Attached files
file | filename |
---|---|
EX-31 - FIRST HARTFORD CORP | ex31-2.htm |
EX-31 - FIRST HARTFORD CORP | ex31-1.htm |
EX-32 - FIRST HARTFORD CORP | ex32-1.htm |
EX-32 - FIRST HARTFORD CORP | ex32-2.htm |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended October 31, 2010.
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________________________________ to ___________________________________
Commission File Number: _______________________________________________________________________________
|
|
First Hartford Corporation |
|
(Exact name of registrant as specified in its charter) |
|
|
|
Maine |
01-0185800 |
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
|
|
149 Colonial Road Manchester, CT |
06045-1270 |
(Address of principal executive offices) |
(Zip Code) |
|
|
860-646-6555 |
|
(Registrants telephone number, including area code) |
|
|
|
(Former name, former address and former fiscal year, if changed since last report) |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the 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.
Large accelerated filer |
Accelerated filer |
|
|
Non-accelerated filer (Do not check if a smaller reporting company) |
Smaller reporting company X |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes X No
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.
2,436,711 as of January 5, 2011
1 |
FIRST HARTFORD CORPORATION AND SUBSIDIARIES
INDEX
PART I. |
FINANCIAL INFORMATION |
PAGE |
|
|
|
Item 1. |
Financial Statements |
|
|
|
|
|
||
|
October 31, 2010 (unaudited) and April 30, 2010 (audited) |
3 - 4 |
|
|
|
|
||
|
Comprehensive Income (Loss) for the Three and Six Months |
|
|
Ended October 31, 2010 and 2009 (unaudited) |
5 |
|
|
|
|
||
|
Six Months Ended October 31, 2010 and 2009 (unaudited) |
6 - 7 |
|
|
|
|
8 - 12 |
|
|
|
|
Item 2. |
||
|
and Results of Operations |
13 - 15 |
|
|
|
Item 3. |
15 |
|
|
|
|
Item 4T. |
15 |
|
|
|
|
PART II |
OTHER INFORMATION |
|
|
|
|
Item 1. |
16 |
|
|
|
|
Item 1A. |
16 |
|
|
|
|
Item 2. |
16 |
|
|
|
|
Item 3. |
16 |
|
|
|
|
Item 4. |
16 |
|
|
|
|
Item 5. |
16 |
|
|
|
|
Item 6. |
17 |
|
|
|
|
|
18 |
|
|
|
2 |
FIRST HARTFORD CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
|
||||
|
|
October 31, 2010 |
April 30, 2010 |
|
|
|
(unaudited) |
(audited) |
|
Real estate and equipment: |
|
|
|
|
Developed properties |
|
$110,663,203 |
$131,437,600 |
|
Equipment and tenant improvements |
|
1,522,442 |
1,408,206 |
|
|
|
112,185,645 |
132,845,806 |
|
|
|
|
|
|
Less: accumulated depreciation and amortization |
|
9,987,880 |
11,200,570 |
|
|
|
102,197,765 |
121,645,236 |
|
|
|
|
|
|
Property under construction |
|
16,509,543 |
5,525,858 |
|
|
|
118,707,308 |
127,171,094 |
|
|
|
|
|
|
Cash and cash equivalents |
|
3,562,849 |
5,179,164 |
|
|
|
|
|
|
Cash and cash equivalents - restricted |
|
2,168,253 |
2,350,003 |
|
|
|
|
|
|
Marketable securities |
|
172,216 |
1,323,571 |
|
|
|
|
|
|
Accounts and notes receivable, less allowance for doubtful accounts |
|
|
|
|
of $500,000 and $214,000 as of Oct. 31, 2010 and April 30, 2010, respectively |
|
2,037,807 |
2,175,177 |
|
|
|
|||
Other receivables |
10,510,203 |
15,654,514 |
||
|
|
|
||
Deposits, escrows, prepaid and deferred expenses, net |
10,163,150 |
10,316,964 |
||
|
|
|
||
Investments in affiliates |
|
9,665 |
9,665 |
|
|
|
|
|
|
Due from related parties and affiliates |
|
484,412 |
454,467 |
|
|
|
|
|
|
