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

FHRT 10Q Quarterly Report

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Mine Safety Disclosures
Item 5. Other Information
Item 6. Exhibits
EX-31.1 fhcex31-1.htm
EX-31.2 fhcex31-2.htm
EX-32 fhcex32-1.htm

First Hartford Earnings 2018-01-31

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

10-Q 1 fhc10q.htm Prepared by EDGARX.com

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

FORM 10-Q

(Mark One)

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

For the quarterly period ended January 31, 2018.

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

For the transition period from                                                                          to                                                                                           

Commission File Number:                  0-8862                                                                                                                                                  

 

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

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

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

(860) 646-6555                                                                                                                                                                                                   
(Registrant’s telephone number including area code)


                                                                                                                                                                                                                               
(Former name, former address and former fiscal year if changed since last report)

 

Indicate by check mark whether the registrant (1) has filed all reports to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.       Yes  X       No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).     Yes          No X

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

Large accelerated filer 

Accelerated filer

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

Smaller reporting company X

Emerging growth company

 

 

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

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

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

2,315,799 as of March 29, 2018

1

 


 

FIRST HARTFORD CORPORATION AND SUBSIDIARIES

INDEX

 

PART I.

FINANCIAL INFORMATION

PAGE

 

Item 1.

Financial Statements (Unaudited)

 

               

 

Condensed Consolidated Balance Sheets –
January 31, 2018 and April 30, 2017

 

 

3 - 4

 

Condensed Consolidated Statements of Income (Loss) for the
Three and Nine Months Ended January 31, 2018 and 2017

 

 

5

 

Condensed Consolidated Statements of Comprehensive Income (Loss) for
the Three and Nine Months Ended January 31, 2018 and 2017

 

6

 

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

 

 

7 - 8

 

Notes to Condensed Consolidated Financial Statements

 

9 – 16   

Item 2.

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

 

 

17 - 22

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

 

22

Item 4.

Controls and Procedures

 

23

PART II.

OTHER INFORMATION

 

 

Item 1.

Legal Proceedings

 

24

Item 1A.

Risk Factors

 

24

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

24

Item 3.

Defaults Upon Senior Securities

 

24

Item 4.

Mine Safety Disclosures

 

24

Item 5.

Other Information

 

25

Item 6.

Exhibits

 

25

 

Signatures

26

 

 

Exhibits

27 - 29

 

 

2

 


 

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

ASSETS

 

January 31, 2018

 

April 30, 2017

Real estate and equipment:

 

 

 

Developed properties and property under construction (including $79,359,489 in January and $77,898,958 in April for VIEs)

$246,740,814

 

$236,865,867

Equipment and tenant improvements (including $2,522,591 in January and $2,424,964 in April for VIEs)                    

4,300,989

 

3,689,442

 

251,041,803

 

240,555,309

 

 

 

 

Less accumulated depreciation and amortization (including $17,500,627 in January and $15,918,495 in April for VIEs)

 

(51,435,113)

 

 

(47,449,316)

 

199,606,690

 

193,105,993

 

 

 

 

Property held for sale

12,261,143

 

11,389,591

 

Cash and cash equivalents (including $2,444,000 in January and $2,063,103 in April for VIEs)

6,958,982

 

6,250,757

 

 

 

 

Cash and cash equivalents – restricted (including $378,929 in January and $396,361 in April for VIEs)

652,599

 

526,012

 

 

 

 

Marketable securities (including $816,575 in January and $1,538,839 in April for VIEs)

816,575

 

1,538,839

 

 

 

 

Accounts and notes receivable, less allowance for doubtful accounts of $70,419 as of January 31, 2018 and $135,002 as of April 30, 2017 (including $142,312 in January and $66,543 in April for VIEs)

  

3,278,121

 

 

3,505,541

 

 

 

 

Other receivables

2,319,665

 

4,064,876

 

 

 

 

Deposits and escrow accounts (including $7,679,909 in January and $8,866,586 in April for VIEs)

 

14,914,468

 

 

15,930,999

 

 

 

 

Prepaid expenses (including $311,029 in January and $327,481 in April for VIEs)

1,998,252

 

1,644,320

 

 

 

 

Deferred expenses (including $154,627 in January and $167,273 in April for VIEs)

5,266,655

 

5,712,547

 

 

 

 

Investments in affiliates

379,747

 

100

 

 

 

 

Due from related parties and affiliates

2,672

 

152,776

 

 

 

 

Deferred tax asset

706,627

 

671,147

 

 

 

 

Total assets

$249,162,196

 

$244,493,498

See accompanying notes.

3

 


 

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

LIABILITIES AND SHAREHOLDERS’ EQUITY (DEFICIENCY)

 

 

January 31, 2018

 

April 30, 2017

Liabilities:

 

 

 

Mortgages and notes payable:

 

 

 

   Construction loans payable

$36,981,466

 

$26,929,537

   Mortgages payable (including $63,852,897 in January and $64,598,997 in April for VIEs)

192,932,566

 

195,763,409

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

1,704,697

 

1,704,697

   Lines of credit

6,760,000

 

6,400,000

   Less: Deferred debt issuance costs, net (including $1,529,700 in January and $1,575,494 in April for VIEs)

(3,069,646)

 

(3,067,098)

 

235,309,083

 

227,730,545

 

 

 

 

Accounts payable (including $730,129 in January and $569,600 in April for VIEs)

4,403,062

 

2,915,400

Other payables

3,413,573

 

4,966,246

Accrued liabilities (including $3,468,365 in January and $3,382,307 in April for VIEs)

5,512,452

 

5,699,875

Derivative liability

1,551,002

 

2,023,793

Deferred income (including $222,956 in January and $227,936 in April for VIEs)

534,584

 

622,461

Other liabilities

1,037,871

 

