Attached files
file | filename |
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EX-32.1 - FIRST HARTFORD CORP | ex32-1.htm |
EX-32.2 - FIRST HARTFORD CORP | ex32-2.htm |
EX-31.2 - FIRST HARTFORD CORP | ex31-2.htm |
EX-31.1 - FIRST HARTFORD CORP | ex31-1.htm |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended October 31, 2009.
[ ] 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: _______________________________________________________________________________
First Hartford Corporation |
(Exact name of registrant as specified in its charter) |
Maine |
01-0185800 |
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
|
|
149 Colonial Road Manchester, CT |
06045-1270 |
(Address of principal executive offices) |
(Zip Code) |
|
|
860-646-6555 |
|
(Registrant's telephone number, including area code) |
|
|
|
(Former name, former address and former fiscal year, if changed since last report)
|
Indicate by check mark whether the registrant (1) has filed all reports 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 X Yes No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer |
Accelerated filer |
Non-accelerated filer (Do not check if a smaller reporting company) | Smaller reporting company X |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes X No
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.
3,027,965 as of January 8, 2010
1 |
FIRST HARTFORD CORPORATION AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION |
PAGE |
|
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Item 1. Financial Statements |
|
|
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Condensed Consolidated Balance Sheets - |
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3 - 4 | |
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Condensed Consolidated Statements of Operations and Other |
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Comprehensive Income (Loss) for the Three and Six Months |
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5 - 6 | |
|
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Condensed Consolidated Statements of Cash Flows for the |
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7 - 8 | |
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9 - 15 | |
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Item 2. Management's Discussion and Analysis of Financial Condition |
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and Results of Operations |
16 - 17 |
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Item 3. Quantitative and Qualitative Disclosures About Market Risk |
17 |
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Item 4T. Controls and Procedures |
18 |
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PART II OTHER INFORMATION |
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Item 1. Legal Proceedings |
19 |
|
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Item 1A. Risk Factors |
19 |
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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds |
19 |
|
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Item 3. Defaults Upon Senior Securities |
19 |
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19 | |
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Item 5. Other Information |
19 |
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Item 6. Exhibits |
19 |
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20 | |
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Exhibits |
21 24 |
2 |
FIRST HARTFORD CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
|
||||
|
|
October 31, 2009 |
April 30, 2009 |
|
|
|
(unaudited) |
(audited) |
|
Real estate and equipment: |
|
|
|
|
Developed properties |
|
$109,242,377 |
$120,518,077 |
|
Equipment and tenant improvements |
|
1,360,539 |
1,355,388 |
|
|
|
110,602,916 |
121,873,465 |
|
|
|
|
|
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Less: accumulated depreciation and amortization |
|
9,824,458 |
8,622,299 |
|
|
|
100,778,458 |
113,251,166 |
|
|
|
|
|
|
Property under construction |
|
812,611 |
274,302 |
|
|
|
101,591,069 |
113,525,468 |
|
|
|
|
|
|
Cash and cash equivalents |
|
2,828,329 |
2,760,342 |
|
|
|
|
|
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Cash and cash equivalents - restricted |
|
1,811,949 |
870,815 |
|
|
|
|
|
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Marketable securities - available for sale |
|
1,605,639 |
1,146,679 |
|
|
|
|
|
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Accounts and notes receivable, less allowance for doubtful accounts |
|
|
|
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of $212,000 and $44,000 as of Oct. 31, 2009 and April 30, 2009, respectively |
|
2,234,845 |
1,904,671 |
|
|
|
|||
Other receivables |
14,652,040 |
8,298,847 |
||
|
|
|
||
Deposits, escrows, prepaid and deferred expenses, net |
