UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

 

FORM 10-Q

 

(Mark One)

 

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

 

For the quarterly period ended January 31, 2015.

 

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

For the transition period from		to
Commission File Number:	0-8862

 

First Hartford Corporation

(Exact name of registrant as specified in its charter)

 

Maine	01-0185800
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
149 Colonial Road, Manchester, CT	06042
(Address of principal executive offices)	(Zip Code)
(860) 646-6555
(Registrant’s telephone number including area code)
(Former name, former address and former fiscal year if changed since last report)

 

Indicate by check mark whether the registrant (1) has filed all reports to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. 

Yes  ☐         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.

Large accelerated filer  ☐	Accelerated filer ☐
Non-accelerated filer  ☐  (Do not check if a smaller reporting company)	Smaller reporting company ☒

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). 

Yes  ☐         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.

 

2,411,590 as of April 6, 2015

 

 

FIRST HARTFORD CORPORATION AND SUBSIDIARIES

 

INDEX 

 

PART I.	FINANCIAL INFORMATION		PAGE
Item 1.	Financial Statements (Unaudited)
	Condensed Consolidated Balance Sheets – January 31, 2015 and April 30, 2014		3 - 4
	Condensed Consolidated Statements of Operations for the Three and Nine Months Ended January 31, 2015 and 2014		5
	Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three and Nine Months Ended January 31, 2015 and 2014		6
	Condensed Consolidated Statements of Cash Flows for the Three and Nine Months Ended January 31, 2015 and 2014		7 - 8
	Notes to Condensed Consolidated Financial Statements		9 - 13
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		14 - 16
Item 3.	Quantitative and Qualitative Disclosures about Market Risk		16
Item 4.	Controls and Procedures		17
PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings		17
Item 1A.	Risk Factors		17
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		17
Item 3.	Defaults Upon Senior Securities		17
Item 4.	Mine Safety Disclosures		17
Item 5.	Other Information		18
Item 6.	Exhibits		18
	Signatures		19
	Exhibits		20 - 22

 

 

FIRST HARTFORD CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

 

ASSETS

 

		January 31, 2015				April 30, 2014
Real estate and equipment:
Developed properties and property under construction (including $72,421,280 in January and $71,574,105 in April for VIEs)		$	209,766,141			$	197,401,169
Equipment and tenant improvements (including $2,346,095 in January and $2,314,849 in April for VIEs)			3,675,022				3,639,292
			213,441,163				201,040,461
Less accumulated depreciation and amortization (including $11,272,832 in January and $9,776,315 in April for VIEs)			37,820,662				34,260,586
			175,620,501				166,779,875
Cash and cash equivalents (including $953,344 in January and $535,230 in April for VIEs)			6,124,313				6,500,885
Cash and cash equivalents – restricted (including $421,162 in January and $441,877 in April for VIEs)			610,582				769,231
Marketable securities (including $2,366,170 in January and $2,936,778 in April for VIEs)			4,541,481				4,906,248
Property under construction – held for sale			11,168,785				-0-
Accounts and notes receivable, less allowance for doubtful accounts of $548,625 as of January 31, 2015 and $341,600 as of April 30, 2014 (including $655,092 in January and $87,049 in April for VIEs)			4,673,075				4,266,706
Other receivables			10,372,929				16,842,826
Deposits and escrows (including $1,807,104 in January and $1,768,581 in April for VIEs)			5,099,563				3,907,239
Prepaid expenses (including $316,359 in January and $223,453 in April for VIEs)			1,357,240				925,906
Deferred expenses (including $1,129,407 in January and $1,053,585 in April for VIEs)			3,673,339				3,103,178
Investments in affiliates			100				100
Due from related parties and affiliates			165,697				165,206
Total Assets		$	223,407,605			$	208,167,400

 

See accompanying notes.

