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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 January 31, 2013.

[  ]   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXHANGE ACT OF 1934

For the transition period from                                                                          to                                                                                           

 
Commission File Number:                  0-8862                                                                                                                                                  
 

First Hartford Corporation

(Exact name of registrant as specified in its character)

 

 Maine

01-0185800

(State or other jurisdiction of incorporation or organization)   

 (I.R.S. Employer Identification No.)

 

149 Colonial Road, Manchester, CT                                                                                                                                                         

06042

(Address of principal executive offices)  

(Zip Code)

 

                                                                                                                                                                                            

(860) 646-6555      

(Registrant’s telephone number including area code)
 

(Former name, former address and former fiscal year if changed since last report)

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

Yes X       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 X       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          No X

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.

2,417,725 as of March 18, 2013

1


 


 

 

 

 

FIRST HARTFORD CORPORATION AND SUBSIDIARIES

The financial statements for the three and nine months ended January 31, 2013 have not been reviewed by an independent registered public accounting firm.

INDEX

 

PART I.

FINANCIAL INFORMATION

PAGE

 

Item 1.

Financial Statements (Unaudited)

               

     

 

Condensed Consolidated Balance Sheets –

                January 31, 2013 and April 30, 2012

3 - 4

     

 

Condensed Consolidated Statements of Operations for the

                Three and Nine Months Ended January 31, 2013 and 2012

5

     

 

Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three and Nine Months Ended January 31, 2013 and 2012

6

     

 

Condensed Consolidated Statements of Cash Flows for the

                Three and Nine  Months Ended January 31, 2013 and 2012

7 - 8

     

 

Notes to Condensed Consolidated Financial Statements

9 - 12    

     

Item 2.

Management’s Discussion and Analysis of Financial Condition

                and Results of Operations

12 - 15

     

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

15

     

Item 4.

Controls and Procedures

16

     

PART II.

OTHER INFORMATION

 

     

Item 1.

Legal Proceedings

16

     

Item 1A.

Risk Factors

16

     

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

16

     

Item 3.

Defaults Upon Senior Securities

16

     

Item 4.

Mine Safety Disclosures

16

     

Item 5.

Other Information

17

     

Item 6.

Exhibits

17

     

 

Signatures

18

     

 

Exhibits

19 - 22

 

2

 


 


FIRST HARTFORD CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)

ASSETS

 

January 31, 2013

 

April 30, 2012

 

 

 

 

Real estate and equipment:

 

 

 

 Developed properties (including $70,856,300 in January and $70,644,959 in April for VIEs)

$147,888,282

 

$139,096,722

Equipment and tenant improvements (including $2,063,431 in January and $2,004,014 in April for VIEs) 

3,152,499

 

2,661,928

 

151,040,781

 

141,758,650

 

 

 

 

Less accumulated depreciation and amortization (including $7,286,565 in January and $5,722,182 in April for VIEs)

17,893,591

 

15,086,499

 

133,147,190

 

126,672,151

 

     

Property under construction (including $28,838 in April for VIEs)

204,619

 

6,381,722

 

133,351,809

 

133,053,873

 

 

 

 

Cash and cash equivalents (including $3,107,638 in January and $418,838 in April for VIEs)

4,539,456

 

3,057,736

 

 

 

 

Cash and cash equivalents – restricted

69,995

 

457,952

 

 

 

 

Marketable securities (including $693,799 in January and $155,799 in April for VIEs)

2,147,357

 

657,299

 

 

 

 

Accounts and notes receivable, less allowance for doubtful accounts of

$261,777 as of January 31, 2013 and April 30, 2012 (including $261,777 in January and $172,899 in April for VIEs)

2,254,061

 

1,955,838

 

 

 

 

Other receivables

8,531,837

 

8,600,078

 

 

 

 

Deposits, escrows, prepaid and deferred expenses, net (including $4,000,179 in January and $7,375,023 in April for VIEs)

6,420,586

 

9,894,914

 

 

 

 

Investments in affiliates

9,665

 

9,665

 

 

 

 

Due from related parties and affiliates (including $65,345 in  April for VIEs)

535,629

 

517,713

 

     

Total Assets

$157,860,395

 

$158,205,068

 

 

 

See accompanying notes.

