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 1. Business (Concluded):
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 2. Properties
Item 2. Properties (Concluded):
Item 3. Legal Proceedings
Item 3. Legal Proceedings (Concluded):
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 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities (Concluded):
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 9A. Controls and Procedures (Concluded):
Item 9B. Other Information
Part III
Item 10. Directors, Executive Officers and Corporate Governance
Item 10. Directors, Executive Officers and Corporate Governance (Concluded)
Item 11. Executive Compensation
Item 11. Executive Compensation (Concluded)
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-31.1 exhibit31-1.htm
EX-31.2 exhibit31-2.htm
EX-32 exhibit32-1.htm

First Hartford Earnings 2018-04-30

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 fhc10k.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, 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

(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, 2017, the aggregate market value of the registrant’s common stock (based upon $2.99 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 $2,800,464.

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, 2018.

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, 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 movie theater and a liquor store at one of its properties and a restaurant at another 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 and Houston, in New York within Long Island and portions of Rockland County, in 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

 


 

 

ITEM 1.          BUSINESS (concluded):

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 small amounts at the liquor store and restaurant), 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, 2018, the Company employed 111 people full-time and 89 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 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

469,583 sq. ft.

JC Penney 22%

Academy Sports 16%

Burlington Coat Factory 17%, Effective rent per sq. ft. occupied, exclusive of JC Penney (JC Penney owns its building) is $10.31, occupied 100%

100% owned by a subsidiary of the Company, except JC Penney building. A 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.

$52,710,395

 

 

 

 

 

 

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 $9.76, 92.15% occupied

100% owned by a subsidiary of the Company.

8,146,629

 

 

 

 

 

 

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 $8.22, 80.86% 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.

7,552,471

 

 

 

 

 

 

X

Plainfield, CT

Strip Shopping Center

 

60,154 sq. ft.

Big Y 76%,

effective rent per sq. ft. occupied is $12.11, 100% occupied

 

100% owned by a subsidiary of the Company.

4,975,881

 

 

 

Annual Report on Form 10-K

Page 5

First Hartford Corporation

 


 

 

ITEM 2.          PROPERTIES (continued):

Consolidated Subsidiaries - Commercial Properties (continued):

X

New Orleans, LA

Strip Shopping Center

 

37,671 sq. ft.

Marshalls 53%, Petco 33%

effective rent per sq. ft. occupied is $22.32, 100% occupied

 

100% owned by a subsidiary of the Company.

9,201,659

 

Cranston, RI

Shopping Center

259,218 sq. ft.

Kmart (currently vacant – leased to 12/31/2027) 40%

Stop & Shop 25%

Effective rent per sq. ft. occupied is $13.59

98.43% 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

160,531 sq. ft.

Steinmart 26%

Mardel 25%

TJ Maxx 19%

Effective rent per

sq. ft. occupied is $10.03 97.06% occupied

2.0% owned by a subsidiary of the Company.

6,258,420

 

 

 

 

 

 

Annual Report on Form 10-K

Page 6

First Hartford Corporation

 


 

 

ITEM 2.          PROPERTIES (continued):

The properties listed above contain approximately 1,337,873 rentable sq. ft., of which approximately 45,325 sq. ft., or approximately 3.4%, was vacant at April 30, 2018.  Over the next 10 years, 84 of the current 87 leases will expire as follows:

 

Year Ended

Number of
 Leases

 

Sq. Ft.

 

Base Rent

Percentage of
 Base Rent

         

4/30/19

21

226,063

$3,540,464

23.45%

4/30/20

9

135,092

$1,427,163

9.45%

4/30/21

6

56,070

$576,824

3.82%

4/30/22

15

142,107

$2,169,067

14.36%

4/30/23

12

137,219

$1,360,990

9.01%

4/30/24

3

45,826

$131,684

0.87%

4/30/25

2

38,754

$373,721

2.48%

4/30/26

6

87,231

$753,187

4.99%

4/30/27

6

50,621

$968,508

6.41%

4/30/28

4

178,201

$2,216,738

14.68%

 

Total rental income of these properties for the year ended April 30, 2018 was $18,662,481, of which $4,055,592 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.

26,928,518

 

 

 

 

 

 

X

Somerville, MA

Apartments

501 units, low to moderate income, 98% occupied, effective sq. ft. rent - $24.45

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

 

49,176,847

 

 

 

 

 

Annual Report on Form 10-K

Page 7

First Hartford Corporation

 


 

 

ITEM 2.          PROPERTIES (continued):

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, 99% occupied, effective sq. ft. rent - $21.20

Nonconsolidated,

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

7,718,470

 

X

 

Bronx, NY

 

Apartments

 

99 units, senior housing, 100% sec 8 subsidized, 93% occupied, effective sq. ft. rent - $33.71

 

Nonconsolidated,

.005% owned by a 75% owned subsidiary of the Company.

 

17,341,187

 

 

 

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.

 

14,267,148

 

 

 

Schertz, TX

 

Land for Development

 

N/A

 

50% owned by a subsidiary of the Company.

 

1,937,771

 

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.

 

 

Anticipated

 

Location of Properties

Use

Completion Date

Cost Incurred to Date

 

 

 

 

Houma, LA

Single tenant build-to-suit

FY 2019

4,811,003

 

 

 

 

Little Ferry , NJ

Single tenant build-to-suit

FY 2019

5,720,943

 

 

 

 

Houston, TX

18.58 acres of land – can support 100,000 sq. ft. development

FY 2020

7,652,146

 

 

 

 

Montgomery, TX

22.70 acres of land – can support 130,000 sq. ft. development

FY 2019 / 2020

5,679,750

 

 

 

 

Austin, TX

14.28 acres of land – can support 50,000 sq. ft. development

FY 2019 / 2020

3,749,219

 

 

 

 

Spring, TX

3.70 acres of land – can support 15,000 sq. ft. development

FY 2019

816,942

 

 

Annual Report on Form 10-K

Page 8

First Hartford Corporation

 


 

 

ITEM 2.          PROPERTIES (concluded):

Pearland, TX

1.93 acres of land – can support 12,000 sq. ft. development

FY 2019

1,039,773

 

 

 

 

Buda, TX

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

FY 2019 / 2020

4,265,439

 

 

 

 

Conroe, TX

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

FY 2019

2,210,304

 

 

 

 

Del Valle, TX

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

FY 2019 / 2020

1,452,091

 

 

 

 

All Other Properties Held

 

 

1,570,964

 

 

 

 

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

$251,892,715

 

The Company also owns properties that it is currently holding for sale.  The properties include a single-tenant property in Cedar Park, TX, a single-tenant property in Houston, TX, and a single-tenant property in Montgomery, TX.  The cost of these properties as of April 30, 2018 was $7,465,163.