 

 

FIRST HARTFORD CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS (continued)

(Unaudited)

 

LIABILITIES AND EQUITY (DEFICIENCY)

 

		January 31, 2015				April 30, 2014
Liabilities:
Mortgages and notes payable:
Construction loans payable		$	64,047,236			$	49,316,486
Mortgages payable (including $53,019,862 in January and $53,429,857 in April for VIEs)			142,586,846				148,308,158
Notes payable (including $1,704,697 in January and in April for VIEs)			4,139,352				1,704,697
			210,773,434				199,329,341
Accounts payable (including $1,580,952 in January and $488,140 in April for VIEs)			3,765,607				2,317,036
Other payables			9,363,848				14,845,606
Accrued liabilities (including $3,495,500 in January and $3,225,028 in April for VIEs)			5,485,524				5,467,707
Accrued cost of derivatives			2,460,451				2,411,173
Deferred income (including $242,876 in January and $247,856 in April for VIEs)			686,894				855,121
Other liabilities			2,071,906				1,911,832
Due to related parties and affiliates (including $411,157 in January and $399,214 in April for VIEs)			483,009				471,114
			235,090,673				227,608,930
Equity (Deficiency):
First Hartford Corporation:
Preferred stock, $1 par value; $.50 cumulative and convertible; authorized     4,000,000 shares; no shares issued and outstanding			-0-				-0-
Common stock, $1 par value; authorized 6,000,000 shares; issued 3,298,609     shares; outstanding 2,411,590 shares as of January 2015 and 2,412,002 as of April 2014			3,298,609				3,298,609
Capital in excess of par			5,198,928				5,198,928
Accumulated deficit			(18,579,171	)			(27,222,017	)
Accumulated other comprehensive income			98,187				34,313
Treasury stock, at cost, 887,019 shares as of January 2015 and 886,607 as of April 2014			(4,966,083	)			(4,964,884	)
Total First Hartford Corporation			(14,949,530	)			(23,655,051	)
Noncontrolling interests			3,266,462				4,213,521
Total Shareholders’ Equity (Deficiency)			(11,683,068	)			(19,441,530	)
Total Liabilities and Shareholders’ Equity (Deficiency)		$	223,407,605			$	208,167,400

 

See accompanying notes.

 

 

FIRST HARTFORD CORPORATION AND SUBSIDIARIES

 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

		Three Months Ended								Nine Months Ended
		Jan. 31, 2015				Jan. 31, 2014				Jan. 31, 2015				Jan. 31, 2014
Operating revenues:
Rental income		$	7,256,324			$	7,016,661			$	22,217,123			$	21,552,546
Service income			1,757,597				1,689,849				5,510,122				4,259,143
Sales of real estate			10,570,000				-0-				10,570,000				2,902,596
Other income			751,309				724,838				1,944,333				1,378,678
			20,335,230				9,431,348				40,241,578				30,092,963
Operating costs and expenses:
Rental expenses			4,343,323				5,491,640				15,043,303				15,057,850
Service expenses			1,120,311				1,231,568				3,218,291				2,920,338
Cost of real estate sales			6,884,962				125,871				6,884,962				2,396,171
Selling, general and administrative expenses			1,724,110				1,394,000				5,096,293				3,874,484
			14,072,706				8,243,079				30,242,849				24,248,843
Income from operations			6,262,524				1,188,269				9,998,729				5,844,120
Non-operating income (expense):
Interest expense			(2,589,126	)			(2,571,278	)			(7,657,786	)			(8,058,607	)
Other income			41,695				80,000				397,037				281,447
Gain on forgiveness of debt			-0-				-0-				5,315,423				-0-
Loss on defeasance			-0-				-0-				-0-				(243,602	)
Gain (loss) on derivatives			(160,623	)			374,096				(49,277	)			1,308,113
Equity in earnings of unconsolidated subsidiaries			173,172				61,932				589,927				337,570
			(2,534,882	)			(2,055,250	)			(1,404,676	)			(6,375,079	)
Income (loss) before income taxes			3,727,642				(866,981	)			8,594,053				(530,959	)
Income taxes			2,145				36,629				314,082				60,551
Consolidated net income (loss)			3,725,497				(903,610	)			8,279,971				(591,510	)
Net loss (income) attributable to noncontrolling interests			(361,129	)			373,907				362,875				333,138
Net income (loss) attributable to First Hartford Corporation		$	3,364,368			$	(529,703	)		$	8,642,846			$	(258,372	)
Net income (loss) per share – basic		$	1.39			$	(0.22	)		$	3.58			$	(0.11	)
Net income (loss) per share – diluted		$	1.39			$	(0.22	)		$	3.58			$	(0.11	)
Shares used in basic per share computation			2,411,778				2,413,418				2,411,890				2,414,480
Shares used in diluted per share computation			2,411,778				2,413,418				2,411,890				2,414,480

 

See accompanying notes.