6,884,576 |
5,825,969 |
||
|
|
|
||
Investments in affiliates |
|
9,665 |
9,665 |
|
|
|
|
|
|
Due from related parties and affiliates |
|
452,728 |
433,135 |
|
|
|
|
|
|
Deferred tax assets, net |
|
1,238,000 |
1,238,000 |
|
|
|
|
|
|
Total Assets
|
|
$133,308,840 |
$136,013,591 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
3 |
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY) |
||||
|
|
|
|
|
|
|
October 31, 2009 |
April 30, 2009 |
|
Liabilities: |
|
(unaudited) |
(audited) |
|
Mortgages and notes payable: |
|
|
|
|
Construction loans payable |
|
$46,595,806 |
$49,092,876 |
|
Mortgages payable |
|
66,282,931 |
66,728,479 |
|
Notes payable |
|
238,673 |
241,708 |
|
|
|
113,117,410 |
116,063,063 |
|
|
|
|
|
|
Accounts payable |
|
1,003,964 |
993,342 |
|
Other payables |
|
8,498,337 |
8,884,092 |
|
Accrued liabilities |
|
2,480,438 |
3,837,884 |
|
Deferred income |
|
273,293 |
298,805 |
|
Accrued cost of derivatives |
|
2,810,601 |
3,427,515 |
|
Other liabilities |
|
4,904,965 |
5,131,497 |
|
Due to related parties and affiliates |
|
74,700 |
72,000 |
|
Total Liabilities
|
|
133,163,708 |
138,708,198 |
|
|
|
|
|
|
Shareholders' Equity (Deficiency): |
|
|
|
|
Preferred stock, $1 par value; $.50 cumulative and convertible; |
|
|||
authorized 4,000,000 shares; no shares issued and outstanding |
|
-0-
|
-0-
|
|
Common stock, $1 par value; authorized 6,000,000 shares; |
|
|
||
issued 3,298,609 shares |
3,298,609 |
3,298,609 |
||
Capital in excess of par |
|
4,346,460 |
2,156,111 |
|
Accumulated deficit |
|
(12,813,537) |
(12,986,202) |
|
Accumulated other comprehensive loss |
|
(313,247) |
(488,228) |
|
Treasury stock, at cost, 270,644 and 270,444 shares as of October 31, 2009 |
|
|
|
|
and April 30, 2009, respectively |
|
(2,044,429) |
(2,044,114) |
|
Total Company Shareholders Deficiency
|
|
(7,526,144) |
(10,063,824) |
|
Noncontrolling interests
|
|
7,671,276 |
7,369,217 |
|
|
|
|
|
|
Total Shareholders Equity (Deficiency) |
|
145,132 |
(2,694,607) |
|
|
|
|
|
|
Total Liabilities and Shareholders Equity (Deficiency) |
|
$133,308,840 |
$136,013,591 |
4 |
FIRST HARTFORD CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND
OTHER COMPREHENSIVE INCOME (LOSS)
(Unaudited)
|
Three Months Ended |
Six Months Ended |
|||||
|
Oct. 31, 2009 |
Oct. 31, 2008 |
Oct. 31, 2009 |
Oct. 31, 2008 |
|||
Operating revenues: |
|
|
|
|
|
||
Rental income |
$3,570,040 |
|
$2,639,716 |
$6,676,412 |
|
$5,035,159 |
|
Service income |
1,145,480 |
|
589,860 |
2,740,114 |
|
956,067 |
|
Sales of real estate |
4,300,000 |
|
1,029,776 |
4,300,000 |
|
1,029,776 |
|
Other |
58,619 |
|
58,470 |
304,806 |
|
119,607 |
|
|
9,074,139 |
|
4,317,822 |
14,021,332 |
|
7,140,609 |
|
|
|
|
|
|
|
|
|
Operating costs and expenses: |
|
|
|
|
|
|
|
Rental expenses |
2,588,824 |
|
1,657,065 |
4,495,328 |
|
2,924,715 |
|
Service expenses |
626,469 |
|
269,619 |
1,529,696 |
|
674,871 |
|
Cost of sales, real estate |
3,750,828 |
|
726,776 |
3,750,828 |
|
726,776 |
|
Selling, general and administrative |
1,154,003 |
|
1,074,502 |
2,204,790 |
|
2,355,088 |
|
|
8,120,124 |
|
3,727,962 |
11,980,642 |
|
6,681,450 |
|
|
|
|
|
|
|
|
|
Income from operations |
954,015 |
|
589,860 |
2,040,690 |
|
459,159 |
|
|
|
|
|
|
|
|
|
Non-operating income (expense): |
|
|
|
|
|
|
|
Interest expense |
(1,676,899) |
|
(1,018,963) |
(3,204,194) |
|
(1,934,501) |
|
Other income |
197,807 |
|
285,880 |
235,317 |
|
285,880 |
|
(Loss) gain on derivatives |
(207,652) |
|
(472,650) |
616,913 |
|
(59,325) |
|
Equity in earnings of unconsolidated subsidiaries |
285,120 |
|
156,787 |
428,095 |
|
352,201 |
|
|
(1,401,624) |
|
(1,048,946) |
(1,923,869) |
|
(1,355,745) |
|
|
|
|
|
|
|
|
|
(Loss) income before income taxes |
(447,609) |
|
(459,086) |
116,821 |
|
(896,586) |
|
|
|
|
|
|
|
|
|
Provision for income taxes |
44 |
|
0 |
16,761 |
|
15,576 |
|
|
|
|
|
|
|
|
|
Net (loss) income |
(447,653) |
|
(459,086) |
100,060 |
|
(912,162) |
|
|
|
|
|
|
|
|
|
Net (income) loss attributable to noncontrolling interests |
(47,386) |
|
232,087 |
72,605 |
|
229,667 |
|
|
|
|
|
|
|
|
|
Net (loss) income attributable to Company before |
|
|
|
|
|
|
|
other comprehensive loss |
(495,039) |
|
(226,999) |
172,665 |
|
(682,495) |
|
|
|
|
|
|
|
|
|
Other comprehensive loss, net of tax: |
|
|
|
|
|
|
|
Unrealized holding (losses) gains on securities during the period |
(118,751) |
|
(178,338) |
174,981 |
|
(372,008) |
|
|
|
|
|
|
|
|
|
Comprehensive (loss) income |
(613,790) |
|
(405,337) |
347,646 |
|
(1,054,503) |
|
|
|
|
|
|
|
|
|
Comprehensive (income) loss attributable to noncontrolling interests |
(4,152) |
|
89,169 |
(130,674) |
|
186,004 |
|
|
|
|
|
|
|
|
|
Comprehensive (loss) income attributable to Company |
$(617,942) |
|
$(316,168) |
$216,972 |
|
$(868,499) |
The accompanying notes are an integral part of these condensed consolidated financial statements.
