ITEM 1. BUSINESS
First Hartford Corporation, which was incorporated in Maine in 1909, and its subsidiaries (the “Company”), is engaged in the purchase, development, ownership, management and sale of real estate.
When profitable opportunities arise, the Company may consider selling certain properties.
The real estate, owned and/or managed by the Company through various subsidiaries and joint ventures, is located in Connecticut, New Jersey, Texas, Massachusetts, Rhode Island and Maine. Tenants are obtained through brokers and employed representatives of the Company, by means of Industry Trade Shows, direct contacts with retail stores and other potential commercial tenants and an occasional inquiry by potential tenants at the Company’s on-site offices.
The real estate business of the Company is diversified in terms of geographical locations, type of commercial property and form of ownership or management. The commercial real estate business is not normally thought of as being divided into significant separate classes of products or services.
The Company has executed an agreement with the CVS Pharmacy Inc. (“CVS”) to be a preferred developer in West Texas, the Rio Grande Valley in Texas, Long Island, NY, Northern New Jersey and Louisiana. Since inception, May, 2005 through April 30, 2009, the Company has closed on a total of 33 projects.
The Company has no material patents, licenses, franchises or concessions.
Research and development is not a part of the Company’s business.
Our operations and property are subject to various federal, state and local laws and regulations concerning the protection of the environment including air and water quality, hazardous or toxic substances and health safety.
Our economic performance and the value of our real estate are subject to the risks incidental to the development, construction and ownership of real estate properties, as well as the economic well being of our tenants.
On April 30, 2009, the Company employed 75 people.
ITEM 1A.
ITEM 1A. RISK FACTORS
Smaller reporting companies are not required to provide the information required by this item.
ITEM 2.
ITEM 2. PROPERTIES
The following table shows the location, general character and ownership status of the materially important physical properties of the Company.
ITEM 2. PROPERTIES (continued)
Location of
Commercial Properties
Use
Available Space
or Facilities and
Major Tenants
Ownership Status
Plainfield, CT
Strip 		
Shopping Center 		
64,838 sq. ft.
Big Y 78%
Owned by a subsidiary of the Company
Putnam, CT
		Shopping
		Center
57,311 sq. ft.
Big Lots 46%
Lease Begins September 1, 2009
Owned by a subsidiary of the Company 		
W. Springfield, MA
Shopping
		Center
144,322 sq. ft.
PriceRite 23%
A.J. Wright 18%
K&G 14%
Big Lots 21%
Harbor Freight 12%
Owned by a subsidiary of the Company.
Dover Township, NJ
Shopping
		Center
108,314 sq. ft.
Stop & Shop 52%
Dollar Tree 9%
Plus Outparcels
50% owned by a subsidiary of the Company.
Cranston, RI
Shopping
		Center
259,600 sq. ft.
Kmart 40%
Stop & Shop 25%
A.J. Wright 9% 		
50% owned by a subsidiary of the Company.
Cranston, RI
College
Katharine Gibbs
College 60,000 sq.ft.
50% owned by a subsidiary of the Company.
Cranston, RI
Restaurant
Texas Roadhouse
Land Lease
50% owned by a subsidiary of the Company.
Cranston, RI
Police Station
60,000 sq.ft. 		
Leased to 		
City of Cranston
50% owned by a subsidiary of the Company.
Rockland, MA
Apartments
204 units, low to moderate income .005% owned by a 75% owned subsidiary of the Company.
ITEM 2. PROPERTIES (continued)
Location of
Commercial Properties
Use
Available Space
or Facilities and
Major Tenants
Ownership Status
North Adams, MA
Shopping 		
		Center
131,833 sq.ft.
Cinema North 15%
Peebles 14%
Staples 11%
14,000 sq.ft. unleased and not renovated 		
100% owned by a subsidiary of the Company. Lender to get extra interest if available (50% of cash flow) plus 50% of cash proceeds from sale or refinancing after Company receives $500,000.
Edinburg, TX
Shopping 		
		Center
334,558 sq.ft.
JC Penney 31%
Academy Sports 23% Burlington Coat Factory 24%
100% owned by a subsidiary of the Company. Lender to get extra interest if available (50% of cash flow) plus 50% of cash proceeds from sale or refinancing
Bangor, ME
Land Lease
Improvement complete
Shaw's Supermarket 100%
Leased from owner by a subsidiary of the Company, released to Shaw's. Sold leasehold interest 08/04/09.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
A. Richard E. Kaplan v. First Hartford Corporation
A dissident shareholder (Richard E. Kaplan) has filed a complaint against both the Company and Neil H. Ellis individually.
The complaint was filed in the United States District Court for the District of Maine on or about September 15, 2005 and is styled as Kaplan v. First Hartford Corporation and Neil Ellis, No. 05-144-DBH.
The complaint alleged that the Company, under the direction and control of [Neil] Ellis, acted and continues to act in ways that are illegal, oppressive and fraudulent. The core of the allegations appear to maintain that the Company has been hurt because of alleged self-dealing and/or usurpation of Company opportunities by Mr. Ellis to his personal benefit.
The lawsuit seeks relief in equity pursuant to Maine statutes 13-C M.R.S.A. Sections 1430, 1431 (3) and 1433 or alternatively per 13-C M.R.S.A. Sections 1430 and 1434. The relief sought several possible remedies including recovery of unspecified damages for alleged wrong doing, purchase of the plaintiff shares (or other shareholders wanting to sell) for an unspecified “fair value”, the rescission of certain unspecified transactions between the Company and Mr. Ellis and related entities or the liquidation of the Company. The complaint also sought to have a receiver appointed to run the Company pending the outcome of the litigation.
A trial on the merits occurred on November 6th and 7th of 2006 and a "Findings of Fact And Conclusions of Law" (the "Findings") dated April 2, 2007 (Kaplan v. First Hartford Corp., 2007 U.S. Dist. LEXIS 24826) was rendered by the Court.
ITEM 3. LEGAL PROCEEDINGS (continued):
A. Richard E. Kaplan v. First Hartford Corporation (continued):
The Findings found in favor of the Company and Mr. Ellis on all counts (i.e. fraud, illegality, corporate misapplication or waste) excepting the count of oppression in which it found in favor of the Plaintiff and against both the Company and Mr. Ellis.
Until the remedy phase is concluded, the Company has been advised (by counsel) that the Findings do not constitute a final judgment from which an immediate appeal might be taken. The Company will continue to explore its options (including possible appeal) at the appropriate time.
As a result of the Findings, the possible available remedies include, but are not necessarily limited to, a buy-out of the Plaintiff's holdings for a "fair value" figure (to be determined by the Court) and possible dissolution of the Company. By order of the Court dated May 21, 2007, the Court denied the Company's request to remove dissolution as a possible remedy.
A hearing on “fair value” was held on July 24 and 25, 2008. On March 20, 2009, the United States District Court- District of Maine issued a finding of Fact and Conclusions of Law Part 2: Valuations. The Court determined that as of September 15, 2005 (the Fair Value Date) Mr. Kaplan shares (591,254) were valued at $4.87 a share but did not determine terms of payment. The Court has appointed a Special Master to recommend terms (report due by September 15, 2009). An obligation to redeem in the amount of $2,900,000 has been recorded as of April 30, 2009.
B. Parkade Center, Inc. v. Simon Property Group (Texas), L.P. and Simon Property Group (Delaware), Inc.
On March 21, 2008, the Company terminated the Simon Litigation. At the time of termination of the Simon Litigation, the Company entered into separate agreements with Simon pursuant to which for a period of five years tenants of certain Simon properties will not be restricted from operating stores in the Company’s shopping center in Edinburg, Texas, and the Company will provide to Simon for a period of up to five years a right of first offer on any future sale by the Company of its Edinburg shopping center, for which the Company received from Simon a one-time payment of $4.0 million.
Other Proceedings
The Company is not aware of any other material legal proceedings which would need to be cited herein.
For proceedings involving officers and directors, see Item 10(f) on Page 46.
The Company is also involved in other legal proceedings which arise during the normal course of its business, including disputes over tax assessments, commercial contracts, lease agreements, construction contracts and personal injuries, but the Company does not believe that any of these proceedings will have a material impact on its consolidated financial statements.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
The Company’s common stock, $1 par value, is traded over-the-counter. Any bids would be contained in the National Daily Quotation Service of the National Association of Securities Dealers (pink sheets) or online at http://www.pinksheets.com, symbol FHRT or http://www.yahoo.com, symbol FHRT.PK
STOCK PRICE AND DIVIDEND INFORMATION
On May 30, 2006, the Board of Directors declared a special cash dividend of $.10 (ten cents) per share for stockholders of record on June 16, 2006, payable on June 30, 2006. Prior to that dividend payout, the Company had not paid a dividend on its shares of common stock for at least 25 years. The amount and timing of any dividend and the determination of when to declare any dividends is subject to the discretion of the Company's Board of Directors depending on the Company's future results of operations, financial condition, capital requirements, and other factors deemed relevant by the Board.
Sales of common stock have occurred from time to time. The last sale was $1.01 per share on July 13, 2009.
The number of shareholders of record for the Company’s common stock as of April 30, 2009, is approximately 800.
ITEM 6
ITEM 6 SELECTED FINANCIAL DATA
Smaller reporting companies are not required to provide the information required by this item.
ITEM 7.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION
The financial and business analysis below provides information, which the Company believes, is relevant to an assessment and understanding of the Company’s consolidated financial position and results of operations. This financial and business analysis should be read in conjunction with the consolidated financial statements and related notes.
ITEM 7 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION (continued):
The following discussion and certain other sections of the Annual Report on Form 10-K 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 risks and uncertainties that are difficult to predict and may cause the Company’s actual results to differ materially from the results discussed in such forward-looking statements. Readers should consider that
various factors including changes in general economic conditions, interest rates and availability of funds, nature of competition and relationships with key customers and their financial condition 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 otherwise.
RESULTS OF OPERATIONS
Sale of Real Estate
There was a single parcel of real estate sold during the year ended April 30, 2009 which consisted of an out parcel from our shopping center in Edinburg, Texas. The transaction closed on October 15, 2008 and consisted of a developed lot sold to a local bank. During the year ended April 30, 2008, the Company completed the final sale of certain property in Bangor, Maine, which was also the only sale of real estate for fiscal 2008.
Rental Income
Rental income increased approximately $1,784,000 from the year ended April 30, 2008 due to the following:
Opening of stores in the Edinburg, Texas shopping center started in the second quarter of this year resulting in rental income for the year ended April 30, 2009 of approximately $1,200,000. Approximately $200,000 of the increase was due to a full year of rental income from the Police Station in Cranston, RI compared to 10 months last year and approximately $180,000 of the increase is from lower vacancies and rent increases in the Rockland Apartments. Rent for the new development in Bangor Maine (Triangle Center, LLC) started in December 2008 and amounted to approximately $200,000.
Service Income
Service Income was approximately $3,020,000 and $1,470,000 for the years ended April 30, 2009 and 2008, respectively. Included in service income in 2009 is $2,550,000 of income from our CVS development projects. For the year ended April 30, 2008, income from our CVS development projects was $1,200,000. The balance of the increase in 2009 was from fees earned for management of a property in Sommerville, Massachusetts. The Company is currently seeking the financing to buy and renovate the property.
