2016, the FASB issued Accounting Standards Update (ASU) No. 2016-02, Leases, (Topic 842), which is intended to improve financial reporting around leasing transactions. The ASU affects all companies and other organizations that engage in lease transactions (both lessee and lessor) that lease assets such as real estate and manufacturing equipment. This ASU will require organizations that lease assets—referred to as “leases”—to recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases. ASU No. 2016-02 is effective for fiscal years and interim periods within those years beginning January 1, 2019. The Company is in process of assessing the impact of the adoption of ASU No. 2016-02 on its financial position, results of operations and cash flows.

In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. The ASU provides guidance on how certain cash receipts and cash payments are to be presented and classified in the statement of cash flows. For public entities, ASU 2016-15 is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted. The Company is currently evaluating the potential impact of adopting this guidance on its consolidated financial statements.

2.   Consolidated Variable Interest Entities

The Company’s consolidated financial statements include the accounts of Rockland Place Apartments Limited Partnership (“Rockland”), Clarendon Hill Somerville Limited Partnership (“Clarendon”) and Trolley Barn Associates, LLC (“Trolley Barn”).  The Company has consolidated Rockland, Clarendon and Trolley Barn based on the express legal rights and obligations provided to it by the underlying partnership agreements and its control of their business activity. 

Connolly and Partners, LLC (75% owned by the Company) has a .01% ownership interest in and is a general partner of Rockland.  Connolly and Partners, LLC also owns 49% of Clarendon Hill Somerville, LLC which owns .01% of and is the general partner of Clarendon.  Trolley Barn is 50% owned by the Company.

Rockland owns and operates a rental housing project consisting of 204 units located in Rockland, Massachusetts.  Clarendon owns and operates a 501 unit apartment complex in Somerville, Massachusetts.  Both projects were renovated and are managed by the Company.  Renovation costs were financed with loans from MHFA, subsidies from U.S. Department of Housing and Urban Development (HUD) and limited partner capital contributions.

Each building of the projects qualifies for low-income housing credits pursuant to Internal Revenue Code Section 42 (“Section 42”), which regulates the use of the projects as to occupant eligibility and unit gross rent, among other requirements.  Each building of the projects must meet the provisions of these regulations during each of fifteen consecutive years in order to remain qualified to receive the credits.  In addition, Rockland and Clarendon have executed an Extended Low-Income Housing Agreement, which requires the utilization of each project pursuant to Section 42 through the compliance period, even if Rockland or Clarendon disposes of the project.

Each project’s low-income housing credits are contingent on its ability to maintain compliance with applicable sections of Section 42.  Failure to maintain compliance with occupant eligibility, and/or unit gross rent, or to correct noncompliance within a specified time period could result in recapture of previously taken tax credits plus interest.  In addition, such potential noncompliance may result in an adjustment to the capital contributed by the investment limited partner.

 

Annual Report on Form 10-K

Page 45

First Hartford Corporation


 

FIRST HARTFORD CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED APRIL 30, 2017 AND 2016

2.   Consolidated Variable Interest Entities (concluded):

Rockland has an agreement with the Rockland Housing Authority whereby the Housing Authority has the option to purchase the property, after the 15-year tax credit compliant period on January 1, 2024, from Rockland.  The option price is based on a specified formula in the agreement.

Clarendon has an agreement with the 51% owner of Clarendon Hill Somerville, LLC, Clarendon Hill Towers Tenant Association, LLC (“CHTTA”), whereby CHTTA has an option to purchase the property after the 15 year tax credit compliance period from the partnership.  The option price is the greater of:

a.      Outstanding debt and taxes, or

b.      Fair market value of the property

The assets at April 30, 2017 and 2016 of the consolidated VIEs (Rockland and Clarendon) that can be used only to settle their obligations and the 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 consolidated balance sheets as follows:

 

April 30,

 

2017

 

2016

 

 

 

 

Real estate and equipment, net

$66,732,664

 

$65,735,521

Other assets

13,417,929

 

8,195,007

Total assets

80,150,593

 

73,930,528

 

 

 

 

Intercompany profit elimination

(2,719,143)

 

(2,863,451)

Consolidated

$77,431,450

 

$71,067,077

 

 

 

 

Mortgages and other notes payable

$64,728,200

 

$57,132,998

Other liabilities

4,179,842

 