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.

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.  With respect to the third letter above, the suit was transferred to the Superior Court and, on May 11, 2018, the Company’s insurer stated that it will defend Rockland against the claimant’s counterclaims subject to a reservation of rights.

 

 

Annual Report on Form 10-K

Page 9

First Hartford Corporation

 


 

 

ITEM 3.          LEGAL PROCEEDINGS (concluded):

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 23.

ITEM 4.          MINE SAFETY DISCLOSURES

Not Applicable.

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

 

2018

High

Low

Dividends Paid
Per Common Share

First Quarter

$3.00

$2.55

None

Second Quarter

$3.50

$2.50

None

Third Quarter

$2.99

$2.36

None

Fourth Quarter

$2.50

$2.25

None

 

 

 

 

2017

 

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

 

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 $2.00 per share on June 15, 2018 for a total of 8,500 shares.

The Company did not sell any unregistered shares of securities during the year ended April 30, 2018.

Shareholders of Record and Potential Termination of SEC Reporting:

The Company first publicly expressed interest in “going dark” in its 2017 Annual Report, where it noted the number of shareholders of record had been consistently attenuating each quarter. 

The Company explained its rationale, and certain benefits and disadvantages of Going Dark for the Company and for its shareholders in its proxy statement as filed December 12, 2017 with the SEC for the annual meeting of shareholders.  The Company’s annual meeting of shareholders was held on January 17, 2018 in Hartford, CT.  At that meeting, 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.  Thus 99% of the voting shareholders approved such potential action.  

 

 

Annual Report on Form 10-K

Page 10

First Hartford Corporation

 


 

 

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

After the conclusion of the quarter ended January 31, 2018, the number of shareholders fell below 300 (276 as of April 30, 2018), which, subject to other conditions of the SEC’s Regulations, the Company asserts it is eligible to “Go Dark.”

 

The common stock of the Company currently trades on the OTC Securities Market under the symbol “FHRT”.  The common stock of the Company has an illiquid trading market and fails to attract any market following.  The Company understands that its public shareholders have freely tradable common stock and that maintaining a trading market, even if it is illiquid, is beneficial for the continued ability of the public shareholders to trade the stock.  Therefore, the Company intends to maintain at least one of its listings in the Mergent Industrial Manual, the Mergent OTC Industrial Manual, and/or the Mergent OTC Unlisted Manual, which by being tri-published in a “recognized securities manual” provides the 39 individual states’ securities regulations “manual exemption” provision under which broker-dealers are free to solicit and trade stock of the published companies thus permitting secondary trading in the Company’s stock for investors in up to 39 states.  Further, the Company will attempt to maintain a continued listing through the OTC Securities Market through its Pink Sheets listings; however, there can be no assurance that any broker-dealer will make or continue to make a market in the Company’s common stock; it is required for trading on the OTC Pink Sheets that at least one broker-dealer make a market in the Company’s common stock.  However, once it Goes Dark, it is anticipated that the Company’s shares would have far less visibility and the current limited liquidity may be further constrained in the market, and the current broker-dealers making markets in the Company’s common stock may cease doing so, further constraining the market for the Company’s common stock. 

 

Once the Company Goes Dark, it will have reduced regulatory oversight and, therefore, may be able to implement shareholder initiatives such as share repurchase programs with less regulatory restrictions.  By Going Dark, the Company will produce and share far less information available to the investing public.  Thus investors will often not have relatively current information on which to base their investment decisions.  However, the Company’s common stock will still be eligible to trade among public investors and thus continues to be a publicly traded entity and continue to be subject to the antifraud and insider trading provisions of the Securities Exchange Act of 1934.

 

The Company intends to file its Form 15 to suspend and terminate its reporting obligations in the first half of fiscal year 2019.

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 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 could be suspended for 15 days before the due date of each next quarterly or annual report filing and could resume 15 days after the filing.  The repurchase program expired on March 28, 2017.  Any shares acquired under this program were retired.

 

 

Annual Report on Form 10-K

Page 11

First Hartford Corporation

 


 

 

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

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 12

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:

 

2018

2017

Residential

$12,227,584

$12,171,608

Commercial

19,191,847

19,813,217

 

$31,419,431

$31,984,825

 

 

 

The slight increase 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 renovation project.

The decrease in commercial rental income was primarily caused by lower rent at the Cranston, RI property due to a loss of a tenant, 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.

Service Income

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

 

2018

2017

Preferred Developer Fees

$3,935,000

$4,839,500

Management and Other Fees

1,257,144

614,419

 

$5,192,144

$5,453,919

 

Preferred developer fees are from CVS and Cumberland Farms.  The decrease in preferred developer fees reflected lower fees received from CVS and, to a lesser extent, 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 decrease in Cumberland Farms was the result of timing of closings based on the construction schedule. 

The increase in management and other fees are primarily from the first installment ($350,000) of a developer fee earned as part of the Bronx, NY subsidized housing project and higher fees received from the Company’s unconsolidated Claymont, DE property. 

 

 

 

Annual Report on Form 10-K

Page 13

First Hartford Corporation

 


 

 

ITEM 7.               MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (continued):

 

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 2018 and 2017.  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 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 $6,582,820).  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 $9,042,647).  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 $3,009,317).  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 loss 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 $1,008,623, including additional development costs of $549,011).  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.

Wethersfield, CT – Sale of Condominium: On February 28, 2018, the Company sold a condominium in Wethersfield, CT for $255,000 (cost of $269,807).  The Company owns one more condominium on this site after this sale.

Humble, TX – Sale of Land: On March 29, 2018, the Company sold its land in Humble, TX for $650,000 (cost of $576,665).

Brentwood, NY – Sale of Property: On April 17, 2018, the Company sold a property in Brentwood, NY for $15,700,000 (cost of $11,070,213).  A mortgage loan with a balance of $10,590,508 was paid off with the proceeds.

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.

 

 

 

 

 

Annual Report on Form 10-K

Page 14

First Hartford Corporation

 


 

 

ITEM 7.               MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (continued):

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

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 owned three other condominiums at this site after this sale.

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 on June 15, 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.

Other Revenues (and Expenses)

The increase in other revenues and expenses was primarily due to 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 expense for the years ended April 30, by type of tenant, follows:

                                                                                                                                   

Residential

2018

2017

 

 

Depreciation and Amortization

$2,308,089

$2,274,234

 

 

Other Rental Expenses

8,535,235

8,128,427

 

 

 

$10,843,324

$10,402,661

 

 

Commercial

 

 

 

 

Depreciation and Amortization

$3,411,084

$3,393,939

 

 

Other Rental Expenses

6,699,870

6,293,904

 

 

 

$10,110,954

$9,687,843

 

 

 

 

 

 

 

Total

$20,954,278

$20,090,504

 

 

 

Annual Report on Form 10-K

Page 15

First Hartford Corporation

 


 

 

ITEM 7.               MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (continued):

Rental Expenses (concluded):

The 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 I, Item 3, Legal Proceedings, on page 9 for more information. 