Other Income
The decrease in other income is due mainly to a $117,000 refinancing fee earned from Hartford Lubbock Parkade LP during the year ended April 30, 2008 which was a one time item.
ITEM 7 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION (continued):
Operating Costs and Expenses
Rental Expenses
Rental expenses increased approximately $2,057,000 for year ended April 30, 2009. Of that amount approximately $757,000 is due to additional depreciation and $1,299,000 is due to increases in other rental expenses.
The Edinburg Shopping Center incurred approximately $393,000 of depreciation this year as compared to none last year. Both the Cranston Police Station and the Rockland Apartments had full years of depreciation and accounts for most of the difference.
Of the other rental expenses ($1,299,000) Edinburg accounts for approximately $628,000, Triangle Center $105,000, the Cranston Police Station $125,000, and the Rockland Apartments $243,000.
Service Expenses
The increase in service expenses basically all relates to CVS projects.
Selling, General and Administrative
Legal costs related to a shareholder suit (Kaplan), totaled approximately $892,000 and $1,253,000 for the years ended April 30, 2009 and 2008. A substantial amount of these costs were due to professional fees incurred in obtaining reports on Fair Value.
Portions of certain salaries (engineering, purchasing, legal, etc.) are capitalized in connection with the development and construction of specific properties. Due to very low levels of construction during the year ended April 30, 2009, a larger amount of these costs were not capitalized and have been charged to selling, general and administrative expenses.
Non- Operating Income and Expenses:
Loss on Derivative
As a result of owning derivative swaps in an environment of declining interest rates, the Company has recorded a loss on derivatives of approximately $2,022,000 and $1,396,000 for the years ended April 30, 2009 and 2008, respectively.
Gain on Settlement
On March 21, 2008, the Company terminated the Simon Litigation. At the time of termination of the Simon Litigation, the Company entered into separate agreements with Simon pursuant to which for a period of five years tenants of certain Simon properties will not be restricted from operating stores in the Company’s shopping center in Edinburg, Texas, and the Company will provide to Simon for a period of up to five years a right of first offer on any future sale by the Company of its Edinburg shopping center, for which the Company received from Simon a one-time payment of $4.0 million. This resulted in a gain of $1,636,103, net of legal fees incurred for that year.
ITEM 7 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION (continued):
Interest Expense
By arrangement with the Lender, the Company was not charged and has not paid any interest for the year ended April 30, 2009 for the shopping center in North Adams, Massachusetts. This will continue until an
escrow is fully funded to finance renovation of the remaining vacant space in the center. We project that this will happen approximately by August 1, 2009. At that time, mortgage interest of 5.5% will start on the $12,575,000 mortgage. In the year ended April 30, 2008 the Company paid this lender $140,334 in interest. Additionally, increases in interest expense for the year ended April 30, 2009 are primarily attributable to placing in service a portion of the Edinburg Shopping Center in October 2008.
Capital Resource and Liquidity
The Company ended the year with approximately $2,760,000 of unrestricted cash and approximately $871,000 of restricted cash. The unrestricted cash includes approximately $1,476,000 belonging to consolidated partnerships (CP Associates $1,195,000 and Rockland Place LP $281,000). Funds received from CVS which are to be paid out in connection with CVS development projects (included in the Company's account payables) amount to $871,000 and are included in restricted cash.
As previously disclosed, Gibbs College which leases 60,000 SF from CP Associates has announced they are closing the Gibbs Schools on December 31, 2009. However, the lease is in effect through 2018 and is secured by Career Education (symbol CECO on the NASDAQ). It is their obligation to replace the occupant or continue paying the rent under the lease. The mortgage has a balloon payment due in 2015. The members of CP Associates, LLC have agreed to utilize marketable securities of $927,000 as of April 30, 2009 to refit the building for new tenants at the appropriate time. Since the investment market had deteriorated, additional funds have been accumulated in money market accounts.
The Company's $2,000,000 line of credit expired in June 2009 and was not renewed by the bank. A $342,000 Letter of Credit was outstanding against that line. The Company replaced the Letter of Credit with cash collateral in the amount of $342,000.
The Company has been instructed by the Court to buy back the minority interest held by Richard Kaplan. The Judge has set a value of approximately $2.9 million. The parties are not in agreement over terms of payment. The Court has assigned a Special Master to recommend terms.
The following schedule outlines our long term obligation at April 30, 2009 (does not include Kaplan Buyout):
Contractual Obligations
Total
Less Than
1 year
1-3 years
3-5 years
More Than 		
5 years
Long-Term Debt
$112,421,372
$ 959,352
$36,206,638
$3,153,236
$72,102,146
Short-Term Debt
$3,641,691
$3,641,691
Purchase Obligations
$ 100,000
$ 100,000
Total 		
$116,163,063
$ 4,701,043
$36,206,638
$3,153,236
$72,102,146
ITEM 7 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION (continued):
Capital Resource and Liquidity (continued):
Footnote 46 to SEC Interpretive Release 33-8350 does not require interest to be included in the tabular disclosure of contractual obligations although it does state that such costs should be discussed if material. We believe that the information contained in Schedule IV: Mortgage Loans on Real Estate, in addition to the information disclosed in Note 3: Construction Loans, Mortgages and Notes Payable included in this Form 10-K adequately convey our cash requirements related to interest.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES:
Our discussion and analysis of financial condition and results of operations is based upon our Consolidated Financial Statements contained in Item 8 in this Annual Report. Our Consolidated Financial Statements include the accounts of the Company and its controlled affiliates. For a discussion
of accounting policies with respect to our investments in unconsolidated affiliates, see - “Investments in Affiliated Partnerships”. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (GAAP) 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 estimates used in the preparation of the Consolidated Financial Statements are described below and in greater detail in Note 1 to the Consolidated Financial Statements for the year ended April 30, 2009. Certain significant accounting policies are considered critical accounting polices due to the increased level of assumptions used or estimates made in determining their impact on the Consolidated Financial
Statements. Management has reviewed the critical accounting policies and estimates with the Company’s Board of Directors and the Company’s independent auditors.
Revenue Recognition
Construction Revenue - The Company is primarily involved in the development of real estate for its own use. However, revenues from projects built for third parties are recognized on the percentage-of-completion method of accounting based on costs incurred to date in relation to total actual costs and estimated costs to complete. Revisions in costs and profit estimates are reflected in operations during the accounting period in which the facts become known. The Company provides for estimated losses on contracts in the year such losses become known.
Sale of Real Estate - The Company recognizes sale of real estate revenue upon the transfer of title and when substantially all performance requisites have been fulfilled.
Rental Income - Rental income is recognized on a straight line basis over the terms of the respective leases and is comprised of base rent and reimbursements for certain costs such as real estate taxes, utilities, insurance, common area maintenance and other recoverable costs as provided in the lease agreements. There are no contingent rents.
Service Income - The Company recognizes service income when earned.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION (continued):
CRITICAL ACCOUNTING POLICIES AND ESTIMATES (continued):
Property Under Construction
The Company capitalizes all costs clearly associated with the property under construction.
Deferred Expenses
Expenditures directly related to real estate under consideration for development are deferred and included in deposits, escrows, prepaid and deferred expenses in the consolidated balance sheets. These costs would include option payments, attorney’s fees, architect and engineering fees, consultants, etc., but only to the extent they are from outside sources. If development of the real estate commences, all of the accumulated costs are reclassed to property under construction in the consolidated balance sheets. If the project is later abandoned, all of the accumulated costs are charged to expense. Costs for in-house engineering and drafting, estimating and purchasing and development are not considered significant and are expensed as incurred.
Leasing costs are capitalized when leases are signed (cost incurred) and include direct commissions, salaries and expenses. Deferred financing costs include legal fees and other costs relating to the acquisition of debt financing. Leasing and financing costs are included in deposits, escrows, prepaid and deferred expenses in the accompanying consolidated balance sheets and are amortized using the straight-line method over the terms of the related leases and mortgages, respectively.
Marketable Securities
The Company determines the appropriate classification of its investments in marketable debt and equity securities at the time of purchase and re-evaluates such determination at each balance sheet date.
Income Taxes:
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 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 adopted the provisions of FASB Interpretation No. 48, “Accounting For Uncertainty in Income Taxes - an interpretation of FASB Statement No 109”, (FIN 48) on May 1, 2007. There were no unrecognized tax benefits and there was no effect on the Company’s financial condition or results of operations as a result of adopting FIN 48. The Company’s policy is to recognize interest and penalties
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION (continued):
CRITICAL ACCOUNTING POLICIES AND ESTIMATES (continued):
Income Taxes (continued):
accrued on any unrecognized tax benefits as a component of income tax expense. As of the date of adoption of FIN 48, there was no accrued interest or penalties associated with any unrecognized tax benefits, nor was any interest expense recognized during the year.
Investment In Affiliated Partnerships
Investments in entities in which the Company is not the general partner and has less than a 20% interest are carried at cost. Distributions received from those entities are included in income. Distributions received in excess of the Company’s proportionate share of capital are applied as a reduction of the cost of the investment. Investments in entities in which the Company has a 20-50% interest but does not control are carried at cost and are subsequently adjusted for the Company’s proportionate share of their undistributed earnings or losses, and any distributions (Equity Method).
The Company currently has two unconsolidated operating partnerships accounted for under the Equity Method. The Company has a 50% interest in Cranston Parkade, LLC which in turn has an interest in Cranston/BVT Associates LP which owns a shopping center in Cranston, RI. The Company also has a 50% interest in Dover Parkade, LLC which owns a shopping center in Dover Township, NJ. Although the Company exercises some influence, the Company does not control the operating and financial policies of these partnerships and, therefore, these partnerships are not consolidated.
Cranston/BVT Associates, LP reports on a calendar year and is not adjusted to the Company’s April 30 year-end. Dover Parkade reports on an April 30 year-end.
These investments are recorded at cost and have been subsequently adjusted for gains, losses and distributions such that the carrying value is less than zero. Although the Company is not liable for the obligations of the two partnerships it had not discontinued applying the Equity Method since the Company considered itself to be committed to providing financial support to the partnerships. As of April 30, 2009 and 2008, $5,056,659 and $5,515,353, respectively is included in other liabilities in the consolidated balance sheets representing the carrying value of these investments.
Accounting for the Impairment or Disposal of Long-Lived Assets
The Company has adopted Statement of Financial Accounting Standards (SFAS) No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”, which established a single accounting model for the impairment or disposal of long-lived assets including discontinued operations. SFAS No. 144 requires that the operations related to developed properties that have been sold or developed properties that are intended to be sold be presented as discontinued operations in the consolidated statement of operations for all periods presented, and developed properties intended to be sold be designated as “held for sale” on the consolidated balance sheets.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION (continued):
CRITICAL ACCOUNTING POLICIES AND ESTIMATES (continued):
Fair Value of Derivative Instruments
In the normal course of business, the Company is exposed to the effects of interest rate changes. To mitigate the exposure to unexpected changes in interest rates, derivatives are used primarily to hedge against rate movements on some of the Company's debt. In accordance with SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities", since the Company's interest rate swaps have not been designated as a hedge they must be recognized as an asset or liability and adjusted to fair value through income in the current period.
Stock Compensation
Share-based compensation cost is measured at the grant date, based on the calculated fair value of the award, and is recognized as an expense over the employee’s requisite service period (generally the vesting period of the equity grant).