 

 

FIRST HARTFORD CORPORATION AND SUBSIDIARIES

 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited)

		Three Months Ended								Nine Months Ended
		Jan. 31, 2015				Jan. 31, 2014				Jan. 31, 2015				Jan. 31, 2014
Consolidated net income (loss)		$	3,725,497			$	(903,610	)		$	8,279,971			$	(591,510	)
Other comprehensive income, net of income taxes:
Unrealized gains (losses) on marketable securities			96,496				(58,449	)			206,642				(508,384	)
Total comprehensive income (loss)			3,821,993				(962,059	)			8,486,613				(1,099,894	)
Amounts attributable to noncontrolling interests:
Net loss (income)			(361,129	)			373,907				362,875				333,138
Unrealized (gains) losses on marketable securities			(78,299	)			(6,418	)			(142,768	)			318,998
			(439,428	)			367,489				220,107				652,136
Comprehensive Income (loss) attributable to First Hartford Corporation		$	3,382,565			$	(594,570	)		$	8,706,720			$	(447,758	)

 

See accompanying notes.

 

 

FIRST HARTFORD CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

		Nine Months Ended
		January 31, 2015				January 31, 2014
Operating activities:
Consolidated net income (loss)		$	8,279,971			$	(591,510	)
Adjustments to reconcile consolidated net income (loss) to net cash provided  by operating activities:
Equity in earnings of unconsolidated subsidiaries, net of distributions of $750,000 and $127,500 in the nine months ended January 31, 2015 and 2014, respectively			160,073				(210,069	)
Gain on sale of property			(3,685,038	)			(506,425	)
Depreciation			4,029,815				3,875,849
Amortization			275,823				333,626
Forgiveness of debt			(5,315,423	)			-0-
Changes in operating assets and liabilities:
Accounts, notes and other receivables			6,063,528				(2,931,338	)
Deposits and escrows			(1,192,324	)			986,460
Prepaid expenses			(431,334	)			(488,675	)
Deferred expenses			(845,984	)			(847,649	)
Cash and cash equivalents – restricted			158,649				817,714
Accrued liabilities			17,817				(169,856	)
Accrued cost of derivatives			49,278				(1,308,113	)
Deferred income			(168,227	)			402,995
Accounts and other payables			(4,033,187	)			2,019,973
Net cash provided by operating activities			3,363,437				1,382,982
Investing activities:
Investments in marketable securities			(367,501	)			(2,647,129	)
Proceeds from sale of marketable securities			938,911				2,410,074
Purchase of equipment and tenant improvements			(35,730	)			(146,947	)
Proceeds from sale of real estate			10,570,000				2,902,596
Additions to property  under construction – held for sale			(11,168,785	)			-0-
Additions to developed properties and properties under construction			(19,719,673	)			(2,890,108	)
Net cash used in investing activities			(19,782,778	)			(371,514	)

 

See accompanying notes.

 

 

FIRST HARTFORD CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)

(Unaudited)

		Nine Months Ended
		January 31, 2015				January 31, 2014
Financing activities:
Contributions from noncontrolling interests – limited partners		$	-0-			$	500
Distributions to noncontrolling interests			(726,951	)			(900,668	)
Purchase of treasury stock			(1,199	)			(12,310	)
Proceeds from:
Construction loans payable			17,846,081				1,169,396
Mortgage payable			4,290,602				495,258
Principal payments on:
Construction loans payable			(3,115,331	)			(2,020,640	)
Mortgage loans payable			(1,960,502	)			(1,949,950	)
Notes payable			(301,335	)			-0-
Advances to related parties and affiliates, net			11,404				16,984
Net cash provided by (used in) financing activities			16,042,769				(3,201,430	)
Net change in cash and cash equivalents			(376,572	)			(2,189,962	)
Cash and cash equivalents, beginning of period			6,500,885				8,346,956
Cash and cash equivalents, end of period		$	6,124,313			$	6,156,994
Cash paid during the period for interest		$	7,467,455			$	8,422,077
Cash paid during the period for income taxes		$	114,542			$	128,725
Debt refinancing in 2nd quarter:
New mortgage loan		$	10,500,000			$	6,200,000
Debt reduced			(7,794,014	)			(6,140,370	)
Net cash from refinancing in 2nd quarter		$	2,705,986			$	59,630
Debt refinancing in 3rd quarter:
New mortgage loan		$	1,289,449			$	3,029,560
Less debt paid			(1,029,833	)			(2,593,932	)
Net cash from refinancing in 3rd quarter		$	259,616			$	435,628

 

See accompanying notes.