1,328,909

Due to related parties and affiliates (including $459,875 in January and $446,990 in April for VIEs)

611,728

 

598,843

Total liabilities

252,373,355

 

245,886,072

 

 

 

 

Shareholders’ Equity (Deficiency):

 

 

 

First Hartford Corporation:

 

 

 

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

-0-

 

-0-

Common stock, $1 par value; authorized 6,000,000 shares; issued 3,211,843 and 3,236,843 shares and outstanding 2,315,799 and 2,340,799 shares as of January 31, 2018 and April 30, 2017

3,211,843

 

3,236,843

Capital in excess of par

5,043,779

 

5,093,779

Accumulated deficit

(6,943,846)

 

(5,612,263)

Accumulated other comprehensive income

-0-

 

-0-

Treasury stock, at cost, 896,044 and 896,044 shares as of January 31, 2018 and April 30, 2017

 (4,989,384)

 

(4,989,384)

Total First Hartford Corporation

(3,677,608)

 

(2,271,025)

Noncontrolling interests

466,449

 

878,451

 

 

 

 

Total shareholders’ equity (deficiency)

(3,211,159)

 

(1,392,574)

 

 

 

 

Total liabilities and shareholders’ equity (deficiency)

$249,162,196

 

$244,493,498

 

See accompanying notes.

4

 


 

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

 

 

Three Months Ended

 

Nine Months Ended

 

Jan. 31, 2018

 

Jan. 31, 2017

 

Jan. 31, 2018

 

Jan. 31, 2017

Operating revenues:

 

 

 

 

 

 

 

  Rental income

$7,812,600

 

$8,095,209

 

$23,355,145

 

$24,023,744

  Service income

1,019,805

 

1,099,684

 

3,264,005

 

3,928,067

  Sales of real estate

1,629,504

 

15,778,442

 

23,819,504

 

34,373,493

  Other revenues

1,740,702

 

1,077,452

 

4,601,747

 

2,984,212

 

12,202,611

 

26,050,787

 

55,040,401

 

65,309,516

 

 

 

 

 

 

 

 

Operating costs and expenses:

 

 

 

 

 

 

 

  Rental expenses

5,563,034

 

4,949,847

 

15,555,914

 

15,115,039

  Service expenses

1,215,882

 

1,333,691

 

4,151,167

 

3,863,958

  Cost of real estate sales

653,812

 

13,589,022

 

19,941,842

 

27,692,903

  Selling, general and administrative expenses

3,146,547

 

2,460,473

 

9,951,570

 

6,907,319

 

10,579,275

 

22,333,033

 

49,600,493

 

53,579,219

 

 

 

 

 

 

 

 

Income from operations

1,623,336

 

3,717,754

 

5,439,908

 

11,730,297

 

 

 

 

 

 

 

 

Non-operating income (expense):

 

 

 

 

 

 

 

  Interest expense

(2,619,516)

 

(2,524,603)

 

(7,833,720)

 

(7,707,422)

  Other income / (loss)

70,023

 

30,745

 

195,249

 

69,850

  Loss on impairment

(40,000)

 

-0-

 

(40,000)

 

-0-

  Gain (loss) on derivatives (non-cash)

598,688

 

2,883,917

 

472,791

 

2,427,052

  Loss on defeasance

-0-

 

(437,776)

 

-0-

 

(437,776)

  Equity in earnings of unconsolidated subsidiaries

203,506

 

182,654

 

561,038

 

546,016

 

(1,787,299)

 

134,937

 

(6,644,642)

 

(5,102,280)

 

 

 

 

 

 

 

 

Income / (loss) before income taxes

(163,963)

 

3,852,691

 

(1,204,734)

 

6,628,017

 

 

 

 

 

 

 

 

Income tax expense

40,563

 

565,065

 

69,168

 

1,617,159

 

 

 

 

 

 

 

 

Consolidated net income (loss)

(204,526)

 

3,287,626

 

(1,273,902)

 

5,010,858

 

 

 

 

 

 

 

 

Net (income) loss attributable to noncontrolling interests

(111,495)

 

(1,202,072)

 

(57,681)

 

(1,191,218)

 

 

 

 

 

 

 

 

Net income (loss) attributable to First Hartford Corporation

$(316,021)

 

$2,085,554

 

$(1,331,583)

 

$3,819,640

 

 

 

 

 

 

 

 

Net income (loss) per share – basic

$(0.14)

 

$0.88

 

$(0.57)

 

$1.60

 

 

 

 

 

 

 

 

Net income (loss) per share – diluted

$(0.14)

 

$0.88

 

$(0.57)

 

$1.60

 

 

 

 

 

 

 

 

Shares used in basic per share computation

2,315,799

 

2,377,565

 

2,322,049

 

2,384,321

 

 

 

 

 

 

 

 

Shares used in diluted per share computation

2,315,799

 

2,377,565

 

2,322,049

 

2,384,321

 

See accompanying notes.

5

 


 

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

 

 

Three Months Ended

 

Nine Months Ended

 

Jan. 31, 2018

 

Jan. 31, 2017

 

Jan. 31, 2018

 

Jan. 31, 2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated net income (loss)

$(204,526)

 

$3,287,626

 

$(1,273,902)

 

$5,010,858

 

 

 

 

 

 

 

 

Other comprehensive income (loss), net of taxes:

 

 

 

 

 

 

 

    Unrealized gains (losses) on marketable securities

(91,871)

 

160,436

 

3,820

 

77,517

 

 

 

 

 

 

 

 

Total comprehensive income (loss)

(296,397)

 

3,448,062

 

(1,270,082)

 

5,088,375

 

 

 

 

 

 

 

 

Amounts attributable to noncontrolling interests:

 

 

 

 

 

 

 

  Net (income) loss

(111,495)

 

(1,202,072)

 

(57,681)

 

(1,191,218)

  Unrealized (gains) losses on marketable securities

91,871

 

(160,436)

 

(3,820)

 

(77,517)

 

 

 

 

 

 

 

 

 

(19,624)

 

(1,362,508)

 

(61,501)

 

(1,268,735)

Comprehensive income (loss) attributable to First Hartford Corporation

$(316,021)

 

$2,085,554

 

$(1,331,583)

 

$3,819,640

 

 

 

 

 

 

 

 

 

 

 

See accompanying notes.

