Attached files
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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 |
EX-32.1 - FIRST HARTFORD CORP | ex32-1.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 July 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 |
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(Exact name of registrant as specified in its charter) |
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Maine |
01-0185800 |
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
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149 Colonial Road Manchester, CT |
06045-1270 |
(Address of principal executive offices) |
(Zip Code) |
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860-646-6555 |
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(Registrant's telephone number, including area code) |
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(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 past 90 days.
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 |
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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 October 12, 2009
1 |
FIRST HARTFORD CORPORATION AND SUBSIDIARIES
INDEX
PART I. |
FINANCIAL INFORMATION |
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PAGE |
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Item 1. |
Financial Statements |
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July 31, 2009 (unaudited) and April 30, 2009 (audited) |
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3 - 4 |
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Comprehensive Income (Loss) for the Three Months |
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Ended July 31, 2009 and 2008 (unaudited) |
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5 |
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Three Months Ended July 31, 2009 and 2008 (unaudited) |
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6 - 7 |
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8 - 13 |
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Item 2. |
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and Results of Operations |
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13 - 15 |
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Item 3. |
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15 |
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Item 4. |
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15 |
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PART II |
OTHER INFORMATION |
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Item 1. |
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16 |
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Item 1A. |
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16 |
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Item 2. |
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16 |
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Item 3. |
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16 |
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Item 4. |
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16 |
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Item 5. |
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16 |
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Item 6. |
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16 |
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17 |
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2 |
FIRST HARTFORD CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
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July 31, 2009 |
April 30, 2009 |
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(unaudited) |
(audited) |
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Real estate and equipment: |
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Developed properties |
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$120,544,753 |
$120,518,077 |
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Equipment and tenant improvements |
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1,355,812 |
1,355,388 |
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121,900,565 |
121,873,465 |
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Less: accumulated depreciation and amortization |
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9,318,620 |
8,622,299 |
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112,581,945 |
113,251,166 |
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Property under construction |
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716,952 |
274,302 |
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113,298,897 |
113,525,468 |
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Cash and cash equivalents |
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2,841,947 |
2,760,342 |
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Cash and cash equivalents - restricted |
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1,466,353 |
870,815 |
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Marketable securities - available for sale |
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1,513,659 |
1,146,679 |
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Accounts and notes receivable, less allowance for doubtful accounts |
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of $54,000 and $44,000 as of July 31, 2009 and April 30, 2009, respectively |
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1,894,644 |
1,904,671 |
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CVS related receivables |
5,455,017 |
8,298,847 |
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Deposits, escrows, prepaid and deferred expenses, net |
6,053,283 |
5,825,969 |
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Investments in affiliates |
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9,665 |
9,665 |
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Due from related parties and affiliates |
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441,748 |
433,135 |
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Deferred tax assets, net |
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1,238,000 |
1,238,000 |
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Total Assets
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$134,213,213 |
$136,013,591 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
3 |
FIRST HARTFORD CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (continued)
LIABILITIES AND SHAREHOLDERS' DEFICIENCY |
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July 31, 2009 |
April 30, 2009 |
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Liabilities: |
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(unaudited) |
(audited) |
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Mortgages and notes payable: |
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Construction loans payable |
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$49,689,715 |
$49,092,876 |
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Mortgages payable |
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66,483,813 |
66,728,479 |
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Notes payable |
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240,192 |
241,708 |
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116,413,720 |
116,063,063 |
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Accounts payable |
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939,202 |
993,342 |
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CVS related payables |
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6,651,742 |
8,884,092 |
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Accrued liabilities |
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3,582,866 |
3,837,884 |
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Deferred income |
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440,475 |
298,805 |
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Accrued cost of derivatives |
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2,602,950 |
3,427,515 |
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Other liabilities |