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 years ended April 30 is made up of the following:

 

2018

2017

Preferred Developer Expenses

$4,011,464

$5,011,262

Construction and Other Costs

1,329,606

87,637

 

$5,341,070

$5,098,899

 

 

 

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 I, Item 3, Legal Proceedings, on page 9 for more information.

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

The increase in SG&A expenses relates primarily to non-capitalizable legal and professional expenses related to its completed affordable 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 I, Item 3, Legal Proceedings, on page 9 for more information).  These items were partially offset by higher write-offs of costs related to abandoned projects in the prior year.

Non-Operating Income (Expense):

Equity in Earnings (Losses) of Unconsolidated Subsidiaries

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

 

   2018 2017

Income from Operations

$321,267

$325,452

Distributions

360,000

360,000

Equity in Earnings of Unconsolidated Subsidiary

$681,267

$685,452

 

Annual Report on Form 10-K

Page 16

First Hartford Corporation

 


 

 

ITEM 7.               MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (continued):

Non-Operating Income (Expense) (continued):

Equity in Earnings (Losses) of Unconsolidated Subsidiaries (concluded):

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.

Other Income

Other income is broken down as follows:

 

2018

2017

Investment Income (Losses)

$(51,081)

$137,186

Proceeds from Lawsuit

200,000

-0-

Total

$148,919

$137,186

 

The decrease in investment income reflected realized losses on sales of securities in the current year first and fourth quarters.

During the year ended April 30, 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.

Gain (Loss) on Derivatives

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

The aggregate fair value of the Company’s interest rate swap agreements as of April 30, 2018 and 2017 were liabilities of $659,780 and $2,023,793, respectively.

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%.  Upon the sale of the Brentwood property on April 17, 2018, the Company realized a $167,000 gain on settlement of these swap agreements.

Loss on Defeasance

In fiscal year 2017, the Company paid a defeasance premium of $437,776 when refinancing its mortgage loan on its shopping center in Lubbock, TX.

 

 

Annual Report on Form 10-K

Page 17

First Hartford Corporation

 


 

 

ITEM 7.               MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (continued):

Non-Operating Income (Expense) (concluded):

Loss on Impairment

In fiscal year 2018, 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 represented the excess of the cost over the estimated sales proceeds from the condominiums.

Interest Expense

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

 

2018

2017

Residential

$2,953,063

$2,892,724

Commercial

7,863,036

7,501,274

 

$10,816,099

$10,393,998

 

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

The increase in commercial interest expense was the result of prepayment and other debt-related fees incurred upon the sale of the Brentwood, NY property and interest on loans related to the Company’s new restaurant it built and owns at its Edinburg, TX property.

Income Tax Expense (Benefit)

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% as of the enacted date, in accordance with its understanding of the Tax Act and available guidance. During the third quarter of fiscal 2018, the Company recorded charges of approximately $200,000 within its income tax provision in connection with the Tax Act, which related to the revaluation of the Company’s deferred tax assets and liabilities.

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. 

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

 

 

Annual Report on Form 10-K

Page 18

First Hartford Corporation

 


 

 

ITEM 7.              MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (continued):

Income Tax Expense (Benefit) (concluded):

As of April 30, 2018, the Company had a net deferred tax liability in the amount of $210,215. The Federal net operating loss carryforwards that were previously available to offset future Federal taxable income have been fully utilized.  The Company has recorded a net deferred liability of $250,845 for untaxed rental income and $315,692 for basis differences in the Company’s partnerships.   Offsetting these, the Company has recorded a net deferred asset in the amount of $158,589, which represents a basis difference in real estate assets owned by the Company. It also has an Alternative Minimum Tax (AMT) credit of $197,733.  Lastly, no valuation allowance has been recorded based on anticipated future profitability being able to fully utilize the AMT credit carryforwards and future depreciation benefits.

CAPITAL RESOURCES AND LIQUIDITY

At April 30, 2018, the Company had $7,206,445 of unrestricted cash and cash equivalents.  This includes $4,679,218 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 $375,501, tenant security deposits held by VIEs of $386,505, and cash held in a lender-controlled lockbox account for our Edinburg, TX property of $230,917 are included in restricted cash and cash equivalents. 

At April 30, 2018, the Company had $619,432 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. 

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, 2018, the Company had borrowings of $2,760,000 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, 2018, the Company had borrowings of $2,000,000 against this credit line.  Subsequent to April 30, 2018, on June 11, 2018, this line of credit was increased to $3,000,000 and the final payment date was set at September 30, 2020.

On April 19, 2017, the Company entered into a $2,000,000 unsecured line of credit with a regional bank.  This line of credit was increased to $4,000,000 on April 17, 2018.  Terms of the line of credit are as follows:

 

Term: 

3 years – matures 5/1/2020

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, 2018, the Company had borrowings of $-0- against this credit line.

 

Annual Report on Form 10-K

Page 19

First Hartford Corporation

 


 

 

ITEM 7.               MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (continued):

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 35.  See the index to Financial Statements in Item 15.

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

No change in the Company’s principal independent accountants occurred during the Company’s two most recent fiscal years or any subsequent interim period, nor did any disagreements occur with the Company’s accountants on any matter of accounting principles or practices or financial statement disclosure that would require a current report on Form 8-K.

 

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.

 

 

Annual Report on Form 10-K

Page 20

First Hartford Corporation

 


 

 

ITEM 9A.       CONTROLS AND PROCEDURES (concluded):

Management’s Annual Report on Internal Control over Financial Reporting (continued):

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, 2018.  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, 2018, 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.

Changes in Internal Control over Financial Reporting

During the years ended April 30, 2018 and 2017, 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 21

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

 90

1966 – Present

John Toic

46

2015 – Present

Jeffrey Carlson

63

2015 – Present

William Connolly

69

 2015 – Present

Jonathan Bellock

32

 2017 – 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

46

President

2015 – Present

Neil H. Ellis

90

Chairman of the Board

1966 – Present

Jeffrey Carlson

63

Secretary

2015 – Present

Eric J. Harrington

48

Treasurer

2015 – Present

Jonathan Bellock

32

Vice President

2017 – 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:

Mr. Bellock is the grandson of Mr. Ellis, the Chairman of the Company.  There are no other family relationships among any directors or executive officers.

