SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
F O R M 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended January 31, 2003 Commission File No. 0-8862
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First Hartford Corporation
(Exact name of registrant as
specified in its charter)
Maine 01-0185800
(State of Incorporation) (I.R.S. Employer
Identification No.)
149 Colonial Road, Manchester, Connecticut 06040
(Address of principal executive offices) (Zip Code)
(860) 646-6555
(Registrant's telephone number, including area code)
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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, and (2) has been subject to such filing
requirements for the past 90 days.
YES |_| NO |X|
As of November 8, 1997, 3,089,985 shares of common stock of the Registrant
were outstanding.
FIRST HARTFORD CORPORATION
INDEX
PART I. FINANCIAL INFORMATION PAGE
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Item 1. Financial Statements
Independent Auditor's Review Letter 1
Consolidated Balance Sheets -
January 31, 2003 and April 30, 2002 2 & 3
Consolidated Statements of Operations
For the Six Months and Three Months
Ended January 31, 2003 and 2002 4
Consolidated Statements of Cash Flows
For the Six Months and Three Months
Ended January 31, 2003 and 2002 5 & 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis
of Financial Condition and Results 8 & 9
of Operations
PART II. OTHER INFORMATION
Signatures 14
[LETTERHEAD OF KOSTIN, RUFFKESS & COMPANY, LLC]
To the Board of Directors
First Hartford Corporation and Subsidiaries
INDEPENDENT ACCOUNTANT'S REPORT
We have reviewed the accompanying consolidated balance sheet of First Hartford
Corporation and Subsidiaries as of January 3 2003, and the related consolidated
statements of operations, and cash flows for the three months and nine months
then ended. These consolidated financial statements are the responsibility of
the Company's management.
We conducted our review in accordance with Standards for Accounting and Review
Services issued by the American Institute of Certified Public Accountants. A
review of interim financial information consists principally of applying
analytical procedures to financial data and making inquiries of persons
responsible for financial and accounting methods. It is substantially less in
scope than an audit conducted in accordance with auditing standards generally
accepted in the United States of America, the objective of which is the
expression of an opinion regarding the consolidated financial statements taken
as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying consolidated financial statements in order for them
to be in conformity with accounting principles generally accepted in the United
States of America.
/s/ KOSTIN, RUFFKESS & COMPANY, LLC
Farmington, Connecticut
March 13, 2003
1
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements:
FIRST HARTFORD CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited) (Audited)
Jan 31, April 30,
ASSETS 2003 2002
----------- -----------
Real Estate and equipment:
Developed properties $20,630,441 $20,630,451
Equipment and leasehold improvements 106,607 135,869
----------- -----------
20,737,048 20,766,320
Less accumulated depreciation and
amortization 2,518,280 2,208,584
----------- -----------
18,218,768 18,557,736
Properties under construction and
investment in undeveloped properties
and investments 366,254 6,500
----------- -----------
18,585,022 18,564,236
Cash 13,526 67,748
Accounts receivable, less allowance
for doubtful accounts of $30,129
and $50,129 respectively 26,715 227,911
Deposits, escrows, and prepaid and
deferred expenses 1,227,429 1,769,745
Investment in affiliates 544,684 547,592
Due from related parties and affiliates 1,089,140 2,954,856
Deferred Tax Assets 1,700,000 1,700,000
----------- -----------
$23,186,516 $25,832,088
=========== ===========
The accompanying notes are an integral part
of these financial statements.
2
PART I - FINANCIAL INFORMATION
FIRST HARTFORD CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited) (Audited)
Jan. 31, April 30,
2003 2002
------------ ------------
Liabilities:
Mortgages, notes payable
and capital lease obligations:
Mortgages payable $ 23,498,033 $ 23,212,998*
Notes Payable:
Other 2,887,337 3,712,992*
------------ ------------
26,385,370 26,925,990
Accounts payable 1,257,665 1,572,972
Accrued Liabilities 506,241 670,284
Deferred Income 637,026 331,438
Other Liabilities 768,331 632,500
Due to Related Parties and affiliated
partnerships - 0 - 1,702,215
------------ ------------
29,554,633 31,835,399
Commitment and Contingencies
Shareholders' equity (deficiency):
Common stock, $1 par; authorized
6,000,000 shares; issued 3,322,213
shares 3,322,213 3,322,213
Capital in excess of par 4,857,645 4,857,645
Deficit (12,479,851) (12,115,045)
------------ ------------
(4,299,993) (3,935,187)
Less 232,228 shares of common stock
held in treasury, at cost 2,068,124 2,068,124
------------ ------------
(6,368,117) (6,003,311)
------------ ------------
$ 23,186,516 $ 25,832,088
============ ============
*Statements have been reclassified to conform to current period presentation.
