Attached files
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EXCEL - IDEA: XBRL DOCUMENT - FIRST HARTFORD CORP | Financial_Report.xls |
EX-31 - FIRST HARTFORD CORP | e31-1.htm |
EX-31 - FIRST HARTFORD CORP | e31-2.htm |
EX-32 - FIRST HARTFORD CORP | e32-2.htm |
EX-32 - FIRST HARTFORD CORP | e32-1.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 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) |
|
|
|
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(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 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 issuers 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) |
|
|
3 - 4 |
|
|
5 |
|
|
6 |
|
|
7 - 8 |
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9 - 12 |
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Item 2. |
12 - 15 |
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Item 3. |
15 |
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Item 4. |
16 |
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PART II. |
|
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Item 1. |
16 |
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Item 1A. |
16 |
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Item 2. |
16 |
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Item 3. |
16 |
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Item 4. |
16 |
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Item 5. |
17 |
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Item 6. |
17 |
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|
18 |
|
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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 |
|
|
|
|
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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 |
|
|
|
|
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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 |
|
|
|
|
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Equity (Deficiency): |
|
|
|
First Hartford Corporation: |
|
|
|
Preferred stock, $1 par value; $.50 cumulative and
convertible; authorized |
-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 |
(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 Companys 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 Companys 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 Companys 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 Companys 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 Companys 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 Companys 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.
11
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 Companys 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. 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, 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 Companys 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 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 relationship with key tenants 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
There have been no significant changes in the Companys 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.
12
Item 2. MANAGEMENTS 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.
13
Item 2. MANAGEMENTS 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%).
14
Item 2. MANAGEMENTS 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 Companys investee partnerships which are included in the Companys 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 VIEs (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.
15
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 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.
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 |
16
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 Companys 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. |
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 |
|
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