4,471,413

Total liabilities

$68,908,042

 

$61,604,411

Substantially all assets of Rockland and Clarendon are pledged as collateral for its debt. The recourse of the holders of the mortgages and other notes payable is limited to the assets of Rockland and Clarendon. Combined revenues for Rockland and Clarendon were $12,171,608 for the year ended April 30, 2017 and $12,117,191 for the year ended April 30, 2016. The combined net loss for Rockland and Clarendon was $843,327 for the year ended April 30, 2017 and $390,055 for the year ended April 30, 2016. Since the Company’s ownership interest in both entities is nominal, substantially all of such losses are allocated to the noncontrolling interests in the consolidated financial statements. 

Trolley Barn’s only asset is approximately seven acres of land in Cranston, RI with a carrying value of $391,905.

 

Annual Report on Form 10-K

Page 46

First Hartford Corporation


 

FIRST HARTFORD CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED APRIL 30, 2017 AND 2016

3.   Construction Loans, Mortgages, Notes Payable, and Lines of Credit:

Information about the Company’s debt follows:

 

2017

 

2016

 

 

 

 

Construction loans and mortgages payable with interest rates ranging from zero to 7.25% at April 30, 2017 and 2016 and maturities at various dates through 2056.

$222,692,946

 

$217,151,132

 

 

 

 

Notes payable with interest rates ranging from zero to 4.40% at April 30, 2017 and 2016 and maturities ranging from 2030 to 2050.

1,704,697

 

1,744,697

 

 

 

 

Lines of credit with interest rates ranging from 3.98% to 4.25% at April 30, 2017 and maturities ranging from 2018 to 2020.

6,400,000

 

2,652,091

 

 

 

 

 

230,797,643

 

221,547,920

 

 

 

 

Less deferred debt issuance costs

(3,067,098)

 

(1,837,083)

 

 

 

 

 

$227,730,545

 

$219,710,837

As of April 30, 2017 and 2016, $162,217 and $420,906 of interest was capitalized.

Aggregate principal payments due on the above debt for each of the years succeeding April 30, 2017 are as follows:

Year Ending April 30,

 

 

2018

$32,602,471

2019

8,885,776

2020

7,116,034

2021

5,862,559

2022

6,628,223

Thereafter

169,702,580

 

$230,797,643

Substantially all real estate owned is pledged as collateral for construction and mortgage loans.

Refinancings:

Rockland Place Apartments LP – Refinance: On June 3, 2016, Rockland Place Apartments LP executed a First Mortgage Note payable with the Massachusetts Housing Finance Agency in the amount of $14,300,000.  The note is nonrecourse, has a 40-year term and requires monthly payments of principal and interest of $54,628.  The interest rate is fixed at 3.41%.  The proceeds of the note were used to repay its bridge mortgage note with a principal balance of $591,174, its Fourth Mortgage Note with a principal balance of $500,000, and it’s Flexible Subsidy Capital Improvement Loan with a principal balance of $4,268,539.  The proceeds also funded closing costs and certain escrows that are being used to redevelop the complex.

 

Annual Report on Form 10-K

Page 47

First Hartford Corporation


 

FIRST HARTFORD CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED APRIL 30, 2017 AND 2016

3.   Construction Loans, Mortgages, Notes Payable, and Lines of Credit (continued):

Edinburg, TX - Refinance: On September 7, 2016, the Company partially refinanced its loans on its shopping center property in Edinburg, TX.  The new loan with Goldman Sachs is for $32,500,000 and is secured by the shopping center.  Proceeds from this new loan were used to pay off $31,030,767 of existing debt with Protective Life and to establish a $1,100,000 Earnout Reserve Account (ERA), with the balance used to fund escrows and pay closing costs.  The remainder of the existing debt of $15,926,740 is secured by vacant land of approximately 50 acres attached to the shopping center.  The $1,100,000 ERA will be returned to the Company if, within two years, it can provide evidence that two significant named tenants have renewed their lease options for an additional five years (or the Company has entered into Approved Substitute Lease(s) for same) and the Earnout Debt Yield (EDY), as defined, is equal to or greater than 8.30%.  If the Company fails to do so, a minimum of $1,000,000 of the ERA will be used to reduce the principal balance of the loan and up to $100,000 will be used to pay the applicable yield maintenance premium.    The loan has a 30 year amortization and duration of 10 years (i.e., maturity date of September 6, 2026) with an interest rate of 4.604%.  For the first year, interest only is paid monthly; beginning in October 2017, principal and interest are paid monthly.  Prepayment of the loan is generally prohibited.  The Company receives income directly to its operating account unless a “trigger event” occurs in which case the cash goes into a lockbox account controlled by the lender.  Basic “trigger events” include:

  • Failure to maintain a 12 month-rolling Debt-Service Coverage Ratio (DSCR), as defined, of 1.1:1.0,

  • Failure to maintain a market-based Net Worth, as defined, of $20,000,000,

  • Failure to maintain Liquid Assets, as defined, of $2,000,000,

  • Loan default,

  • Various Rollover Trigger Events, which include certain significant named tenants vacating, terminating or not renewing their leases, or filing for bankruptcy and not replaced with an Approved Substitute Lease, as defined.

In addition, if a significant named tenant goes dark, vacates, or is not in occupancy of substantially all of its current space, the Company would have to deposit either a $2,000,000 reserve or letter of credit with the lender until such time as agreed upon lease conditions being met.

With respect to the remaining balance of $15,926,740 from the original loans with Protective Life now secured by vacant land of approximately 50 acres directly adjacent to the shopping center, the Company and the lender agreed that once the Company repays $2,000,000 of the balance, the interest rate on the remaining balance will be reduced from 5.0% to 4.0%.  This repayment was made on April 28, 2017.  The lender has also agreed that if the Company pays off the entire loan by September 6, 2017, its 50% Additional Interest Agreement (AIA) rights will terminate.  This remaining loan is personally guaranteed by the Chairman of the Company.

New Orleans, LA – Refinance: On November 18, 2016, the Company refinanced one of its construction loans on its shopping center property in New Orleans, LA.  The construction loan, which had a principal balance of $7,301,803, was replaced by a mortgage loan of $7,436,745.  The new mortgage loan has an interest rate of One Month ICE LIBOR, as defined, plus 2.50% and an initial maturity date of November 18, 2017 with an option to extend the maturity to November 18, 2018 at an interest rate of 5.0% if it meets certain requirements.  The loan is interest-only until November 18, 2017; if the loan is extended an additional year, principal payments will be made using a 25-year amortization.

 

Annual Report on Form 10-K

Page 48

First Hartford Corporation


 

 FIRST HARTFORD CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED APRIL 30, 2017 AND 2016

3.   Construction Loans, Mortgages, Notes Payable, and Lines of Credit (concluded):

Lubbock, TX – Refinance: On November 21, 2016, the Company refinanced its mortgage loan on its shopping center in Lubbock, TX.  The new mortgage loan has a principal balance of $13,750,000, which was used to pay off the previous mortgage loan balance of $10,837,300, pay a defeasance premium of $432,776, pay closing costs, and fund escrows.  The new mortgage loan has an interest rate of 4.974%, monthly payments of $76,540 based on a 27.5-year amortization, and a ten year term expiring on December 6, 2026.  Prepayment is not permitted until six months before the maturity date.

Construction Loans:

Austin, TX – Financing: On February 28, 2017, the Company modified an existing line of credit loan to $4,000,000 of which up to $1,600,000 is available to finance construction of a building on a parcel of land it owns in Austin, TX.  This loan has an interest rate of 1.50% plus the Prime Rate, as defined, with a Floor Rate of 5.00% and has a maturity date of December 27, 2017 with an option to extend for six months if certain criteria are met.

Edinburg, TX – Financing: On April 28, 2017, the Company obtained a $2,750,000 construction loan to finance construction of a restaurant at its Edinburg, TX property.  The Company had an equity requirement of $2,716,000, of which $2,000,000 was used to repay Protective Life against their remaining loan to release the lot the restaurant is being constructed on.  The initial construction draw was for $1,092,857 with another $1,657,143 available to draw as construction is completed.  The interest rate on the loan is the Prime Rate per Wall Street Journal plus 1.00% with a floor of 4.75% and a ceiling of 7.00%.  The monthly loan payments are interest only for the first six months then convert to monthly principal and interest payments calculated using a 20 year amortization period with a final balloon payment due on April 25, 2024. 