The accompanying notes are an integral part
of these financial statements.
3
FIRST HARTFORD CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
(Unaudited)
Nine Months Ended Three Months Ended
------------------------------------ ------------------------------------
January 31, 2003 January 31, 2002 January 31, 2003 January 31, 2002
---------------- ---------------- ---------------- ----------------
REVENUES, INCLUDING RELATED
PARTY RESPECTIVELY:
Sale of Real Estate $ -0- $ 860,000 $ -0- $ -0-
Construction 143,688 105,072 43,833 9,119
Rental 2,646,202 2,731,509 934,104 929,880
Management fees 252,909 136,396 19,375 22,802
Other 488,921 767,290 407,094 167,519
Non-Recurring 183,456 -0- -0- -0-
-------------- -------------- -------------- --------------
3,715,176 4,600,267 1,404,406 1,129,320
COSTS AND EXPENSES:
Cost of Sale of Real Estate -0- 102,511 -0- -0-
Construction 79,095 86,110 11,458 10,622
Operating, selling general
and administrative 1,644,810 1,937,432 607,772 674,313
Interest 1,517,504 1,421,461 508,879 416,008
Depreciation and amortization 382,542 376,673 129,028 126,493
Real Estate Taxes 456,031 398,725 164,078 135,925
-------------- -------------- -------------- --------------
4,079,982 4,322,912 1,421,215 1,363,361
-------------- -------------- -------------- --------------
NET INCOME (LOSS) BEFORE
INC. TAX (364,806) 277,355 (16,809) (234,041)
Federal Income Tax -0- -0- -0- -0-
-------------- -------------- -------------- --------------
NET INCOME (LOSS) AFTER
INC. TAX (364,806) 277,355 (16,809) ($ 234,041)
============== ============== ============== ==============
INCOME (LOSS) PER SHARE ($ 0.12) $ 0.09 ($ 0.01) ($ 0.08)
Weighted Average Number of
Common Shares Outstanding 3,089,985 3,089,985 3,089,985 3,089,985
============== ============== ============== ==============
The accompanying notes are an integral part
of these financial statements.
4
FIRST HARTFORD CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
9 months ended 3 months ended
01/31/2003 01/31/2002 01/31/2003 01/31/2002
----------- ----------- ----------- -----------
Cash flows from operating
activities:
Net Profit (Loss) $ (364,806) $ 277,355 $ (16,809) $ (234,041)
Adjustments to reconcile net loss
to net cash used in operating activities:
Depreciation 349,211 348,569 116,707 116,035
Amortization 33,331 28,104 12,321 10,458
Allowance for doubtful accounts (20,000) -0- -0- -0-
Gain on sale of Real Estate -0- (859,990) -0- -0-
Changes in assets and liabilities:
Increase (Decrease) in:
Accounts & Notes Receivable 221,196 1,105,717 22,478 906,233
Deposits, escrows, prepaid and
deferred expenses 508,985 (1,185,328) 166,692 186,462
(Increase) Decrease in:
Accrued liabilities (164,043) (58,945) (664,832) (91,927)
Other Liabilities 441,419 -0- 399,515 -0-
Accounts payable (315,307) (1,271,778) 229,443 (314,983)
----------- ----------- ----------- -----------
Net cash provided by (used in) 689,986 (1,616,296) 265,515 578,237
----------- ----------- ----------- -----------
operating activities:
Cash flow from investing activities:
Purchase of Investments 2,908 780,000 2,908 558,904
Purchase of equip & leasehold imp (13,101) (9,323) 2,906 (5,400)
Reduction in Prior Development Cost - 0 - 232,000 - 0 - 232,000
Payments for:
Additions to properties
under construction (356,896) (169,450) (59,685) (64,625)
----------- ----------- ----------- -----------
Net Cash provided by (used in)
investing activities: $ (367,089) $ 833,227 $ (53,871) $ 720,879
----------- ----------- ----------- -----------
The accompanying notes are an integral part
of these financial statements.