 

 

FIRST HARTFORD CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited) 

 

1.	Business and Significant Accounting Policies:

 

Business

 

First Hartford Corporation 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 a single 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, Inc. (see Service Income to follow).

 

Principles of Consolidation

 

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

 

Basis of Presentation

 

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Rule 8.03 of Regulation S-X.  Accordingly, they do not include all of the information and footnotes required by U.S. generally accepted accounting principles for complete financial statements.  In the opinion of management, all adjustments (consisting of normal recurring accruals and adjustments to previously accrued loss provisions) considered necessary for a fair presentation have been included.  Operating results for the interim periods are not necessarily indicative of the results that may be expected for the entire year.  The condensed consolidated balance sheet as of April 30, 2014 was derived from the audited financial statements for the year then ended.  For further information, refer to the consolidated financial statements and footnotes thereto included in the Company’s annual report on Form 10-K for the fiscal year ended April 30, 2014.

 

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

 

Currently, there are no Accounting Standards Update (ASUs) that the Company is required to adopt which are likely to have a material effect on its financial statements.

 

 

FIRST HARTFORD CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited) 

 

1.	Business and Significant Accounting Policies (continued):

 

Net Income (Loss) Per Common Share

 

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

  

There were no options outstanding during the three- and nine- month periods ended January 31, 2015.  In the three- and nine-months periods ended January 31, 2014, common stock options of 164,113 and 159,538, respectively, were antidilutive.

 

Financial Instruments and Fair Value

 

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

 

Segment Information

 

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

 

		Three Months Ended								Nine Months Ended
		January 31,								January 31,
		2015				2014				2015				2014
Revenues:
Real Estate Operations		$	18,695,569			$	8,000,000			$	35,077,795			$	26,375,000
Fee for Service			1,639,661				1,431,000				5,163,783				3,718,000
Total		$	20,335,230			$	9,431,000			$	40,241,578			$	30,093,000

Operating Cost and Expense:
Real Estate Operations		$	11,277,160			$	5,915,000			$	21,977,140			$	17,752,000
Fee for Service			1,071,436				934,000				3,169,416				2,623,000
SGA			1,724,110				1,394,000				5,096,293				3,874,000
Total		$	14,072,706			$	8,243,000			$	30,242,849			$	24,249,000

 

 

FIRST HARTFORD CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

1.	Business and Significant Accounting Policies (concluded):

 

Segment Information (concluded):

 

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

 

The only assets in the balance sheet belonging to the Fee for Service segment is restricted cash of $189,420 and $351,000 on January 31, 2015 and April 30, 2014, respectively, and other receivables of $8,800,663 and $15,054,000 on January 31, 2015 and April 30, 2014, respectively.

 

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

 

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

  

		January 31, 2015				April 30, 2014
Real estate and equipment, net		$	66,081,819			$	66,786,598
Other assets			7,660,643				7,060,316
Total assets			73,742,462				73,846,914
Intercompany profit elimination			(3,003,024	)			(3,085,303	)
Total assets		$	70,739,438			$	70,761,611
Mortgages and other notes payable		$	54,724,559			$	55,134,554
Other liabilities			5,312,203				3,961,024
Total liabilities		$	60,036,762			$	59,095,578

 

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

 

		Three Months Ended								Nine Months Ended
		January 31, 2015				January 31, 2014				January 31, 2015				January 31, 2014
Dover Parkade, LLC
Revenue		$	665,384			$	617,715			$	1,984,084			$	2,033,188
Expenses			499,041				548,850				1,504,917				1,613,048
Defeasance & refinancing			-0-				-0-				799,313				-0-
Net Income (Loss)		$	166,343			$	68,865			$	(320,146	)		$	420,140

 

 

FIRST HARTFORD CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited) 

 

3.	Income Taxes:

 

As of April 30, 2014, the Company had Federal net operating loss carryforwards of approximately $15,700,000 that were available to offset future Federal taxable income through various periods.   For the nine months ended January 31, 2015, the Company recorded a gain of $5,315,000 as a result of a forgiveness of debt by the mortgage holder of the Main Street NA Parkade LLC.  As a result, the Company recorded tax expense of approximately $1,855,000 (which includes an alternative minimum tax of approximately $100,000).  This tax expense was then reduced by $1,755,000 after applying the $5,315,000 gain against the tax loss carryforward. The federal carryforward is now  approximately $10,000,000 and will expire between 2015 and 2028 unless utilized sooner.