 

6

 


 

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

 

 

Nine Months Ended

 

January 31, 2018

 

January 31, 2017

Operating activities:

 

 

 

  Consolidated net income / (loss)

$(1,273,902)

 

$5,010,858

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

 

 

 

       Equity in earnings of unconsolidated subsidiaries, net of distributions of $270,000 in 2018 and $270,000 in 2017

(291,038)

 

(276,016)

       Gain on sale of real estate

(3,877,662)

 

(6,680,590)

       Depreciation of real estate and equipment

4,204,507

 

4,064,791

       Amortization of deferred expenses

419,301

 

541,234

       Deferred income taxes

(35,480)

 

1,240,005

       Loss on impairment

40,000

 

-0-

       Loss / (gain) on derivatives

(472,791)

 

(2,427,052)

  Changes in operating assets and liabilities:

 

 

 

       Accounts, notes and other receivables

1,972,631

 

799,770

       Deposits and escrow accounts

1,137,451

 

3,705,133

       Prepaid expenses

(353,932)

 

(213,589)

       Deferred expenses

24,043

 

(4,711,238)

       Cash and cash equivalents – restricted

(126,587)

 

1,335,563

       Accrued liabilities

(187,423)

 

(1,621,513)

       Deferred income

(87,877)

 

(134,402)

       Accounts and other payables

(65,011)

 

(2,224,997)

 

 

 

 

Net cash provided by / (used in) operating activities

1,026,230

 

(1,592,043)

 

 

 

 

Investing activities:

 

 

 

  Investments in marketable securities

(151,864)

 

-0-

  Proceeds from sale of marketable securities

877,947

 

642,596

  Purchase of equipment and tenant improvements

(900,545)

 

(125,762)

  Investments in affiliated companies

(379,647)

 

-0-

  Proceeds from sale of real estate

23,819,504

 

34,373,493

  Additions to developed properties and properties under construction

(30,658,053)

 

(25,253,629)

 

 

 

 

  Net cash provided by / (used in) investing activities

(7,392,658)

 

9,636,698

 

See accompanying notes.

7

 


 

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

 

 

Nine Months Ended

 

January 31, 2018

 

January 31, 2017

Financing activities:

 

 

 

  Distributions to noncontrolling interests

$(473,502)

 

$(1,087,469)

  Repurchase of common stock

(75,000)

 

(79,968)

  Proceeds from:

 

 

 

    Construction loans

17,385,201

 

10,086,324

    Mortgage loans

7,526,407

 

10,564,657

    Notes

-0-

 

-0-

    Credit lines

5,360,000

 

1,625,000

Principal payments on:

 

 

 

    Construction loans

(1,765,599)

 

(13,051,475)

    Mortgage loans

(16,045,843)

 

(12,720,675)

    Notes

-0-

 

(40,000)

    Credit lines

(5,000,000)

 

(2,027,091)

Payments (to) / from related parties and affiliates, net

162,989

 

150,207

 

 

 

 

Net cash provided by / (used in) financing activities

7,074,653

 

(6,580,490)

 

 

 

 

Net change in cash and cash equivalents

708,225

 

1,464,165

 

 

 

 

Cash and cash equivalents, beginning of period

6,250,757

 

5,982,506

 

 

 

 

Cash and cash equivalents, end of period

$6,958,982

 

$7,446,671

 

Cash paid during the period for interest

$7,662,401

 

$7,532,799

 

 

 

 

Cash paid during the period for income taxes

$147,410

 

$346,316

 

 

 

 

Debt refinancing in 1st quarter:

 

 

 

New mortgage loans

$8,565,000

 

$14,300,000

Debt reduced

(5,567,673)

 

(5,359,713)

Escrow funded

(120,920)

 

(8,019,977)

Net cash from refinancing in 1st quarter

$2,876,407

 

$920,310

       

Debt refinancing in 2nd quarter:

 

 

 

New mortgage loan

$-0-

 

$32,500,000

Debt reduced

(0)

 

(31,030,767)

Escrow funded

(0)

 

(1,100,000)

Net cash from refinancing in 2nd quarter

$-0-

 

$369,233

       

Debt refinancing in 3rdrd quarter:

 

 

 

New mortgage loan

$-0-

 

$21,186,745

Debt reduced

(0)

 

(18,139,103)

Escrow funded

(0)

 

(1,392,528)

Net cash from refinancing in 3rd quarter

$-0-

 

$1,655,114

 

See accompanying notes.

8

 


 

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

1.     Business and Significant Accounting Policies:

 

Business

 

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

 

Principles of Consolidation

 

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

 

Basis of Presentation

 

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Rule 8.03 of Regulation S-X.  Accordingly, they do not include all of the information and footnotes required by U.S. generally accepted accounting principles for complete financial statements.  In the opinion of management, all adjustments (consisting of normal recurring accruals and adjustments) considered necessary for a fair presentation have been included.  Operating results for the interim periods are not necessarily indicative of the results that may be expected for the entire year.  The condensed consolidated balance sheet as of April 30, 2017 was derived from the audited financial statements for the year then ended.  For further information, refer to the consolidated financial statements and footnotes thereto included in the Company’s annual report on Form 10-K for the fiscal year ended April 30, 2017.