5
FIRST HARTFORD CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS, CONTINUED
9 months ended 3 months ended
01/31/2003 01/31/2002 01/31/2003 01/31/2002
----------- ----------- ----------- -----------
Cash flows from financing activities:
Proceeds from:
Mortgage Payable $ 648,034 $ 2,000,000 $ 335,000 $ - 0 -
Notes Payable 840,000 170,000 - 0 - - 0 -
Principal payments on:
Mortgage Payable (362,999) (372,344) (94,889) (196,533)
Notes Payable (1,665,655) (1,149,642) (11,357) (250,000)
Gross Proceeds Sale of -0- 860,000 - 0 - - 0 -
Real Estate
Adv. from Related Parties and
affiliated Parties 163,501 (661,147) (555,129) (864,294)
----------- ----------- ----------- -----------
Net Cash provided by (used in)
Financing Activities (377,119) 846,867 (326,375) (1,310,827)
----------- ----------- ----------- -----------
Net Increase (Decrease) in cash
& Cash Equivalents (54,222) 63,798 (114,731) (11,711)
Cash & Cash Equivalents
Beginning of Period 67,748 91,371 128,257 166,880
----------- ----------- ----------- -----------
Cash & Cash Equivalents
End of Period $ 13,526 $ 155,169 $ 13,526 $ 155,169
=========== =========== =========== ===========
The accompanying notes are an integral part
of these financial statements.
6
Summary of Significant Account 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. The Company extends credit to companies/tenants throughout
the United States.
Principles of consolidation:
The accompanying financial statements include the accounts of the Company
and its wholly-owned subsidiaries, including partnerships in which the Company
is a majority owner. All significant intercompany transactions and accounts have
been eliminated in the consolidated financial statements, including construction
revenues and costs of development for the Company's own use (rental/future
sale). The Company records its investment in partnerships in which it is not a
majority owner on the equity method.
Financial Statement Presentation:
Because the Company is engaged in the development and sale of real estate
in 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.
Revenue recognition:
Since the Company is primarily involved in development for its own use
(rental/future sale), construction revenue is recorded only upon sale of the
property built for sale to third parties. Revenues from 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 are no properties built for sale to third parties during the
periods ended January 31, 2003 and 2002.
Rental revenues are recognized as income under the operating method as the
rentals become due. Other income includes management and service fees and
interest income which is recognized over the period in which the service is
provided or the interest is earned.
7
Interim Financial Information (Unaudited)
The interim financial statements of the Company for the three months ended
January 31, 2003 and 2002 included herein, have been prepared by the Company,
without audit, pursuant to the rules and regulations of the SEC. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with accounting principals generally accepted in the
United States of America have been condensed or omitted pursuant to the rules
and regulations relating to interim financial statements.
Item 2. FIRST HARTFORD CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The financial and business analysis below provides information which the
Company believes is relevant to an assessment and understanding of the Company's
consolidated financial position and results of operations. This financial and
business analysis should be read in conjunction with the consolidated financial
statements and related notes.
The following discussion and certain other sections of this Report on Form
10-Q contain statements reflecting the Company's views about its future
performance and constitute "forward-looking statements" under the Private
Securities Litigation Reform Act of 1995. These views may involve risks and
uncertainties that are difficult to predict and may cause the Company's actual
results to differ materially from the results discussed in such forward-looking
statements. Readers should consider that various factors including changes in
general economic conditions, interests rates and availability of funds, nature
of competition and relationships with key customers may affect the Company's
performance. The Company undertakes no obligation to update publicly any
forward-looking statements, whether as a result of new information, future
events or other.
Result of Operations
The quarter ended January 31, 2003 resulted in a loss of $16,809 (.01) per
share compared to a loss of $234,041 (.08) for the quarter ended October 31,
2003.
The current quarter contains a $397,000 gain which is included in other
income. This item results from a refund of sales tax paid during earlier
construction periods under a tax free bond issue. Unsure of which items
were going to be included management determined that it was best to
8
wait until funds were received to recognize the gain.
Other income results from billing Real Estate commissions, overhead,
engineering, legal, accounting services, preconstruction interest, or any other
personnel or financial charges. Management fees can also be included if
applicable. Most of these charges are to projects in which the company does not
maintain a majority interest. The nature of these charges may also increase the
corresponding cost in Operating, selling, and general and administrative. The
reader should understand that cycles in our business are far greater than twelve
months. For the foreseeable future, we do not see profits unless the period
contains the sale of Real Estate. At this time, no sales have been planned, but
we expect to be able to bill slightly better than average fees for the next 12
months.
On February 25, 2003 a 60,000 s.f.lease for a office style building in
Cranston, Rhode Island was signed. The building will be owned by C. P.
Associates, LLC, which is 50% owned by Brewery Parkade Inc., a wholly owned
subsidiary of the company. Brewery Parkade Inc. will be the General Contractor
of the project.
The company has arranged a $11,700,000 construction loan for the project
(guaranteed by Neil Ellis, the President). At this time the loan is not
completed but the same bank supplied a $2,000,000 bridge loan until that time.
From these funds the Partners received $900,000 against the value of the land
and recouped most of the development cost advanced.