 

Annual Report on Form 10-K

Page 22

First Hartford Corporation

 


 

 

ITEM 10.        DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE (continued)

 

(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. 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 2003.  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. 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. 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.

 

Mr. Bellock was appointed a director of the Company on November 20, 2017 to fill the vacancy created upon long-time director David Harding’s retirement.  Mr. Bellock also became vice president to the Company on November 20, 2017, also replacing Mr. Harding.  Mr. Bellock received his Bachelor of Arts at Union College and has been with the company since 2009.  In 2011, he opened and began operating a new regional office in Houston, TX.  Since 2011, he has worked in Houston, TX on project acquisition and development in both the fee-for-service and shopping center development programs.

 

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.

 

 

 

Annual Report on Form 10-K

Page 23

First Hartford Corporation

 


 

 

ITEM 10.               DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE (concluded)

 

(g)          Promoter and Control Persons:

 

Not applicable.

 

(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. Toic, Mr. Carlson, and Mr. Bellock 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 2018, all directors and executive officers of the Company have not had to file any reports under Section 16(a) of the Exchange Act.

 

(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 24

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
Compen-
sation

Non-
qualified
Deferred
Compen-
sation
Earnings

All Other
Compensation

Total

Neil H. Ellis, Chairman

2018

$399,192

$-0-

$-0-

$-0-

$-0-

$-0-

$-0-

$399,192

 

2017

$399,989

$-0-

$-0-

$-0-

$-0-

$-0-

$-0-

$399,989

John Toic, President

2018

$400,000

$75,000

$-0-

$-0-

$-0-

$-0-

$11,954(1)

$486,954

 

2017

$400,000

$75,000

$-0-

$-0-

$-0-

$-0-

$8,477(1)

$483,477

Jeffrey Carlson, General Counsel & Secretary

 2018

$195,193

$50,000

$-0-

$-0-

$-0-

$-0-

$8,890(1)

$254,083

 

2017

$175,000

$25,000

$-0-

$-0-

$-0-

$-0-

$7,710(1)

$207,710

Jonathan R. Bellock, Vice President

 2018

$113,077

$50,000

$-0-

$-0-

$-0-

$-0-

$6,571(1)

$169,648

 

2017

$100,558

$60,000

$-0-

$-0-

$-0-

$-0-

$6,475(1)

$167,033

Eric Harrington, Treasurer

 2018

$140,000

$25,000

$-0-

$-0-

$-0-

$-0-

$5,574(1)

$170,574

 

2017

$140,000

$-0-

$-0-

$-0-

$-0-

$-0-

$5,616(1)

$145,616

William Connolly, Managing Director of
Connolly and Partners, LLC

 2018

$150,000

$53,378

$-0-

$-0-

$-0-

$-0-

$6,181(1)

$209,559

 

2017

$149,993

$55,460

$-0-

$-0-

$-0-

$-0-

$6,358(1)

$211,811

David B. Harding, retired as Vice President (2)

 2018

 $55,349

 $-0-

 $-0-

 $-0-

 $-0-

 $-0-

 $-0-

 $55,349

 

2017

$113,738

$-0-

$-0-

$-0-

$-0-

$-0-

$-0-

$113,738

 

Footnote 1:  The compensation referenced is compensation received by each respective person under the Company’s 401(k) deferred compensation plan and predecessor SIMPLE IRA plan. 

Footnote 2:  Mr. Harding was serving until the date of his retirement, November 20, 2017.  Compensation totaling $20,733 was paid to him from November 21, 2017 through February 23, 2018 as a post-employment Board-approved severance benefit for Mr. Harding’s loyalty and long-term service to the Company

 

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 25

First Hartford Corporation

 


 

 

ITEM 11.              EXECUTIVE COMPENSATION (continued)

(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. Toic, Mr. Carlson, and Mr. Bellock 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 $109 a week, employee and spouse $97 a week, and employee alone $44 a week. 

Mr. Ellis has opted out of the Company plan and is covered by Medicare.  Mr. Toic and Mr. Harrington also do not participate in the Company plan.

Disability Insurance:

Short-Term (up to 180 days): 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 (over 180 days): 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.

 

 

Annual Report on Form 10-K

Page 26

First Hartford Corporation

 


 

 

ITEM 11.             EXECUTIVE COMPENSATION (concluded)

 

(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.

(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 all three annual payments as of April 30, 2018.  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, 2018 as the event needed to trigger this payment has not yet occurred.

(g)          Bonuses:

In fiscal years 2018 and 2017, Mr. Toic received bonuses totaling $75,000 and $75,000, respectively, for his work on the sale of several properties. 

In fiscal years 2018 and 2017, Mr. Carlson received bonuses totaling $50,000 and $25,000, respectively, for his work on the sale of several properties.

In fiscal year 2018, Mr. Harrington received a performance bonus of $25,000.

Mr. Connolly receives commissions equal to 8% of gross management fees paid by the three residential properties.  In fiscal years 2018 and 2017, he received $53,378 and $55,460, respectively.

Mr. Bellock receives a $5,000 bonus on certain CVS fee for service closings in TX, as well as bonuses for his work on the sale of certain properties.  In fiscal years 2018 and 2017, he received bonuses totaling $50,000 and $60,000, respectively.

 

 

 

Annual Report on Form 10-K

Page 27

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

1,365,326 (1)

59.0%

 

43 Butternut Road

 

 

 

Manchester, CT 06040

 

 

 

 

 

 

Common Stock

All Directors and Officers

1,389,189 (2)

60.0%

 

as a Group

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

 

 

 

 

 

 

 

Other 5% Beneficial Owners

 

 

 

 

 

 

Common Stock

John Filippelli

280,458 (3)

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)       Includes Mr. Ellis’s shares plus 23,763 shares held by Mr. Bellock and 100 shares held by Mr. Connolly.  Mr. Toic, Mr. Carlson, and Mr. Harrington have never held any shares.

(3)       Included in Mr. Filippelli’s shares are 54,652 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 28

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, 2018 and 2017, Parkade Center Inc. and First Hartford Realty Corporation earned the following:

   

 

2018

2017

Management Fee (at 4%)

$79,566

$70,554

 

For the years ended April 30, 2018 and 2017, Parkade Center Inc. received distributions of $7,411 and $17,802, respectively. For the years ended April 30, 2018 and 2017, Lubbock Parkade Inc. received distributions of $420,000 and $962,378, 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 29

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 2014-2018.