3

 


 


 

 

 

 

FIRST HARTFORD CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)

LIABILITIES AND EQUITY (DEFICIENCY)

 

 

January 31, 2013

 

April 30, 2012

Liabilities:

     

Mortgages and notes payable:

     

   Construction loans payable (including $24,289,341 in April for VIEs)

$53,247,131

 

$74,026,262

   Mortgages payable (including $54,552,247 in January and $33,795,664 in April for VIEs)

84,692,606

 

64,241,626

   Notes payable (including $1,704,697 in January and $2,004,697 in April for VIEs)

3,651,671

 

4,283,654

 

141,591,408

 

142,551,542

 

 

 

 

Accounts payable (including $586,874 in January and $801,353 in April for VIEs)

1,113,883

 

2,673,293

Other payables

6,123,257

 

6,102,292

Accrued liabilities (including $2,566,945 in January and $2,367,143 in April for VIEs)

3,201,381

 

4,160,079

Deferred income (including  $247,856 in January and $214,217 in April for VIEs)

754,766

 

657,215

Other liabilities

3,633,469

 

4,098,351

Due to related parties and affiliates

102,752

 

102,752

 

156,520,916

 

160,345,524

 

 

 

 

Equity (Deficiency):

 

 

 

First Hartford Corporation:

 

 

 

Preferred stock, $1 par value; $.50 cumulative and convertible; authorized
    4,000,000 shares; no shares issued and outstanding

-0-

 

-0-

Common stock, $1 par value; authorized 6,000,000 shares; issued 3,298,609

    Shares; outstanding 2,417,725 shares in in January 2013 and 2,423,202 in April 2012

3,298,609

 

3,298,609

Capital in excess of par

5,198,928

 

5,198,928

Accumulated deficit

(19,202,132)

 

(18,419,410)

Accumulated other comprehensive income (loss)

103,778

 

(12,558)

Treasury stock, at cost, 880,884 and 875,407 shares as of January 31, 2013 and
    April 30, 2012, respectively

 (4,951,601)

 

(4,943,289)

Total First Hartford Corporation

(15,552,418)

 

(14,877,720)

Noncontrolling interests

16,891,897

 

12,737,264

 

 

 

 

Total Equity (Deficiency)

1,339,479

 

(2,140,456)

 

 

 

 

Total Liabilities and Equity (Deficiency)

$157,860,395

 

$158,205,068

 

 

See accompanying notes.

4

 


 


 

FIRST HARTFORD CORPORATION AND SUBSIDIARIES
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)

 

Three Months Ended

 

Nine Months Ended

 

Jan. 31, 2013

 

Jan. 31, 2012

 

Jan. 31, 2013

 

Jan. 31, 2012

Operating revenues:

 

 

 

 

 

 

 

  Rental income

$4,819,291

 

$4,425,802

 

$14,060,631

 

$13,220,883

  Service income

1,512,638

 

2,264,662

 

5,660,090

 

5,708,028

  Sales of real estate

-0-

 

-0-

 

-0-

 

1,559,658

  Other income

233,095

 

91,127

 

596,264

 

98,928

 

6,565,024

 

6,781,591

 

20,316,985

 

20,587,497

 

 

 

 

 

 

 

 

Operating costs and expenses:

 

 

 

 

 

 

 

  Rental expenses

3,483,768

 

3,459,230

 

10,633,488

 

10,081,999

  Service expenses

950,009

 

1,180,728

 

3,611,567

 

2,471,116

  Cost of real estate sales

-0-

 

-0-

 

-0-

 

968,061

  Selling, general and administrative expenses

1,249,829

 

1,254,526

 

3,324,932

 

2,993,201

 

5,683,606

 

5,894,484

 

17,569,987

 

16,514,377

 

             

Income from operations

881,418

 

887,107

 

2,746,998

 

4,073,120

 

 

 

 

 

 

 

 

Non-operating income (expense):

 

 

 

 

 

 

 

  Interest expense

(1,822,748)

 

(1,891,516)

 

(5,391,204)

 

(5,732,831)

  Other income

115,349

 

149,537

 

288,374

 

299,075

  Equity in earnings (losses) of unconsolidated subsidiaries

152,456

 

(484,233)

 

742,715

 

659,650

 

(1,554,943)

 

(2,226,212)

 

(4,360,115)

 

(4,774,106)

 

             

Loss before income taxes

(673,525)

 

(1,339,105)

 

(1,613,117)

 

(700,986)

 

 

 

 

 

 

 

 