ITEM 7A.
ITEM 7A. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
Smaller reporting companies are not required to provide the information required by this item.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Financial statements and supplementary data begin on page 18. See the index to Financial Statements and Financial Statement Schedules in Item 15.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A(T).
ITEM 9A(T). 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.
ITEM 9A(T). CONTROLS AND PROCEDURES (continued):
Management’s Report on Internal Control over Financial Reporting
The management of First Hartford Corporation is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). The Company’s internal control over financial reporting is a process designed to provide reasonable assurance to the Company’s management and board of directors regarding the reliability of financial reporting and the preparation of the financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America.
The Company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal controls over financial reporting may not prevent or detect misstatements. All internal control systems, no matter how well designed, have inherent limitations, including the possibility of human error and the circumvention of overriding controls. Accordingly, even effective internal control over financial reporting can provide only reasonable assurance with respect to financial statement preparation. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Our management assessed the effectiveness of the Company’s internal control over financial reporting as of April 30, 2009. In making this assessment, it used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework. Based on our assessment, we believe that, as of April 30, 2009, the Company’s internal control over financial reporting was not effective due to the existence of the material weaknesses identified by management and disclosed below:
Lack of Appropriate Independent Oversight. There are no independent members of the board of directors who could provide an appropriate level of oversight, including challenging management’s accounting for and reporting of transactions.
Sufficiency of Accounting Personnel. There are insufficient personnel in key accounting positions within the Company with the appropriate knowledge to prepare the Company’s financial statements in accordance with generally accepted accounting principles, including the appropriate accounting and disclosure for unusual and complex transactions entered into by the Company. This could lead to material errors in accounting and disclosure.
Remediation Plans
The Company is considering remediating the material weakness relating to the sufficiency of accounting personnel by hiring a consultant with the appropriate knowledge, skill and experience to assist in the
ITEM 9A(T). CONTROLS AND PROCEDURES (continued):
Remediation Plans (continued):
preparation of the Company’s financial statements in accordance with generally accepted accounting principles, including assisting in the determination of the appropriate accounting and disclosure for unusual and complex transactions entered into by the Company. This decision has been on hold but is expected to go forward later this year.
Although the Company has identified a lack of appropriate independent oversight as a material weakness, an independent board of directors is not required by Pink OTC Markets (the electronic quotation system that trades the Companies securities) and the Company does not intend to remediate this material weakness at this time.
This annual report does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reporting. We were not required to have, nor have we, engaged our independent registered public accounting firm to perform an audit of internal control over financial reporting pursuant to the rules of the Commission that permit us to provide only management’s report in this annual report.
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 year ended April 30, 2009, that materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and
Shareholders of First Hartford Corporation
We have audited the accompanying consolidated balance sheets of First Hartford Corporation and subsidiaries (the “Company”) as of April 30, 2009 and 2008, and the related consolidated statements of operations, changes in shareholders’ deficiency and comprehensive income (loss), and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of First Hartford Corporation and subsidiaries as of April 30, 2009 and 2008, and the results of their operations and their cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.
/s/ CCR LLP
Glastonbury, Connecticut
August 27,
FIRST HARTFORD CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
APRIL 30, 2009 AND 2008
The accompanying notes are an integral part of these consolidated financial statements.
FIRST HARTFORD CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
APRIL 30, 2009 AND 2008
(continued)
The accompanying notes are an integral part of these consolidated financial statements.
FIRST HARTFORD CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED APRIL 30, 2009 AND 2008
The accompanying notes are an integral part of these consolidated financial statements.
FIRST HARTFORD CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED APRIL 30, 2009 AND 2008
(continued)
The accompanying notes are an integral part of these consolidated financial statements.
FIRST HARTFORD CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ DEFICIENCY AND COMPREHENSIVE INCOME(LOSS)
FOR THE YEARS ENDED APRIL 30, 2009 AND 2008
The accompanying notes are an integral part of these consolidated financial statements.
FIRST HARTFORD CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED APRIL 30, 2009 AND 2008
The accompanying notes are an integral part of these 	consolidated financial statements.
FIRST HARTFORD CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED APRIL 30, 2009 AND 2008
(continued)
The accompanying notes are an integral part of these 	consolidated financial statements.
FIRST HARTFORD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED APRIL 30, 2009 AND 2008
1. Summary of 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 consolidated financial statements include the accounts of First Hartford Corporation, its wholly owned subsidiaries and other controlled subsidiaries (collectively referred to as the “Company”). The Company records minority interest for the non-owned portion of consolidated subsidiaries. All significant intercompany transactions and accounts have been eliminated in the consolidated financial statements, including construction revenues and costs of development for the Company’s own use (rental/future sale).
Estimates
The preparation of consolidated 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, 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.
Financial Statement Presentation
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 consolidated balance sheets are unclassified.
Statements of Cash Flows
For purposes of the statements of cash flows, the Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. The Company had cash equivalents, exclusive of restricted cash, consisting of U.S. treasury securities, certificates of deposit and money market accounts which totaled approximately $1,246,163 and $2,005,000 at April 30, 2009 and 2008, respectively.
Revenue Recognition
Construction Revenue - The Company is primarily involved in the development of real estate for its own use. However, revenues from projects built for third parties are recognized on the percentage-of-completion method of accounting based on costs incurred to date in relation to total actual costs and estimated costs to complete. Revisions in costs and profit estimates are reflected in operations during the accounting period in which the facts become known. The Company provides for estimated losses on contracts in the year such losses become known.
FIRST HARTFORD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED APRIL 30, 2009 AND 2008
1. Summary of Significant Accounting Policies (continued):
Revenue Recognition (continued)
Sale of Real Estate - The Company recognizes sale of real estate revenue upon the transfer of title and when substantially all performance requisites have been fulfilled. For the years ended April 30, 2009 and 2008, the Company had sales of $1,029,776 and $725,848, respectively. The cost basis of the property sold was $726,776 and $260,557 for 2009 and 2008, respectively.
Rental Income - Rental income is recognized on a straight line basis over the terms of the respective leases and consists of base rent and reimbursements for certain costs such as real estate taxes, utilities, insurance, common area maintenance and other recoverable costs as provided in the lease agreements. There are no contingent rents.
Service Income
The Company is party to a Preferred Developer Agreement with CVS Pharmacy Inc. (“CVS”), whereby the Company identifies locations for new retail pharmacy stores for CVS and may oversee the development of these pharmacy stores for CVS. Under the agreement, the Company earns a fee for services provided for each new retail pharmacy store. Fees recognized during the year ended April 30, 2009 and 2008 totaled $2,550,000 and $1,175,000, respectively, which is included in service income in the consolidated statements of operations.
CVS related receivables and payables
Pursuant to the Company’s Preferred Developer Agreement with CVS, the Company pays for allowable costs incurred in connection with the identification of and development of new retail pharmacy stores and receives reimbursements from CVS. Payables recorded in connection with the identification of and development of these pharmacy stores and the related reimbursement receivables have been presented separately in the consolidated balance sheets.
Cash and cash equivalents - restricted
Restricted cash and cash equivalents consist entirely of funds received from CVS in connection with the Company’s Preferred Developer Agreement. Such amounts are to be used for the payment of costs incurred by the Company for the development and construction of CVS retail pharmacy stores.
Developed Properties, Equipment and Tenant Improvements
Developed properties, equipment and tenant improvements are recorded at the lower of cost or net realizable value.
Depreciation and amortization is provided using the straight-line method for financial reporting purposes based on the following estimated useful lives:
FIRST HARTFORD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED APRIL 30, 2009 AND 2008
1. Summary of Significant Accounting Policies (continued):
Developed Properties, Equipment and Tenant Improvements (continued):
Expenditures for major renewals and betterments, which extend the useful lives of developed properties, equipment and tenant improvements, are capitalized. Expenditures for maintenance and repairs are charged to operations as incurred.
Property Under Construction
The Company capitalizes costs clearly associated with the property under construction.
Deferred Expenses
Expenditures directly related to real estate under consideration for development are deferred and included in deposits, escrows, prepaid and deferred expenses in the consolidated balance sheets. These costs would include option payments, attorney’s fees, architect and engineering fees, consultants, etc., but only to the extent they are from outside sources. If development of the real estate commences, all of the accumulated costs are reclassed to property under construction in the consolidated balance sheets. If the project is later abandoned, all of the accumulated costs are charged to expense. Costs for in-house engineering and drafting, estimating and purchasing and development are not considered significant and are expensed as incurred.
Leasing costs are capitalized when leases are signed (cost incurred) and include direct commissions, salaries and expenses. Deferred financing costs include legal fees and other costs relating to the acquisition of debt financing. Leasing and financing costs are included in deposits, escrows, prepaid and deferred expenses in the accompanying consolidated balance sheets and are amortized using the straight-line method over the terms of the related leases and mortgages, respectively. The amortized balance of such costs amount to $2,250,652 and $1,678,215 as of April 30, 2009 and 2008, respectively. Amortization expense was $265,555 and $224,297 for 2009 and 2008, respectively. Amortization expense for the next five years is expected to be as follows:
FIRST HARTFORD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED APRIL 30, 2009 AND 2008
1. Summary of Significant Accounting Policies (continued):
Investment in Affiliated Partnerships
Investments in entities in which the Company is not the general partner and has less than a 20% interest are carried at cost. Distributions received from those entities are included in income. Distributions received in excess of the Company’s proportionate share of capital are applied as a reduction of the cost of the investment. Investments in entities in which the Company has a 20-50% interest but does not control are carried at cost and are subsequently adjusted for the Company’s proportionate share of their undistributed earnings or losses, and any distributions (Equity Method).
The Company currently has two unconsolidated operating partnerships accounted for under the Equity Method. The Company has a 50% interest in Cranston Parkade, LLC which in turn has an interest in Cranston/BVT Associates LP which owns a shopping center in Cranston, RI. The Company also has a 50% interest in Dover Parkade, LLC which owns a shopping center in Dover Township, NJ. Although the Company exercises some influence, the Company does not control the operating and financial policies of these partnerships and, therefore, these partnerships are not consolidated.
Cranston/BVT Associates, LP reports on a calendar year and is not adjusted to the Company’s April 30 year-end. Dover Parkade reports on an April 30 year-end. The Company recorded equity in earnings of unconsolidated subsidiaries of $458,694 and $460,534 for the years ended April 30, 2009 and 2008, respectively. See Note 11 for selected financial information of these significant unconsolidated subsidiaries.
These investments are recorded at cost and have been subsequently adjusted for gains, losses and distributions, including material nonrecurring losses and distributions pertaining to debt defeasance, such that the carrying value is less than zero. Although the Company is not liable for the obligations of the two partnerships it had not discontinued applying the Equity Method since the Company considered itself to be committed to providing financial support to the partnerships. As of April 30, 2009 and 2008, $5,056,659 and $5,515,353, respectively is included in other liabilities in the consolidated balance sheets representing the carrying value of these investments.
Fair Value of Derivative Instruments
In the normal course of business, the Company is exposed to the effects of interest rate changes. To mitigate the exposure to unexpected changes in interest rates, derivatives are used primarily to hedge against rate movements on some of the Company's debt. In accordance with SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities", since the Company's interest rate swaps have not been designated as a hedge they must be recognized as an asset or liability and adjusted to fair value through income in the current period.