Lines of Credit:

On July 30, 2015, the Company obtained a credit line with a regional bank.   This $2,760,000 line of credit is used from time to time primarily to fund initial investments related to development opportunities.  The interest rate on these loans is 3.00% plus One Month ICE LIBOR rate up to maturity date (i.e., twelve months from issuance of proceeds) and 12.0% thereafter.  As of April 30, 2017, the Company had borrowings of $2,650,000 against this credit line.

On December 7, 2015, the Company entered into a $2,000,000 revolving demand loan agreement (“line of credit”) with a regional bank.  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 is used from time to time primarily to fund initial investments related to development opportunities.  As of April 30, 2017, the Company had borrowings of $2,000,000 against this credit line.

On April 19, 2017, the Company entered into a $2,000,000 unsecured line of credit with a regional bank.  Terms of the line of credit are as follows:

Term:

3 years

Rate:

LIBOR + 3.25%

Fee:

0.50% (One Time)

Unused Fee:

0.25% annually on the unused line

Guarantee:

Full guarantee by the Chairman of the Company (Individual)

Deposits:

Must maintain a minimum of $500,000 at bank

Other:

Each funding request to be at the sole discretion of the bank and only to acquire credit tenanted properties.

Clean Up:

Borrower to be out of debt once each year for at least 30 days.

As of April 30, 2017, the Company had borrowings of $1,750,000 against this credit line.

Annual Report on Form 10-K

Page 49

First Hartford Corporation


 

FIRST HARTFORD CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED APRIL 30, 2017 AND 2016

4.   Pledge of Stock in Subsidiaries:

For an extended period of time the Company was unable to obtain financing (secured or unsecured) without the personal guarantees of the Chairman of the Company.  To some degree, the Company has recently been able to obtain financing without a guarantee, but generally guarantees continue to be a necessary component to some construction loans.  In the past, the Company has provided pledges of the stock of its subsidiaries to the Chairman of the Company as protection from personal losses due to his guarantees.  These pledges are expected to stay in place until the guarantees are eliminated.

The Chairman of the Company has guaranteed the following outstanding amounts at April 30, 2017:

Mortgage loan – Edinburg, TX

$13,926,740

Mortgage loan – Manchester, CT (Company HQ)

$206,356

Land loan – Buda, TX

$1,505,000

Land loan – Austin, TX

$2,500,000

Land loan – Cedar Park, TX

$1,365,000

Line of credit – Regional bank

$1,750,000

In the event that the Chairman is called upon to pay on any of the above guarantees, the Company would become liable to him.

5.   Related Party Transactions:

Included in amounts due from related parties and affiliates is $-0- and $157,288 at April 30, 2017 and 2016 relating to funds borrowed from Hartford Lubbock Limited Partnership by Green Manor Corporation, which owns Journal Publishing and owns 98.01% of Hartford Lubbock Limited Partnership. These funds were borrowed some years ago (prior to consolidation).  The Chairman of the Company and his wife are the owners of Green Manor Corporation.

Included in amounts due from related parties and affiliates is $150,000 and $-0- at April 30, 2017 and 2016 relating to funds provided to a member of Cranston Brewery, LLC by Cranston/BVT Associates, LP, a 50% owned subsidiary of the Company.  Cranston Brewery LLC owns the other 50% of Cranston/BVT Associates, LP. 

Included in amounts due to related parties and affiliates is $518,813 and $502,091 payable to Cranston Brewery LLC at April 30, 2017 and 2016, respectively. Cranston Brewery LLC is an affiliate but not owned by the Company. The amount due represents its funding of operations of Trolley Barn Associates (50%). The Company’s advances to Trolley Barn Associates were eliminated in consolidation.

Included in amounts due to related parties and affiliates is $80,000 and $80,000 payable to New Folly Brook Commons, LLC at April 30, 2017 and 2016, respectively. New Folly Brook Commons, LLC is owned by the Chairman of the Company. The amount due represents the remaining balance for condominiums sold by New Folly Brook Commons, LLC to a subsidiary of the Company.

Included in amounts due to related parties and affiliates is $-0- and $20,000 payable to the Chairman of the Company at April 30, 2017 and 2016, respectively.  The amount due represents a short-term loan to Hartford Lubbock Limited Partnership.