 

4.	Litigation:

 

There has been no change in litigation since April 30, 2014.

  

5.	Refinancing:

 

On August 15, 2014, the Company refinanced the mortgage on their shopping center in West Springfield, MA in the amount of $10,500,000.  A prior mortgage with a remaining balance of $7,794,014 with an interest rate of 5.52% was paid from the proceeds.  The new mortgage, which has an interest rate of 4.60% with a 30 year amortization and duration of 10 years, calls for interest only payments for the first two years.  Transaction costs of approximately $110,000 will be amortized over the life of the loan.

  

6.	Gain on Forgiveness of Debt:

 

During the nine months ended January 31, 2015, a 100% owned subsidiary of the Company, Main Street NA Parkade, LLC, signed an agreement that the Mortgage loan secured by the property of Main Street NA Parkade located in North Adams would be reduced from $12,575,423 to $7,260,000.  As of the date hereof the Note reflects an outstanding principal balance of $7,260,000 due to a reduction of principal indebtedness through debt forgiveness by Lender in the amount of $5,315,423. During the year ended April 30, 2014, the Company recorded an impairment loss of $4,027,053 on this property.

 

TERMS:

 

Commencing October 1, 2014 through and including January 1, 2020.  Interest shall be 200 basis points in excess of the thirty day LIBOR rate.

 

Amortization commencing February 1, 2020 through October 1, 2030 (“Maturity Date”) on the basis of a 25 year schedule of amortization with a balloon payment due on October 1, 2030.  Interest during this period shall be 5.5% per annum.

 

CALL OPTION – Lender may elect to accelerate this Note and require the Company to prepay without premium the entire unpaid principal balance at any time after March 1, 2017.

 

The Note is non-recourse.

 

Amended and restated escrow and Security Agreement

 

Beginning October 1, 2014 and including September 30, 2015 all net cash flow of the property shall be deposited in the Escrow account.

 

 

FIRST HARTFORD CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited) 

 

6.	Gain on Forgiveness of Debt (concluded):

 

Additional interest Agreement (AIA) was amended as follows:

 

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.  Lender will apply all such interest received to the outstanding amount due on the date of the next installment due under the loan.

 

7.	Subsequent Events:

 

On November 1, 2014, a payment was due for the mortgage of the shopping center in Putnam, Connecticut in the amount of approximately $4,700,000.  The rentable space of the shopping center is 57,529 square feet, 46% of which was leased to one store.  That store informed the Company that they were not renewing their lease, which expired on January 31, 2015.  As a result, the Company has found it to be impossible to refinance the mortgage until a replacement tenant is found.  The Company has reached a tentative verbal agreement to transfer title to the lender that is likely to be finalized before its fiscal year end of April 30, 2015.  If this occurs, the Company will recognize a gain since (1) the mortgage is non-recourse and (2) the mortgage is well in excess of the book value.

 

A deferred compensation plan was put in place that awarded six key employees an annual payment of $21,667 each for three years.  All of the six employees have satisfied the vesting requirement and will receive the first payment on August 15, 2015.

 

On February 23, 2015, the Company refinanced a mortgage on Clarendon in the amount of $17,564,600.  A prior mortgage with a remaining balance of $13,045,612 with an interest rate of 5.59% was paid from the proceeds.  The new mortgage has an interest rate of 3.75%, calls for monthly payments of $85,088, and has a maturity date of November 1, 2042.  Transaction costs of approximately $312,413 will be amortized over the life of the loan.

 

On February 25, 2015, the Company sold a parcel of land in New Orleans, Louisiana, with a cost of $8,408,803 (including closing costs) for $10,900,000 and used the proceeds to pay off a mortgage payable of $7,006,548.  The gain on the sale was $2,491,197.

 

On February 27, 2015, the Company purchased a parcel of land in Stanhope, New Jersey, for $2,256,705 including closing costs.  This purchase was financed with an advance from a construction loan of $1,830,555 and working capital of $426,150.  Key terms of the construction loan, which is for $6,340,000, are as follows: 

 

●

Commencing February 27, 2015 through and including February 1, 2016.  Interest shall be 250 basis points in excess of the thirty day LIBOR rate, as defined (but in no event less than 3.00%).