Deferred tax assets, net |
|
1,238,000 |
1,238,000 |
|
|
|
|
|
|
Total Assets |
|
$149,053,863 |
$165,872,619 |
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 |
||||
|
|
|
|
|
|
|
October 31, 2010 |
April 30, 2010 |
|
Liabilities: |
|
(unaudited) |
(audited) |
|
Mortgages and notes payable: |
|
|
|
|
Construction loans payable |
|
$65,463,131 |
$52,683,189 |
|
Mortgages payable |
|
65,847,529 |
86,613,734 |
|
Notes payable |
|
1,682,259 |
2,165,321 |
|
|
132,992,919 |
141,462,244 |
||
|
|
|
|
|
Accounts payable |
|
2,068,965 |
1,815,727 |
|
Other payables |
|
4,892,767 |
10,133,280 |
|
Accrued liabilities |
|
6,853,265 |
7,454,741 |
|
Deferred income |
|
110,444 |
198,090 |
|
Derivative liabilities |
|
-0- |
2,677,363 |
|
Other liabilities |
|
4,566,633 |
4,709,772 |
|
Due to related parties and affiliates |
|
102,750 |
62,418 |
|
Total Liabilities |
|
151,587,743 |
168,513,635 |
|
|
|
|
|
|
Shareholders Deficiency: |
|
|
|
|
Preferred stock, $1 par value; $.50 cumulative and convertible; |
|
|||
authorized 4,000,000 shares; no shares issued and outstanding |
|
-0- |
-0- |
|
Common stock, $1 par value; authorized 6,000,000 shares; |
|
|
||
issued 3,298,609 shares |
3,298,609 |
3,298,609 |
||
Capital in excess of par |
|
2,176,704 |
2,176,704 |
|
Accumulated deficit |
|
(15,111,665) |
(15,118,235) |
|
Accumulated other comprehensive loss |
|
-0- |
(85,414) |
|
Treasury stock, at cost, 270,644 shares as of October 31, 2010 and April 30, 2010 |
|
(2,044,429) |
(2,044,429) |
|
Total Company Shareholders Deficiency |
|
(11,680,781) |
(11,772,765) |
|
Noncontrolling interests |
|
9,146,901 |
9,131,749 |
|
|
|
|
|
|
Total Shareholders Deficiency |
|
(2,533,880) |
(2,641,016) |
|
|
|
|
|
|
Total Liabilities and Shareholders Deficiency |
|
$149,053,863 |
$165,872,619 |
4 |
FIRST HARTFORD CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND
OTHER COMPREHENSIVE (LOSS) INCOME
(Unaudited)
|
Three Months Ended |
|
Six Months Ended |
||||
|
Oct. 31, 2010 |
|
Oct. 31, 2009 |
|
Oct. 31, 2010 |
|
Oct. 31, 2009 |
|
|
|
(As Restated) |
|
|
|
(As Restated) |
Operating revenues: |
|
|
|
|
|
|
|
Rental income |
$4,153,543 |
|
$3,570,040 |
|
$8,352,020 |
|
$6,676,412 |
Service income |
908,390 |
|
1,145,480 |
|
1,676,229 |
|
2,740,114 |
Sales of real estate |
-0- |
|
4,300,000 |
|
-0- |
|
4,300,000 |
Other income |
(84,521) |
|
58,619 |
|
791 |
|
304,806 |
|
4,977,412 |
|
9,074,139 |
|
10,029,040 |
|
14,021,332 |
|
|
|
|
|
|
|
|
Operating costs and expenses: |
|
|
|
|
|
|
|
Rental expenses |
3,409,805 |
|
2,588,824 |
|
6,558,256 |
|
4,495,328 |
Services expenses |
713,355 |
|
626,469 |
|
1,346,751 |
|
1,529,696 |
Cost of sales, real estate |
-0- |
|
3,750,828 |
|
-0- |
|
3,750,828 |
Selling, general and administrative |
965,069 |
|
964,003 |
|
1,737,667 |
|
1,836,790 |
|
5,088,229 |
|
7,930,124 |
|
9,642,674 |
|
11,612,642 |
|
|
|
|
|
|
|
|
(Loss) income from operations |
(110,817) |
|
1,144,015 |
|
386,366 |
|
2,408,690 |
|
|
|
|
|
|
|
|
Non-operating income (expense): |
|
|
|
|
|
|
|
Interest expense |
(1,714,919) |
|
(1,676,899) |
|
(3,405,114) |
|
(3,204,194) |
Other income |
142,104 |
|
197,807 |
|
142,104 |
|
235,317 |
(Loss) gain on derivatives |
-0- |
|
(207,652) |
|
-0- |
|
616,913 |
Equity in earnings of unconsolidated subsidiaries |
280,834 |
|
285,120 |
|
496,271 |
|
428,095 |
|
(1,291,981) |
|
(1,401,624) |
|
(2,766,739) |
|
(1,923,869) |
|
|
|
|
|
|
|
|