 

 

Annual Report on Form 10-K

Page 50

First Hartford Corporation


 

FIRST HARTFORD CORPORATION AND SUBSIDIARIES  

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED APRIL 30, 2017 AND 2016

6.   Employee Retirement Plan:

The Company had a SIMPLE IRA through December 31, 2015.  This plan was replaced by a 401(k) Plan on January 1, 2016. Under this plan, all employees over 18 years of age, working at least 30 hours weekly are eligible to participate.  Participants are eligible to defer earnings to the extent of IRS regulations.  The Company matches up to 4% of each participating employee’s annual salary (was 3% under the SIMPLE IRA).  Pension expense was $174,417 and $132,643 for the years ended April 30, 2017 and 2016, respectively.

7.   Income Taxes:

The provision (benefit) for income taxes consists of:

 

2017

 

2016

 

 

 

 

Current Federal income taxes

$49,999

 

$80,000

Current State income taxes

350,313

 

180,915

Deferred Federal income taxes

1,265,977

 

551,708

Deferred State income taxes

193,652

 

119,524

 

$1,859,941

 

$932,147

 

 

 

 

The components of the net deferred income tax asset follow:

 

 

 

 

 

 

Tax effect of net operating loss carry-forwards

$449,642

 

$1,426,572

Basis in fixed assets

250,042

 

368,442

AMT credits

311,917

 

261,054

Rent receivable

(381,301)

 

-0-

Other

40,847

 

74,708

Subtotal

671,147

 

2,130,776

Less: Valuation allowance

-0-

 

-0-

 

$671,147

 

$2,130,776

A reconciliation of the provision (benefit) for income taxes with amounts determined by applying the statutory U.S. Federal income tax rate before income taxes is as follows:

 

2017

 

2016

 

 

 

 

Federal statutory rate (34%)

$2,155,367

 

$875,682

State tax – net of Federal effect

350,313

 

180,915

Losses (income) attributable to noncontrolling
     interests in pass-through entities

(506,988)

 

42,343

Other

(138,751)

 

(166,793)

Provision (benefit) for income taxes

$1,859,941

 

$932,147

 

 

Annual Report on Form 10-K

Page 51

First Hartford Corporation


 

 FIRST HARTFORD CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED APRIL 30, 2017 AND 2016

8.     Leases:

The Company leases commercial and residential real estate to tenants under various operating leases expiring through 2042.

Minimum future rentals to be received on non-cancellable commercial real estate leases as of April 30, 2017 are as follows:

Year Ending April 30,

 

 

2018

$13,271,438

2019

12,174,840

2020

9,457,993

2021

8,478,983

2022

6,909,247

Thereafter

27,858,654

Total

$78,151,155

9.     Investments in Affiliates:

Summarized financial and other information for the Company’s investment in Dover Parkade LLC (Dover) follows:

Dover – New Jersey:

As of and for the years ended April 30,

Company ownership – 50%

 

2017

2016

 

 

 

Assets

$11,811,029

$12,365,300

Liabilities

19,068,557

19,553,732

Members’ deficit

(7,257,528)

(7,188,432)

Revenue

2,700,169

2,708,632

Operating expenses

1,224,837

1,255,426

Non-operating expense, net

(824,428)

(839,504)

Net income (loss)

650,904

613,702

Dover’s major tenant is Stop & Shop, which provided 56% and 53% of the total revenue in the years ended April 30, 2017 and 2016, respectively, under a lease that expires on June 30, 2026.

10.   Concentrations of Credit Risk:

The Company’s financial instruments that are subject to concentrations of credit risk consist of cash and cash equivalents, marketable securities, and accounts, notes and other receivables.

The Company places its cash deposits, including investments in certificates of deposit, with various financial institutions.  Bank deposits may be in excess of current Federal depository insurance limits.  The Company manages exposure to counterparty credit risk through specific minimum credit standards, diversification of counterparties and procedures to monitor its credit risk concentrations.

 

Annual Report on Form 10-K

Page 52

First Hartford Corporation


 

FIRST HARTFORD CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED APRIL 30, 2017 AND 2016

10.   Concentrations of Credit Risk (concluded):

The Company has one customer which accounts for more than 10% of the Company’s revenue in both 2017 and 2016.

The Company assesses the financial strength of its tenants prior to executing leases and typically requires a security deposit and prepayment of rent.  The Company establishes an allowance for doubtful accounts receivable based upon factors surrounding the credit risk of specific tenants, historical trends and other information.