 

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

Currently, there are no Accounting Standards Updates (ASUs) that the Company is required to adopt that are likely to have a material effect on its financial statements that have not been previously discussed in the Company’s annual report on Form 10-K for the fiscal year ended April 30, 2017.

 

 

 

9

 


 

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

1.     Business and Significant Accounting Policies (continued):

 

Net Income (Loss) Per Common Share

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

       

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

 

Financial Instruments and Fair Value

 

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

 

Segment Information

 

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

 

 

Three Months Ended

Nine Months Ended

 

January 31

January 31

 

2018

 

2017

 

2018

 

  2017

Revenues:

 

 

 

 

 

 

 

Real Estate Operations

$11,467,236

 

$25,115,037

 

$52,389,651

 

$61,809,016

Fee for Service

735,375

 

935,750

 

2,650,750

 

3,500,500

Total

$12,202,611

 

$26,050,787

 

$55,040,401

 

$65,309,516

 

 

 

 

 

 

 

 

Operating Costs & Expenses:

 

 

 

 

 

 

 

Real Estate Operations

$6,522,259

 

$18,534,933

 

$36,758,328

 

$42,844,271

Fee for Service

910,469

 

1,337,627

 

2,890,595

 

3,827,629

Administrative Expenses

3,146,547

 

2,460,473

 

9,951,570

 

6,907,319

Total

$10,579,275

 

$22,333,033

 

$49,600,493

 

$53,579,219

 

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

 

10

 


 

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

1.     Business and Significant Accounting Policies (concluded):

 

Segment Information (concluded):

 

The only assets in the balance sheet belonging to the Fee for Service segment is restricted cash of $273,670 on January 31, 2018 and $129,651 on April 30, 2017 and receivables of $2,340,854 on January 31, 2018 and $4,262,302 on April 30, 2017.

 

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

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

 

January 31, 2018

 

April 30, 2017

 

 

 

 

Real estate and equipment, net

$66,622,012

 

$66,732,664

Other assets

11,912,971

 

13,417,929

Total assets

78,534,983

 

80,150,593

Intercompany profit elimination

(2,632,463)

 

(2,719,143)

 

$75,902,520

 

$77,431,450

 

 

 

 

Mortgages and other notes payable

$64,027,894

 

$64,728,200

Other liabilities

4,415,581

 

4,179,842

Total liabilities

$68,443,475

 

$68,908,042

 

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

 

Three Months Ended

Nine Months Ended

 

January 31, 2018

 

January 31, 2017

 

January 31, 2018

 

January 31, 2017

 

 

 

 

 

 

 

 

Dover Parkade, LLC:

 

 

 

 

 

 

 

     Revenue

$715,049

 

$673,655

 

$2,125,677

 

$2,069,918

     Expenses

 488,039

 

  488,348

 

  1,543,602

 

 1,517,886

Net income

$227,010

 

$185,307

 

$582,075

 

$552,032

 

 

 

 

11

 


 

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

2.     Consolidated Variable Interest Entities and Investments in Affiliated Partnerships (continued):

 

In August 2017, the Company finalized an agreement to invest in an affiliated limited liability company called Ware Seguin 1518, LLC.  The Company accounts for its 50% interest in Ware Seguin 1518, LLC under the equity method of accounting.  Ware Seguin 1518, LLC owns property in Schertz, TX that it plans to develop for approximately 285 single family residential lots and approximately 15 acres of commercial or other uses.  The operating and financial policies of Ware Seguin 1518, LLC are not controlled by the Company.  The Company’s initial investment was $326,498 and the Company committed to invest an additional amount up to $500,000, of which an additional $53,149 was made as of January 31, 2018.  Additional future investments may be required if agreed by the Members.  The Company is also a guarantor of 50% of a $1,000,000 bank loan obtained by Ware Sequin 1518, LLC that was used to purchase the property. There has been no income statement activity as of January 31, 2018.

 

3.     Income Taxes:

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

 

On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (the Tax Act) was signed into law. The Tax Act makes significant changes to the Internal Revenue Code, including but not limited to, decreasing the statutory corporate tax rate from 35% to 21% effective January 1, 2018 and repealing AMT tax treatment. The Company calculated its best estimate of the impact of the Tax Act in its income tax provision and re-measured its deferred tax assets and liabilities at the enacted corporate tax rate of 21% in accordance with its understanding of the Tax Act and available guidance. The primary impact of this re-measurement was a reduction in deferred tax assets and liabilities in connection with the reduction of the U.S. corporate income tax rate and resulted in the Company recording approximately $200,000 of additional income tax expense during the three and nine month periods ended January 31, 2018.

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

4.     Litigation:

Following a site inspection of asbestos abatement activities being conducted at the Spring Gate Apartments in Rockland, Massachusetts (Facility) on April 14, 2017, the Massachusetts Department of Environmental Protection (MassDEP) by letter dated April 21, 2017 requested that Rockland Place Apartments, LP (Company) temporarily cease and desist from any additional asbestos removal, abatement and/or handling activities at the Facility.  Upon receipt of the MassDEP letter, the Company engaged MassDEP in discussions regarding the abatement project.  Following submission to and approval by MassDEP of a work plan addressing the issues raised in MassDEP’s April 21 letter, MassDEP permitted the asbestos abatement work to go forward.  There have been no further enforcement actions taken by MassDEP.