FIRST HARTFORD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED APRIL 30, 2009 AND 2008
1. Summary of Significant Accounting Policies (continued):
Accounting for the Impairment or Disposal of Long-Lived Assets
The Company has adopted Statement of Financial Accounting Standards (SFAS) No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”, which established a single accounting model for the impairment or disposal of long-lived assets, such as real estate and equipment, including discontinued operations. SFAS No. 144 requires that the operations related to developed properties that have been sold or developed properties that are intended to be sold be presented as discontinued operations in the consolidated statements of operations for all periods presented, and developed properties intended to be sold be designated as “held for sale” on the consolidated balance sheets.
Marketable Securities
The Company determines the appropriate classification of its investments in marketable debt and equity securities at the time of purchase and re-evaluates such determination at each balance sheet date. As of April 30, 2009 and 2008, investments consist of equity securities which are classified as available for sale. Net unrealized holding gains and losses on equity securities are included as a separate component of stockholders’ deficiency.
Income Taxes
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 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 adopted the provisions of FASB Interpretation No. 48, “Accounting For Uncertainty in Income Taxes - an interpretation of FASB Statement No 109”, (FIN 48) on May 1, 2007. There were no unrecognized tax benefits and there was no effect on the Company’s financial condition or results of operations as a result of adopting FIN 48. The Company’s policy is to recognize interest and penalties accrued on any unrecognized tax benefits as a component of income tax expense. As of the date of adoption of FIN 48, there was no accrued interest or penalties associated with any unrecognized tax benefits, nor was any interest expense recognized during the year.
FIRST HARTFORD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED APRIL 30, 2009 AND 2008
1. Summary of Significant Accounting Policies (continued):
Stock Compensation
Share-based compensation cost is measured at the grant date, based on the calculated fair value of the award, and is recognized as an expense over the employee’s requisite service period (generally the vesting period of the equity grant). The Company expenses its share-based compensation under the straight-line method.
Reclassifications
Certain reclassifications have been made to prior year amounts to conform to current year classifications.
New Accounting Pronouncements
Effective May 1, 2008, the Company has partially implemented Statement of Financial Accounting Standard (“SFAS”) No. 157, “Fair Value Measurements” for financial assets and financial liabilities. SFAS No. 157 defines fair value, establishes a framework for measuring fair value, expands disclosure requirements of fair value measurements and is effective for fiscal years beginning after November 15, 2007, except as it relates to nonrecurring fair value measurements of nonfinancial assets and liabilities. This standard only applies when other standards require or permit the fair value measurement of assets and liabilities. With regard to nonfinancial assets and liabilities which are not recognized or disclosed at fair value in the Company’s financial statements on a recurring basis (at least annually), the standard is effective for fiscal years beginning after November 15, 2008. The Company has determined the financial assets and liabilities subject to SFAS Mo. 157 are marketable securities and interest rate swap agreements (derivatives).
In February 2007, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities - Including an Amendment of FASB Statement No. 115” which permits entities to choose to measure eligible items at fair value at specified election dates and report unrealized gains and losses on items, for which the fair value option has been elected, in earnings at each subsequent reporting date. SFAS No. 159 is effective for fiscal years beginning after November 15, 2007. The adoption of SFAS No. 159 in fiscal 2009 did not have an impact on the Company’s consolidated results of operations or financial position, as the Company has not elected the fair value option for any of its eligible financial assets or liabilities.
Recent Accounting Pronouncements
In December 2007, the FASB issued SFAS No. 141 (revised 2007), “Business Combinations” (SFAS 141(R)), which replaces SFAS No. 141, “Business Combinations.” SFAS 141(R) retains the underlying concepts of SFAS 141 in that all business combinations are still required to be accounted for at fair value under the acquisition method of accounting but SFAS 141(R) changed the method of applying the acquisition method in a number of significant aspects. Acquisition costs will generally be expensed as incurred; non-controlling interests will be valued at fair value at the acquisition date; in-process research and development will be recorded at fair value as an indefinite-lived intangible asset at the acquisition date; restructuring costs associated with a business combination will generally be expensed subsequent to the acquisition date; and changes in deferred tax asset valuation allowances and income tax uncertainties
FIRST HARTFORD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED APRIL 30, 2009 AND 2008
1. Summary of Significant Accounting Policies (continued):
Recent Accounting Pronouncements (continued):
after the acquisition date generally will affect income tax expense. SFAS 141(R) is effective on a prospective basis for all business combinations for which the acquisition date is on or after the beginning of the first annual period subsequent to December 15, 2008, with the exception of the accounting for valuation allowances on deferred taxes and acquired tax contingencies. SFAS 141(R) amends SFAS 109 such that adjustments made to valuation allowances on deferred taxes and acquired tax contingencies associated with acquisitions that closed prior to the effective date of SFAS 141(R) would also apply the provisions of SFAS 141(R). Early adoption is not permitted.
In December 2007, the FASB issued SFAS No. 160, “Non-controlling Interests in Consolidated Financial Statements - an amendment of ARB No. 51.” This statement is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008, with earlier adoption prohibited. This statement requires the recognition of a non-controlling interest (minority interest) as equity in the consolidated financial statements and separate from the parent’s equity. The amount of net income attributable to the non-controlling interest will be included in consolidated net income on the face of the income statement. It also amends certain of ARB No. 51’s consolidation procedures for consistency with the requirements of SFAS 141(R). This statement also includes expanded disclosure requirements regarding the interests of the parent and its non-controlling interest. The impact to the Company of SFAS No. 160 is currently being evaluated and has not yet been determined.
In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities,” which changes the disclosure requirements for derivative instruments and hedging activities. SFAS No. 161 requires enhanced disclosures about (a) how and why an entity uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for under SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities” and its related interpretations, and (c) how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows. This statement’s disclosure requirements are effective for fiscal years and interim periods beginning after November 15, 2008. The Company is currently evaluating the future impact and required disclosures of this standard.
In April 2009, the FASB issued FASB Staff Position (“FSP”) No. FAS 107-1 and Accounting Principles Board (“APB”) Opinion No. 28-1, “Interim Disclosures about Fair Value of Financial Instruments.” FSP NO. 107-1 and APB No. 28-1 requires summarized disclosure in interim periods of publicly-traded companies of the fair value of all financial instruments for which it is practicable to estimate that value, whether recognized or not recognized in the financial statements, as required by SFAS No. 107, Disclosures about Fair Value of Financial Instruments and APB No. 28, Interim Financial Reporting. Previous to FSP No. FAS 107-1 and APB 28-1, such disclosures were required only for annual periods. The Company intends to apply the provisions of FSP No. FAS 107-1 and APB No. 28-1 effective with its interim period ending July 31, 2009.
In May 2009, the FASB issued SFAS NO. 165, “Subsequent Events”. SFAS No. 165 establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. The Company intends to apply the provisions of SFAS No. 165 effective with its interim period ending July 31, 2009.
FIRST HARTFORD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED APRIL 30, 2009 AND 2008
1. Summary of Significant Accounting Policies (continued):
Recent Accounting Pronouncements (continued):
In June 2009, the FASB issued SFAS No. 167, “Amendments to FASB Interpretation No. 46(R)”. SFAS 167 amends FASB Interpretation No. 46 (revised December 2003), “Consolidation of Variable Interest Entities” to require an enterprise to qualitatively assess the determination of the primary beneficiary of a variable interest entity (VIE) based on whether the enterprise (1) has the power to direct the activities of a VIE that most significantly impact the VIE’s economic performance and (2) has 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. Also, SFAS 167 requires an ongoing reconsideration of the primary beneficiary, and amends the events that trigger a reassessment of whether an entity is a VIE. Enhanced disclosures are also required to
provide information about an enterprise’s involvement in a VIE. This statement shall be effective as of
the beginning of each reporting entity’s first annual reporting period that begins after November 15, 2009, for interim periods within that first annual reporting period, and for interim and annual reporting periods thereafter. Earlier application is prohibited. The Company is currently evaluating the impact that the adoption of SFAS No. 167 will have on the consolidated financial statements.
In June 2009, the FASB issued SFAS No. 168, “The FASB Accounting Standards Codification TM and the Hierarchy of Generally Accepted Accounting Principles - a replacement of FASB Statement No. 162” (“Codification”). SFAS 168 replaces SFAS No. 162, “The Hierarchy of General Accepted Accounting Principles” and establishes the Codification as the source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements in conformity with generally accepted accounting principles in the United States. All guidance contained in the Codification carries an equal level of authority. On the effective date of SFAS 168, the Codification will supersede all then-existing non-SEC accounting and reporting standards. All other nongrandfathered non-SEC accounting literature not included in the Codification will become nonauthoritative. SFAS 168 is effective for financial statements issued for interim and annual periods ending after September 15, 2009. The Company has evaluated this new statement, and has determined that it will not have a significant impact on the determination or reporting of the Company’s financial results.
2. Rockland Place Apartments:
The Company has a .005% ownership interest in and is a general partner of Rockland Place Apartments Limited Partnership (the “Partnership”) which was formed under the laws of the Commonwealth of Massachusetts on May 15, 2006, for the purpose of owning and operating a rental housing project financed with loans from Massachusetts Housing Finance Agency (MHFA) and subsidies from U.S. Department of Housing and Urban Development (HUD). On November 1, 2006 the partnership agreement was amended to admit Boston Capital Corporate Tax Credit Fund XXV and XXVI as the investment limited partners with a 19.998% and 79.992% ownership, respectively. BCCC, Inc was admitted as the Special Limited Partner with a 0% ownership. The Company has consolidated the Partnership based on the express legal rights provided to it by the partnership agreement and its control of the business activity of the Partnership.
The investment limited partners are required to make capital contributions in the amount of $9,364,014 of which $8,053,052 has been received as of April 30, 2009 and $1,310,962 remains to be received in future
FIRST HARTFORD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED APRIL 30, 2009 AND 2008
2. Rockland Place Apartments (continued):
periods. The contributions are payable in specific amounts at specific times subject to the provisions of the partnership agreement.
The Partnership closed on the acquisition of the rental property on November 1, 2006, subject to adjustments for an effective date of November 22, 2006. The project consists of 204 units located in Rockland, Massachusetts and is currently under the name of Rockland Place Apartments. The Partnership had no significant activity prior to the acquisition.
The purchase price was allocated to land and building based on their respective fair values as set forth below. A summary of the allocation of the purchase price follows:
Land
$ 2,695,896
Building
			 7,795,505
			$10,491,401
The property was acquired for cash and by assuming various non recourse loans as follows:
Cash paid
$ 600,000
Mortgages paid on behalf of seller
1,184,082
Assumption of MHFA mortgages
4,416,605
Assumption of HUD mortgage
4,268,539
Other
			 22,175
			$10,491,401
Among the mortgages assumed was the third mortgage note with MHFA having a balance of $18,315,482. The note bears interest at the rate of 5.36% per annum. Principal and all accrued and unpaid interest are due on January 1, 2024, the date of maturity. The Partnership has the right to purchase the note upon maturity for the fair value of the note as determined by an appraiser. The mortgage loan has been recorded at the fair value of the loan at the date of acquisition, which was $1,828,910. The fair value has been determined based on the fair value of the property on the acquisition date less the primary loan balances.