(Loss) income before income taxes |
(1,402,798) |
|
(257,609) |
|
(2,380,373) |
|
484,821 |
|
|
|
|
|
|
|
|
Provision for income taxes |
-0- |
|
44 |
|
2,350 |
|
16,761 |
|
|
|
|
|
|
|
|
Net (loss) income |
(1,402,798) |
|
(257,653) |
|
(2,382,723) |
|
468,060 |
|
|
|
|
|
|
|
|
Net loss (income) attributable to noncontrolling interests |
454,215 |
|
(47,386) |
|
423,223 |
|
72,605 |
|
|
|
|
|
|
|
|
Net (loss) income attributable to Company |
(948,583) |
|
(305,039) |
|
(1,959,500) |
|
540,665 |
|
|
|
|
|
|
|
|
Other comprehensive (loss) income, net of tax: |
|
|
|
|
|
|
|
Unrealized holding (losses) gains on securities during |
|
|
|
|
|
|
|
the period |
-0- |
|
(118,751) |
|
-0- |
|
174,981 |
|
|
|
|
|
|
|
|
Comprehensive (loss) income |
$(948,583) |
|
$(423,790) |
|
$(1,959,500) |
|
$715,646 |
|
|
|
|
|
|
|
|
Net (loss) income per share - basic |
$(0.31) |
|
$(0.10) |
|
$(0.65) |
|
0.18 |
|
|
|
|
|
|
|
|
Net (loss) income per share - diluted |
$(0.31) |
|
$(0.10) |
|
$(0.65) |
|
0.18 |
|
|
|
|
|
|
|
|
Shares used in basic per share computation |
3,027,965 |
|
3,028,065 |
|
3,027,965 |
|
3,028,065 |
|
|
|
|
|
|
|
|
Shares used in diluted per share computation |
3,027,965 |
|
3,028,065 |
|
3,027,965 |
|
3,064,681 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
5 |
FIRST HARTFORD CORPORATION AND SUBSIDIARIES |
|||
|
|||
(Unaudited) |
|||
|
|
|
|
|
Six Months Ended |
||
|
October 31, 2010 |
|
October 31, 2009 |
|
|
|
(As Restated) |
Cash flows from operating activities: |
|
|
|
Net (loss) income |
$(2,382,723) |
|
$468,060 |
Adjustments to reconcile net (loss) income |
|
|
|
to net cash provided by operating activities: |
|
|
|
Equity in earnings of unconsolidated subsidiaries |
(496,271) |
|
(428,095) |
Gain on sale of real estate |
-0- |
|
(549,172) |
Gain on sales of marketable securities |
-0- |
|
(235,317) |
Depreciation |
1,694,031 |
|
1,222,808 |
Amortization |
142,475 |
|
148,799 |
Gain on derivatives |
-0- |
|
(616,913) |
|
|
|
|
(Increase) decrease in: |
|
|
|
Accounts, notes and other receivables, net |
4,919,999 |
|
1,316,633 |
Deposits, escrows, prepaid and deferred expenses |
(417,013) |
|
(1,207,406) |
Cash and cash equivalents restricted |
181,750 |
|
(941,134) |
Increase (decrease) in: |
|
|
|
Accrued liabilities |
(409,222) |
|
832,903 |
Deferred income |
49,707 |
|
(25,512) |
Accounts and other payables |
(4,987,275) |
|
(375,133) |
|
|
|
|
Net cash used in operating activities |
(1,704,542) |
|
(389,479) |
|
|
|
|
Cash flows from investing activities: |
|
|
|
Distributions from affiliates, net |
353,132 |
|
201,562 |
Investment in marketable securities, net |
(160,000) |
|
(48,662) |
Purchase of equipment and tenant improvements |
(114,236) |
|
(25,800) |
Proceeds from sale of real estate, net of closing costs |
-0- |
|
3,750,343 |
Deconsolidation of CP Associates, LLC |
(1,891,798) |
|
-0- |
Additions to developed properties and properties under construction |
(10,790,989) |
|
(831,780) |
Net cash (used in) provided by investing activities |
(12,603,891) |
|
3,045,663 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
6 |
FIRST HARTFORD CORPORATION AND SUBSIDIARIES |
|||
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued) |
|||
(Unaudited)
|
|||
|
|||
|
Six Months Ended |
||
|
October 31, 2010 |
|
October 31, 2009 |
|
|
|
(As Restated) |
Cash flows from financing activities: |
|
|
|
Limited partners investment in consolidated joint ventures |