5 |
FIRST HARTFORD CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND
OTHER COMPREHENSIVE INCOME (LOSS)
(Unaudited)
|
Three Months Ended |
Six Months Ended |
||||
|
Oct. 31, 2009 |
Oct. 31, 2008 |
Oct. 31, 2009 |
Oct. 31, 2008 |
||
|
|
|
|
|
|
|
Net (loss) income per share - basic |
$(0.16) |
$(0.07) |
$0.06 |
|
$(0.22) |
|
|
|
|
|
|
|
|
Net (loss) income per share - diluted |
$(0.16) |
|
$(0.07) |
$0.06 |
|
$(0.22) |
|
|
|
|
|
|
|
Shares used in basic per share computation |
3,028,065 |
|
3,039,967 |
3,028,065 |
|
3,040,600 |
|
|
|
|
|
|
|
Shares used in diluted per share computation |
3,028,065 |
|
3,039,967 |
3,064,681 |
|
3,040,600 |
|
|
|
|
|
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
6 |
FIRST HARTFORD CORPORATION AND SUBSIDIARIES |
||||
|
||||
(Unaudited) |
||||
|
|
|
|
|
|
Six Months Ended |
|||
|
October 31, 2009 |
|
October 31, 2008 |
|
|
|
|
|
|
Cash flows from operating activities: |
|
|
|
|
Net income (loss)
|
$100,060 |
|
$(912,162) |
|
Adjustments to reconcile net income (loss) |
|
|
|
|
to net cash used in operating activities: |
|
|
|
|
Equity in earnings of unconsolidated subsidiaries |
(428,095) |
|
(352,201) |
|
Gain on sales of real estate |
(549,172) |
|
(303,000) |
|
Gain on sale of marketable securities |
(235,317) |
|
(285,880) |
|
Depreciation |
1,222,808 |
|
932,958 |
|
Amortization |
148,799 |
|
113,664 |
|
Deferred income taxes |
-0- |
|
-0- |
|
(Gain) loss on derivatives |
(616,913) |
|
59,325 |
|
|
|
|
|
|
(Increase) decrease in: |
|
|
|
|
Accounts, notes and other receivables, net |
1,316,633 |
|
(1,586,001) |
|
Deposits, escrows, prepaid and deferred expenses |
(1,207,406) |
|
(1,069,372) |
|
Cash and cash equivalents restricted |
(941,134) |
|
(443,199) |
|
|
|
|
|
|
Increase (decrease) in: |
|
|
|
|
Accrued liabilities |
832,903 |
|
(1,430,049) |
|
Deferred income |
(25,512) |
|
149,162 |
|
Accounts and other payables |
(375,133) |
|
4,540,402 |
|
|
|
|
|
|
Net cash used in operating activities |
(757,479) |
|
(586,353) |
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
Distributions from affiliates, net |
201,562 |
|
98,711 |
|
(Purchase of) proceeds from sale of marketable securities, net |
(48,662) |
|
227,799 |
|
Purchase of equipment and tenant improvements |
(25,800) |
|
(69,456) |
|
Proceeds from sale of real estate, net of closing costs |
3,750,343 |
|
972,444 |
|
Additions to developed properties and properties under construction |
(463,780) |
|
(14,696,574) |
|
Net cash provided by (used in) investing activities |
3,413,663 |
|
(13,467,076) |
The accompanying notes are an integral part of these condensed consolidated financial statements.
7 |
FIRST HARTFORD CORPORATION AND SUBSIDIARIES |
||||
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS |
||||
(Unaudited)
|
||||
(continued) |
||||
|
||||
|
Six Months Ended |
|||
|
October 31, 2009 |
October 31, 2008 |
||
|
|
|
||
Cash flows from financing activities: |
|
|
|
|
Noncontrolling distributions from consolidated joint ventures |
-0- |
|
(17,677) |
|
Limited partners investment in consolidated joint ventures |
374,664 |
|
1,498,138 |
|
Purchase of treasury stock |
(315) |
|
(7,425) |
|
|
|
|
|
|
Proceeds from: |
|
|
|
|
Construction loans payable |
1,125,537 |
|
13,463,356 |
|
Mortgages payable |
-0- |
|
50,000 |
|
Notes payable |
-0- |
|
-0- |
|
Principal payments on: |
|
|
|
|
Construction loans payable |
(3,622,607) |
|
(855,787) |
|
Mortgages payable |
(445,548) |
|
(476,478) |
|
Notes payable |
(3,035) |
|
(3,007) |
|
Advances to related parties and affiliates, net |
(16,893) |
|
(17,315) |
|
|
|
|
|
|
Net cash (used in) provided by financing activities |
(2,588,197) |
|
13,633,805 |
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents |
67,987 |
|
(419,624) |
|
|
|
|
|
|
Cash and cash equivalents, beginning of period |
2,760,342 |
|
3,403,845 |
|
|
|
|
|
|
Cash and cash equivalents, end of period |
$2,828,329 |
|
$2,984,221 |
|
|
|
|
|
|
$3,032,328 |
|
$1,544,371 |
||
Cash paid during the period for income taxes |
$28,461 |
|
$10,576 |
|
|
|
|
|
|
Non-cash investing and financing activities: |
|
|
|
|
Reduction of developed properties resulting from an increase in |
|
|
|
|
other receivables related to Edinburg reimbursement agreement |
$8,000,000 |
|
$-0- |
|
|
|
|
|
|
Reduction of accrued liabilities resulting from decrease in capital in |
|
|
|
|
excess of par for common stock to be redeemed in connection |
|
|
|
|
with the Kaplan matter |
$2,190,349 |
|
$-0- |
8 |
1. Nature of Business and Significant Accounting Policies:
Description of Business
First Hartford Corporation was incorporated in Maine in 1909 and is engaged in the purchase, development, ownership, management and sale of real estate.