The Partnership also assumed the Flexible Subsidy Capital Improvement Loan held by HUD and payable from surplus cash, as defined. The note was assigned to the Partnership with interest at 0% per annum for a principal sum of $4,268,539.
The Partnership entered into a Regulatory Agreement with MHFA which regulates the operations and occupancy requirements of the project and limits cash distributions to 10% of borrowers’ equity per year, subject to certain other priorities as described in the mortgage loans. Payments on the development fee note (see note 3) are allowed from operating revenue subject to the payment priorities detailed in the MHFA Regulatory Agreement.
Each building of the project will qualify for low-income housing credits pursuant to Internal Revenue Code Section 42 (Section 42), which regulates the use of the project as to occupant eligibility and unit gross rent, among other requirements. Each building of the project must meet the provisions of these
FIRST HARTFORD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED APRIL 30, 2009 AND 2008
2. Rockland Place Apartments (continued):
regulations during each of fifteen consecutive years in order to remain qualified to receive the credits. In addition, the Partnership has executed an Extended Low-Income Housing Agreement, which requires the
utilization of the project pursuant to Section 42 through the compliance period, even if the Partnership disposes of the project.
The project’s low-income housing credits are contingent on its ability to maintain compliance with applicable sections of Section 42. Failure to maintain compliance with occupant eligibility, and/or unit gross rent, or to correct noncompliance within a specified time period could result in recapture of previously taken tax credits plus interest. In addition, such potential noncompliance may result in an adjustment to the capital contributed by the investment limited partners.
The Partnership entered into an agreement with the Rockland Housing Authority whereby the Housing Authority has the option to purchase the property after the 15-year tax credit compliance period from the Partnership. The option price is specified via a formula in the agreement.
3. Construction Loans, Mortgages, and Notes Payable:
Construction loans and Mortgages payable with interest rates ranging from 0.00% (see note 2) to 11.00% at April 30, 2009. Maturities are at various dates through 2056. The loans and mortgages are secured by the respective real estate and in some cases guarantees of the President of the Company (see note 4).
$115,821,355
$96,037,215
Note payable to Ford Credit at a rate of .9% secured by a vehicle.
11,708
17,736
Development fee note payable to a partner in Rockland Place is non-interest bearing with no specific repayment terms (see note 2).
230,000
230,000
$116,063,063
$96,284,951
By arrangement with the Lender, the Company was not charged and has not paid any interest for the year ended April 30, 2009 for the shopping center in North Adams, Massachusetts. This will continue until an
escrow is fully funded to finance renovation of the remaining vacant space in the center. We project that this will happen approximately by August 1, 2009. At that time, mortgage interest of 5.5% will start on the $12,575,000 mortgage.
In connection with the development and construction of a shopping center in the City of Edinburg, Texas, the Company has entered into an Economic Development Agreement with the City. Under the terms of the agreement, the Company may receive reimbursements from various programs provided by the City which will be used to repay the outstanding construction loan and/or mortgage associated with the shopping center. Maximum reimbursements are as follows:
FIRST HARTFORD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED APRIL 30, 2009 AND 2008
3. Construction Loans, Mortgages, and Notes Payable (continued):
TIF
$ 4,000,000
Public Infrastructure Cost Reimbursement payable from the proceeds of Tax Incremental Financing (TIF) bonds once the applicable phase of the Project is complete and generates increases in real estate taxes producing a 1.35 debt service coverage on the TIF bonds (estimated $2,000,000 per year for fiscal years 2010 and 2011).
Grant
4,000,000
A "380 Grant" in the amount of the difference between $8,000,000 and the TIF amount. Payable semi-annually on 3/31 and 9/30 from ½ of the City's share of sales tax revenue of 1% of sales generated at the center
EEDC
Grant
4,000,000
EEDC Initial Incentive Commitment - payable semi-annually on 3/31 and 9/30 from EEDC sales tax revenue of ½% of sales of sales generated at the center.
Total
$12,000,000
For the years ended April 30, 2009 and 2008, the Company capitalized interest charges for property under construction totaling $1,557,590 and $984,451, respectively.
Aggregate principal payments due on the above debt during the next five years are as follows:
Year Ending April 30
$4,601,043
34,841,585
1,365,053
1,656,384
1,496,852
Thereafter
72,102,146
$116,063,063
4. Pledge of Stock Subsidiaries:
For an extended period of time the Company was unable to obtain financing (secured or unsecured) without the personal guarantees of the President of the Company. To some degree, the Company has recently been able to obtain financing without a guarantee but it continues to be a necessary component to most construction loans. In the past, the Company has provided pledges of the stock of its subsidiaries to the President of the Company as protection from personal losses due to his guarantees. These pledges are expected to stay in place until the guarantees are eliminated.
FIRST HARTFORD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED APRIL 30, 2009 AND 2008
4. Pledge of Stock Subsidiaries (continued):
The President of the Company has guaranteed the following outstanding amounts at April 30, 2009:
A Letter of Credit of $342,000 for the Rockland, MA project was issued against a $2,000,000 line which expired in June 2009. The collateral was replaced with cash.
In the event that the President is called upon to pay on any of the above guarantees, the Company would become liable to him.
5. Related Party Transactions:
Amounts included in revenue resulting from transactions with Hartford Lubbock Parkade LLP (in which the Company has a 2% minority interest), and Journal Publishing Inc, a company which is owned by the President of the Company and his wife are as follows:
Management Fees
$57,993
$70,372
Service Fees
23,739
213,787
Total
$81,732
$284,159
The President of the Company and his wife also own a small residential property (MIP 16A Corp) which the Company no longer manages. In fiscal year end April 30, 2008, the Company received approximately $13,000 in management fees.
6. Stock Option Plan:
On February 11, 2004 the Company adopted a stock option plan providing for the grant of up to 1,000,000 shares. The Company granted options to purchase 250,000 shares to five employees, two of whom are directors. The options, which have a two year vesting period, were granted at $1.10 per share. The right to exercise the option expires February 11, 2014. The options include a “put option” that requires the Company to purchase the exercised shares for $1.30 in excess of the grant price. The cost of the deferred stock compensation was $325,000 which has been expensed fully in prior periods. The put option expires 5 years after the stock option is fully vested.
FIRST HARTFORD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED APRIL 30, 2009 AND 2008
6. Stock Option Plan (continued):
During the years ended April 30, 2009 and 2008, no options were granted or exercised and no compensation expense has been recognized. The aggregate intrinsic value of outstanding options as of April 30, 2009 was approximately $325,000.
7. Employee Retirement Plan:
The Company has adopted a Simple IRA. Under this plan, all employees over 18 years of age, working at least 30 hours weekly are eligible to participate. Participants are eligible to defer earnings to the extent of IRS regulations. The Company matches up to 3% of each participating employee’s annual salary. Pension expense was $65,953 and $55,020 for 2009 and 2008, respectively.
8. Income Taxes:
The provision for (benefit from) income taxes is comprised of the following:
Current provision for state taxes
$(39,717)
$61,580
Current provision for federal income tax
- 0 -
Deferred income taxes (benefit)
400,000
350,000
$360,283
$ 411,580
The components of the net deferred tax asset are as follows:
Tax effect of net operating loss carry forward
$3,372,000
$2,672,000
Tax effect of accrued derivative liability
686,000
281,000
Valuation allowance
(2,820,000)
(1,315,000)
$1,238,000
$1,638,000
The Company will only recognize a deferred tax asset when, based on 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 April 2009 and 2008, the Company concluded that it was more likely than not that the Company would realize $1,238,000 and $1,638,000, respectively, in deferred tax assets. Accordingly, the Company increased its valuation allowance by $1,505,000 and $542,000 in 2009 and 2008, respectively. The Company has federal net operating loss carryforwards totaling approximately $9,740,000 at April 30, 2009 that are available to
FIRST HARTFORD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED APRIL 30, 2009 AND 2008
8. Income Taxes (continued):
offset future federal taxable income through various periods expiring between 2012 and 2024.
As disclosed in Note 1, the Company adopted the provisions of FASB Interpretation No 48, “Accounting for Uncertainty in Income Taxes” (FIN 48) on May 1, 2007. There was no cumulative effect of the change in accounting principle upon adoption of FIN 48 as the Company had no uncertain tax positions before and after implementation.
9. Income (Loss) Per Share:
Basic income (loss) per share is computed by dividing the net income (loss) attributable to the common stockholders (the numerator) by the weighted average number of shares of common stock outstanding (the denominator) during the reporting periods. Diluted income (loss) per share is computed by increasing the denominator by the weighted average number of additional shares that could have been outstanding from securities convertible into common stock, such as stock options and warrants (using the "treasury stock" method). The effect of computing diluted loss per share for the years ended April 30, 2009 and 2008 is antidilutive and, as such, basic and diluted loss per share is the same.
10. Leases:
The Company leases commercial and residential real estate to tenants under various operating leases expiring through 2027.
Minimum future rentals to be received on non-cancellable commercial real estate leases as of April 30, 2009 for each of the next five years are as follows:
FIRST HARTFORD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED APRIL 30, 2009 AND 2008
11. Investments in Affiliates:
The Company has investments in four unconsolidated noncorporate joint ventures, three of which own shopping centers. Dover Parkade, LLC, Cranston Parkade, LLC and Trolley Barn Associates are accounted for on the Equity Method. Hartford Lubbock Parkade, LLP is accounted for at cost.
Selected information is as follows:
Dover - New Jersey:
Operating data - April 30.
Company ownership - 50% investment at inception was $147,500.
(Audited)
(Audited)
Assets
$13,713,493
$13,893,006
Liabilities
19,627,775
19,942,720
Members’ deficit
(5,914,282)
(6,049,714)
Revenue
2,418,810
2,544,247
Operating expenses
951,801
1,006,499
Non-operating income (expense)
(1,039,577)
(1,069,812)
Net income
427,432
467,936
The property’s major tenant is Stop & Shop, which provided 53% of the total revenue in fiscal 2009 under a lease that expires June 30, 2026.
Cranston - Rhode Island:
Operating data - December 31
Company ownership - 25% investment at inception was $700,000, with $1,375,000 at renegotiation of terms and $3,000,000 upon an additional purchase of 25% interest in April, 2005.
(Audited)
(Audited)
Assets
$25,835,689
$25,890,601
Liabilities
34,999,483
35,532,644
Partners deficit
(9,163,794)
(9,642,043)
Revenue
4,608,670
4,622,072
Operating expenses
2,171,155
2,193,612
Non-operating income (expense)
(1,950,011)
(1,973,167)
Net income
487,504
455,293
The property has two major tenants, Stop & Shop and Kmart which provided approximately 63% of total revenue in 2008 under leases that expire October 30, 2021 and May 30, 2027, respectively.
FIRST HARTFORD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED APRIL 30, 2009 AND 2008
11. Investments in Affiliates (continued):
Trolley Barn:
The Company owns a 50% interest in the partnership that owns 7 acres of vacant land in Cranston, Rhode Island.
Hartford Lubbock:
The Company owns a 1.99% general partner interest in the partnership which is managing agent for a shopping center in Lubbock, Texas. The remaining interest is owned by Lubbock Parkade, Inc., a wholly owned subsidiary of Journal Publishing, Inc., which is owned by the Company's President and his wife.