The Company assesses the financial strength of CVS prior to incurring costs in connection with the development of CVS pharmacy stores.  Based on historical experience and other information, no allowance for doubtful accounts related to these receivables is considered necessary by management as of April 30, 2017 or 2016.

11.   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 the 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:

 

2017

 

2016

Revenues:

 

 

 

Real Estate Operations

$70,830,796

 

$55,565,262

Fee for Service

4,839,500

 

6,298,250

Total

$75,670,296

 

$61,863,512

 

 

 

 

Operating Cost and Expense:

 

 

 

Real Estate Operations

$47,901,941

 

$38,496,837

Fee for Service

5,011,262

 

5,695,793

Administrative Expenses

9,078,059

 

7,141,236

Total

$61,991,262

 

$51,333,866

 

 

 

 

All costs after administrative expenses are cost of the real estate operation.

The only assets in the balance sheet belonging to the Fee for Service segment is restricted cash of $129,651 in 2017 and $1,664,214 in 2016 and receivables of $4,262,302 in 2017 and $6,389,867 in 2016.

12.  Deferred Compensation Plan:

On December 1, 2014, the Company adopted a Deferred Bonus Plan that awarded six key employees an annual payment of $21,667 each for three years.  All of the six employees have satisfied the vesting requirements and received the first two payments in August 2015 and 2016.  The total expense recorded for this bonus was $390,000.

 

Annual Report on Form 10-K

Page 53

First Hartford Corporation


 

FIRST HARTFORD CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED APRIL 30, 2017 AND 2016

13.  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, CT 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 since the mortgage was non-recourse and was in excess of the book value.  Pre-tax income for this shopping center was $-0- and $44,645 for the years ended April 30, 2017 and 2016, respectively.

14.  Purchases of Real Estate:

Buda, TX - Land Purchases: On April 29, 2016, the Company purchased a parcel of land in Buda, TX adjacent to another parcel owned by the Company for $686,167 including closing costs. On May 13, 2016, the Company purchased three additional parcels of land adjacent to these parcels for $1,051,034 including closing costs. These purchases were financed by a new land loan of $1,505,000 with the balance funded by working capital.  Key terms of the loan are as follows:

 

Loan Amount:

$1,505,000

Maturity Date: 

September 24, 2017

Interest Rate:

The lower of a) the Prime Rate per Wall Street Journal plus 1.00% or b) 4.25%.

Payments: 

Interest only payable monthly.  At maturity, outstanding principal plus any accrued interest will be payable.

Guarantors: 

Both the Company (Corporate) and Chairman of the Company (Individual).

 Austin, TX – Land Purchase: On December 19, 2016, the Company purchased a parcel of land in Austin, TX for $3,732,223.  This purchase, along with related closing costs, was financed by an existing line of credit of $1,250,000 and a new land loan of $2,500,000.  This land is being held for potential future development.  Key terms of the loan are as follows:

Loan Amount: 

$2,500,000

Maturity Date: 

December 19, 2018

Interest Rate: 

The greater of a) the Prime Rate per Wall Street Journal plus 0.75% or b) 4.25%.

Payments: 

Interest only payable monthly.  At maturity, outstanding principal plus any accrued interest will be payable.

Guarantors: 

Both the Company (Corporate) and Chairman of the Company (Individual).

 

Annual Report on Form 10-K

Page 54

First Hartford Corporation


 

FIRST HARTFORD CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED APRIL 30, 2017 AND 2016

14.   Purchases of Real Estate (continued):

Brentwood, NY – Land Purchase: On December 23, 2016, the Company purchased a parcel of land in Brentwood, NY for $5,000,000, which along with closing costs was financed by a new acquisition mortgage loan of $5,000,000 and working capital.  The Company is going to build a single entity build-to-suit on this land.  This construction will be financed by a building mortgage loan of $4,775,000 and a project mortgage loan of $875,000.  The total amount of these three loans is $10,650,000.  Key terms of the loans are as follows:

Loan Amount: 

$10,650,000

Maturity Date:

 December 1, 2027

Interest Rate: 

One month LIBOR, as defined, plus 2.75% through December 1, 2017 (the “Construction Phase”); thereafter, one month LIBOR plus 1.95% (the “Permanent Phase”).