Principles of Consolidation
The accompanying condensed consolidated financial statements include the accounts of First Hartford Corporation, its wholly owned subsidiaries and other controlled subsidiaries (collectively referred to as the "Company"). The Company reflects noncontrolling interest for the non-owned portions of consolidated subsidiaries. All significant intercompany transactions and accounts have been eliminated in the condensed consolidated financial statements, including construction revenues and costs of development for the Company's own use (rental/future sale).
Financial Statement Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals and adjustments to previously established loss provisions) considered necessary for a fair presentation have been included. Operating results for the three and six months ended October 31, 2009 are not necessarily indicative of the results that may be expected for the year ending April 30, 2010. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's annual report on Form 10-K for the fiscal year ended April 30, 2009.
These accompanying unaudited interim condensed consolidated financial statements recognize the effects of all subsequent events that provide additional evidence about conditions that existed at October 31, 2009, including the estimates inherent in the process of preparing financial statements. We have evaluated such subsequent events through January 13, 2010, which is the date the accompanying unaudited interim condensed consolidated financial statements were issued.
Certain amounts in the statement of cash flows for the six months ended October 31, 2008 have been reclassified to conform to the current period presentation. In addition, the Company has made certain reclassifications to prior-period amounts to conform to the current period presentation of noncontrolling interests as a result of adopting new guidance issued by the Financial Accounting Standards Board.
Because the Company is engaged in the development and sale of real estate at various stages of construction, the operating cycle may extend beyond one year. Accordingly, following the usual practice of the real estate industry, the accompanying condensed consolidated balance sheets are unclassified.
9 |
FIRST HARTFORD CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Nature of Business and Significant Accounting Policies (continued):
Estimates
The preparation of 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 amount of assets and liabilities, and 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.
Significant Accounting Policies
There has been no change in the Company's significant accounting policies from those contained in our Annual Report on Form 10-K for the year ended April 30, 2009, except as discussed below.
Effective July 1, 2009, the Financial Accounting Standards Boards (FASB) Accounting Standards Codification (ASC) became the single official source of authoritative, nongovernmental generally accepted accounting principles (GAAP) in the United States. The historical GAAP hierarchy was eliminated and the ASC became the only level of authoritative GAAP, other then guidance issued by the Securities and Exchange Commission. The Companys accounting policies were not affected by the conversion to ASC. However, references to specific accounting standards in the footnotes to the Companys consolidated financial statements have been changed to refer to the appropriate ASC topics.
The Company has adopted updated guidance included in ASC 805, Business Combinations effective May 1, 2009. The updated guidance requires an acquiring entity in a business combination to recognize all the assets acquired and liabilities assumed in a transaction at the acquisition-date fair value with limited exceptions. The updated guidance changed the accounting treatment and disclosure for certain specific items and addresses application issues on the accounting for contingencies in a business combination.
The Company has adopted updated guidance included in ASC 810, Consolidation effective May 1, 2009. The updated guidance establishes new accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. The updated guidance requires that noncontrolling interests be presented as a component of consolidated stockholders equity, eliminates minority interest accounting such that the amount of net income attributable to the noncontrolling interests is presented as part of consolidated net income in the accompanying consolidated statements of operations and not as a separate component of income and expense, and requires that upon any changes in ownership that result in the loss of control of the subsidiary, the noncontrolling interest be re-measured at fair value with the resultant gain or loss recorded in net income. The adoption of the requirements of the updated guidance had an impact on the presentation and disclosure of noncontrolling (minority) interests in the condensed consolidated financial statements. As a result of the retrospective presentation and disclosure requirements of the updated guidance, the Company has reflected the change in presentation and disclosure for all periods presented.
In March 2008, the FASB issued guidance to amend the requirements of ASC 815, Derivatives and Hedging. The requirements of the updated guidance are intended to improve financial reporting of derivative instruments and hedging activities by requiring enhanced disclosures for derivative and hedging activities. The adoption of the requirements of the updated guidance became effective for the Company on May 1, 2009, but did not have a material impact on the Companys condensed consolidated financial statements.
10 |
FIRST HARTFORD CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Nature of Business and Significant Accounting Policies (continued):
Significant Accounting Policies (continued):
In April 2009, the FASB issued guidance to amend the requirements of ASC 825, Financial Instruments. The updated guidance relates to fair value disclosures for any financial instruments that are not currently reflected on the balance sheet at fair value. The updated guidance requires these disclosures on a quarterly basis, providing qualitative and quantitative information about fair value estimates for all those financial instruments not measured on the balance sheet at fair value. The adoption of the requirements of the updated guidance became effective on May 1, 2009, but did not have a material impact on the Companys condensed consolidated financial statements.