●

Amortization commencing February 1, 2016 through February 1, 2025 (“Maturity Date”) on the basis of a 25 year schedule of amortization with a balloon payment due on February 1, 2025.  Interest during this period shall be 195 basis points in excess of the thirty day LIBOR rate.

●

Prepayment penalty – 0.50% prior to February 1, 2018 or the Discounted LIBOR Differential, as defined, after that date.

 

On March 5, 2015, the Company sold a parcel of land in Buda, Texas, with a cost of $1,421,282 (including closing costs) for $2,835,052 and used the proceeds to pay off loan payable of $1,639,476.  The gain on the sale was $1,413,770.

 

 

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

 

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

 

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

 

Critical Accounting Policies

 

There have been no significant changes in the Company’s critical accounting policies from those included in Item 7 of its Annual Report on Form 10-K for the year ended April 30, 2014 under the subheading “Critical Accounting Policies and Estimates”.

 

Results of Operations:

 

Rental Income:

 

Rental Income by type of tenant follows:

 

		Three Months Ended								Nine Months Ended
		January 31,								January 31,
		2015				2014				2015				2014
Residential		$	2,815,395			$	2,787,072			$	8,393,912			$	8,312,410
Commercial			4,440,929				4,229,589				13,823,211				13,240,136
		$	7,256,324			$	7,016,661			$	22,217,123			$	21,552,546

 

Service Income 

 

		Three Months Ended								Nine Months Ended
		January 31,								January 31,
		2015				2014				2015				2014
Management fees		$	117,936			$	101,753			$	346,339			$	342,971
Preferred developer fees			1,639,661				1,588,096				5,163,783				3,916,172
		$	1,757,597			$	1,689,849			$	5,510,122			$	4,259,143

 

Sales of Real Estate

 

In the three and nine months ended January 31, 2015, the Company sold a parcel of land in Huntsville, TX for $6,695,000 and another parcel of land in Conroe, TX for $3,875,000.

 

In the nine months ended January 31, 2014, the Company sold a total of three outparcels in our Edinburg shopping center for a total of $1,682,000 as well as a parcel in Houston, Texas to Aldi Supermarkets for $1,220,000.

 

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

 

Other Income

 

Revenue from the movie theater in North Adams, Massachusetts, was approximately $232,795 and $579,595 for the three and nine months ended January 31, 2015, compared to $235,000 and $633,000 for the three and nine months ended January 31, 2014.  The nine month decrease was mainly due to a lack of box office hits and was industry wide.

 

Revenue from the beer and wine store in North Adams was approximately $484,517 and $1,320,809 for the three and nine months ended January 31, 2015, compared to $353,000 and $472,000 for the three and nine months ended January 31, 2014.  The store opened for business in September 2013 and obtained a liquor license in December 2014.

 

Operating Cost and Expenses

 

Rental Expenses 

 

		Three Months Ended								Nine Months Ended
		January 31,								January 31,
		2015				2014				2015				2014
Residential		$	1,781,353			$	2,959,568			$	7,494,557			$	7,875,309
Commercial			2,561,970				2,532,072				7,548,746				7,182,541
		$	4,343,323			$	5,491,640			$	15,043,303			$	15,057,850

 

Service Expenses

 

Included in service expense are the expenses of the preferred developer program for the three and nine months ended January 31, 2015 of $1,071,436 and $3,169,416 compared to $1,125,894 and $2,622,699 for the comparable periods ended January 31, 2014.  The full year increase was a result of the extra volume represented in the preferred developer revenue.

 

Selling, General and Administrative

 

The three- and nine- month periods ended January 31, 2015, had year over year increase of $330,110 and $1,221,809, respectively, due primarily to higher operating expenses of the beer and wine store in North Adams, MA which did not open until the middle of September 2013.