Profit or losses for minority owned (50% or less) projects are recorded
yearly at the year end. We expect profits in both Dover (50% interest) and
Cranston (25% interest) for the current year. In the first nine months of our
year, we received $135,000 in distributions but would not expect similar
distributions for the balance of the year, due to large invoices for snow
removal and certain tenant improvements. The distribution should increase over
this level next year. In Cranston the cash flow distribution will not start
until a reserve of $2,100,000 is achieved. This reserve has $1,885,000 as of
March 4, 2003. These funds would be used to replace Kmart with another tenant in
the event they do not confirm their lease and come out of Chapter 11.
Capital resources and liabilities have always been a major impediment. The
above transaction returning much of the capital advanced into the project has
eased the pressure. However, the Company has entered into a modification of the
partnership agreement where the capital investment was adjusted to reflect the
true percentage investment of each partner and removing the priority treatment
of the investment partner. To achieve this milestone the Company needs to invest
$1,350,000 less $500,000 from distributions. This investment has been made in
the 4th quarter and will be reflected in the 10K. The Company believes that the
cash flow to be received will more than make the investment worthwhile.
9
CERTIFICATIONS
Certification requirements set forth in Section 302 (a) of the Sarbanes- Oxley
Act.
I, Neil H. Ellis, certify that:
1. I have reviewed this quarterly report on Form 10Q of First Hartford
Corporation.
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report.
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for the years presented in this
quarterly report.
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining internal controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
A. designed such internal controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared.
B. evaluated the effectiveness of the registrant's internal controls
and procedures as of a date within 90 days prior to the filing date
of this quarterly report (the "Evaluation Date"); and
10
C. presented in this quarterly report our conclusions about the
effectiveness of the internal controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons
performing the equivalent functions);
A. all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weakness in
internal controls; and
B. any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.
I am responsible for preparing the Company's consolidated financial statements
and the other information that appears in this Form 10Q. I believe that the
consolidated financial statements have been prepared in conformity with
accounting principles generally accepted in the United States of America
appropriate in the circumstances to reflect, in all material respects, the
substance of events and transactions that should be included, and that the other
information in this Form 10Q is consistent with those statements. In preparing
the consolidated financial statements, management makes informed judgments and
estimates of the expected effects of events and transactions that are currently
being accounted for.
In meeting its responsibility for the reliability of the consolidated financial
statements, I depend on the Company's system of internal accounting controls.
This system is designed to provide reasonable assurance that assets are
safeguarded and transactions are executed in accordance with management's
authorization, and are recorded properly to permit the preparation of
consolidated financial statements in accordance with accounting principles
generally accepted in the United States of America.
Date: March 12, 2003
/s/ Neil H. Ellis
- -------------------------------------
Neil H. Ellis
President and Chief Executive Officer
11
CERTIFICATIONS
Certification requirements set forth in Section 302 (a) of the Sarbanes- Oxley
Act.
I, Stuart I. Greenwald, certify that:
1. I have reviewed this quarterly report on Form 10Q of First Hartford
Corporation.
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report.
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for the years presented in this
quarterly report.
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining internal controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
A. designed such internal controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared.
B. evaluated the effectiveness of the registrant's internal controls
and procedures as of a date within 90 days prior to the filing date
of this quarterly report (the "Evaluation Date"); and
12
C. presented in this quarterly report our conclusions about the
effectiveness of the internal controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions);
A. all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weakness in
internal controls; and
B. any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.
I am responsible for preparing the Company's consolidated financial statements
and the other information that appears in this Form 10Q. I believe that the
consolidated financial statements have been prepared in conformity with
accounting principles generally accepted in the United States of America
appropriate in the circumstances to reflect, in all material respects, the
substance of events and transactions that should be included, and that the other
information in this Form 10Q is consistent with those statements. In preparing
the consolidated financial statements, management makes informed judgments and
estimates of the expected effects of events and transactions that are currently
being accounted for.
In meeting its responsibility for the reliability of the consolidated financial
statements, I depend on the Company's system of internal accounting controls.
This system is designed to provide reasonable assurance that assets are
safeguarded and transactions are executed in accordance with management's
authorization, and are recorded properly to permit the preparation of
consolidated financial statements in accordance with accounting principles
generally accepted in the United States of America.
Date: March 12, 2003
/s/ Stuart I. Greenwald
- -------------------------------------
Stuart I. Greenwald
Treasurer
13
PART II - OTHER INFORMATION
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FIRST HARTFORD CORPORATION
/s/ Stuart Greenwald
--------------------------------
Stuart Greenwald
Treasurer
Chief Financial Officer
(Duly Authorized Officer,
Principal Financial and
Accounting Officer)
Date: 3/14/03
------------------------
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