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4,989,071 |
5,131,497 |
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Due to related parties and affiliates |
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72,000 |
72,000 |
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Total Liabilities
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135,692,026 |
138,708,198 |
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Shareholders' Deficiency: |
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Preferred stock, $1 par value; $.50 cumulative and convertible; |
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authorized 4,000,000 shares; no shares issued and outstanding |
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-0-
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-0-
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Common stock, $1 par value; authorized 6,000,000 shares; |
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issued 3,298,609 shares |
3,298,609 |
3,298,609 |
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Capital in excess of par |
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2,156,111 |
2,156,111 |
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Deficit |
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(12,318,498) |
(12,986,202) |
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Accumulated other comprehensive loss |
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(194,496) |
(488,228) |
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Treasury stock, at cost, 270,644 and 270,444 shares as of July 31, 2009 |
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and April 30, 2009, respectively |
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(2,044,429) |
(2,044,114) |
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Total Company Shareholders Deficiency
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(9,102,703) |
(10,063,824) |
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Noncontrolling interests
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7,623,890 |
7,369,217 |
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Total Shareholders Deficiency |
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(1,478,813) |
(2,694,607) |
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Total Liabilities and Shareholders Deficiency |
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$134,213,213 |
$136,013,591 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
4 |
FIRST HARTFORD CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND
OTHER COMPREHENSIVE INCOME (LOSS)
(Unaudited)
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Three Months Ended |
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July 31, 2009 |
July 31, 2008 |
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Operating revenues: |
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Rental income |
$3,106,372 |
$2,395,443 |
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Service income |
1,594,634 |
366,207 |
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Other |
246,187 |
61,137 |
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4,947,193 |
2,822,787 |
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Operating costs and expenses: |
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Rental expenses |
1,906,504 |
1,267,650 |
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Service expenses |
903,227 |
405,252 |
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Selling, general and administrative |
1,050,787 |
1,280,586 |
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3,860,518 |
2,953,488 |
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Income (loss) from operations |
1,086,675 |
(130,701) |
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Non-operating income (expense) |
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Interest expense |
(1,527,295) |
(915,538) |
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Other income |
37,510 |
-0- |
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Gain on derivatives |
824,565 |
413,325 |
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Equity in earnings of unconsolidated subsidiaries |
142,975 |
195,414 |
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(522,245) |
(306,799) |
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Income (loss) before income taxes |
564,430 |
(437,500) |
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Provision for income taxes |
16,717 |
15,576 |
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Net income (loss) |
547,713 |
(453,076) |
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Net loss (income) attributable to noncontrolling interests |
119,991 |
(2,420) |
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Net income (loss) attributable to Company before other comprehensive |
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income (loss) |
667,704 |
(455,496) |
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Other comprehensive income (loss), net of tax: |
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Unrealized holding gains (losses) on securities during the period |
293,732 |
(193,670) |
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Comprehensive income (loss) |
961,436 |
(649,166) |
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Comprehensive (income) loss attributable to noncontrolling interests |
(126,522) |
96,835 |
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Comprehensive income (loss) attributable to Company |
$834,914 |
$(552,331) |
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Net income (loss) per share - basic |
$0.22 |
$(0.15) |
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Net income (loss) per share - diluted |
$0.22 |
$(0.15) |
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Shares used in basic per share computation |
3,028,065 |
3,041,234 |
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Shares used in diluted per share computation |
3,064,681 |
3,041,234 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
5 |
FIRST HARTFORD CORPORATION AND SUBSIDIARIES |
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(Unaudited) |
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Three Months Ended
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July 31, 2009 |
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July 31, 2008 |
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Cash flows from operating activities: |
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Net income (loss) |
$547,713 |
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$(453,076) |
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Adjustments to reconcile net income (loss) |
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to net cash used in operating activities: |
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Equity in earnings of unconsolidated subsidiaries |
(142,975) |
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(195,414) |
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Gain on sale of marketable securities |
(37,510) |
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-0- |
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Depreciation |
709,871 |
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436,363 |
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Amortization |
74,663 |
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57,921 |
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Deferred income taxes |
-0- |
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-0- |
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Gain on derivatives |
(824,565) |
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(413,325) |
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(Increase) decrease in: |
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Accounts and notes receivable, net |
2,853,857 |
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(269,555) |
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Deposits, escrows, prepaid and deferred expenses |
(301,977) |
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(1,171,771) |