936,401 |
|
374,664 |
Purchase of treasury stock |
-0- |
|
(315) |
|
|
|
|
Proceeds from: |
|
|
|
Construction loans payable |
12,779,943 |
|
1,125,537 |
Principal payments on: |
|
|
|
Construction loans payable |
-0- |
|
(3,622,607) |
Mortgages payable |
(534,263) |
|
(445,548) |
Notes payable |
(483,062) |
|
(3,035) |
Advances to related parties and affiliates, net |
(6,901) |
|
(16,893) |
|
|
|
|
Net cash provided by (used in) financing activities |
12,692,118 |
|
(2,588,197) |
|
|
|
|
Net (decrease) increase in cash and cash equivalents |
(1,616,315) |
|
67,987 |
|
|
|
|
Cash and cash equivalents, beginning of period |
5,179,164 |
|
2,760,342 |
|
|
|
|
Cash and cash equivalents, end of period |
$3,562,849 |
|
$2,828,329 |
|
|
|
|
$3,118,097 |
|
$3,032,328 |
|
Cash paid during the period for income taxes |
$35,791 |
|
$28,461 |
|
|
|
|
Non-cash investing and financing activities: |
|
|
|
Reduction of developed properties resulting from an increase in |
|
|
|
other receivables related to Edinburg reimbursement agreement |
$-0- |
|
$8,000,000 |
|
|
|
|
Reduction of accrued liabilities resulting from decrease in capital in |
|
|
|
excess of par for common stock to be redeemed in connection |
|
|
|
with the Kaplan matter |
$-0- |
|
$2,190,349 |
|
|
|
|
7 |
FIRST HARTFORD CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Nature of Business and Significant Accounting Policies:
Description of Business
First Hartford Corporation was incorporated in Maine in 1909 and is engaged in the purchase, development, ownership, management and sale of real estate.
Principles of Consolidation
The accompanying condensed consolidated financial statements include the accounts of First Hartford Corporation, its wholly owned subsidiaries and other controlled subsidiaries (collectively referred to as the Company). The Company reflects noncontrolling interest for the non-owned portions of consolidated subsidiaries. All significant intercompany transactions and accounts have been eliminated in the condensed consolidated financial statements, including construction revenues and costs of development for the Companys own use (rental/future sale).
Financial Statement Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals and adjustments to previously established loss provisions) considered necessary for a fair presentation have been included. Operating results for the three and six months ended October 31, 2010 are not necessarily indicative of the results that may be expected for the year ending April 30, 2011. For further information, refer to the consolidated financial statements and footnotes thereto included in the Companys annual report on Form 10-K for the fiscal year ended April 30, 2010.
Certain amounts in the statements of operations and cash flows for the three and six months ended October 31, 2009 have been restated to correct an error in the period as reported in Note 9 of the Companys Form 10-Q for the quarterly period ended January 31, 2010. The error related to the capitalization of project costs associated with the acquisition and development of a low income multi-residential housing complex. Note 4 summarizes the impact of the error on our previously reported condensed consolidated financial statements for the three and six month periods ended October 31, 2009.
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, 2010, except as discussed below.