Net Income (Loss) Per Common Share
Basic net income (loss) per share is computed by dividing the net income (loss) attributable to the common stockholders (the numerator) by the weighted average number of shares of common stock outstanding (the denominator) during the reporting periods. Diluted net income (loss) per share is computed by increasing the denominator by the weighted average number of additional shares that could have been outstanding from securities convertible into common stock, such as stock options and warrants (using the "treasury stock" method).
2. Fair Value of Derivative Instruments
In the normal course of business, the Company is exposed to the effects of interest rate changes. To mitigate the exposure to unexpected changes in interest rates, derivatives are used primarily to hedge against rate movements on some of the Company's related debt. Since the Company's interest rate swaps have not been designated as a hedge they must be recognized as an asset or liability and adjusted to fair value through income in the current period.
The Company recognized a loss on derivatives of $207,652 for the quarter ended October 31, 2009 and a gain on derivatives for the six month period ended October 31, 2009 of $616,913. The aggregate fair value of the Company's swap contracts were in an unfavorable position of $2,810,601 as of October 31, 2009 and are recorded as a liability in the accompanying condensed consolidated balance sheet.
3. Investment in Affiliated Partnerships
Investments in entities in which the Company is not the general partner and has less than a 20% interest are carried at cost. Distributions received from those entities are included in income. Distributions received in excess of the Company's proportionate share of capital are applied as a reduction of the cost of the investments. Investments in entities in which the Company has a 20-50% interest but does not control are carried at cost and are subsequently adjusted for the Company's proportionate share of their undistributed earnings or losses and any distributions (Equity Method).
The Company currently has two unconsolidated operating partnerships accounted for under the Equity Method. The Company has a 50% interest in Cranston Parkade, LLC which in turn has an interest in Cranston/BVT Associates LP which owns a shopping center in Cranston, RI. The Company also has a 50% interest in Dover Parkade, LLC which owns a shopping center in Dover Township, NJ. Although the Company exercises some influence, the Company does not control the operating and financial policies of these partnerships and, therefore, these partnerships are not consolidated.
11 |
FIRST HARTFORD CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
3. Investment in Affiliated Partnerships (continued):
OPERATING RESULTS OF NONCONSOLIDATED 50% OWNED SUBSIDIARIES
|
Three Months Ended October 31 |
Six Months Ended October 31 |
|
|||||||||
|
2009 |
|
2008 |
|
2009 |
|
2008 |
|||||
Cranston Parkade, LLC |
|
|
|
|
|
|
|
|||||
Revenues |
$ |
1,157,809 |
|
$ |
1,173,747 |
|
$ |
2,403,637 |
|
$ |
2,486,074 |
|
Expenses |
1,003,649 |
|
1,014,943 |
|
2,018,423 |
|
2,079,013 |
|||||
Net Profit |
$ |
154,160 |
|
$ |
158,804 |
|
$ |
385,214 |
|
$ |
407,061 |
|
Dover Parkade, LLC |
|
|
|
|
|
|
|
|||||
Revenues |
$ |
559,195 |
|
$ |
657,690 |
|
$ |
1,119,151 |
|
$ |
1,310,057 |
|
Expenses |
545,142 |
|
508,957 |
|
1,051,302 |
|
1,016,143 |
|||||
Net Profit |
$ |
14,053 |
|
$ |
148,733 |
|
$ |
67,849 |
|
$ |
293,914 |
|
|
|
|
These investments are recorded at cost and have been subsequently adjusted for gains, losses and distributions such that the carrying value is less than zero. Although the Company is not liable for the obligations of the two partnerships it had not discontinued applying the Equity Method since the Company considered itself to be committed to providing financial support to the partnerships. As of October 31, 2009 and April 30, 2009, $4,830,127 and $5,056,659, respectively, is included in other liabilities in the condensed consolidated balance sheets representing the carrying value of these investments.
4. Income Taxes
The Company files income tax returns in the U.S. federal jurisdiction and various state jurisdictions. The Company is no longer subject to U.S. federal tax examinations for years before May 1, 2006. State jurisdictions could remain subject to examination for longer periods.
Deferred tax assets or liabilities are computed based on the difference between the financial statement and income tax bases of assets and liabilities using the enacted marginal tax rate. Deferred income tax expenses or benefits are based on the changes in the deferred tax assets and liabilities from period to period.
In assessing the need for a valuation allowance, the Company estimates future taxable income, considering the feasibility of ongoing tax planning strategies and the realizability of tax loss carryforwards. Valuation allowances related to deferred tax assets can be impacted by changes to tax laws, changes to statutory tax rates and future taxable income levels. In the event the Company were to determine that it would not be able to realize all or a portion of its deferred tax assets in the future, it would reduce such amounts through a charge to income in the period in which that determination is made. Conversely, if the Company were to determine that it would be able to realize its deferred tax assets in the future in excess of the net carrying amounts, it would decrease the recorded valuation allowance through an increase to income in the period in which that determination is made.
As of October 31, 2009, the Company has concluded that it is more likely than not that the Company will realize $1,238,000 in deferred tax assets.