Income taxes

52,781

 

945,796

 

60,915

 

1,340,689

 

 

 

 

 

 

 

 

Consolidated net loss

(726,306)

 

(2,284,901)

 

(1,674,032)

 

(2,041,675)

 

 

 

 

 

 

 

 

Net loss attributable to noncontrolling interests

297,257

 

480,883

 

891,310

 

970,835

 

 

 

 

 

 

 

 

Net loss attributable to First Hartford Corporation

$(429,049)

 

$(1,804,018)

 

$(782,722)

 

$(1,070,840)

 

 

 

 

 

 

 

 

Net loss per share – basic

$(0.18)

 

$(0.74)

 

$(0.32)

 

$(0.44)

 

 

 

 

 

 

 

 

Net loss per share – diluted

$(0.18)

 

$(0.74)

 

$(0.32)

 

$(0.44)

 

 

 

 

 

 

 

 

Shares used in basic per share computation

2,417,725

 

2,435,552

 

2,418,797

 

2,436,315

 

 

 

 

 

 

 

 

Shares used in diluted per share computation

2,417,725

 

2,435,552

 

2,418,797

 

2,436,315

 

 

See accompanying notes.

5

 


 


 

 

 

 

FIRST HARTFORD CORPORATION AND SUBSIDIARIES
 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited)

 

 

Three Months Ended

 

Nine Months Ended

 

Jan. 31, 2013

 

Jan. 31, 2012

 

Jan. 31, 2013

 

Jan. 31, 2012

               

Consolidated net loss

$(726,306)

 

$(2,284,901)

 

$(1,674,032)

 

$(2,041,675)

 

 

 

 

 

 

 

 

Other comprehensive income (loss), net of income taxes:

 

 

 

 

 

 

 

    Unrealized gains (losses) on marketable securities

32,449

 

(90,233)

 

116,336

 

(90,233)

 

 

 

 

 

 

 

 

    Other comprehensive income (loss)

32,449

 

(90,233)

 

116,336

 

(90,233)

 

 

 

 

 

 

 

 

Comprehensive loss

(693,857)

 

(2,375,134)

 

(1,557,696)

 

(2,131,908)

Comprehensive loss attributable to noncontrolling interests

320,329

 

513,531

 

868,238

 

1,003,483

 

 

 

 

 

 

 

 

Comprehensive loss attributable to First Hartford Corporation

$(373,528)

 

$(1,861,603)

 

$(689,458)

 

$(1,128,425)

 

 

 

 

 

 

 

 

See accompanying notes.

 

6

 


 


 

FIRST HARTFORD CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

 

 

Nine Months Ended

 

January 31, 2013

 

January 31, 2012

 

     

Operating activities:

     

 

 

 

 

  Consolidated net loss

$(1,674,032)

 

$(2,041,675)

 

 

 

 

  Adjustments to reconcile consolidated net loss to net cash provided  by operating activities:

 

 

 

       Equity in earnings of unconsolidated subsidiaries, net of distributions of

           $277,833 in 2013 and $644,483 in 2012

(464,882)

 

(15,167)

       Gain on sale of property

-0-

 

(591,597)

       Depreciation

2,839,696

 

2,637,394

       Amortization

311,551

 

267,868

       Deferred income taxes

-0-

 

1,238,000

 

 

 

 

  Changes in operating assets and liabilities:

 

 

 

       Accounts, notes and other receivables

(229,982)

 

6,220,090

       Deposits, escrows, prepaid and deferred expenses

3,162,777

 

1,178,082

       Cash and cash equivalents – restricted

387,957

 

(1,527,850)

       Accrued liabilities

(958,698)

 

(2,791,036)

       Deferred income

           97,551

 

24,577

       Accounts and other payables

(1,538,445)

 

(516,706)

 

 

 

 

Net cash provided by operating activities

1,933,493

 

4,081,980

 

     

Investing activities:

     

  Distributions from affiliates

-0-

 

200,000

  Purchase of marketable securities

(1,373,722)

 

(151,136)

  Purchase of equipment and tenant improvements

(490,571)

 

(83,545)

  Proceeds from sale of real estate

-0-

 

1,559,658

  Additions to developed properties and properties under construction

(2,647,061)

 

(5,876,126)

 

     

  Net cash used by investing activities

(4,511,354)

 

(4,351,149)

 

 

 

 

 

See accompanying notes.