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Cash and cash equivalents - restricted |
(595,538) |
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(319,714) |
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Increase (decrease) in: |
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Accrued liabilities |
(255,018) |
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(1,414,643) |
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Deferred income |
141,670 |
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(18,690) |
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Accounts payable |
(2,286,490) |
1,680,686 |
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Net cash used in operating activities |
(116,299) |
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(2,081,218) |
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Cash flows from investing activities: |
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Distributions from affiliates, net |
549 |
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44,994 |
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Purchase of marketable securities, net |
(35,738) |
(25,797) |
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Purchase of equipment and tenant improvements |
(13,974) |
(21,172) |
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Additions to developed properties and properties under construction |
(469,326) |
(6,462,645) |
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Net cash used in investing activities |
(518,489) |
(6,464,620) |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
6 |
FIRST HARTFORD CORPORATION AND SUBSIDIARIES |
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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS |
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(Unaudited)
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(continued) |
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Three Months Ended |
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July 31, 2009 |
July 31, 2008 |
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Cash flows from financing activities: |
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Noncontrolling distributions from consolidated joint ventures |
-0- |
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(17,677) |
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Limited partners investment in consolidated joint ventures |
374,664 |
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1,498,138 |
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Purchase of treasury stock |
(315) |
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(7,425) |
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Proceeds from: |
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Construction loans payable |
841,872 |
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7,977,783 |
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Mortgages payable |
-0- |
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-0- |
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Notes payable |
-0- |
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-0- |
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Principal payments on: |
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Construction loans payable |
(245,033) |
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-0- |
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Mortgages payable |
(244,666) |
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(229,258) |
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Notes payable |
(1,516) |
(1,502) |
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Advances to related parties and affiliates, net |
(8,613) |
(7,307) |
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Net cash provided by financing activities |
716,393 |
9,212,752 |
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Net increase in cash and cash equivalents |
81,605 |
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666,914 |
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Cash and cash equivalents, beginning of period |
2,760,342 |
3,403,845 |
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Cash and cash equivalents, end of period |
$2,841,947 |
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$4,070,759 |
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Cash paid during the period for interest |
$1,434,726 |
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$1,068,615 |
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Cash paid during the period for income taxes |
$28,417 |
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$10,576 |
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7 |
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 records minority interest for the non-owned portions of consolidated subsidiaries. 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).
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 months ended July 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.
Certain amounts in the statement of cash flows for the three months ended July 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 Statement of Financial Accounting Standards (SFAS) No. 160, Noncontrolling Interests in Consolidated Financial Statements, an amendment of ARB No. 51.
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.
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.
8 |
FIRST HARTFORD CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Nature of Business and Significant Accounting Policies (continued):
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.
In December 2007, the Financial Accounting Standards Board (FASB) issued SFAS No. 141(revised 2007), Business Combinations, which addresses the accounting and disclosure for identifiable assets acquired, liabilities assumed, and noncontrolling interests in a business combination. In April 2009, the FASB issued FASB Staff Position No. FAS 141(R)-1, Accounting for Assets Acquired and Liabilities Assumed in a Business Combination That Arise from Contingencies, which amended certain provisions of SFAS No. 141(R) related to the recognition, measurement, and disclosure of assets acquired and liabilities assumed in a business combination that arise from contingencies. SFAS No. 141(R) and FSP FAS 141(R)-1 became effective for the Company on May 1, 2009, but did not have any impact on the Companys Condensed Consolidated Financial Statements.
In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements, an amendment of ARB No. 51, which addresses the accounting and reporting framework for noncontrolling interests by a parent company. SFAS No. 160 also addresses disclosure requirements to distinguish between interests of the parent and interests of the noncontrolling owners of a subsidiary. The Company adopted SFAS No. 160 effective May 1, 2009. The provisions of SFAS No. 160 require that minority interest be renamed noncontrolling interests and that a company present a consolidated net income measure that includes the amount attributable to such noncontrolling interests for all periods presented. In addition, SFAS No. 160 requires reporting noncontrolling interests as a component of equity in the Companys Condensed Consolidated Balance Sheets and below income tax expense in the Companys Condensed Consolidated Statements of Operations. As required by SFAS No. 160, the Company has retrospectively applied the presentation to the Companys prior year balances in the Condensed Consolidated Financial Statements.
In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities, an amendment of FASB Statement No. 133, which requires enhanced disclosures for derivative and hedging activities. SFAS No. 161 became effective for the Company on May 1, 2009, but did not have any impact on the Companys Condensed Consolidated Financial Statements.
In May 2009, the FASB issued SFAS No. 165, Subsequent Events, which sets forth general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. The Company adopted SFAS No. 165 for the quarter ended July 31, 2009 and has evaluated and assessed all events occurring subsequent to July 31, 2009 through October 19, 2009, the filing date of the Companys Form 10-Q.