 

Non-operating Income (Expense)

 

Interest Expense

 

Interest expense breaks out as follows: 

 

		Three Months Ended
		January 31, 2015				January 31, 2014				January 31, 2015				January 31, 2014
Commercial		$	1,842,346			$	1,884,203			$	5,565,713			$	6,046,225
Residential			746,780				687,075				2,092,073				2,012,382
		$	2,589,126			$	2,571,278			$	7,657,786			$	8,058,607

 

 

 

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

 

Equity in Earnings of Unconsolidated Subsidiary

 

Equity in earnings of the unconsolidated subsidiary increased $111,240 and $252,357 on a period over period basis for the three and nine months ended January 31, 2015.  During the nine months ended January 31, 2015, the equity in earnings of the subsidiary were charged approximately $400,000, which represents 50% of the direct cost of defeasance on the refinancing of the prior mortgage plus some additional defeasance cost.  During the three and nine months ended January 31, 2015, the Company received distributions of $90,000 and $750,000 ($600,000 of the distribution was a result of the refinancing).  For the three and nine months ended January 31, 2014, the Company received distributions of $28,000 and $128,000.  Such distributions are in excess of net assets of the 50% owned investee since its accumulated net losses (including significant amounts for depreciation and amortization) have exceeded capital contributions.

 

While the Company has a policy of recording distributions in excess of basis as income, it does not control the rate of distributions of the investee partnership. Cash flow in excess of distribution is held at the partnership level.  Please refer to the summarized financial information of the Company’s investee partnerships which are included in the Company’s Form 10-K for the year ended April 30, 2014.

 

Income Taxes

 

The Company has significant net operating loss carryforwards, so it will likely not be required to pay Federal income taxes in the near term.

 

Capital Resource and Liquidity

 

At January 31, 2015, the Company had $10,665,794 of unrestricted cash, cash equivalents and marketable securities. This includes $8,154,093 belonging to partnership entities in which the Company’s financial interests range from .01% (VIEs) to 50%.  Funds received from CVS, which are to be paid out in connection with CVS developments, amounted to $189,420 and tenant security deposits held by VIEs of $421,162 are included in restricted cash and cash equivalents.

 

The Company believes it has sufficient cash and cash resources to fund operations and debt maturities in the next fiscal year without any new bank borrowings through January 31, 2016. Borrowings for new construction loans or property purchases will be encountered as needed.

 

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

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

 

 

 

Item 4. CONTROLS AND PROCEDURES

 

Evaluation of Disclosure Controls and Procedures

 

We maintain “disclosure controls and procedures”, as such term is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”), that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and forms, and that such information is accumulated and communicated to our management, including our President and Chief Financial Officer, 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 Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (“Disclosure Controls”) as of the end of the period covered by this report pursuant to Rule 13a-15b of the Exchange Act.  Based on the Evaluation, our 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.  Notwithstanding weaknesses in our control environment, as of January 31, 2015, we believe that the condensed consolidated financial statements contained in this report present fairly the Company’s financial condition, results of operations and cash flows for the periods presented.

 

Changes in Internal Control Over Financial Reporting

 

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

 

PART II	OTHER INFORMATION
Item 1.	LEGAL PROCEEDINGS
	There has been no change in litigation since April 30, 2014.
Item 1A.	RISK FACTORS
	Smaller reporting companies are not required to provide the information required by this item.
Item 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
	None
Item 3.	DEFAULTS UPON SENIOR SECURITIES
	None
Item 4.	MINE SAFETY DISCLOSURES
	Not applicable

 

 

 

PART II	OTHER INFORMATION (concluded):
Item 5.	OTHER INFORMATION
	None
	SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
	The Company’s annual meeting of shareholders was held on January 21, 2015 in Hartford, Connecticut.
	The following nominees were elected as directors by vote indicated:

 

		For		Against
Neil Ellis		2,295,796		1,299
Stuart Greenwald		2,295,858		1,237
David Harding		2,295,853		1,242
Jeff Carlson		2,295,858		1,237
John Toic		2,295,856		1,239
William Connolly		2,295,833		1,261

  

Item 6.

EXHIBITS

  

	a)	Exhibits:
		Exhibit 31.1	Certification of Chief Executive Officer, pursuant to Rule 13a-14(c) under the Securities Exchange Act of 1934.
		Exhibit 31.2	Certification of Chief Financial Officer, pursuant to Rule 13a-14(c) under the Securities Exchange Act of 1934.
		Exhibit 32.1	Certification of Chief Executive Officer and Chief Financial Officer, pursuant to 18 U.S.C. Section 1350.

 

 

 

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
April 13, 2015
Date		Neil H. Ellis
		Chairman of the Board
		and Chief Executive Officer
		/s/ Stuart I. Greenwald
April 13, 2015
Date		Stuart I. Greenwald Treasurer
		and Chief Financial Officer