In June 2009, the Financial Accounting Standards Board (FASB) issued consolidation guidance, which amended the previous consolidation guidance applicable to variable interest entities. Under the updated guidance, the identification of a primary beneficiary of a variable interest entity (VIE) is defined as the enterprise that has both of the following characteristics: a) the power to direct the activities of a VIE that most significantly impacts the VIEs economic performance, and b) the obligation to absorb losses of the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE. The application of this updated guidance was effective for the Company as of May 1, 2010. Based on this updated guidance, the Company determined that it is no longer considered to be the primary beneficiary of the Companys joint venture, CP Associates, LLC (CP Associates). As a result of the initial application of this updated guidance, the Company has deconsolidated CP Associates as of May 1, 2010 and has measured its 50% retained interest in CP Associates at the carrying amount of the Companys retained interest had this updated guidance been effective when CP Associates was initially formed. The difference between the net amount removed from the Companys balance sheet and the amount of the Companys 50% retained interest in CP associates has been recognized as a cumulative effect adjustment to the Companys beginning equity as of May 1, 2010 (see Note 2).
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. Investments in Affiliated Partnerships
On May 1, 2010, the Company deconsolidated CP Associates based on updated consolidation guidance issued by the FASB. The following is a summary of the carrying amount of CP Associates assets and liabilities and the resulting cumulative effect adjustment to the Companys equity as of May 1, 2010.
|
Assets |
$21,685,455 |
|
Liabilities |
23,238,912 |
|
Equity: Cumulative effect adjustment |
($1,553,457) |
At April 30, 2010, the Company reported approximately $1,892,000 of unrestricted cash and cash equivalents belonging to CP Associates, LLC. Due to the deconsolidation, it is no longer included in the Companys balance sheet subsequent to April 30, 2010.
9 |
FIRST HARTFORD CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
2. Investments in Affiliated Partnerships (continued):
The following is a summary of the effects of CP Associates included in the Companys condensed consolidated statement of operations for the three and six month period ended October 31, 2009.
|
Three Months |
|
Six Months |
Operating revenue |
$787,240 |
|
$1,568,183 |
Expenses |
783,679 |
|
1,475,635 |
Gain (Loss) on derivatives |
(207,652) |
|
616,913 |
Net income (Loss) |
$(204,091) |
|
$709,461 |
The Company has prospectively accounted for its retained interest in CP Associates under the equity method of accounting. In addition, the Company also accounts for its 50% interest in Cranston Parkade, LLC and Dover Parkade, LLC under the equity method of accounting. The following is a summary of the unconsolidated operating results of CP Associates for the three and six month period ended October 31, 2010 and of Cranston Parkade, LLC and Dover Parkade, LLC for the three and six month periods ended October 31, 2010 and 2009.
|
Three Months Ended | Six Months Ended | |
|
October 31, 2010 | October 31, 2010 | |
|
|||
CP Associates, LLC |
|||
Revenues |
$776,155 | $1,556,710 | |
Expenses |
630,492 | 1,257,789 | |
Loss on derivatives |
(261,205) | (1,347,209) | |
Net Loss |
$(115,542) | $(1,048,288) |
|
Three Months Ended |
Six Months Ended |
|||||
October 31 | October 31 | ||||||
|
2010 | 2009 | 2010 | 2009 | |||
|
|||||||
Cranston Parkade, LLC |
|||||||
Revenues |
$1,198,379 | $1,157,809 | $2,492,136 | $2,403,637 | |||
Expenses |
1,024,621 | 1,003,649 | 2,018,455 | 2,018,423 | |||
Net Profit |
$173,758 | $154,160 | $473,681 | $385,214 | |||
|
|||||||
Dover Parkade, LLC |
|||||||
Revenues |
$609,879 | $559,195 | $1,282,552 | $1,119,151 | |||
Expenses |
516,494 | 545,142 | 1,063,573 | 1,051,302 | |||
Net Profit |
$ 93,385 | $14,053 | $218,979 | $67,849 |
The Companys investments in CP Associates, Cranston Parkade and Dover Parkade have been 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 no longer considers itself liable for the obligations of Cranston Parkade and Dover Parkade, it had not previously discontinued applying the equity method on these investments since the Company had previously considered itself to be committed to providing financial support to these partnerships. Other liabilities in the condensed consolidated balance sheets represents the negative carrying value of these investments.