 

 

 

12

 


 

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

 

4.     Litigation (continued):

By letters dated May 15, May 16 and May 30, 2017, three attorneys representing tenants in three units at the Facility notified the Company and/or its management company, FHRC Management Corporation, of claims related to environmental conditions at the Facility.  The first of these letters alleges that the tenant and her family have been exposed to and have been living in an apartment containing asbestos for many years.  The second letter claims that the tenant and her three minor children have suffered injuries believed to be caused by the presence of mold and asbestos in the apartment.  The final letter asserts claims with respect to the tenant and her three minor children involving the presence and remediation of asbestos including violation of a tenant’s quiet enjoyment, breach of the warranty of habitability, causation of emotional distress and the use of unfair and deceptive practices under M.G.L. c. 93A.  The first two letters made no specific monetary demand; the third letter demanded $312,600.  All three claims were tendered to the Company’s insurer, which agreed to respond under a reservation of rights.  On July 14, 2017, counsel retained by the insurer provided a timely response to the third letter, adamantly denying the Company’s liability pursuant to M.G.L. c. 93A or for any of the other claims.  By letter dated July 27, 2017, the insurer acknowledged receipt of the three claims, at the same time stating however that as no lawsuit had arisen, it did not have a duty to defend, but nonetheless would continue to investigate. 

 

At this time, the Company cannot assess the likelihood of an unfavorable outcome or provide any estimate of the amount or range of any potential loss.    

 

5.     Refinancings:

 

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 $5,567,673, 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. 

 

6.     Purchase of Real Estate:

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).

 

 

 

 

13

 


 

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

 

6.     Purchase of Real Estate (continued):

Montgomery, TX – Land Purchase: On August 16, 2017, the Company completed its purchase of a 26.43 acre parcel of land in Montgomery, TX for $6,672,754 including closing costs.  This purchase was financed with proceeds from a land loan of $4,150,000, utilization of the Company’s lines of credit of $2,360,000, and working capital of $162,754. Key terms of the construction loan are as follows:  

 

Loan Amount: 

$4,150,000

Maturity Date: 

February 16, 2019

Interest Rate: 

3.50% 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).

 

Houma, LA – Land Purchase: On January 5, 2018, the Company purchased a parcel of land in Houma, LA for $2,514,644 including closing costs.  This purchase was financed with proceeds from a construction loan of $1,417,217, utilization of the Company’s lines of credit of $1,000,000, and working capital of $97,427. Key terms of the construction loan are as follows:  

 

Loan Amount:

$5,065,000

Maturity Date:

January 5, 2019

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).

 

Pearland, TX – Land Purchase: On January 11, 2018, the Company purchased a parcel of land in Pearland, TX for $1,038,306 including closing costs.  This purchase was financed with proceeds from a construction loan of $500,000, utilization of the Company’s lines of credit of $400,000, and working capital of $138,306. Key terms of the construction loan are as follows:  

 

Loan Amount:

$500,000

Maturity Date:

January 5, 2019

Interest Rate:

3.50% 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).

 

Spring, TX – Land Purchase: On January 30, 2018, the Company purchased three adjacent parcels of land in Spring, TX for $1,161,240 including closing costs.  Simultaneously, one of these parcels was sold to another party for $1,404,504 (cost of $459,611).  The purchase was financed by working capital and the proceeds from the sale.  The Company netted $27,807 of cash for these two transactions, which was received on February 2, 2018.  The remaining two parcels will be marketed to retail establishments.  

 

 

 

14

 


 

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

 

7.       Subsequent Events:

Little Ferry, NJ – Land Purchase: On February 8, 2018, the Company purchased a parcel of land in Little Ferry, NJ for $3,131,000 which, along with closing costs and a deposit into a Remediation Trust Fund of $439,425, were financed by proceeds from a construction loan of $3,774,340 plus working capital.   Key terms of the construction loan are as follows:  

 

Loan Amount:          

$8,800,000

Maturity Date:

February 1, 2029

Interest Rate:

One month LIBOR, as defined, plus 2.50% through February 1, 2019 (the “Construction Phase”); thereafter, one month LIBOR plus 1.90% (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:

Prior to February 1, 2019, 0.50% of the principal balance prepaid; from February 1, 2019 – January 31, 2021, 1.00% of the principal balance prepaid.

 

Wethersfield, CT – Sale of Condominium: On February 28, 2018, the Company sold a condominium in Wethersfield, CT for $255,000 (cost of approximately $254,182).  The Company owns one more condominium on this site after this sale.

The Company has evaluated for subsequent events through March 29, 2018, the date the financial statements were issued.

 

 

 

 

 

 

 

 

 

 

15

 


 

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

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

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

Critical Accounting Policies

There have been no significant changes in the Company’s critical accounting policies from those included in Item 7 of its Annual Report on Form 10-K for the year ended April 30, 2017 under the subheading “Critical Accounting Policies and Estimates”. 

 Results of Operations:

Rental Income

Rental income for the three and nine months ended January 31, 2018 and 2017, by type of tenant, follows:

 

Three Months Ended

Nine Months Ended

 

January 31,

January 31,

 

2018

 

2017

 

2018

 

2017

Residential

$3,072,065

 

$3,084,436

 

$9,176,045

 

$9,171,804

Commercial

  4,740,535

 

  5,010,773

 

  14,179,100

 

  14,851,940

 

$7,812,600

 

$8,095,209

 

$23,355,145

 

 $24,023,744

 

The slight changes in residential rental income was primarily caused by rent increases at the Somerville, MA property (i.e., Clarendon), partially offset by lower revenue at the Rockland, MA property due to vacancies from converted apartments needed for the ongoing renovation project.

The decrease in commercial rental income was primarily caused by lower common area maintenance (CAM) billings to tenants resulting from lower associated expenses and prior year rents on some of the Company’s development properties that have since been sold (e.g., Olathe, KS; Conroe, TX; Stanhope, NJ), partially offset by additional rents from a new tenant at the Company’s Lubbock, TX property.