12 |
FIRST HARTFORD CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The Company follows the requirements of ASC 820, Fair Value Measurements and Disclosures which defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value by requiring the Company to categorize its assets and liabilities that are measured at fair value into a three-level fair value hierarchy as set forth below. If the inputs used to measure fair value fall within different levels of the hierarchy, the categorization is based on the lowest level input that is significant to the fair value measurement. The three levels of the hierarchy are defined as follows:
|
Level 1 - |
Quoted prices in active markets that are unadjusted and accessible at the measurement date for identical assets or liabilities; |
|
|
|
|
Level 2 - |
Quoted prices for identical assets or liabilities in markets that are not active, quoted prices for similar assets or 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. |
Items Measured at Fair Value on a Recurring Basis
Marketable securities are marked to market based upon the last sale of the period obtained from recognized stock exchanges. Interest rate swaps (derivatives) are valued by an estimate of the net present value of the expected cash flows from each transaction between the Company and Counterparty using relevant mid-market data inputs and based on the assumption of no unusual market conditions or forced liquidation.
|
Fair Value Measurements |
||
|
Level 1 |
Level 2 |
Level 3 |
Available for sale securities |
$1,605,639 |
$ -0- |
$ -0- |
Interest rate swap agreements (negative fair value) |
-0- |
(2,810,601) |
-0- |
Total |
$1,605,639 |
$(2,810,601) |
$ -0- |
Other Financial Assets and Liabilities
Financial assets with carrying values approximating fair value include cash and cash equivalents, accounts and notes receivable, and CVS related receivables. Financial liabilities with carrying values approximating fair value include accounts payable, accrued liabilities, CVS related payables and long-term debt. The carrying value of these financial assets and liabilities approximates fair value due to their short maturities or due to their interest rates approximating current market rates for long-term debt.
6. Subsequent Events:
On November 23, 2009, the Court ruled upon the decision and report of the Special Master concerning the terms of payment resulting from the lawsuit styled as Kaplan v. First Hartford Corporation and Neil Ellis.
13 |
FIRST HARTFORD CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
6. Subsequent Events (continued):
The Court ruled that (1) First Hartford should pay $500,000 upon entry of final judgment with the remaining balance to be paid in equal installments over 5 years and (2) First Hartford is to give commercially reasonable security to guarantee payment of the debt, which consists mainly of proceeds from three wholly-owned shopping centers (net of mortgage payments and expenses), thus creating excess funds, in addition to securing the Kaplan note, which could be used to retire the judgment amount in less than 5 years. If for any reason such proceeds are inadequate to service the remaining installments, other sources outlined in the decision could be called upon.
Pre-judgment interest was awarded to Kaplan from September 15, 2005 (the filing date) to the entry date of a final judgment. The Court determined that the interest was not to be compounded and should be paid after the initial obligation is paid in full. Post-judgment interest is to be paid at the statutory rate (approximately 0.5%) for the first 12 months and thereafter based on the average rate First Hartford pays to its first mortgage creditors (currently 5.81%).
The Court has previously ruled that the Company is required to buy Richard Kaplans individually owned stock, stock he owns beneficially through family trusts and other business entities, and stock where he shares control with his brother. Kaplan maintains that the total number of shares falling within these classes totals 591,254, with 145,719 shares individually owned by him. The Company does not dispute the number of shares Kaplan owns individually. However, no determination has been made as to how many shares Kaplan owns beneficially through family trusts and other business entities or where he shares control with his brother. The Court has remanded the matter to the Special Master to make that determination.
The Company had previously accrued $2.9 million for the obligation to redeem Richard Kaplans shares, which did not include a liability for pre or post judgment interest. As a result of the Courts November 23, 2009 decision, the Company has reevaluated the initial recording of a liability for all 591,254 shares. Per ASC 450, Contingencies, when a loss contingency exists, the likelihood that the future event or events will confirm the loss or impairment of an asset or the incurrence of a liability can range from probable to remote. The ASC 450 guidance uses the terms probable, reasonably possible and remote to identify three areas within that range, as follows:
a. Probable. The future event or events are likely to occur.
b. Reasonable possible. The chance of the future event or events occurring is more than remote but less than likely.
c. Remote. The chance of the future event or events occurring is slight.
The Company has concluded that (a) Due to the Courts November 23, 2009 decision only 145,719 shares would fall into the class of Probable and should remain as a liability. The balance falls into the class of Reasonably Possible and should not be recorded as a liability at October 31, 2009. Interest on the 145,719 shares falls into the class of Probable. As a result of the Courts ruling, the Company has accrued simple interest at 5.77% from September 15, 2005 to October 31, 2009 in the amount of $150,922, which is net of dividends paid during the period of $14,572. The Company has recorded the $709,651 obligation to redeem Richard Kaplans shares as a reduction of capital in excess of par, which will be reclassified to treasury shares upon Company receipt of the shares. The Company has recorded $150,922 of interest expense during the quarter ended October 31, 2009, which represents the amount of pre-judgment interest the Company will be required to pay in connection with the Courts most recent ruling. If the Court finds that Richard Kaplan owns more than 145,719 shares, this liability will be increased for the obligation to redeem additional shares and pay additional interest.