7

 


 


 

 

 

 

FIRST HARTFORD CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(Unaudited)

 

Nine Months Ended

 

January 31, 2013

 

January 31, 2012

 

     

Financing activities:

 

 

 

  Distributions to noncontrolling interests

$(21,000)

 

$-0-

  Contributions from noncontrolling interests -limited partners investment in VIEs

5,066,943

 

-0-

  Purchase of treasury stock (5,477 shares in 2013 and 13,509 shares in 2012)

(8,312)

 

(19,453)

 

 

 

 

  Proceeds from:

 

 

 

    Construction loans payable

3,510,210

 

5,138,298

    Mortgage loans payable

21,564,256

 

550,000

    Notes payable

-0-

 

25,000

 Principal payments on:

 

 

 

    Construction loans payable

(24,289,341)

 

(3,777,312)

    Mortgage loans payable

(1,113,276)

 

(1,388,508)

    Notes payable

(631,983)

 

(237,941)

Advances to related parties and affiliates, net

(17,916)

 

(19,559)

 

     

Net cash provided by financing activities

4,059,581

 

270,525

 

 

 

 

Net change in cash and cash equivalents

1,481,720

 

1,356

 

 

 

 

Cash and cash equivalents, beginning of period

3,057,736

 

858,175

 

 

 

 

Cash and cash equivalents, end of period

$4,539,456

 

$859,531

 

 

 

 

Cash paid during the period for interest

$5,390,231

 

$4,524,578

 

 

 

 

Cash paid during the period for income taxes

$336,328

 

$30,910

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See accompanying notes.

 

 

8

 


 


 

 

 

 

FIRST HARTFORD CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1.   Business and Significant Accounting Policies:

 

Business

 

First Hartford Corporation was incorporated in Maine in 1909 and is engaged in the purchase, development, ownership, management and sales of real estate.

 

Principles of Consolidation

 

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

 

Basis of Presentation

 

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X.  Accordingly, they do not include all of the information and footnotes required by U.S. generally accepted accounting principles for complete financial statements.  In the opinion of management, all adjustments (consisting of normal recurring accruals and adjustments to previously accrued loss provisions) considered necessary for a fair presentation have been included.  Operating results for the interim periods are not necessarily indicative of the results that may be expected for the entire year.  The condensed consolidated balance sheet as of April 30, 2012 was derived from the audited financial statements for the year then ended.  For further information, refer to the consolidated financial statements and footnotes thereto included in the Company’s annual report on Form 10-K for the fiscal year ended April 30, 2012.

 

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

 

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

 

 

9

 


 


 

 

 

 

 

FIRST HARTFORD CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1.   Business and Significant Accounting Policies (concluded):

 

 

Net Loss Per Common Share

       Amounts for basic net loss per share were determined using the weighted average number of shares of common stock outstanding during the reporting period. Common stock options of 129,913 and 85,127 for the three and nine month periods ended January 31, 2013 were anti-dilutive. For the three and nine month periods ended January 31, 2012, common stock options of 40,077 and 78,125 were anti-dilutive as well.

 

Financial Instruments and Fair Value

 

The Company’s financial instruments include cash and cash equivalents, accounts receivable, marketable securities, accounts payable, accrued expenses, and debt.  The fair values of accounts receivable, accounts payable and accrued expenses are estimated to approximate their carrying amounts because of their relative short-term nature.  In general, the carrying amount of variable rate debt approximates its fair value.  Further, the carrying amount of fixed rate debt approximates fair value since the interest rates on the debt approximates the Company’s current incremental borrowing rate.  Marketable securities consist of equity securities and are stated at fair value based on the last sale of the period obtained from recognized stock exchanges (i.e. Level 1).  Net unrealized gains of $103,778 as of January 31, 2013 (losses of $12,558 as of April 30, 2012) are included in accumulated other comprehensive (loss) income.