10 |
FIRST HARTFORD CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
2. Investments in Affiliated Partnerships (continued):
The Company received a $210,000 distribution from C.P. Associates during the quarter ended October 31, 2010. The Company recorded the distribution as a reduction of its investment in C.P. Associates, which has resulted in the carrying value of this investment being less than zero. The Company reduced the carrying value of its investment in C.P. Associates below zero on the basis that the Company is committed to providing financial support to C.P. Associates due to a personal guarantee made by Mr. Ellis, President of the Company, on a mortgage obtained by C.P. Associates. The personal guarantee made by Mr. Ellis is 5% of the outstanding balance of the mortgage (approximately $525,000 as of October 31, 2010) and would be recovered by Mr. Ellis from the Company in the event Mr. Ellis was required to perform under the guarantee. The Company will record any future distributions from C.P. Associates as a further reduction in its investment up to the amount of the guarantee.
3. 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, 2007. State jurisdictions could remain subject to examination for longer periods.
Deferred tax assets or liabilities are computed based on the difference between the financial statement and income tax bases of assets and liabilities using the enacted marginal tax rate. Deferred income tax expenses or benefits are based on the changes in the deferred tax assets and liabilities from period to period.
In assessing the need for a valuation allowance, the Company estimates future taxable income, considering the feasibility of ongoing tax planning strategies and the realizability of tax loss carryforwards. Valuation allowances related to deferred tax assets can be impacted by changes to tax laws, changes to statutory tax rates and future taxable income levels. In the event the Company were to determine that it would not be able to realize all or a portion of its deferred tax assets in the future, it would reduce such amounts through a charge to income in the period in which that determination is made. Conversely, if the Company were to determine that it would be able to realize its deferred tax assets in the future in excess of the net carrying amounts, it would decrease the recorded valuation allowance through an increase to income in the period in which that determination is made.
The Company accounts for uncertain income tax positions in accordance with the accounting guidance in FASB ASC topic 740, Income Taxes. Using that guidance, tax positions are initially recognized by the Company in the consolidated financial statements when it is more-likely-than-not the position will be sustained upon examination by the tax authorities. The Companys policy is to recognize interest and penalties accrued on any uncertain income tax positions as a component of income tax expense.
The Company will only recognize a deferred tax asset when, based upon available evidence, realization is more likely than not. In making this determination, the Company has considered both available positive and negative evidence including, but not limited to, cumulative losses in recent years, future taxable income and prudent and feasible tax planning strategies. As of October 31, 2010 and April 30, 2010, the Company concluded that it was more likely than not that the Company would realize $1,238,000 in deferred tax assets. Accordingly, the Company increased its valuation allowance by approximately $206,000 during the six months ended October 31, 2010. The Company has federal net operating loss carry-forwards totaling approximately $13 million at October 31, 2010 that are available to offset future federal taxable income through various periods expiring between 2012 and 2026.
11 |
FIRST HARTFORD CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
4. Correction of Error
As described in Note 1, the Company identified an error in our condensed consolidated financial statements for the three and six months ended October 31, 2009. The error related to the capitalization of project costs associated with the acquisition and development of a low income multi-residential housing complex. The following table summarizes the impact of the error on the Companys previously reported consolidated financial statements for the three and six months ended October 31, 2009.
|
|
Three months ended October 31, 2009 |
|
Six months ended October 31, 2009 |
||||||||
|
|
Previously |
|
Adjustment |
|
Restated |
|
Previously |
|
Adjustment |
|
Restated |
Revenues |
|
$9,074,139 |
|
$0 |
|
$9,074,139 |
|
$14,021,332 |
|
$0 |
|
$14,021,332 |
Costs and expenses |
|
8,120,124 |
|
(190,000) |
|
7,930,124 |
|
11,980,642 |
|
(368,000) |
|
11,612,642 |
Net (loss) income
|
|
(495,039) |
|
190,000 |
|
(305,389) |
|
172,665 |
|
368,000 |
|
540,665 |
Net (loss) income |
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$(0.16) |
|
$0.06 |
|
$(0.10) |
|
$0.06 |
|
$0.12 |
|
$0.18 |
Diluted |
|
$(0.16) |
|
$0.06 |
|
$(0.10) |
|
$0.06 |
|
$0.12 |
|
$0.18 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets |
|
133,308,840 |
|
368,000 |
|
133,676,840 |
|
133,308,840 |
|
368,000 |
|
133,676,840 |
Liabilities |
|
133,163,708 |
|
0 |
|
133,163,708 |
|
133,163,708 |
|
0 |
|
133,163,708 |
Equity |
|
145,132 |
|
368,000 |
|
513,132 |
|
145,132 |
|
368,000 |
|
513,132 |
5. Subsequent Events
Legal
On November 29, 2010, the Company purchased 591,254 shares of common stock beneficially owned by Richard Kaplan. The terms as set by the court were a $500,000 initial payment and a secured note for the balance. There will be 20 quarterly payments of approximately $119,000 each plus interest at the statutory rate (approximately .05%) for the first 12 months and thereafter based on the average rate First Hartford pays to its first mortgage creditors. There will be a balloon payment of approximately $790,000 for pre-judgement interest from September 15, 2005 through November 29, 2010.