14 |
FIRST HARTFORD CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
7. Significant Agreements
In connection with the Companys development and construction of a shopping center owned and operated by the Company in the City of Edinburg, Texas, the Company entered into an Economic Development Agreement dated February 20, 2007 with the City of Edinburg and other local non-profit corporations. In connection with the agreement, the Company is entitled to receive reimbursements of public infrastructure costs incurred by the Company in addition to other cash incentives as defined in the agreement.
Public Infrastructure Reimbursements
During the quarter ended October 31, 2009, the Company recorded an other receivable from the City of Edinburg in the amount of $8,000,000 for the reimbursement of eligible public infrastructure costs incurred by the Company. The reimbursement is to be paid solely by the City of Edinburg from proceeds of public infrastructure bonds and/or from proceeds from 50% of the Citys dedicated 1% sales tax generated from the shopping center. The Company has received $230,950 in reimbursements of eligible public infrastructure costs through October 31, 2009. Payment of the remaining receivable of $7,769,050 depends on the amount of and timing of the issuance of the public infrastructure bonds. Since the receivable is for the reimbursement of public infrastructure costs that the Company incurred in the construction of the shopping center, the Company has recorded an $8,000,000 reduction to the cost basis of the shopping center.
Other Cash Incentives
In connection with the agreement, the Company will also receive a grant from the Edinburg Economic Development Corporation (EEDC) in the amount of $4,000,000 for site improvements and may receive additional incentives, upon satisfaction of certain conditions as defined in the agreement, of up to $4,000,000 from the EEDC. The initial $4,000,000 grant from the EEDC is payable solely from ½% of the sales tax revenue generated from the shopping center and will be recorded by the Company as other operating revenue when received. The Company has received $230,950 of the initial $4,000,000 grant from the EEDC during the sixth months ended October 31, 2009.
8. Recent Accounting Pronouncements
In June 2009, The FASB issued guidance to change financial reporting of enterprises with variable interest entities (VIEs) to require an enterprise to qualitatively assess the determination of the primary beneficiary of a VIE based on whether the enterprise (1) has the power to direct the activities of a VIE that most significantly impact the VIEs economic performance and (2) has the obligation to absorb losses of the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE. Also, the guidance requires an ongoing reconsideration of the primary beneficiary and amends the events that trigger a reassessment of whether an entity is a VIE. Enhanced disclosures are also required to provide information about an enterprises involvement in a VIE. This guidance shall be effective as of the beginning of the Companys first annual reporting period that begins after November 15, 2009, for interim periods within that first annual reporting period and for interim and annual reporting periods thereafter. Earlier application is prohibited. The Company is currently evaluating the impact of this new guidance.
15 |
The financial and business analysis below provides information which the Company believes is relevant to an assessment and understanding of the Company's financial position and results of operations. This financial and business analysis should be read in conjunction with the condensed consolidated financial statements and related notes.
The following discussion and certain other sections of this Report on Form 10-Q contain statements reflecting the Company's views about its future performance and constitutes "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 how various factors including changes in general economic conditions, cost of materials, interest rates and availability of funds, and the 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.
Critical Accounting Policies
The discussion and analysis of financial condition and results of operations is based upon the condensed consolidated financial statements contained in Item 1 in this Quarterly Report. The condensed consolidated financial statements include the accounts of the Company and its controlled affiliates. The preparation of 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 and the disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses for the reporting
period. Actual results could differ from those estimates.
The discussion included in Item 7 of our Annual Report on Form 10-K for the year ended April 30, 2009 under the subheading "Critical Accounting Policies and Estimates" is still considered current and applicable, and is hereby incorporated into this Quarterly Report on Form 10-Q.
Sale of real estate during the three and six month periods ended October 31, 2009 were solely from the sale of the Companys leasehold interests in and improvements made to Triangle Center in Bangor, Maine. The sale of real estate in the three and six months period ended October 31, 2008 were solely from the sale of an outparcel in Edinburg, Texas.
Increases in rental income are almost exclusively from stores which opened in Edinburg, Texas subsequent to October 31, 2008.
During the three and six month periods ended October 31, 2009, service income increased by approximately $556,000 and $1,784,000 from the three and six month periods ended October 31, 2008. This increase was almost exclusively from our CVS Pharmacy business.
Increases in rental expenses are almost exclusively from the shopping center in Edinburg, Texas, which had minimal expenses for the periods ended October 31, 2008. The largest increases specifically related to real estate taxes and depreciation. Due to the current low level of construction, the Company has been expensing all the real estate taxes, including those related to parcels that are currently not being worked on.
Increases in service expenses are directly attributed to the increased service income from our CVS Pharmacy business.
16 |
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued):
Results of Operations (continued):
For the three and six month periods ended October 31, 2009, $711,000 and $1,409,000, respectively, was charged to interest expense on construction loans related to the Edinburg, Texas shopping center. Approximately $301,000 and $587,000 of interest during these periods is attributable to interest on construction loans for additional phases of construction pertaining to expansion of the shopping center. The interest is currently being expensed due to the current low level of construction activity which is attributable to the current challenge of securing tenants. In addition, interest expense for the three and six months ended October 31, 2009 includes $150,922 for pre-judgment interest relating to the Kaplan matter.