 

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

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

 

 

January 31, 2013

 

April 30, 2012

 

 

 

 

Real estate and equipment, net

$68,706,271

 

$70,112,601

Other assets

8,063,393

 

8,187,903

Total assets

76,769,664

 

78,300,504

Intercompany profit elimination

(3,073,105)

 

(3,156,971)

Total assets

$73,696,559

 

$75,143,533

 

 

 

 

Mortgages and other notes payable

$56,256,944

 

$60,089,702

Other liabilities

3,401,675

 

3,382,713

Total liabilities

$59,658,619

 

$63,472,415

 

10

 


 


 

 

 

 

 

FIRST HARTFORD CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

 

The Company accounts for its 50% ownership interest in CP Associates, LLC, Cranston Parkade, LLC and Dover Parkade, LLC under the equity method of accounting.  A summary of the operating results for these entities follows:

 

 

Three Months Ended

 

Nine Months Ended

 

September 30

 

September 30

 

2012

 

2011

 

2012

 

2011

CP Associates, LLC

 

 

 

 

 

 

 

     Revenues

$812,399

 

$769,617

 

$2,374,101

 

$2,328,756

     Expenses

643,604

 

642,469

 

1,837,617

 

1,828,091

     Gain (loss) on derivatives

158,606

 

(1,388,086)

 

176,608

 

(1,424,843)

Net income (loss)

$327,401

 

($1,260,938)

 

$713,092

 

($924,178)

 

 

 

 

 

 

 

 

 

September 30

 

September 30

 

2012

 

2011

 

2012

 

2011

Cranston Parkade, LLC

 

 

 

 

 

 

 

     Revenue

$1,214,311

 

$1,091,212

 

$3,705,014

 

$3,584,469

     Expenses

1,128,883

 

1,013,008

 

3,115,163

 

3,029,803

Net income

$85,428

 

$78,204

 

$589,851

 

$554,666

 

             

 

January 31

 

January 31

 

2013

 

2012

 

2013

 

2012

Dover Parkade, LLC

 

 

 

 

 

 

 

     Revenue

$593,572

 

$684,787

 

$1,874,548

 

$1,946,153

     Expenses

529,489

 

537,980

 

1,534,936

 

1,546,307

Net income

$64,083

 

$146,807

 

$339,612

 

$399,846

 

For the years prior to May 1, 2009, the Company was committed to provide funding to CP Associates, LLC, Cranston Parkade LLC and Dover Parkade LLC. Although the Company no longer considers itself liable for their obligations 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 them.  The Company’s investment in them was recorded at cost and subsequently adjusted for their gains, losses and distributions.  The resulting carrying values of these investments is ($3,633,469) as of January 31, 2013 and ($4,098,351) as of April 30, 2012 are included in other liabilities.

 

On December 10, 2012 Career Education Corp. (a major tenant of C P Associates, LLC) filed a Form 8-K with the SEC.  In the filing it identifies the partnership building in Cranston as one of 23 locations they are closing.  Career Education anticipates that a majority of the campus closures will be completed by the second quarter of 2014.  The filing refers to the remaining lease obligations of the 23 locations and the expected cost to it.  Under the lease which does not end until December 31, 2018, Career Education pays approximately $1,525,000 annually plus real estate taxes of approximately $280,000 annually.  The Company anticipates that the rent will continue to be paid through the end of the lease, and the Company has ample time to find a replacement tenant.

 

 

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FIRST HARTFORD CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

3.   Income Taxes:

As of January 31, 2013 the Company has Federal net operating loss carryforwards totaling approximately $13,100,000 that are available to offset future Federal taxable income through various periods expiring between 2013 and 2027. The Company has concluded that it is not more likely than not that it will realize any deferred income tax assets.

The Company received a notice from the Internal Revenue Service dated November 29, 2012 that the service has completed its examination of the Company’s Federal income tax return for period ended April 30, 2010.  The examination resulted in a no change in reported tax.  The determination does not include any partnerships in which the Company has an interest.

During the three months ended January 31, 2012, the Company concluded that because of cumulative losses it would not in the near term realize previously recognized net deferred income tax assets on net operating loss (NOL) carryovers and temporary differences between the carrying basis of certain assets and liabilities for financial reporting purposes and income tax reporting purposes.  As such, the Company increased its valuation allowance for those deferred income tax assets by $843,000, resulting in a non-cash charge to income tax expense of $843,000. Income tax expense for the three and nine months ended January 31, 2012 also includes a charge for a change in estimate for state income taxes of $103,000.

4.   Litigation:

 

There has been no change in Litigation since April 30, 2012.

 

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

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

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

Critical Accounting Policies

There have been no significant changes in the Company’s critical accounting policies from those included in Item 7 of its Annual Report on Form 10-K for the year ended April 30, 2012 under the subheading “Critical Accounting Policies and Estimates”. 