Payments: 

Interest only payable monthly during the Construction Phase.  Thereafter, principal and interest payable monthly using a 30-year amortization.

Guarantor: 

The Company (Corporate).

Prepayment Penalties:

Prior to December 1, 2017, 0.50% of the principal balance prepaid; from January 1, 2018 – December 1, 2019, 1.00% of the principal balance prepaid.

St. Louis, MO – Property Purchase: On January 20, 2017, the Company purchased a property with a single retail tenant in St. Louis, MO for $5,900,000.  The Company plans to resell it by the end of the calendar year.  This purchase, along with closing costs, was financed with a new loan of $5,120,000, advances from one of the Company’s line of credit of $1,000,000, and working capital of $324,768. Key terms of the loan are as follows:  

Loan Amount: 

$5,120,000

Maturity Date: 

October 20, 2017

Interest Rate: 

One month LIBOR, as defined, plus 2.20%.

Payments:

Interest only payable monthly.

Cedar Park, TX – Property Purchase: On March 29, 2017, the Company purchased a property with a single retail tenant in Cedar Park, TX for $1,625,000 including closing costs.  The Company plans to resell it by the end of the fiscal year ending April 30, 2018.  This purchase was financed with proceeds from a new loan of $1,365,000 and working capital of $260,000. Key terms of the loan are as follows:  

Loan Amount: 

$1,365,000

Maturity Date: 

March 29, 2022

Interest Rate: 

The greater of a) the Prime Rate per Wall Street Journal plus 0.75% or b) 4.50%.

Payments: 

Interest only payable monthly through September 2017, followed by monthly principal and interest payments using a 25 year amortization period with a final balloon payment at maturity.

Guarantors:

Both the Company (Corporate) and Chairman of the Company (Individual).

 

Annual Report on Form 10-K

Page 55

First Hartford Corporation


 

FIRST HARTFORD CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED APRIL 30, 2017 AND 2016

 

15.  Subsequent Events:

The Company has evaluated for subsequent events through July 31, 2017, the date the financial statements were issued.

Houston, TX – Land Purchase: On May 12, 2017, the Company completed its purchase of a parcel of land in Houston, TX for $8,583,235 including closing costs.  This purchase was financed with proceeds from a construction loan of $5,158,210, utilization of the Company’s lines of credit of $2,400,000, and working capital of $1,025,025. Key terms of the construction loan are as follows:  

Loan Amount:

$8,600,000

Maturity Date:

November 15, 2018

Interest Rate:  

2.50% plus One Month ICE LIBOR rate, as defined, up to maturity date and 12.0% thereafter.

Payments: 

Interest only payable monthly with principal due at maturity.

Guarantee: 

The Company (Corporate).

 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 approximately $6,567,000).  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 with a single-tenant build-to-suit in New Orleans, LA for $11,350,000 (cost of approximately $9,007,000).  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 approximately $2,944,000).  A loan with a balance of $1,102,899 was paid off with the proceeds. 

New Orleans, LA – Refinance: On June 30, 2017, the Company refinanced its construction loan on its shopping center property in New Orleans, LA.  The construction loan, which had a principal balance of $5,568,910, was replaced by a mortgage loan of $8,565,000.  The new mortgage loan has an interest rate of 4.75%.  The loan is interest-only until July 1, 2020; thereafter, monthly payments of $44,576 inclusive of principal and interest are due and payable until the maturity date of July 1, 2027, at which time the remaining principal balance must be repaid in full.

 

 

[End of Financial Statements and Notes thereto. ]

 

 

Annual Report on Form 10-K

Page 56

First Hartford Corporation


 

S I G N A T U R E S

Pursuant to the requirements of Section 13 or 15(d) 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.

Dated:  July 31, 2017

 

FIRST HARTFORD CORPORATION

 
 
     By:      /s/   Neil H. Ellis                    
                      Neil H. Ellis
            Chairman of the Board and
            Chief Executive Officer

            Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

  

 July 31, 2017

        /s/   Neil H. Ellis                       

 

       Neil H. Ellis

 

       Chairman of the Board and

 

       Chief Executive Officer

 

       (Principal Executive Officer)

 

 

 

 

July 31, 2017

        /s/   Eric J. Harrington               

 

       Eric J. Harrington

 

       Chief Financial Officer and

 

       Treasurer

 

      (Principal Financial and Accounting Officer)