12. Financial Instruments:
Concentrations of Credit Risk
The Company’s financial instruments that are subject to concentrations of credit risk consist of cash and cash equivalents, marketable securities and accounts and CVS related receivables.
The Company places its cash deposits, including investments in certificates of deposit, with various financial institutions. Bank deposits may be in excess of current federal depository insurance limits.
At April 30, 2009 the Company had $1,146,679 of marketable securities. These securities are preferred dividend paying shares of major money center banks. As with all other equity securities they are subject to the volatility of the stock market. The consolidated subsidiary owning $927,045 of these securities is 50% owned by others, and both the risk and reward will be shared by the non-controlling partner.
The Company assesses the financial strength of its tenants prior to executing leases and typically requires a security deposit and prepayment of rent. The Company establishes an allowance for doubtful accounts receivable based upon factors surrounding the credit risk of specific tenants, historical trends and other information. Approximately 16% and 18% of the Company's rental income is from Katharine Gibbs
College in 2009 and 2008, respectively. As previously reported Gibbs College will close on December 31, 2009. Its lease is guaranteed by its parent company - Career Education.
The Company assesses the financial strength of CVS prior to incurring costs in connection with the development of CVS pharmacy stores. Based on historical experience and other information, no allowance for doubtful accounts is considered necessary by management as of April 30, 2009.
Fair Value of Financial Instruments
SFAS No. 107, “Fair Value of Financial Instruments”, requires disclosure of the fair value of financial instruments for which the determination of fair value is practicable. SFAS No. 107 defines the fair value of a financial instrument as the amount at which the instrument could be exchanged in a current transaction between willing parties.
FIRST HARTFORD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED APRIL 30, 2009 AND 2008
12. Financial Instruments (continued):
Fair Value of Financial Instruments (continued):
The carrying amount of the Company’s financial instruments approximates their fair value as outlined below.
The carrying amount of cash, marketable securities, accounts and notes receivable, CVS related receivables and payables, and accounts payable approximate their fair value because of the short maturity of these instruments.
Mortgages and notes payable: The carrying amounts approximate their fair value as the interest rates on the debt approximates the Company’s current incremental borrowing rate.
Fair Value Measurements
Fair Value Hierarchy
SFAS No. 157 specifies a hierarchy of valuation techniques based upon whether the inputs to those valuation techniques reflect assumptions other market participants would use based upon market data obtained from independent sources (also referred to as observable inputs). In accordance with SFAS No. 157, the following summarizes the fair value hierarchy:
Level 1 - Quoted prices in active markets that are unadjusted and accessible at the measurement date for identical, unrestricted assets or liabilities;
Level 2 - Quoted prices for identical assets and liabilities in markets that are not active, quoted prices for similar assets and liabilities in active markets or financial instruments for which significant observable inputs are available, either directly or indirectly such as interest rates and yield curves that are observable at commonly quoted intervals; and
Level 3 - Prices or valuations that require inputs that are unobservable.
In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the level in the fair value hierarchy within which the fair value measurement in its entirety falls has been determined based on the lowest level input that is significant to the fair value measurement in its entirety. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset or liability.
Items Measured at Fair Value on a Recurring Basis
Marketable securities are marked to market based upon the last sale of the period obtained from recognized stock exchanges. Interest rate swaps (derivatives) are valued by an estimate of the net present value of the expected cash flows from each transaction between the Company and Counterparty using relevant mid-market data inputs and based on the assumption of no unusual market conditions or forced liquidation.
FIRST HARTFORD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED APRIL 30, 2009 AND 2008
12. Financial Instruments (continued):
Fair Value Measurements (continued):
13. Derivative Instruments:
During fiscal year 2006, the Company entered into two separate floating-to-fixed interest rate swap agreements with a bank which expire in June 2015 and July 2031. The Company has determined that these derivative instruments do not meet the requirements of hedge accounting and have therefore recorded the change in fair value of these derivative instruments through income in the consolidated statement of operations. The loss on derivatives incurred during the years ended April 30, 2009 and 2008 totaled $2,022,514 and $1,396,336, respectively, and the Company has recorded a liability of $3,427,515 and $1,405,001 in the consolidated balance sheets, which represents the fair value of the interest rate swaps as of April 30, 2009 and 2008, respectively.
14. Litigation:
Richard E. Kaplan v. First Hartford Corporation
A dissident shareholder (Richard E. Kaplan) has filed a complaint against both the Company and Neil H. Ellis individually.
The complaint was filed in the United States District Court for the District of Maine on or about September 15, 2005 and is styled as Kaplan v. First Hartford Corporation and Neil Ellis, No. 05-144-DBH.
The complaint alleged that the Company, under the direction and control of [Neil] Ellis, acted and continues to act in ways that are illegal, oppressive and fraudulent. The core of the allegations appear to maintain that the Company has been hurt because of alleged self-dealing and/or usurpation of Company opportunities by Mr. Ellis to his personal benefit.
The lawsuit seeks relief in equity pursuant to Maine statutes 13-C M.R.S.A. Sections 1430, 1431 (3) and 1433 or alternatively per 13-C M.R.S.A. Sections 1430 and 1434. The relief sought several possible remedies including recovery of unspecified damages for alleged wrong doing, purchase of the plaintiff shares (or other shareholders wanting to sell) for an unspecified “fair value”, the rescission of certain unspecified transactions between the Company and Mr. Ellis and related entities or the liquidation of the Company. The complaint also sought to have a receiver appointed to run the Company pending the outcome of the litigation.
FIRST HARTFORD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED APRIL 30, 2009 AND 2008
14. Litigation (continued):
Richard E. Kaplan v. First Hartford Corporation (continued):
A trial on the merits occurred on November 6th and 7th of 2006 and a "Findings of Fact And Conclusions of Law" (the "Findings") dated April 2, 2007 (Kaplan v. First Hartford Corp., 2007 U.S. Dist. LEXIS 24826) was rendered by the Court.
The Findings found in favor of the Company and Mr. Ellis on all counts (i.e. fraud, illegality, corporate misapplication or waste) excepting the count of oppression in which it found in favor of the Plaintiff and against both the Company and Mr. Ellis.
Until the remedy phase is concluded, the Company has been advised (by counsel) that the Findings do not constitute a final judgment from which an immediate appeal might be taken. The Company will continue to explore its options (including possible appeal) at the appropriate time.
As a result of the Findings, the possible available remedies include, but are not necessarily limited to, a buy-out of the Plaintiff's holdings for a "fair value" figure (to be determined by the Court) and possible dissolution of the Company. By order of the Court dated May 21, 2007, the Court denied the Company's request to remove dissolution as a possible remedy.
A hearing on “fair value” was held on July 24 and 25, 2008. On March 20, 2009, the United States District Court- District of Maine issued a finding of Fact and Conclusions of Law Part 2: Valuations. The Court determined that as of September 15, 2005 (the Fair Value Date) Mr. Kaplan shares (591,254) were valued at $4.87 a share but did not determine terms of payment. The Court has appointed a Special Master to recommend terms of repayment (report due by September 15, 2009). An obligation to redeem in the amount of $2,900,000 has been recorded as of April 30, 2009.
Parkade Center, Inc. v. Simon Property Group (Texas), L.P. and Simon Property Group (Delaware), Inc.
On March 21, 2008, the Company terminated the Simon Litigation. At the time of termination of the Simon Litigation, the Company entered into separate agreements with Simon pursuant to which for a
period of five years tenants of certain Simon properties will not be restricted from operating stores in the Company’s shopping center in Edinburg, Texas, and the Company will provide to Simon for a period of up to five years a right of first offer on any future sale by the Company of its Edinburg shopping center, for which the Company received from Simon a one-time payment of $4.0 million. This resulted in a gain in fiscal year 2008 of $1,636,103, net of legal fees incurred.
Other Proceedings
The Company is also involved in other legal proceedings which arise during the normal course of its business, including disputes over tax assessments, commercial contracts, lease agreements, construction contracts and personal injuries, but the Company does not believe that any of these proceedings will have a material impact on its consolidated financial statements.
FIRST HARTFORD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED APRIL 30, 2009 AND 2008
15. Subsequent Events:
On August 4, 2009, the Company sold a shopping center under development in Bangor, Maine to Shaw’s Supermarkets. Shaw’s had a lease on the property but refused to build its building, denying the Company the ability to lease approximately 8,000 s.f. to other tenants. The Company received $4,300,000 and paid off the construction loan of approximately $3,400,000. The Company made a small marginal profit on the transaction.
16. Quarterly Data (unaudited):
Following are summaries of quarterly operating and per share data for the years ended April 30, 2009 and 2008. Net loss per share is based on the weighted average common and common equivalent shares outstanding during the quarter. Therefore, the total of net loss per share for the four quarters, when added from the following table, may differ from the per share net loss for the respective total years reported elsewhere in this report.
ITEM 10.
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
(a) Identification of Directors
The directors of First Hartford Corporation, their ages and positions and the periods during which each has served as such are as follows:
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE (continued):
(a) Identification of Directors (continued):
Name
Age
Position
Period of Service
Neil H. Ellis
President
1966 - Present
Stuart I. Greenwald
Treasurer/Secretary
1980 - Present
David B. Harding
Vice President
1998 - Present
There are no arrangements or understandings between any of the foregoing and any other person pursuant to which such person was or is to be selected director or officer.
(b) Identification of Executive Officers
The names and ages of all executive officers of First Hartford Corporation, their positions and the periods during which each has served as such are as follows:
Name
Age
Position
Period of Service
Neil H. Ellis
President
1966 - Present
Stuart I. Greenwald
Treasurer/Secretary
1980 - Present
David B. Harding
Vice President
1998 - Present
There are no arrangements or understandings between any of the foregoing and any other person pursuant to which such person was or is to be selected director or officer.
(c) Identification of Certain Significant Employees
Name
Age
Position
Period of Service
John Toic
Vice President
2003- Present
(d) Family Relationships
There are no family relationships among any directors or executive officers.
(e) Business Experience
1. The following is a brief description of the background of each director or executive officer:
Mr. Ellis has been President of the Company since inception. He is also President and Director of Green Manor Corporation, a holding company (which includes Journal Publishing Inc., Lubbock Parkade Inc. and MIP 16A Corp.), owned by him and his wife.
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE (continued):
(e) Business Experience (continued):
Mr. Greenwald has been Treasurer of the Company since 1980 and also holds the position of Secretary.
Mr. Harding has been a Vice President of the Company since 1998. Additionally, he has been the President or Vice President of Richmond Realty, LLC (“Richmond”) a Real Estate Management Company owned by he and his wife since January 1996. Prior to that, he had worked for the Company in the area of finance for three years. In the past, Richmond has managed certain properties of the Company. Richmond Realty has been inactive since 2007 and has been dissolved.
2. Directorships:
No directors hold any other directorships, except directorships in subsidiaries of the Company and the aforementioned Green Manor Corporation.
(f) Involvement in Certain Legal Proceedings:
No director or executive officer has been involved in legal proceedings required to be disclosed under item 401(f) of Regulation S-K promulgated by the Commission except for the Kaplan legal proceedings discussed in Item 3.
(g) Promoter and Control Persons:
Not applicable.