 

The 2018 and 2017 amounts in the table below represent expenses for Mahoney Sabol & Company, LLP.                                              

 

 

 

2018

2017

Audit Fees (1)

$131,000

$130,000

Audit Related Fees (2)

15,000

19,000

All Other Fees (3)

3,450

5,147

 

(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)   In FY 2018, fees for a special project at one of its subsidiaries and fees for work performed in response to an SEC comment letter.  In FY 2017, fees for the review of CAM charges at one of the Company’s subsidiaries and fees for accounting research.

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, 2018.

 

By its Board of Directors:

Neil H. Ellis

John Toic

Jeffrey Carlson

William Connolly

Jonathan Bellock

 

 

Annual Report on Form 10-K

Page 30

First Hartford Corporation

 


 

 

PART IV

ITEM 15.          EXHIBITS, FINANCIAL STATEMENT SCHEDULES

                                                                                                                                                        

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

 

 Pages

Report of Independent Registered Public Accounting Firm

34

 

 

Financial Statements:

 

 

 

Consolidated Balance Sheets – April 30, 2018 and 2017

35-36

 

 

Consolidated Statements of Income for the Years

 

     Ended April 30, 2018 and 2017

37

 

 

Consolidated Statements of Comprehensive Income for the Years

 

     Ended April, 30, 2018 and 2017

38

 

 

Consolidated Statements of Changes in Shareholders’ Equity (Deficiency)

 

      for the Years Ended April 30, 2018 and 2017

39

 

 

Consolidated Statements of Cash Flows for the Years

 

     Ended April 30, 2018 and 2017

40-41

 

 

Notes to Consolidated Financial Statements

42-60

 

(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 31

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 Mid-City Manager, Inc.  

 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 BTS Houma, LLC 

Louisiana

First BTS Katy, LLC 

Texas

First BTS Cane Island, LLC 

Texas

First GL Cedar Park, LLC 

Texas

Montgomery SH 105 Associates, LLC

Texas

1813 W. Parmer Associates, LLC

Texas

FHRC Plumbing, Inc. 

Massachusetts

Ware Seguin 1518, LLC 

Texas

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

 

Annual Report on Form 10-K

Page 32

First Hartford Corporation

 


 

 

 

Name of Subsidiary State in which Incorporated
Connolly Bronx, LLC New York
Project Hope Bronx, LLC New York
   

 

(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 33

First Hartford Corporation

 


 

 

Report of Independent Registered Public Accounting Firm

 

To the Board of Directors and

Shareholders of First Hartford Corporation

 

Opinion on the Financial Statements

 

We have audited the accompanying consolidated balance sheets of First Hartford Corporation and Subsidiaries (the “Company”) as of April 30, 2018 and 2017, and the related consolidated statements of income, comprehensive income, changes in shareholders’ equity (deficiency), and cash flows for each of the years in the two-year period ended April 30, 2018, and the related notes (collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of April 30, 2018 and 2017, and the results of its operations and its cash flows for each of the years in the two-year period ended April 30, 2018, in conformity with accounting principles generally accepted in the United States of America.

 

Basis for Opinion

 

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, 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.

 

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

 

/s/ Mahoney Sabol & Company, LLP

 

Glastonbury, Connecticut

July 30, 2018

 

We have served as the Company’s auditor since 2014.

 

 

 

 

Annual Report on Form 10-K

Page 34

First Hartford Corporation

 


 

 

  FIRST HARTFORD CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
APRIL 30, 2018 AND 2017

ASSETS

 

2018

 

2017

Real estate and equipment:

 

 

 

Developed properties and property under construction (including $79,969,791
in 2018 and $77,898,958 in 2017 for VIEs)

$251,892,715 

 

$236,865,867 

Equipment and tenant improvements (including $2,551,778 in 2018 and
$2,424,964 in 2017 for VIEs)

4,274,824 

 

3,689,442 

 

256,167,539 

 

240,555,309 

Less accumulated depreciation and amortization (including $18,042,184 in 2018
and $15,918,495 in 2017 for VIEs)

(52,650,839)

 

(47,449,316)

 

203,516,700 

 

193,105,993 

 

 

 

 

 

 

 

 

Property held for sale

7,465,163 

 

11,389,591 

 

 

 

 

Cash and cash equivalents (including $2,689,207 in 2018 and $2,063,103 in 2017
for VIEs)

7,206,445 

 

6,250,757 

 

 

 

 

Cash and cash equivalents – restricted (including $386,505 in 2018 and $396,361 in
2017 for VIEs)

992,923 

 

526,012 

 

 

 

 

Marketable securities (including $619,432 in 2018 and $1,538,839 in 2017 for
VIEs)

619,432 

 

1,538,839 

 

 

 

 

Accounts and notes receivable, less allowance for doubtful accounts of
$56,930 in 2018 and $135,002 in 2017 (including $49,668 in 2018 and $66,543 in 2017 for VIEs)

 

3,041,624 

 

 

3,505,541 

 

 

 

 

Other receivables

4,494,150 

 

4,064,876 

 

 

 

 

Deposits and escrow accounts (including $7,356,807 in 2018 and $8,866,586 in
2017 for VIEs)

15,284,884 

 

15,930,999 

 

 

 

 

Prepaid expenses (including $361,206 in 2018 and $327,481 in 2017 for VIEs)

1,726,281 

 

1,644,320 

 

 

 

 

Deferred expenses, net (including $150,412 in 2018 and $167,273 in 2017 for VIEs)

3,064,329 

 

5,712,547 

 

 

 

 

Investment in affiliates

429,847 

 

100 

 

 

 

 

Due from related parties and affiliates

199,101 

 

152,776 

 

 

 

 

Deferred tax asset

-0- 

 

671,147 

 

 

 

 

Total assets

$248,040,879 

 

$244,493,498 

  

See accompanying notes.

 

Annual Report on Form 10-K

Page 35

First Hartford Corporation

 


 

 

FIRST HARTFORD CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

APRIL 30, 2018 AND 2017

(continued)

 

LIABILITIES AND SHAREHOLDERS’ EQUITY (DEFICIENCY)

 

 

2018

 

2017

Liabilities:

 

 

 

Mortgages and other notes payable:

 

 

 

Construction loans payable

$32,168,786 

 

$26,929,537 

Mortgages payable (including $63,617,980 in 2018 and $64,598,997 in
2017 for VIEs)

191,597,383 

 

195,763,409 

Notes payable (including $1,704,697 in 2018 and $1,704,697 in 2017 for
VIEs)

1,704,697 

 

1,704,697 

Lines of credit

4,760,000 

 

6,400,000 

Less: Deferred debt issuance costs (including $1,515,252 in 2018 and
$1,575,494 in 2017 for VIEs)

 (2,975,038)

 

 (3,067,098)

 

227,255,828 

 

227,730,545 

 