 

 

 

16

 


 

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

 

Service Income

Service income for the three and nine months ended January 31, 2018 and 2017 follows:

 

Three Months Ended

Nine Months Ended

 

January 31,

January 31,

 

2018

 

2017

 

2018

 

2017

Management fees

$284,430

 

$163,934

 

$613,255

 

  $427,567

Preferred developer fees

735,375

 

935,750

 

2,650,750

 

    3,500,500

 

 $1,019,805

 

 $1,099,684

 

 $3,264,005

 

  $3,928,067

 

The increase in management fees was due to higher fees received from the Company’s unconsolidated Claymont, DE property.

The third quarter and full year decrease in preferred developer fees primarily reflected lower fees received from CVS, partially offset by higher fees received from Cumberland Farms.  The decrease in CVS fees, which continues a trend over the past several years, was the result of a recent acquisition that has impacted in the slowing of their pipeline for new stores.  The increase in Cumberland Farms was the result of timing of closings based on the construction schedule. 

Sales (and Cost of Sales) of Real Estate

Nine months ended January 31, 2018:

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

 

New Orleans, LA – Sale of Property: On June 7, 2017, the Company sold a parcel of its property in New Orleans, LA for $11,350,000 (cost of $9,027,022).  A loan with a balance of $7,436,745 was paid off with the proceeds.  The Company continues to hold the parcel of the property that includes the shopping center.

 

Austin, TX – Sale of Property: On June 15, 2017, the Company sold its single-tenant property in Austin, TX for $3,210,000 (cost of $2,993,692).  A loan with a balance of $1,102,899 was paid off with the proceeds. 

 

East Providence, RI – Sale of Property: On September 7, 2017, the Company sold its property held for sale in East Providence, RI for $830,000 (cost of $664,312).

 

Wethersfield, CT – Sale of Condominium: On November 14, 2017, the Company sold a condominium in Wethersfield, CT for $225,000 (cost of $271,802).  The net proceeds were used to pay off a mortgage loan on this property.  The Company owned another two condominiums on this site after this sale. The loss on the sale of this property resulted in the Company recording an impairment on the remaining properties.

 

Spring, TX – Partial Sale of Property: On January 30, 2018, the Company purchased three adjacent parcels of land in Spring, TX for $1,161,240 including closing costs.  Simultaneously, one of these parcels was sold to another party for $1,404,504 (cost of $459,611).  The purchase was financed by working capital and the proceeds from the sale.  The Company netted $27,807 of cash for these two transactions, which was received on February 2, 2018.  The remaining two parcels will be marketed to retail establishments.  

 

17

 


 

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

 

Sales (and Cost of Sales) of Real Estate (continued):

In fiscal year 2018, there were also adjustments of costs incurred related to property sales that occurred in prior fiscal years.  The net amount of these adjustments resulted in a $41,792 reduction of costs.

 

Nine months ended January 31, 2017:

On June 29, 2016, the Company sold a property in Stanhope, NJ for $10,000,051 (cost of $8,280,570).  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. 

On September 20, 2016, the Company sold a parcel of land in Austin, TX for $6,100,000 (cost of $4,190,523) that was previously ground leased. 

On December 14, 2016, the Company sold a property in Conroe, TX for $8,778,442 (cost of $6,721,794).  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.

Other Revenues

The increase in other income was primarily due to sales by the Company’s new restaurant it built and owns at its Edinburg, TX property.  This store was opened on July 14, 2017. 

Operating Costs and Expenses:

Rental Expenses

Rental expenses for the three and nine months ended January 31, 2018 and 2017, by type of tenant, follows:

 

 

Three Months Ended

Nine Months Ended

 

January 31,

January 31,

 

2018

 

2017

  2018   2017

Residential

$2,893,012

 

$2,723,486

 

$8,056,033

 

$7,836,393

Commercial

  2,670,022

 

  2,226,361

 

  7,499,881

 

  7,278,646

 

$5,563,034

 

$4,949,847

 

$15,555,914

 

    $15,115,039

 

The slight increase in residential rental expenses were mainly from higher legal fees incurred at the Rockland, MA property resulting from a temporary cease and desist order from the Massachusetts Department of Environmental Protection (MassDEP).  See Part II, Item 1, Legal Proceedings, on page 22 for more information.  This was partially offset by lower repairs and maintenance expenses at the Somerville, MA (i.e., Clarendon) property.    

18

 


 

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

The increase in commercial rental expenses were primarily related to the Company’s New Orleans, LA shopping center, which was completed and refinanced in the first quarter of fiscal 2018, and higher expenses at the Edinburg, TX shopping center, including higher property taxes and a fee paid to a tenant to allow the Company to lease to another tenant.  Partially offsetting these increases were expenses incurred in the prior year related to a lawsuit against a former tenant, including a legal settlement of $200,000.  Also, in the prior year there was accelerated amortization expense of deferred commissions arising from the sale of a portion of its property in Edinburg, TX (i.e., Texas Roadhouse) and accelerated depreciation of tenant improvements at the Lubbock, TX properties upon the departure of two tenants. 

Service Expenses

Service expenses for the three and nine months ended January 31, 2018 and 2017 follows:

 

Three Months Ended

Nine Months Ended

 

January 31,

January 31,

 

2018

 

2017

 

2018

 

2017

Preferred Developer
Expenses and Fees

 $910,469

 

$1,337,627

 

$2,890,595

 

$3,827,629

Construction and Other Costs

   305,413

 

         (3,936)

 

   1,260,572

 

       36,329

 

      $1,215,882

 

$1,333,691

 

      $4,151,167

 

    $3,863,958

 

The decrease in preferred developer expenses and fees primarily reflects lower commissions paid commensurate with the lower revenue, primarily at CVS. 

The increase in construction expenses relates to unbudgeted costs (i.e., overruns) incurred at the renovation project at the Company’s Rockland, MA property resulting from a temporary cease and desist order from the Massachusetts Department of Environmental Protection (MassDEP).  See Part II, Item 1, Legal Proceedings, on page 24 for more information.   