(h) Audit Committee Financial Expert:
First Hartford does not have an audit committee and accordingly its entire Board of Directors attempts to fulfill the functions of an audit committee. Mr. Ellis, Mr. Greenwald and Mr. Harding are members of our management and Mr. Ellis has various business relationships with First Hartford described under “Certain Relationships and Related Transactions”, in Item 13. Thus, none of the members of the Board of Directors meet the criteria for independence established by the New York Stock Exchange or other self-regulating stock exchanges. First Hartford does not otherwise meet the eligibility requirements for listing on the NYSE or with such other self-regulating stock exchanges.
(i) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires the Company’s directors and executive officers, and persons who own more than 10% of a registered class of the Company’s equity securities, to file with the Commission initial reports of beneficial ownership on Form 3 and reports of changes in beneficial ownership of the Company’s equity securities on Forms 4 or 5. The rules promulgated by the Commission under Section 16(a) of the Exchange Act require those persons to furnish the Company with copies of all reports filed with the Commission pursuant to Section 16(a). Based solely upon a review of such forms actually furnished to the Company, and written representations of certain of the Company’s directors and executive officers that no forms were required to be filed, the Company believes that during fiscal year 2009, all directors, executive
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE (continued):
(i) Beneficial Ownership Reporting Compliance (continued):
officers and 10% shareholders of the Company have filed with the Commission on a timely basis all reports required to be filed under Section 16(a) of the Exchange Act.
(j) Code of Ethics
The Company’s Code of Ethics, applicable to the Company’s principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, was included in the second quarter 10-Q filed on December 19, 2005. The Company will provide any person, without charge, a copy of any portion of the Code of Ethics upon request directed to the Office of the Treasurer and Secretary of the Company.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
(a)
Summary Compensation Table
Name
& Principal Position
Year
Salary
Bonus
Stock 	
	Awards
Option 	
	Awards
Non-Equity 	
	Incentive Plan
	Compensation
Non-qualified 	
	Deferred
	Compensation
	Earnings
All Other 	
	Compensation
Total
Neil H. Ellis
Director and President (CEO)
$251,053
$- 0 -
$- 0 -
$- 0 -
$- 0 -
$- 0 -
$- 0 -
$251,053
$250,000
$- 0 -
$- 0 -
$- 0 -
$- 0 -
$- 0 -
$- 0 -
$250,000
Stuart I. Greenwald
Director, Treasurer and Secretary
$150,000
$- 0 -
$- 0 -
$- 0 -
$- 0 -
$- 0 -
$- 0 -
$150,000
$150,000
$- 0 -
$- 0 -
$- 0 -
$- 0 -
$- 0 -
$- 0 -
$150,000
David B. Harding
Director and Vice President
$176,053
$- 0 -
$- 0 -
$- 0 -
$- 0 -
$- 0 -
$- 0 -
$176,053
$175,000
$- 0 -
$- 0 -
$- 0 -
$- 0 -
$- 0 -
$- 0 -
$175,000
(b) Stock Options
The Company has a stock option plan which was approved and ratified by the shareholders of the Company. The Company does not have a formal schedule for issuing options. In the last 25 years, the Company awarded an aggregate of 250,000 options in increments of 50,000 options each to 5 long term employees; such options were awarded in February 2004. Mr. Harding and Mr. Greenwald were included in these employees. The options fully vested in February of 2006 and expire February 11, 2014. These options have never been repriced.
ITEM 11. EXECUTIVE COMPENSATION (continued):
(b) Stock Options (continued):
(c) Benefits and Prerequisites
Medical
All employees, including executive officers, working over 30 hours a week are entitled to Company paid medical insurance of which the employee pays, family $50 a week, employee and spouse $35 a week and employee $20 a week.
Mr. Ellis has opted out of the Company plan and is covered by Medicare.
Disability
All employees, including executive officers, are covered up to 60% of wages, up to $10,000 monthly.
Management Employees, as defined by the Company, and including executive officers, will be paid for all sick time up to three months unless extended by the Board of Directors. In the event that it is extended beyond six months, the Company will pay the difference between full pay and Long Term Disability.
Life Insurance
Each employee of First Hartford, including executive officers, is eligible to receive life insurance that, in the event of such employee’s death, will provide proceeds of two times the annual salary of each employee until such employee reaches the age of 70. At the age of 70, the amount of life insurance proceeds each employee is entitled to receive upon his or her death is equal to one times such employee’s annual salary.
ITEM 11. EXECUTIVE COMPENSATION (continued):
(d) Automobiles
To assist management of the Company in carrying out its responsibilities and to improve job performance, the Company provides its executive officers with automobiles. The Company cannot specifically or precisely ascertain the amount of personal benefit, if any, derived by those officers from such automobiles. However, after reasonable inquiry, the Company has concluded that the amount of any such personal benefit is immaterial and does not in any event exceed $10,000 to any officer. No provision has therefore been made for any such benefit. All of the above mentioned officers are provided automobiles.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
(a) Security Ownership of Certain Beneficial Owners - per SEC filings:
The following table sets forth information as of the date hereof with respect to all persons known to the Company to be beneficial owners of more than 5% of the Company’s outstanding shares of common stock:
Title
Name & Address of Amount and Nature (4)
Of
Beneficial Owner or of Beneficial Percent
Class
Identity of Group Ownerships of Class
Common Stock
Neil H. Ellis 1,332,687 (1) 40.6%
43 Butternut Road
Manchester, CT 06040
Common Stock
Richard Kaplan 591,254 (2) 18.0%
2345 Washington St.
Newton, MA 02462
Common Stock
David Kaplan 56,151 (2) 1.7%
257 East Center St.
Manchester, CT 06040
Common Stock
John Filippelli 276,906 (3) 8.4%
85 Pawling Lake
Pawling, NY 12564
Common Stock
Joel Lehrer 192,837 5.9%
231 Atlantic Street, #58
Keyport, NJ 07735-2044
(1) Includes 416,483 shares owned by a corporation, which is wholly owned by Mr. & Mrs. Ellis: 17,693 shares owned beneficially and of record by Mr. Ellis’ wife; 53,412 shares held as Trustee for his daughters in which he disclaims beneficial ownership. Excludes 14,250 shares held as Trustee for the Jonathan G. Ellis Leukemia Foundation (a charitable foundation).
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS (continued):
(a) Security Ownership of Certain Beneficial Owners - per SEC filings (continued):
(2) Included in Mr. Richard Kaplan’s shares are 445,535 shares over which both he and David Kaplan have Shared Dispositive Power.
(3) Included in Mr. Filippelli’s shares are 179,668 shares over which he has Shared Dispositive Power and 33,575 owned by Mr. Filippelli's wife.
(4) Percent of class calculation includes options for 250,000 shares.
(b) Security Ownership of Directors and Executive Officers:
The following table sets forth information as of the date hereof with respect to all shares beneficially owned by all directors and executive officers of the Company as a group:
Title
	Of
	Class
Name & Address of
	Beneficial Owner of
	Identity of Group
Amount and Nature
of Beneficial
	Ownerships
Percent
	of Class
Common
Neil H. Ellis
43 Butternut Road
Manchester, CT 06040
1,332,687(1)
40.6%
Common
All Directors and Officers
As a Group (3 in number)
1,432,687 (5)
43.7%
(5) Included in shares of officers and directors are options for 100,000 shares for David Harding and Stuart Greenwald.
(c) Changes in Control
The Company is aware of no arrangements, which may result at a subsequent date in change in control of the Company.
(d) Equity Compensation Plan Information
Information for our equity compensation plans in effect as of April 30, 2009 is as follows:
(a)
(b)
(c)
Plan category
Number of securities to
be issued upon exercise of 	
	outstanding options,
	warrants and rights.
Weighted-average
exercise price of
outstanding options, 	
	warrants and rights
Number of securities
remaining available 	
	for future issuance under
equity compensation plans 	
	(excluding securities
	reflected in column (a))
Equity compensation plans approved by security holders
250,000
$1.10 (1)
750,000
Equity compensation plans not approved by security holders
Total..
250,000
$1.10
750,000
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS (continued):
(d) Equity Compensation Plan Information (continued):
(1) The options include a "put option" that requires the Company to purchase the exercised shares for $1.30 in excess of the grant price. The put option expires five years after the stock options become exercisable.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE
(a) Parkade Center Inc. (a wholly owned subsidiary of First Hartford Corporation) has a .0199% interest in Hartford Lubbock Parkade LP, a partnership, which owns a shopping center in Lubbock, Texas. Lubbock Parkade Inc., a wholly owned subsidiary of Journal Publishing Inc. owns .9801% of the Partnership. Journal Publishing Inc. is owned by Neil Ellis, the president and chairman of First Hartford Corporation, and his wife Elizabeth. First Hartford Realty Corporation manages the property and receives a 4% management fee, which is the industry norm for a shopping center.
For the year ended April 30, 2009, Parkade Center Inc. and First Hartford Realty Corporation were paid the following:
Management Fee (at 4%)
$57,993
Miscellaneous Service
23,739
For the year ended April 30, 2009, Parkade Center Inc. received distributions of $3,104 and Lubbock Parkade Inc. received distributions in that period of $152,940 from Hartford Lubbock LP.
Mr. and Mrs. Ellis also own a small residential property (40 apartment units) in Enfield, Connecticut that the Company no longer manages.
(b) Certain Business Relationships:
Refer to (a) above.
(c) Indebtedness of Management:
There is none.
(d) Transactions with Promoters:
There are none.
(e) Director Independence:
Neil Ellis, David Harding and Stuart Greenwald are all employees of the Company and by definition are not independent. The Company does not have any directors that meet the independence standards for audit, nominating or compensation committee.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE (continued):
(e) Director Independence (continued):
The Company’s securities are not listed on a national securities exchange or in an inter-dealer quotation system, which has a requirement that a majority of the Board of Directors be independent.
ITEM 14.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
Set forth below is a summary of the fees paid for the fiscal year ended April 30, 2009 and 2008 to First Hartford’s principal accounting firm, CCR LLP.
Audit Fees
$104,000
$112,000
Audit Related Fees
24,000
26,265
All Other Fees
6,353
2,131
Audit Related Fees
Audit fees - unconsolidated subsidiaries
$24,000
$23,000
Accounting research
- 0 -
$ 3,265
$24,000
$26,265
The Board of Directors has:
(a) reviewed and discussed our audited financial statements;
(b) discussed with our independent auditors the matters required to be discussed by AU 380 (Communication with Audit Committees)
(c) received the written disclosures and the letter from our auditors required by Independence Standards Board Standard No. 1 (Independence Discussions with Audit Committees) and discussed the independence of our auditors with our independent auditors.
Based on the review and discussions described above, the Board of Directors approved the inclusion of our audited financial statements in our Annual Report on Form 10-K for the fiscal year ended April 30, 2009.
Neil H. Ellis
Stuart I. Greenwald
David B. Harding
PART IV
ITEM 15.
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES (continued):
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES (continued):
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES (continued):
(16) Not Applicable
(17)
Information from Reports furnished to State Insurance Regulatory Authorities.
Not Applicable.
(18) Exhibit 31.1
(19) Exhibit 31.2
(20) Exhibit 32.1
(21) Exhibit 32.2
(c)
Other Financial Statements-Non-consolidated subsidiaries
Cranston/BVT Associates Limited Partnership
Dover Parkade LLC
S I G N A T U R E S
Pursuant to the requirements of Section 13 or 15(d) 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.