 

 

 

Accounts payable (including $1,017,870 in 2018 and $569,600 in 2017 for VIEs)

3,295,223 

 

2,915,400 

Other payables

6,556,675 

 

4,966,246 

Accrued liabilities (including $3,557,776 in 2018 and $3,382,307 in 2017 for VIEs)

7,456,930 

 

5,699,875 

Derivative liability

659,780 

 

2,023,793 

Deferred income (including $221,296 in 2018 and $227,936 in 2017 for VIEs)

885,635 

 

622,461 

Other liabilities

1,007,642 

 

1,328,909 

Due to related parties and affiliates (including $464,608 in 2018 and $446,990 in
2017 for VIEs)

616,516 

 

598,843 

Deferred tax liability

210,215 

 

Total liabilities

247,944,444 

 

245,886,072 

 

 

 

 

Commitments and Contingencies

 

 

 

 

 

 

 

Shareholders’ Equity (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 3,211,843 in 2018 and 3,236,843 in 2017, outstanding 2,315,799
and 2,340,799 in 2018 and 2017, respectively

 

 

3,211,843 

 

 

 

3,236,843 

 

 

 

 

Capital in excess of par

5,043,779 

 

5,093,779 

Accumulated deficit

(4,037,658)

 

(5,612,263)

Accumulated other comprehensive income

-0- 

 

-0- 

Treasury stock, at cost, 896,044 shares in 2018 and 2017

(4,989,384)

 

(4,989,384)

Total First Hartford Corporation

(771,420)

 

(2,271,025)

 

 

 

 

Noncontrolling interests

867,855 

 

878,451 

Total shareholders’ equity (deficiency)

96,435 

 

(1,392,574)

 

 

 

 

Total liabilities and shareholders’ equity (deficiency)

$248,040,879 

 

$244,493,498 

 

See accompanying notes.

 

Annual Report on Form 10-K

Page 36

First Hartford Corporation

 


 

 

FIRST HARTFORD CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

FOR THE YEARS ENDED APRIL 30, 2018 AND 2017

 

 

 

2018

 

2017

Revenues:

 

 

 

Rental income

$31,419,431 

 

$31,984,825 

Service income

5,192,144 

 

5,453,919 

Sales of real estate

40,424,504 

 

34,373,493 

Other revenues

5,982,883 

 

3,858,059 

 

83,018,962 

 

75,670,296 

 

 

 

 

Operating costs and expenses:

 

 

 

Rental expenses (includes depreciation and amortization of $5,719,173 and
$5,668,173 in 2018 and 2017, respectively)

20,954,278 

 

20,090,504 

Service expenses

5,341,070 

 

5,098,899 

Cost of real estate sales

32,454,414 

 

27,723,800 

Other expenses

6,777,589 

 

3,981,173 

Selling, general and administrative expenses

5,867,999 

 

5,096,886 

 

71,395,350 

 

61,991,262 

 

 

 

 

Income from operations

11,623,612 

 

13,679,034 

 

 

 

 

Non-operating income (expense):

 

 

 

Equity in earnings of unconsolidated subsidiaries

681,267 

 

685,452 

Other income

148,919 

 

137,186 

Gain (loss) on derivatives

1,531,013 

 

2,669,416 

Loss on defeasance

-0- 

 

(437,776)

Loss on impairment

(40,000)

 

-0- 

Interest expense

(10,816,099)

 

(10,393,998)

 

(8,494,900)

 

(7,339,720)

 

 

 

 

Income before income taxes

3,128,712 

 

6,339,314 

 

 

 

 

Income tax expense

1,213,479 

 

1,859,941 

 

 

 

 

Consolidated net income

1,915,233 

 

4,479,373 

 

 

 

 

Net (income) loss attributable to noncontrolling interests

(340,628)

 

(1,491,141)

 

 

 

 

Net income attributable to First Hartford Corporation

$1,574,605 

 

$2,988,232 

 

 

 

 

Net income per share – basic

$0.68 

 

$1.26 

 

 

 

 

Net income per share – diluted

$0.68 

 

$1.26 

 

 

 

 

Shares used in basic per share computation

2,320,799 

 

2,375,617 

Shares used in diluted per share computation

2,320,799 

 

2,375,617 

 

 

 

 

 

See accompanying notes.

 

Annual Report on Form 10-K

Page 37

First Hartford Corporation

 


 

 

 FIRST HARTFORD CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE YEARS ENDED APRIL 30, 2018 AND 2017

 

 

 

2018

 

2017

 

 

 

 

Consolidated net income

$1,915,233 

 

$4,479,373 

 

 

 

 

 

 

 

 

Other comprehensive income (loss), net of taxes:

 

 

 

Unrealized gains (losses) on marketable securities

150,153 

 

112,813 

 

 

 

 

Total comprehensive income

2,065,386 

 

4,592,186 

 

 

 

 

Amounts attributable to noncontrolling interests:

 

 

 

Net (income) loss

(340,628)

 

(1,491,141)

Unrealized (gains) losses on marketable securities

(150,153)

 

(112,813)

 

 

 

 

 

(490,781)

 

(1,603,954)

 

 

 

 

Comprehensive income attributable to First Hartford Corporation

$1,574,605 

 

$2,988,232 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See accompanying notes.

 

 

Annual Report on Form 10-K

Page 38

First Hartford Corporation

 


 

 

FIRST HARTFORD CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (DEFICIENCY)
FOR THE YEARS ENDED APRIL 30, 2018 AND 2017

 

 

Common

Stock

Capital in

Excess of
Par

Accumulated

Deficit

Accumulated
Other

Comprehensive

Income

Treasury

Stock

Total First

Hartford
Corporation

Noncontrolling

Interests

Total

 

 

 

 

 

 

 

 

 

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)

 

 

 

 

 

 

 

 

 

Distributions

-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)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Distributions

-0- 

-0- 

-0- 

-0-

-0- 

-0- 

(501,377)

(501,377)

 

 

 

 

 

 

 

 

 

Purchase of common stock

(25,000)

(50,000)

-0- 

-0-

-0- 

(75,000)

-0- 

(75,000)

 

 

 

 

 

 

 

 

 

Net income

-0- 

-0- 

1,574,605 

-0-

-0- 

1,574,605 

340,628 

1,915,233 

 

 

 

 

 

 

 

 

 

Unrealized gain on marketable securities

-0- 

-0- 

-0- 

-0-

-0- 

-0- 

150,153 

150,153 

 

 

 

 

 

 

 

 

 

Balance, April 30, 2018

$3,211,843 

$5,043,779 

$(4,037,658)

$ -0-

$(4,989,384)

$(771,420)

$867,855 

$96,435 

 

 

 

 

  

See accompanying notes.