In April 2009, the FASB issued FASB Staff Position No. SFAS 107-1 and APB No. 28-1, Interim Disclosures about Fair Value of Financial Instruments (FSP FAS 107-1 and APB 28-1), which requires quarterly disclosure of information about the fair value of financial instruments within the scope of FASB Statement No. 107, Disclosures about Fair Value of Financial Instruments. The Company adopted FSP FAS 107-1 and APB 28-1 effective May 1, 2009. See Note 5 for required disclosures.
9 |
FIRST HARTFORD CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Nature of Business and Significant Accounting Policies (continued):
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 gain of $824,565 on derivatives during the quarter ended July 31, 2009. The aggregate fair value of the Company's swap contracts were in an unfavorable position of $(2,602,950) as of July 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.
10 |
FIRST HARTFORD CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
3. Investment in Affiliated Partnerships (continued):
OPERATING RESULTS OF NONCONSOLIDATED 50% OWNED SUBSIDIARIES
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Three Months Ended July 31 |
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2009 |
2008 |
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Cranston Parkade, LLC |
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Revenues |
$1,245,828 |
$1,312,327 |
|
Expenses |
1,014,774 |
1,064,070 |
|
Net Profit |
$ 231,054 |
$ 248,257 |
|
Dover Parkade, LLC |
|
|
|
Revenues |
$ 559,956 |
$ 652,367 |
|
Expenses |
506,160 |
507,186 |
|
Net Profit |
$ 53,796 |
$ 145,181 |
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 July 31, 2009 and April 30, 2009, $4,914,233 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 the 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 July 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.
11 |
FIRST HARTFORD CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
5. Fair Value Measurements
The Company adopted SFAS No. 157, Fair Value Measurements on May 1, 2008 for its financial assets and liabilities which are measured at fair value on a recurring basis. Additionally, during the quarter ended July 31, 2009, in accordance with the provisions of FASB Staff Position No. 157-2, Effective Date of FASB Statement No. 157 (FSP 157-2) the Company now applies SFAS No. 157 to financial and nonfinancial assets and liabilities. FSP 157-2 delayed the effective date of SFAS 157 for nonfinancial assets and liabilities, except for certain items that are recognized or disclosed at fair value in the financial statements on a recurring basis. In accordance with SFAS 157, the Company has categorized 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, unrestricted assets or liabilities;
Level 2 - Quoted prices for identical assets and liabilities in markets that are not active, quoted prices for similar assets and liabilities in active markets or financial instruments for which significant observable inputs are available, either directly or indirectly such as interest rates and yield curves that are observable at commonly quoted intervals; and
Level 3 - Prices or valuations that require inputs that are unobservable.
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 |
$1,513,659 |
$ -0- |
$ -0- |
|
Interest rate swap agreements (negative fair value) |
-0- |
(2,602,950) |
-0- |
|
Total |
$1,513,659 |
$(2,602,950) |
$ -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 and due to their interest rates approximating current market rates for long-term debt.
6. Subsequent Events:
On August 4, 2009, the Company sold a shopping center under development in Bangor, Maine. The Company received $4,300,000 and paid off the construction loan of approximately $3,400,000. The Company made a small marginal profit on the transaction.
12 |
FIRST HARTFORD CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
7. Recent Accounting Pronouncements
In June 2009, the FASB issued SFAS No. 167, Amendments to FASB Interpretation No. 46(R), which amends FASB Interpretation No. 46 (revised December 2003) to address the elimination of the concept of a qualifying special purpose entity. SFAS No. 167 also replaces the quantitative-based risks and rewards calculation for determining which enterprise has a controlling financial interest in a variable interest entity with an approach focused on identifying which enterprise has the power to direct the activities of a variable interest entity and the obligation to absorb losses of the entity or the right to receive benefits from the entity. Additionally, SFAS No. 167 provides more timely and useful information about an enterprises involvement with a variable interest entity. SFAS No. 167 will become effective for the Company during the first quarter of fiscal year 2011. The Company is currently evaluating the impact of this standard on its Consolidated Financial Statements.