 

 

 

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

Results of Operations:

Rental Income:

Rental Income by type of tenant follows:

 

 

Three Months Ended

 

Nine Months Ended

 

January 31

 

January 31

 

2013       

 

2012       

 

2013       

 

2012       

Residential

$2,778,121

 

$2,703,612

 

$8,323,205

 

$7,892,579

Commercial

  2,034,696

 

  1,722,190

 

  5,730,952

 

  5,328,304

 

$4,812,817

 

$4,425,802

 

$14,054,157

 

$13,220,883

Residential

Increases in rental income of approximately $75,000 and $431,000 for the three and nine month periods ended January 31, 2013 resulted from the completion of construction in Clarendon Hills Tower during the period ended January 31, 2012. Substantially all apartments removed from rental stock for construction improvements have since been rented. There are minimal vacancies.  There have not been rent increases in the last twelve months.

Commercial

Increases in rental income of approximately $312,000 and $402,000 for the three and nine month periods ended January 31, 2013 comes from Edinburg, Texas.  The three months ended January 31, 2013 represents nearly full occupancy of recently built stores.

Service Income

Service income decreased approximately ($752,000) and ($48,000) on a year over year basis for the three and nine month periods ended January 31, 2013.  The increases and decreases were due to the following:

 

 

Three Months

 

Nine Months

Construction services

($465,000)

 

$1,370,000

Management fees

53,000

 

280,000

Preferred developer fees

149,000

 

321,000

Leasing fee on a noncontrolled, nonconsolidated entity

(321,000)

 

(321,000)

Development fee on a noncontrolled,

nonconsolidated entity

(168,000)

 

(1,698,000)

 

($752,000)

 

($48,000)

Other Income

For the three and nine months ended January 31, 2013, other income contains proceeds from the movie theater that the Company reopened in North Adams, Mass. on December 6, 2011.  Revenue from the theater was approximately $209,000 and $534,000 for the three and nine months period ended January 31, 2013. For the period December 6, 2011 to January 31, 2012, the revenue was approximately $89,000.

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

Results of Operations (continued):

Operating Cost and Expenses

Rental Expenses

 

Three Months Ended

 

Nine Months Ended

 

January 31

 

January 31

 

2013    

 

2012    

 

2013    

 

2012    

Residential

$2,257,336

 

$2,230,800

 

$6,951,360

 

$6,733,648

Commercial

  1,226,432

 

  1,228,431

 

  3,682,128

 

  3,348,351

 

$3,483,768

 

$3,459,231

 

     $10,633,488

 

10,081,999

Service Expenses

For the three and nine month periods ended January 31, 2013, service expenses decreased approximately $230,000 and increased approximately $1,140,000, respectively.  In the three month period ended January 31, 2013, the decrease was a result of a payment in the 2012 period of $250,000 which was the cost of the $321,000 item shown above in service income. The increase for the nine months ended January 31, 2013 was mainly a result of approximately $1,256,000 in construction costs.

Selling, General and Administrative

The movie theater that the Company operates in North Adams, Massachusetts opened mid-December 2011 and only had one and a half months of operation up to January 31, 2012, (approximately $95,000 of expenses). For the nine months ended January 31, 2013, the expenses were approximately $564,000, resulting in the increase between 2012 and 2013.

Non-operating Income (Expense)

Interest Expens

Interest expense breaks out as follows:

 

 

Three Months Ended

 

Nine Months Ended

 

January 31

 

January 31

 

2013    

 

2012      

 

2013    

 

2012    

Commercial

$1,086,434

 

$1,156,730

 

$3,186,925

 

$3,489,759

Residential

     709,290

 

     729,687

 

  2,124,608

 

  2,220,690

Other

       27,024

 

          5,099

 

        79,671

 

       22,382

 

$1,822,748

 

$1,891,516

 

$5,391,204

 

$5,732,831

 

Interest  cost were reduced as previous discussed by the lender of the Edinburg project reducing the interest rate on over $45,000,000 of debt from 6.125% to 5.0%, saving the Company $46,617 monthly. The Company has additional borrowing between October 2011 and October 2012 to build the approximate 110,000 square feet of new stores that opened in 2012 in Edinburg (at 5.0%).

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

Results of Operations (concluded):

Interest Expense (concluded):

The increase in other interest is due to the interest rate change on the Kaplan note. (See form 10-K April 30, 2012 for additional explanation.)