 

Annual Report on Form 10-K

Page 39

First Hartford Corporation

 


 

 

FIRST HARTFORD CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED APRIL 30, 2018 AND 2017

 

 

2018

 

2017

Operating activities:

 

 

 

 

 

 

 

Consolidated net income

$1,915,233 

 

$4,479,373 

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 2018 and $360,000 in 2017

(321,267)

 

(325,452)

Gain on sale of real estate

(7,970,090)

 

(6,649,693)

Loss on impairment

40,000 

 

-0- 

Depreciation of real estate and equipment

5,486,495 

 

5,453,963 

Amortization of deferred expenses

566,069 

 

868,263 

Deferred income taxes

881,362 

 

1,459,629 

Unrealized (gain) loss on derivatives

(1,364,013)

 

(2,669,416)

Changes in operating assets and liabilities:

 

 

 

Accounts, notes and other receivables

34,643 

 

2,345,260 

Deposits and escrows

767,035 

 

4,519,094 

Prepaid expenses

(81,961)

 

(205,561)

Deferred expenses

2,174,209 

 

(4,858,195)

Cash and cash equivalents – restricted

(466,911)

 

1,544,951 

Accrued liabilities

1,757,055 

 

(425,055)

Deferred income

263,174 

 

(55,233)

Accounts and other payables

1,970,252 

 

(4,663,071)

Net cash provided by (used in) operating activities

5,651,285 

 

818,857 

 

 

 

 

Investing activities:

 

 

 

Investments in marketable securities

(232,114)

 

(466,827)

Proceeds from sale of marketable securities

1,301,674 

 

642,596 

Purchases of equipment and tenant improvements

(976,168)

 

(169,283)

Investments in affiliated companies

(429,747)

 

-0- 

Proceeds from sales of real estate

40,424,504 

 

34,373,493 

Additions to developed properties and property under construction

(43,491,020)

 

(32,238,452)

Net cash provided by (used in) investing activities

(3,402,871)

 

2,141,527 

 

 

See accompanying notes.

 

 

Annual Report on Form 10-K

Page 40

First Hartford Corporation

 


 

 

FIRST HARTFORD CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED APRIL 30, 2018 AND 2017
(continued)

 

 

2018

 

2017

Financing activities:

 

 

 

 

 

 

 

Purchase of common stock

$(75,000)

 

$(171,883)

Distributions to noncontrolling interests

(501,377)

 

(1,261,368)

Proceeds from:

 

 

 

Construction loans

23,242,195 

 

12,282,080 

Mortgages

7,526,407 

 

11,929,657 

Notes

-0- 

 

-0- 

Credit lines

5,360,000 

 

5,775,000 

Principal payments on:

 

 

 

Construction loans

(12,435,273)

 

(15,051,475)

Mortgages

(17,381,026)

 

(14,130,953)

Notes

-0- 

 

(40,000)

Credit lines

(7,000,000)

 

(2,027,091)

Advances to related parties and affiliates, net

(28,652)

 

3,900 

Net cash provided by (used in) financing activities

(1,292,726)

 

(2,692,133)

 

 

 

 

Net change in cash and cash equivalents

955,688 

 

268,251 

Cash and cash equivalents, beginning of year

6,250,757 

 

5,982,506 

Cash and cash equivalents, end of year

$7,206,445 

 

$6,250,757 

 

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:

 

 

 

 

Cash paid during the year for interest

$10,602,132 

 

$10,189,862 

Cash paid during the year for income taxes

$259,166 

 

$434,890 

 

Debt refinancing in 1st quarter:

 

 

 

New mortgage loan

$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 3rd 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 

 

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 41

First Hartford Corporation

 


 

 

FIRST HARTFORD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED APRIL 30, 2018 AND 2017

 

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 42

First Hartford Corporation

 


 

 

FIRST HARTFORD CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED APRIL 30, 2018 AND 2017

 

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, 2018 and 2017 were $2,695,000 and $3,394,500, respectively.  Fees earned for Cumberland Farms during the years ended April 30, 2018 and 2017 were $1,240,000 and $1,445,000, respectively.  These fees are included in service income in the consolidated statements of income. 

 

The Company also provides management and maintenance services to others, primarily the Company’s unconsolidated Claymont, DE property.  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, 2018 and 2017, the Company had sales of $40,424,504 and $34,373,493, respectively.  The cost of the property sold was $32,454,414 and $27,723,800 for 2018 and 2017, 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 ongoing long-term construction projects or revenue recognized for the years ended April 30, 2018 and 2017.

 

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 $5,004,438 and $4,363,317 as of April 30, 2018 and 2017 respectively, and have been included as “other payables” in the consolidated balance sheets.  Related reimbursements due from CVS were $4,494,150 and $4,064,876 as of April 30, 2018 and 2017, respectively, and have been included in “other receivables” in the consolidated balance sheets. 

 

Also included in “other payables” as of April 30, 2018 was $1,208,263 of cost reimbursements due to CVS upon completion of its Little Ferry, TX project.

Cash and Cash Equivalents – Restricted

Cash and cash equivalents – restricted, includes 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 and cash held in a lender-controlled lockbox account for our Edinburg, TX property.

 

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, 2018 AND 2017

 

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, 2018, $243,853 was capitalized.  In the year ended April 30, 2017, $52,500 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 44

First Hartford Corporation

 


 

 

FIRST HARTFORD CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED APRIL 30, 2018 AND 2017

 

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 $1,064,774 and $1,226,778 as of April 30, 2018 and 2017, respectively. 

 

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

Year Ending April 30,

2019

$224,669

2020

138,851

2021

122,576

2022

111,562

2023

95,220

Thereafter

371,896

Total

$1,064,774

                                               

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 ($1,007,642) as of April 30, 2018 and ($1,328,909) as of April 30, 2017 is included in other liabilities.  The Company recorded equity in earnings of unconsolidated subsidiaries of $681,267 and $685,452 for the years ended April 30, 2018 and 2017, 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.

 

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 $103,149 was made as of April 30, 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 April 30, 2018.

 

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, 2018 AND 2017

 

1.      Summary of Significant Accounting Policies (continued):

Investment in Affiliated Entities (concluded):

 

On April 19, 2018, a 75%-owned subsidiary of the Company invested in a limited liability company that purchased a 100 unit subsidized housing property in the Bronx, NY for $14,900,000.  The Company, through this investment, is a non-controlling .005% Class B member in the limited liability company.  The Company’s investment is carried at cost of $100.  The managing member has delegated the management of the property to the Company, for which it will be paid a management fee of 4% of operating revenue.  The Company, through a wholly-owned subsidiary, will be the general contractor for the renovation of this property, which is expected to cost approximately $9,350,000.  Finally, a developer fee of $3,669,000 will be paid to the 75%-owned subsidiary of the Company.  The first installment of this developer fee ($350,000) was paid upon closing; the second installment of this developer fee ($848,877) will be paid at conversion to permanent financing; and the balance of the developer fee ($2,470,123) will be paid over the next 15 years from net cash flow of the property.