The first quarterly payment will be due February 1, 2011.
The Company will pay the quarterly payment from a dedicated account, which will retain the net cash flow of three of the Companys shopping centers. It is expected that the cash flow generated from these shopping centers will adequately fund the repayment of the note. A liability of approximately $3,672,000 is included in accrued liabilities in the consolidated balance sheets.
Although the Company has given additional collateral in the form of the aforementioned 591,254 shares of repurchased common stock and a security interest in certain of the Companys other assets, it is highly unlikely in managements opinion that any of it will be utilized. On December 14, 2010, the Company filed an appeal with the United States Court of Appeal for the First Circuit.
Connolly And Partners LLC
On November 30, 2010, Connolly and Partners, LLC (a 75% owned subsidiary consolidated by the Company) acquired the remaining 50% interest in Rockland Place Developers, LLC) (previously 50% owned and consolidated by Connolly and Partners, LLC) for a purchase price of $600,000.
12 |
Item 2. MANAGEMENTS 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 Companys 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 Companys 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 Companys 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 Companys performance. The Company undertakes no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or other.
Critical Accounting Policies
The discussion and analysis of financial condition and results of operations is based upon the condensed consolidated financial statements contained in Item 1 in this Quarterly Report. The condensed consolidated financial statements include the accounts of the Company and its controlled affiliates. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses for the reporting period. Actual results could differ from those estimates.
The discussion included in Item 7 of our Annual Report on Form 10-K for the year ended April 30, 2010 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.
Rental Income
Increase in rental income for the three and six month periods ended October 31, 2010 compared to the three and six month periods ended October 31, 2009 was mainly due to the acquisition of Clarendon Towers, a low income residential apartment complex during April 2010, offset partially by the deconsolidation of CP Associates as of May 1, 2010.
Service Income
Decrease in service income for the three and six month period ended October 31, 2010 compared to the three and six month period ended October 31, 2009 was mainly due to a slowdown in our CVS Pharmacy business. Additionally, management fees from Clarendon Towers for the current periods were eliminated in consolidation. Prior to acquisition such management fees were included in service income.
Rental Expense
Rental expense for the three and six month periods ended October 31, 2010 increased for the same reasons as rental income.
13 |
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued):
Service Expense
Service expense decreased approximately $183,000 from the six month period ended October 31, 2009. This reduction is mostly from a decline in activity related to our CVS Pharmacy business, which is consistent with the decline in our income generated from this business.
Gain (Loss) on Derivative.
The gain (loss) on derivatives relates to the change in fair value of interest rate swaps held by CP Associates, which was deconsolidated as of May 1, 2010.
Capital Resource and Liquidity.
The Company ended the period with approximately $3,563,000 of unrestricted cash and cash equivalents. Unrestricted cash and cash equivalents includes approximately $1,510,000 belonging to less than wholly-owned consolidated partnerships (Rockland Place, LP, $942,000 and Clarendon Hill Somerville, LP, $568,000). Funds received from CVS Pharmacy, which are to be paid out in connection with CVS developments amounted to approximately $2,168,000 and is included in restricted cash and cash equivalents.
At April 30, 2010, the Company reported approximately $1,892,000 of unrestricted cash and cash equivalents belonging to CP Associates, LLC. Due to the deconsolidation, it is no longer included in the Companys balance sheets.
The following schedule outlines our long-term obligations.