Capital Resources and Liquidity
The Company ended the period with approximately $2,828,000 of unrestricted cash and cash equivalents. Unrestricted cash and cash equivalents includes approximately $2,141,000 belonging to less than wholly-owned consolidated partnerships (CP Associates $1,272,000, and Rockland Place LP $869,000). Funds received from CVS Pharmacy which are to be paid out in connection with CVS development projects amounted to approximately $1,812,000 and are included in restricted cash and cash equivalents.
As previously disclosed, Gibbs College which leases 60,000 SF from CP Associates has announced they are closing the Gibbs Schools on December 31, 2009. However, the lease is in effect through 2018 and is secured by Career Education (symbol CECO on the NASDAQ). The Company has recently learned that Career Education has announced that Sanford Brown College (another subsidiary of Career Education) will open in the Gibbs facility. The members of CP Associates, LLC have earmarked cash and marketable securities with a balance of approximately $1,375,000 as of October 31, 2009 to refit the building for new tenants at the appropriate time. Because the mortgage has a balloon payment due in 2015, the members have now decided the accumulated fund will be utilized to fund the balloon payment.
The Company has been instructed by the United States District Court District of Maine to buy back the minority shareholder interest held by Richard Kaplan. Please see Part 1, Note 6, Subsequent Events.
The following schedule outlines our long-term obligations at October 31, 2009 (does not include any contract for the benefit of CVS):
Contractual Obligations |
Total |
Less Than 1 year |
1-3 years |
3-5 years |
More Than 5 years |
|
|
|
|
|
|
Long-Term Debt |
$112,887,410 |
$1,097,869 |
$36,219,825 |
$3,222,582 |
$72,347,134 |
|
|
|
|
|
|
Short-Term Debt |
230,000 |
230,000 |
|
|
|
|
|
|
|
|
|
Stock Repurchase (including accrued interest) |
860,573 |
860,573 |
|
|
|
|
|
|
|
|
|
Purchase Obligations |
98,000 |
98,000 |
|
|
|
|
|
|
|
|
|
Total |
$114,075,983 |
$2,286,442 |
$36,219,825 |
$3,222,582 |
$72,347,134 |
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Smaller reporting companies are not required to provide the information required by this item.
17 |
Item 4T. 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 our President and Treasurer, of the effectiveness of the design and operation of our disclosure controls and procedures (Disclosure Controls) as of the end of the period covered by this report pursuant to Rule 13a-15b of the Exchange Act. Based on this Evaluation, our President and Treasurer concluded that because of weaknesses in our control environment, our Disclosure Controls were not fully effective as of the end of the period covered by this report. Notwithstanding weaknesses in our control environment, as of October 31, 2009, we believe that the condensed consolidated financial statements contained in this report present fairly the Companys financial condition, results of operations and cash flows for the periods presented.
Changes in Internal Control Over Financial Reporting
As of the end of the period covered by this report, there have been no changes in internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) during the period covered by this report, that materially affected, or are reasonably likely to materially affect, the Companys internal control over financial reporting.
18 |
PART II OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
There have not been any material developments in the legal proceedings we described in our Annual Report on Form 10-K for the year ended April 30, 2009, except for the issuance of a recommendation by the Court appointed Special Master on the Kaplan matter as to terms of payment which are agreeable to the Company, but objected to by Richard Kaplan, requiring the court to issue a future Special Ruling which it did on November 23, 2009. Additionally, the Court awarded the Plaintiff pre-judgment interest from September 15, 2005 until the date of final judgment and post judgment interest thereafter. The Court also appointed the Special Master to determine the number of shares Kaplan owns. Please see Part 1, Note 6, Subsequent Events.
Item 1A. RISK FACTORS
Smaller reporting companies are not required to provide the information required by this item.
Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None
Item 3. DEFAULTS UPON SENIOR SECURITIES
None
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The annual meeting of The Company was held on November 10, 2009.
(b) Elected as Directors: Neil H. Ellis, David Harding and Stuart Greenwald
(c)
Director |
Votes For |
Votes Withheld |
Abstention |
Ellis |
2,253,689 |
454,922 |
None |
Harding |
2,115,286 |
493,335 |
None |
Greenwald |
2,253,689 |
454,922 |
None |
Item 5. OTHER INFORMATION
None
Exhibit 31.1 Certification of Chief Executive Officer, pursuant to Rule 13a-14(c) under the Securities Exchange Act of 1934.
Exhibit 31.2 Certification of Chief Financial Officer, pursuant to Rule 13a-14(c) under the Securities Exchange Act of 1934.
Exhibit 32.1 Certification of Chief Executive Officer, pursuant to 18 U.S.C. Section 1350.
Exhibit 32.2 Certification of Chief Financial Officer, pursuant to 18 U.S.C. Section 1350.
19 |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
First Hartford Corporation |
|
(Registrant) |
|
|
|
/s/ Neil H. Ellis |
January 13, 2010 |
______________________________ |
Date |
Neil H. Ellis B President and |
|
Chief Executive Officer |
|
|
|
/s/ Stuart I. Greenwald |
January 13, 2010 |
______________________________ |
Date |
Stuart I. Greenwald B Treasurer |
|
and Chief Financial Officer |