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.

 

 

 

 

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, 2018 AND 2017

 

1.      Summary of Significant Accounting Policies (continued):

Fair Value Measurements (concluded):

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, 2018 and 2017, investments consist of equity securities, which are classified as available for sale.  Investments in marketable securities are stated at fair value of $619,432 and $1,538,839 as of April 30, 2018 and 2017 (cost of $501,787 and $1,571,349).  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 $150,153 and $112,813 are included in noncontrolling interests for the years ended April 30, 2018 and 2017.  Gains or losses on securities sold are based on the specific identification method.

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, 2018 and 2017 totaled $1,531,013 and $2,669,416, respectively, and the Company has recorded a liability of $659,780 and $2,023,793 in the consolidated balance sheets, which represents the fair value of the interest rate swaps as of April 30, 2018 and 2017, respectively.

 

The following table presents information about the Company’s respective assets and liabilities measured at fair value on a recurring basis at April 30, 2018 and 2017, including the fair value measurements and the level of inputs used in determining those fair values:

 

April 30, 2018

Level 1

Level 2

Level 3

Total

Assets:

 

 

 

 

U.S. Equity Securities

$619,432

$ -0-

$ -0-

$619,432

Interest Rate Swap Agreement

$ -0-

$625,841

$ -0-

$625,841

 

$619,432

$625,841

$ -0-

$1,245,273

Liabilities:

 

 

 

 

Interest Rate Swap Agreement

$ -0-

$(1,285,621)

$ -0-

$(1,285,621)

 

 

 

 

 

April 30, 2017

Level 1

Level 2

Level 3

Total

Assets:

       

U.S. Equity Securities

$1,538,839

$ -0-

$ -0-

$1,538,839

Liabilities:

 

 

 

 

Interest Rate Swap Agreements

$ -0-

$(2,023,793)

$ -0-

$(2,023,793)

 

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, 2018 and 2017.

 

 

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, 2018 AND 2017

 

1.      Summary of Significant Accounting Policies (continued):

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 is provided for deferred income tax assets for which realization is not likely in the near term.

As of April 30, 2018 and 2017, the Company had 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, 2018 and 2017, 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 2015 are open to examination by Federal, local and state authorities.

 

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.

 

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, 2018 or April 30, 2017.

New Accounting Pronouncements

In May 2014, the FASB issued an Accounting Standards Update (ASU) No. 2016-02, Revenues from Contracts with Customers (Topic 606), which provides 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 for fiscal years beginning after December 15, 2017.  The standard may be applied retrospectively to each prior period presented or retrospectively with the cumulative effect recognized as of the date of initial application.  The Company is currently evaluating the potential impact of adopting this ASU on its consolidated financial statements.    

 

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, 2018 AND 2017

 

1.      Summary of Significant Accounting Policies (concluded):

New Accounting Pronouncements (concluded):

In February 2016, the FASB issued 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 beginning after December 15, 2018. The Company is currently evaluating the potential impact of adopting this ASU on its consolidated financial statements.

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 ASU on its consolidated financial statements.

In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash. The ASU requires companies to include restricted cash with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown in the statement of cash flows. The ASU will require disclosure of a reconciliation between the balance sheet and the statement of cash flows when the balance sheet includes more than one line item for cash and cash equivalents. An entity with material restricted cash and cash equivalents will be required to disclose the nature of the restrictions. This ASU is effective for fiscal years beginning after December 15, 2017. Upon adoption of this ASU, restricted cash and cash equivalent balances will be included with cash and cash equivalent balances as of the beginning and ending of each period presented in the Company’s consolidated statements of cash flows. In addition, separate line items reconciling restricted cash and cash equivalents to the changes in cash and cash equivalents will no longer be presented within the operating, investing, and financing sections of the Company’s consolidated statements of cash flows.

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.

 

 

 

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, 2018 AND 2017

 

2.      Consolidated Variable Interest Entities (continued):

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.

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, 2018 and 2017 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,

 

2018

2017

 

 

 

Real estate and equipment, net

$66,691,049

$66,732,664

Other assets

11,607,936

13,417,929

Total assets

78,298,985

80,150,593

 

 

 

Intercompany profit elimination

(2,603,570)

(2,719,143)

Consolidated

$75,695,415

$77,431,450

 

 

 

Mortgages and other notes payable

$63,807,424

$64,728,200

Other liabilities

4,796,289

4,179,842

Total liabilities

$68,603,713

$68,908,042

 

 

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, 2018 AND 2017

 

2.      Consolidated Variable Interest Entities (concluded):

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 $12,227,584 for the year ended April 30, 2018 and $12,171,608 for the year ended April 30, 2017. The combined net loss for Rockland and Clarendon was $1,447,093 for the year ended April 30, 2018 and $843,327 for the year ended April 30, 2017. 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.

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

Information about the Company’s debt follows:

 

2018

 

2017

Construction loans and mortgages payable with interest rates ranging from

 

 

 

zero to 7.25% at April 30, 2018 and 2017 and maturities at various dates through 2056.

$223,766,169 

 

$222,692,946 

 

 

 

 

Notes payable with interest rates ranging from zero to 4.40% at

 

 

 

April 30, 2018 and 2017 and maturities ranging from 2030 to 2050.

1,704,697 

 

1,704,697 

 

 

 

 

Lines of credit with interest rates ranging from 4.50% to 4.88% at April 30, 2018

and 2017 and maturities ranging from 2018 to 2020.

4,760,000 

 

6,400,000 

 

 

 

 

 

230,230,866 

 

230,797,643 

 

 

 

 

Less deferred debt issuance costs

(2,975,038)

 

(3,067,098)

 

 

 

 

 

$227,255,828 

 

$227,730,545 

 

For the years ended April 30, 2018 and 2017, $480,332 and $162,217 of interest related to various development and construction projects was capitalized.

Aggregate principal payments due on the above debt for each of the years succeeding April 30, 2018 are as follows:

Year Ending April 30,

 

 

2019

$38,765,866

2020

6,269,413

2021

3,453,706

2022

4,808,491

2023

3,771,121

Thereafter

173,162,269

 

$230,230,866

 

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

 

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, 2018 AND 2017

 

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

 

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.

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 was 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 pre-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 $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