Contractual Obligations |
Total |
Less Than 1 year |
1-3 years |
3-5 years |
More Than 5 years |
|
|
|
|
|
|
Long-Term Debt |
$132,442,919 |
$1,160,986 |
$55,330,380 |
$14,990,221 |
$60,961,332 |
|
|
|
|
|
|
Short-Term Debt |
550,000 |
550,000 |
|
|
|
|
|
|
|
|
|
Stock Repurchase |
3,670,000 |
976,000 |
952,000 |
952,000 |
790,000 |
|
|
|
|
|
|
Purchase Obligations |
3,769,000 |
3,769,000 |
|
|
|
|
|
|
|
|
|
Total |
$140,431,919 |
$6,455,986 |
$56,282,380 |
$15,942,221 |
$61,751,332 |
Subsequent Events
Legal
On November 29, 2010, the Company purchased 591,254 shares of common stock beneficially owned by Richard Kaplan. The terms as set by the court were a $500,000 initial payment and a secured note for the balance. There will be 20 quarterly payments of approximately $119,000 each plus interest at the statutory rate (approximately .05%) for the first 12 months and thereafter based on the average rate First Hartford pays to its first mortgage creditors. There will be a balloon payment of approximately $790,000 for pre-judgement interest from September 15, 2005 through November 29, 2010.
The first quarterly payment will be due February 1, 2011.
14 |
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued):
Subsequent Events (continued):
Legal (continued):
The Company will pay the quarterly payment from a dedicated account, which will retain the net cash flow of three of the Companys shopping centers. It is expected that the cash flow generated from these shopping centers will adequately fund the repayment of the note. A liability of approximately $3,672,000 is included in accrued liabilities in the consolidated balance sheets.
Although the Company has given additional collateral in the form of the aforementioned 591,254 shares of repurchased common stock and a security interest in certain of the Companys other assets, it is highly unlikely in managements opinion that any of it will be utilized. On December 14, 2010, the Company filed an appeal with the United States Court of Appeal for the First Circuit.
Connolly and Partners LLC
On November 30, 2010, Connolly and Partners, LLC (a 75% owned subsidiary consolidated by the Company) acquired the remaining 50% interest in Rockland Place Developers, LLC (previously 50% owned and consolidated by Connolly and Partners, LLC) for a purchase price of $600,000.
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 October 31, 2010, 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 |
On November 29, 2010, the Company purchased 591,254 shares of common stock beneficially owned by Richard Kaplan. The terms as set by the court were a $500,000 initial payment and a secured note for the balance. There will be 20 quarterly payments of approximately $119,000 each plus interest at the statutory rate (approximately .05%) for the first 12 months and thereafter based on the average rate First Hartford pays to its first mortgage creditors. There will be a balloon payment of approximately $790,000 for pre-judgement interest from September 15, 2005 through November 29, 2010.
The first quarterly payment will be due February 1, 2011.
The Company will pay the quarterly payment from a dedicated account, which will retain the net cash flow of three of the Companys shopping centers. It is expected that the cash flow generated from these shopping centers will adequately fund the repayment of the note. A liability of approximately $3,672,000 is included in accrued liabilities in the consolidated balance sheets.
Although the Company has given additional collateral in the form of the aforementioned 591,254 shares of repurchased common stock and a security interest in certain of the Companys other assets, it is highly unlikely in managements opinion that any of it will be utilized. On December 14, 2010, the Company filed an appeal with the United States Court of Appeal for the First Circuit.
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. REMOVED AND RESERVED
Item 5. OTHER INFORMATION
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) |
The annual meeting of the Company was held on November 9, 2010. |
|||
(b) |
Elected as Directors: Neil H. Ellis, David Harding and Stuart Greenwald |
|||
(c) |
Director |
Votes For |
Votes Withheld |
Abstention |
Ellis |
1,880,304 |
6,258 |
None |
|
Harding |
1,880,604 |
5,958 |
None |
|
Greenwald |
1,880,604 |
5,958 |
None |
16 |
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, pursuant to 18 U.S.C. Section 1350. |
|
|
|
|
|
|
Exhibit 32.2 |
Certification of Chief Financial Officer, pursuant to 18 U.S.C. Section 1350. |
17
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
First Hartford Corporation |
|
(Registrant) |
|
|
|
/s/ Neil H. Ellis |
January 11, 2011 |
______________________________ |
Date |
Neil H. Ellis B President and |
|
Chief Executive Officer |
|
|
|
/s/ Stuart I. Greenwald |
January 11, 2011 |
______________________________ |
Date |
Stuart I. Greenwald B Treasurer |
|
and Chief Financial Officer |
|
|
18 |