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

The increase in SG&A expenses relates primarily to expenses relating to its new restaurant it built and owns at its Edinburg, TX property, legal and professional expenses related to a potential residential housing deal in the Bronx, NY, and costs incurred related to the Rockland, MA matter discussed above, including providing hotels and meals to displaced tenants and legal and professional fees (see Part II, Item 1, Legal Proceedings, on page 24 for more information).

 

 

 

 

19

 


 

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

Non-Operating Income (Expense):

Interest Expense

Interest expense for the three and nine months ended January 31, 2018 and 2017, by type of tenant, follows:

 

Three Months Ended

Nine Months Ended

 

January 31,

January 31,

 

2018

 

2017

 

2018

 

2017

Commercial

$1,898,562

 

$1,793,277

 

$5,657,300

 

$5,546,685

Residential

  720,954

 

  731,326

 

  2,176,420

 

   2,160,737

 

$2,619,516

 

$2,524,603

 

$7,833,720

 

$7,707,422

 

The increase in commercial interest expense was the result of interest on loans related to the Company’s development properties and the Company’s new restaurant it built and owns at its Edinburg, TX property.

The change in residential commercial interest expense was minimal; the nine month increase was the result of the prior year first quarter refinancing at Rockland.  Note the loans paid off as part of this refinancing did not accrue interest. 

Other Income / (Loss)

Other income / (loss) for the three and nine months ended January 31, 2018 and 2017 follows:

 

Three Months Ended

Nine Months Ended

 

January 31,

January 31,

 

2018

 

2017

 

2018

 

2017

Proceeds from lawsuit

$-0-

 

$-0-

 

$200,000

 

$-0-

Investment income

70,023

 

30,745

 

(4,751)

 

69,850

 

$70,023

 

$30,745

 

$195,249

 

$69,850

 

The decrease in investment income for the first nine months reflected realized losses on sales of securities in the current year first quarter.

During the nine months ended January 31, 2018, the Company received $200,000 from a settlement of a lawsuit filed against another party for breach (relating to an alleged wrongful termination) of a contract to purchase a commercial shopping center owned by the Company and located in New Orleans, LA. As a result, the sale did not go through and the Company retains ownership of the shopping center. 

Loss on Impairment

In the third quarter, the Company recorded an impairment loss of $40,000 on its two remaining condominiums it owns in Wethersfield, CT.  The amount of the impairment loss represents the excess of the cost over the estimated sales proceeds from the condominiums.

 

 

20

 


 

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

 

Gain (Loss) on Derivatives

On January 1, 2018, the Company entered into three interest rate swap agreements to fix the interest rate on its outstanding debt on its Brentwood, NY property at 4.42%.  The swap agreements expire on December 2027, which corresponds to the maturity date of the underlying debt.   

The Company, through its 50% owned consolidated subsidiaries, has two additional floating-to-fixed interest rate swap agreements with banks that expire in May 2025 and July 2031. 

The aggregate fair value of the Company’s interest rate swap agreements as of January 31, 2018 is a $1,551,002 liability.

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.

Loss on Defeasance

During the three and nine months ended January 31, 2017, the Company paid a defeasance premium of $437,776 when refinancing its mortgage loan on its shopping center in Lubbock, TX.

Equity in Earnings of Unconsolidated Subsidiary

The equity in earnings of unconsolidated subsidiary for the three and nine months ended January 31, 2018 and 2017 follows:

 

 

Three Months Ended

Nine Months Ended

 

January 31,

January 31,

 

2018

 

2017

 

2018

 

2017

Income from Operations

$113,506

 

$92,654

 

$291,038

 

$276,016

Distributions

    90,000

 

    90,000

 

    270,000

 

    270,000

 

$203,506

 

$182,654

 

$561,038

 

$546,016

 

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

 

 

21

 


 

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

 

Income Taxes

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

On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (the Tax Act) was signed into law. The Tax Act makes significant changes to the Internal Revenue Code, including but not limited to, decreasing the statutory corporate tax rate from 35% to 21% effective January 1, 2018 and repealing AMT tax treatment. The Company calculated its best estimate of the impact of the Tax Act in its income tax provision and re-measured its deferred tax assets and liabilities at the enacted corporate tax rate of 21% in accordance with its understanding of the Tax Act and available guidance. The primary impact of this re-measurement was a reduction in deferred tax assets and liabilities in connection with the reduction of the U.S. corporate income tax rate and resulted in the Company recording approximately $200,000 of additional income tax expense during the three and nine month periods ended January 31, 2018.

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

Capital Resource and Liquidity

At January 31, 2018, the Company had $6,958,982 of unrestricted cash and cash equivalents. This includes $4,836,027 belonging to partnership entities in which the Company’s financial interests range from .01% (VIEs) to 50%.  Funds received from CVS, which are to be paid out in connection with CVS developments, amounted to $273,670 and tenant security deposits held by VIEs of $378,929 are included in restricted cash and cash equivalents.

At January 31, 2018, the Company had $816,575 of investments in marketable securities, all of which belongs to partner entities.

The Company has three separate credit lines that allows for borrowings up to $6,760,000.  At January 31, 2018, the Company had borrowings of $6,760,000 against these credit lines.

The sources of future borrowings that may be needed for new construction operations, property purchases, or balloon payments on existing loans are unclear at this time.  As a result of the decreasing CVS fee-for-service business and the increasingly difficult environment surrounding commercial real estate, the Company has become more dependent on its ability to buy, develop, and sell real estate at a profit.  Failure to do so would have an adverse impact on the Company’s liquidity.  The Company’s liquidity could also be adversely impacted if the Company’s new restaurant in Edinburg, TX does not meet its financial projections or if the Rockland, MA matter discussed in Part II, Item 1, Legal Proceedings, on page 24, has an unfavorable outcome.