In June 2009, the FASB issued SFAS No. 168, The FASB Accounting Standards Codification TM and the Hierarchy of Generally Accepted Accounting Principles, a replacement of FASB Statement No. 162, which establishes the FASB Accounting Standards Codification as the source of authoritative accounting principles recognized by the FASB to be applied in the preparation of financial statements in conformity with generally accepted accounting principles. SFAS No. 168 explicitly recognizes rules and interpretive releases of the Securities and Exchange Commission (SEC) under federal securities laws as authoritative GAAP for SEC registrants. SFAS No. 168 will become effective for the Company during the second quarter of 2009 and will require the Company to update all existing GAAP references to the new codification references for all future filings.
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 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.
13 |
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
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.
Results of Operations:
Rental income increased approximately $711,000 for the three month period ended July 31, 2009 compared to the period ended July 31, 2008. The stores opened after July 31, 2008 in the Edinburg, Texas Shopping Center amounted to approximately $550,000 of this increase.
Service income increased approximately $1,228,000 over the three month period ended July 31, 2008. Fees from CVS Pharmacy amounted to approximately $1,140,000 of this increase. Although the amount of fees being earned has grown impressively, the increase is a result of comparing a very active period to one in which the Company underperformed.
Other revenue increased approximately $185,000 over the three month period ended July 31, 2008. Approximately $211,000 of other revenue recognized during the current quarter was a result of a governmental award related to sales tax revenue generated by the Edinburg, Texas Shopping Center.
Rental expense increased $639,000 during the current period of which $326,000 is a result of the Edinburg, Texas Shopping Center which didn't have any rental expenses during the period ended July 31, 2008. Rental expenses for the Rockland Housing project increased approximately $167,000 over the period ended July 31, 2008 which includes a $61,000 increase for depreciation and a $106,000 increase for repairs and other rental expenses. The balance of the increase is spread throughout the other properties and are basically recovered by pass-through charges that are billed as additional rents. Losses from Rockland are eliminated against the noncontrolling interest of the Limited Partner (99.99%).
The increase in service cost of $498,000 is directly related to the increase in service income.
The decrease in selling, general and administrative expenses is a result of a reduction of professional and legal fees in connection with the Kaplan lawsuit.
In the current period, $699,000 was charged to interest expense from the Edinburg, Texas Shopping center. Although approximately $286,000 of this interest is attributable to construction loans for additional phases of an expansion of the shopping center, the interest is being expensed due to the current low level of construction activity which is attributable to the economic downturn.
Capital Resources and Liquidity
The Company ended the period with approximately $2,842,000 of unrestricted cash and cash equivalents. The unrestricted cash and cash equivalents includes approximately $2,185,000 belonging to less than wholly-owned consolidated partnerships (CP Associates $1,348,000, and Rockland Place LP $837,000). Funds received from CVS Pharmacy which are to be paid out in connection with CVS development projects amounted to approximately $1,466,000 and is included in restricted cash and cash equivalents.
14 |
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). It is their obligation to replace the occupant or continue paying the rent under the lease. The mortgage has a balloon payment due in 2015. The members of CP Associates, LLC have earmarked marketable securities with a balance of $1,180,000 as of July 31, 2009 to refit the building for new tenants at the appropriate time. Since the investment market had deteriorated, additional funds have been accumulated in money market accounts for this purpose.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
Capital Resources and Liquidity (continued):
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. The Judge has set a value of approximately $2.9 million. The parties are not in agreement over terms of payment. The Court has assigned a Special Master which recommended terms that are agreeable to the Company but objected to by Richard Kaplan requiring the court to issue a future Special Ruling.
The following schedule outlines our long term obligation at April 30, 2009 (does not include Kaplan Buyout or 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 |
112,806,146 |
976,486 |
36,086,270 |
3,133,036 |
72,610,354 |
|
|
|
|
|
|
Short-Term Debt |
3,607,574 |
3,607,574 |
|
|
|
|
|
|
|
|
|
Purchase Obligations |
80,000 |
80,000 |
|
|
|
|
|
|
|
|
|
Total |
116,493,720 |
4,664,060 |
36,086,270 |
3,133,036 |
72,610,354 |
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Smaller reporting companies are not required to provide the information required by this item.
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 July 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.
15 |
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 (Kaplan Suit) by the court appointed Special Master 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.
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
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.
16 |
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 |
October 19, 2009 |
______________________________ |
Date |
Neil H. Ellis B President and |
|
Chief Executive Officer |
|
|
|
/s/ Stuart I. Greenwald |
October 19, 2009 |
______________________________ |
Date |
Stuart I. Greenwald B Treasurer |
|
and Chief Financial Officer |