Equity in Earnings of Unconsolidated Subsidiaries

Equity in earnings of unconsolidated subsidiaries increased approximately $637,000 and $83,000 on a year over year basis for the three and nine months ended January 31, 2013.  During the same periods the amounts distributed from a 50% owned investee were higher (lower) than the prior periods by approximately $44,000 and ($367,000). Such distributions are in excess of net assets of the 50% owned investee since its accumulated net losses (including significant amounts for depreciation, amortization and gain or losses from derivatives which are noncash) have exceeded capital contributions.

While the Company has a policy of recording distributions in excess of basis as income, it does not control the rate of distributions of the investee partnership. Cash flow in excess of distribution is held at the partnership level.  Please refer to the financial statements of the Company’s investee partnerships which are included in the Company’s Form 10-K for the year ended April 30, 2012.

Income Taxes

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

Income tax expense for the three and nine month periods ended January 31, 2012, contains a write off of a deferred tax asset, as discussed in Note 3 to the condensed financial statements.

Capital Resource and Liquidity

The Company ended the period with approximately $6,687,000 of unrestricted cash, cash equivalents and marketable securities. The unrestricted cash, cash equivalents and marketable securities include approximately $3,801,000 belonging to VIE’s (Rockland Place, LP and Clarendon Hill Somerville, LP).  Funds received from CVS Pharmacy, which are to be paid out in connection with CVS developments, amounted to approximately $70,000 and are included in restricted cash and cash equivalents.

In August and September 2012, the Company received the balance of the capital contributions due ($5,557,737) and paid off the $2,900,000 balance of the bridge loan.

The Company believes it has sufficient cash and cash resources to fund operations and debt maturities in the next twelve months without any new bank borrowings.

Item 3 QUANTATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

 

 

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Item 4.  CONTROLS AND PROCEDURES 

Evaluation of Disclosure Controls and Procedures

We maintain “disclosure controls and procedures”, as such term is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”), that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and forms, and that such information is accumulated and communicated to our management, including our President and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.  We conducted an evaluation ( the “Evaluation”), under the supervision and with the participation of our President and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (“Disclosure Controls”) as of the end of the period covered by this report pursuant to Rule 13a-15b of the Exchange Act.  Based on this Evaluation, our President and Treasurer concluded that because of weaknesses in our control environment, our Disclosure Controls were not effective as of the end of the period covered by this report.  Notwithstanding weaknesses in our control environment, as of January 31, 2013, we believe that the condensed consolidated financial statements contained in this report present fairly the Company’s financial condition, results of operations and cash flows for the periods presented.

Changes in Internal Control Over Financial Reporting

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

 

PART II

OTHER INFORMATION

   
Item 1.

LEGAL PROCEEDINGS

   
 

There has been no change in litigation since April 30, 2012.

   
Item 1A.

RISK FACTORS

   
 

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

   
Item 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

   
 

None

   
Item 3.

DEFAULTS UPON SENIOR SECURITIES

   
 

None

   
Item 4.

MINE SAFETY DISCLOSURES

   
 

Not applicable

 

 

 

 

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Item 5.  OTHER INFORMATION
     
 

As reported in Form 8-K dated November 6, 2012, the Company approved the appointment of BDO USA, LLC as the Company’s certifying accountants.  While the current 10-Q will be filed without benefit of the accountants review, BDO will subsequently review all periods not reviewed and the Company will issue amended reports.

   
 

SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

   
 

None

   
Item 6. 

EXHIBITS

 

a)      Exhibits:

   
  Exhibit 31.1

Certification of Chief Executive Officer, pursuant to Rule 13a-14(c) under the Securities Exchange Act of 1934.

   

                                       

  Exhibit 31.2

Certification of Chief Financial Officer, pursuant to Rule 13a-14(c) under the Securities Exchange Act of 1934.

   

                                       

  Exhibit 32.1

Certification of Chief Executive Officer, pursuant to 18 U.S.C. Section 1350.

     
  Exhibit 32.2

Certification of Chief Financial Officer, pursuant to 18 U.S.C. Section 1350.

 

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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

March 29, 2013  

                                                              

  Date   

Neil H. Ellis President and

 

Chief Executive Officer

 

 

 

/s/ Stuart I. Greenwald

 March 29, 2013

                                                                   

Date

Stuart I. Greenwald Treasurer

 

and Chief Financial Officer          

18