Item 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

 

 

22

 


 

Item 4.  CONTROLS AND PROCEDURES 

Evaluation of Disclosure Controls and Procedures

We maintain “disclosure controls and procedures”, as such term is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”), that are designed to ensure that information required to be disclosed in our

Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and forms, and that such information is accumulated and communicated to our management, including our Chairman and Treasurer, as appropriate, to allow timely decisions regarding required disclosure.  We conducted an evaluation (the “Evaluation”), under the supervision and with the participation of our Chairman and Treasurer, of the effectiveness of the design and operation of our disclosure controls and procedures (“Disclosure Controls”) as of the end of the period covered by this report pursuant to Rule 13a-15b of the Exchange Act.

Based on the Evaluation, our Chairman and Treasurer concluded that because of weaknesses in our control environment, our disclosure controls were not effective as of the end of the period covered by this report.  Notwithstanding weaknesses in our control environment, as of January 31, 2018, we believe that the condensed consolidated financial statements contained in this report present fairly the Company’s financial condition, results of operations and cash flows for the periods presented.

Changes in Internal Control Over Financial Reporting

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

 

 

 

 

 

 

 

23

 


 

PART II                 OTHER INFORMATION

Item 1.                 LEGAL PROCEEDINGS

Following a site inspection of asbestos abatement activities being conducted at the Spring Gate Apartments in Rockland, Massachusetts (Facility) on April 14, 2017, the Massachusetts Department of Environmental Protection (MassDEP) by letter dated April 21, 2017 requested that Rockland Place Apartments, LP (Company) temporarily cease and desist from any additional asbestos removal, abatement and/or handling activities at the Facility.  Upon receipt of the MassDEP letter, the Company engaged MassDEP in discussions regarding the abatement project.  Following submission to and approval by MassDEP of a work plan addressing the issues raised in MassDEP’s April 21 letter, MassDEP permitted the asbestos abatement work to go forward.  There have been no further enforcement actions taken by MassDEP.

By letters dated May 15, May 16 and May 30, 2017, three attorneys representing tenants in three units at the Facility notified the Company and/or its management company, FHRC Management Corporation, of claims related to environmental conditions at the Facility.  The first of these letters alleges that the tenant and her family have been exposed to and have been living in an apartment containing asbestos for many years.  The second letter claims that the tenant and her three minor children have suffered injuries believed to be caused by the presence of mold and asbestos in the apartment.  The final letter asserts claims with respect to the tenant and her three minor children involving the presence and remediation of asbestos including violation of a tenant’s quiet enjoyment, breach of the warranty of habitability, causation of emotional distress and the use of unfair and deceptive practices under M.G.L. c. 93A.  The first two letters made no specific monetary demand; the third letter demanded $312,600.  All three claims were tendered to the Company’s insurer, which agreed to respond under a reservation of rights.  On July 14, 2017, counsel retained by the insurer provided a timely response to the third letter, adamantly denying the Company’s liability pursuant to M.G.L. c. 93A or for any of the other claims.  By letter dated July 27, 2017, the insurer acknowledged receipt of the three claims, at the same time stating however that as no lawsuit had arisen, it did not have a duty to defend, but nonetheless would continue to investigate. 

At this time, the Company cannot assess the likelihood of an unfavorable outcome or provide any estimate of the amount or range of any potential loss.

Item 1A.               RISK FACTORS

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

Item 2.                  UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.

 

Item 3.                  DEFAULTS UPON SENIOR SECURITIES

                               None

Item 4.                  MINE SAFETY DISCLOSURES

                               Not applicable

 

 

 

24

 


 

Item 5.                  OTHER INFORMATION

None

                                SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

                                The Company’s annual meeting of shareholders was held on January 17, 2018 in Hartford, CT.  The following nominees were elected as directors by vote indicated:

                                                                                                       

For

Against

                                Neil Ellis

2,009,782

14,708

                                John Toic

2,009,782

 14,708

                                Jeff Carlson

2,009,782

14,708

                                William Connolly

2,009,782

14,708

                                Jonathan Bellock

2,009,782

14,708

 

Also, the shareholders voted to approve the Company suspending or terminating its filing obligations with the U.S. Securities and Exchange Commission, also called “Going Dark”, once the Company is eligible.  The vote was 2,006,379 in favor, 16,481 against, and 1,830 abstaining.

Item 6.                  EXHIBITS

a)       Exhibits:

 

          Exhibit 31.1

Certification of Chief Executive Officer, pursuant to Rule 13a-14(c) under the
Securities Exchange Act of 1934.

   

 

  Exhibit 31.2

Certification of Chief Financial Officer, pursuant to Rule 13a-14(c) under the
Securities Exchange Act of 1934.

   

 

  Exhibit 32.1

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

     
  101.INS XBRL Instance Document
     
  101.SCH XBRL Taxonomy Extension Schema Document
     
  101.CAL

XBRL Taxonomy Extension Calculation Linkbase Document

     
  101.DEF

XBRL Taxonomy Definition Linkbase Document

     
  101.LAB XBRL Taxonomy Extension Label Linkbase Document
     
  101.PRE XBRL Taxonomy Extension Presentation Linkbase Document
     

25

 


 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 

First Hartford Corporation

 

(Registrant)

 

 

 

/s/ Neil H. Ellis

                March 29, 2018              

                                                                

                       Date

 Neil H. Ellis, 

 

Chairman of the Board

 

and Chief Executive Officer

 

 

 

/s/ Eric J. Harrington

               March 29, 2018             

                                                                  

                      Date

Eric J. Harrington, Treasurer

 

and Chief Financial Officer          

 

 

26