Dated: August 28, 2009
FIRST HARTFORD CORPORATION
By: /s/ Neil H. Ellis
Neil H. Ellis
President
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON FINANCIAL STATEMENT SCHEDULES
To the Board of Directors and
Shareholders of First Hartford Corporation
We have audited the consolidated financial statements of First Hartford Corporation and subsidiaries (the “Company”) as of April 30, 2009 and 2008, and for the years then ended, and have issued our report thereon dated August 27, 2009; such consolidated financial statements and report are included elsewhere in this Form 10-K. Our audit also included the financial statement schedules of First Hartford Corporation and subsidiaries, listed in item 15. These financial statement schedules are the responsibility of the Company’s management. Our responsibility is to express an opinion based on our audits. In our opinion, such financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein.
/s/ CCR LLP
Glastonbury, Connecticut
August 27, 2009
First Hartford Corporation and Subsidiaries
Schedule II
Valuation And Qualifying Accounts
For The Years Ended April 30, 2009 and 2008
Description
Balance at
	beginning of year
Charged to 	
	costs and expenses
Charged to 	
	other accounts
- describe
Deductions
Describe
Balance at 	
	end of year
Year ended April 30, 2009:
Allowance for doubtful accounts receivable
$70,000
$62,226
$- 0 -
(a)
$88,226
$44,000
Allowance for deferred tax assets
$1,315,000
$1,505,000
$- 0 -
$- 0 -
$2,820,000
Year ended April 30, 2008:
Allowance for doubtful accounts receivable
$14,000
$65,845
$- 0 -
(a)
$9,845
$70,000
Allowance for deferred tax assets
$773,000
$542,000
$- 0 -
$- 0 -
$1,315,000
(a) Write off of specific accounts receivable.
First Hartford Corporation and Subsidiaries
Schedule III
Real Estate and Accumulated Depreciation
April 30, 2009
(1) Does not include the mortgage on the building housing the Company’s main office.
FIRST HARTFORD CORPORATION AND SUBSIDIARIES
SCHEDULE IV
MORTGAGE LOANS ON REAL ESTATE
APRIL 30, 2009
Description
Mortgage
Loans
Interest Rate
Final
Maturity Date
Periodic
Payment Terms
Prior
Liens
Face
Amount of Mortgages
Carrying
Amount of
Mortgages
Principal
Amount of
Loans Subject to Delinquent
	Principal or Interest
Putnam Parkade, CT
5.52%
$31,867 Principal & Interest Monthly Estimate due at Maturity $4,679,000
None
$5,600,000
$5,247,393
	-
North Adams
North Adams, MA
5.50%
No interest due until escrow acct fully funded Anticipated 8/2009, then interest payments will begin
None
12,575,424
12,575,424
	-
Plainfield Parkade, CT
5.875%
Call date
12/1/2014
$ 33,177 Principal & Interest Monthly Estimate due at call date $4,123,000
None
5,300,000
4,854,419
	-
Union Street West Springfield, MA
5.52%
$52,637 Principal & Interest Monthly Estimate due at Maturity $7,745,000
None
9,250,000
8,667,546
	-
Office
Manchester, CT
7.00%
$ 2,617 Principal & Interest Monthly
None
335,000
273,399
	-
Gibbs College
6.11%
$67,884 Principal & interest monthly Estimate due at Maturity $9,377,000
None
11,700,000
10,964,070
-
Police Station
Cranston, RI
6.41%
$68,245
Principal & interest monthly
None
10,100,000
9,675,144
-
FIRST HARTFORD CORPORATION AND SUBSIDIARIES
SCHEDULE IV
MORTGAGE LOANS ON REAL ESTATE
APRIL 30, 2009
(continued)
Description
Mortgage
Loans
Interest Rate
Final
Maturity Date
Periodic
Payment Terms
Prior
Liens
Face
Amount of Mortgages
Carrying
Amount of
Mortgages
Principal
Amount of
Loans Subject to Delinquent
	Principal or Interest
Rockland Place, Rockland, MA
7.937%
$27,512
Principal & interest paid monthly
None
2,409,018
2,054,847
-
Rockland Place, Rockland, MA
11.00%
$2,321 Principal & interest paid monthly
None
178,677
156,090
-
Rockland Place,
Rockland, MA
5.36%
Principal & all accrued interest due 01/01/24
None
18,315,482
1,828,910
-
Rockland Place
Rockland, MA
7.250%
$39,040
Principal & Interest paid monthly
None
$5,700,000
$5,662,698
-
Rockland Place, Rockland, MA
0.00%
Non-interest bearing
Due at Maturity
None
500,000
500,000
-
Rockland Place, Rockland, MA
0.00%
Flexible subsidy capital improvement loan
Payable upon surplus cash or at maturity
None
4,268,539
4,268,539
-
$66,728,479
CRANSTON/BVT ASSOCIATES LIMITED PARTNERSHIP
FINANCIAL STATEMENTS
AS OF AND FOR THE YEARS ENDED
DECEMBER 31, 2008 AND 2007
TOGETHER WITH
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
CRANSTON/BVT ASSOCIATES
LIMITED PARTNERSHIP
Page
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
FINANCIAL STATEMENTS
Balance Sheets
Statements of Operations
Statements of Changes in Partners’ Capital (Deficit)
Statements of Cash Flows
Notes to Financial Statements
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Partners of Cranston/BVT Associates Limited Partnership: We have audited the accompanying balance sheets of Cranston/BVT Associates Limited Partnership (the "Partnership") as of December 31, 2008 and 2007, and the related statements of operations, changes in partners’ capital (deficit), and cash flows for the years then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Partnership is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Partnership's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Cranston/BVT Associates Limited Partnership as of December 31, 2008 and 2007, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.
Glastonbury, Connecticut
August 14, 2009
CRANSTON/BVT ASSOCIATES LIMITED PARTNERSHIP
Notes To Financial Statements
For The Years Ended December 31, 2008 and
Note 1 - Summary of Significant Accounting Policies
Nature of Business
On September 26, 2000, Cranston/BVT Associates LLP (the “LLP”) was formed, under the laws of the Rhode Island Revised Uniform Partnership Act. The LLP was formed to acquire an interest in real property located in Cranston, Rhode Island, and to construct and operate thereon a retail commercial shopping center. On July 29, 2002, the partners elected to convert the LLP into a Rhode Island Limited Partnership and changed the name to Cranston/BVT Associates Limited Partnership (the “Partnership”).
Financial Statement Presentation
Consistent with accepted practice in the real estate industry, the accompanying 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 amounts of assets and liabilities, the disclosure of contingent assets and liabilities at 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.
Revenue Recognition
Rental income is recognized on a straight-line basis over the terms of the respective leases and consists of base rent and reimbursements for certain costs such as real estate taxes, utilities, insurance, common area maintenance and other recoverable costs as provided for in the lease agreements. Rent receivable recorded in the accompanying balance sheets represents the amount of rental income recognized on a straight-line basis over the term of the related leases in excess of actual rental payments received. There are no contingent rents.
Real Estate and Improvements
Real estate and improvements thereon are stated at cost. The Partnership's real estate has been pledged as security for a mortgage note payable (see Note 3).
Buildings and improvements thereon are depreciated using the straight line method over an estimated useful life ranging from ten to forty years. Depreciation and amortization expense on real estate and improvements for the years ended December 31, 2008 and 2007 was $638,884 and $633,389 respectively.
- 6 -
CRANSTON/BVT ASSOCIATES LIMITED PARTNERSHIP
Notes To Financial Statements
For The Years Ended December 31, 2008 and
Note 1 - Summary of Significant Accounting Policies (Continued)
Cash and Cash Equivalents
The Partnership considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. The Partnership maintains cash and restricted cash, consisting of mortgage escrow accounts and tenant security deposits, with various financial institutions, the balance of which may periodically exceed current federal depository insurance limits. Management regularly monitors the financial institutions, together with its cash balances, and attempts to keep this potential risk to a minimum. At December 31, 2008, cash equivalents totaled $1,045,122 and consisted of various money market accounts. At December 31, 2007, cash equivalents totaled $370,309 and consisted of certificates of deposit.
Mortgage Origination Fees
Mortgage origination fees represent legal fees and other costs relating to the acquisition of the Partnership’s mortgage financing. The fees are being amortized on a straight-line basis over the life of the related mortgage note payable.
Amortization expense was $23,524 for each of the years ended December 31, 2008 and 2007. Amortization expense for the next five years is expected to be $23,524 per year.
Leasing Commissions
Leasing commissions are amortized on a straight-line basis over the life of the related leases.
Amortization expense for the years ended December 31, 2008 and 2007 was $39,615 and $33,103, respectively. Amortization expense for the next five years is expected to be as follows:
Tenant Improvements
Tenant improvements represent improvements to lease space made by the Partnership to accommodate the specific needs of tenants. Such improvements are amortized on a straight-line basis over the life of the related tenant lease and recorded as a reduction of rental income. For the years ended December 31, 2008 and 2007, amortization of tenant improvements reduced rental income by $13,262 and $-0-, respectively.
Prepaid rents
Prepaid rents consist of amounts collected from tenants in advance for rent, real estate taxes, and insurance.
- 7 -
CRANSTON/BVT ASSOCIATES LIMITED PARTNERSHIP
Notes To Financial Statements
For The Years Ended December 31, 2008 and
Note 1 - Summary of Significant Accounting Policies (Continued)
Income Taxes
Income or loss of the Partnership is allocated on a pro-rata basis to each partner as defined by the Partnership agreement. Income taxes or credits resulting from the operations of the Partnership are payable by, or accrue to the benefit of, the partners and, accordingly, are not reflected in the Partnership’s financial statements.
Uncertain Tax Positions
In June 2006, the Financial Accounting Standards Board (“FASB”) released FASB Interpretation (“FIN”) No. 48, “Accounting for Uncertainty in Income Taxes.” FIN No. 48 interprets the guidance in Statement of Financial Accounting Standard (“SFAS”) No. 109, “Accounting for Income Taxes.” When FIN No. 48 is implemented, reporting entities utilize different recognition thresholds and measurement requirements when accounting for uncertain tax positions as compared to prior technical literature. On December 30, 2008, the FASB Staff issued FASB Staff Position (“FSP”) FIN No. 48-3, “Effective Date of FASB Interpretation No. 48 for Certain Nonpublic Enterprises.” As deferred by the guidance in FSP FIN No. 48-3, the Partnership is not required to implement the provisions of FIN No. 48 until fiscal years beginning after December 15, 2008. The deferred effective date is intended to provide the FASB with additional time to develop guidance on the application of FIN No. 48 to pass-through entities. As such, the Partnership has not implemented those provisions in its 2008 financial statements.
Since the provisions of FIN No. 48 have not been implemented in accounting for uncertain tax positions, the Partnership continues to utilize its prior policy of accounting for these positions, following the guidance in SFAS No. 5, “Accounting for Contingencies.” Disclosure is not required of a loss contingency involving an unasserted claim or assessment when there has been no manifestation by a potential claimant of an awareness of a possible claim or assessment unless it is considered probable that a claim will be asserted and there is a reasonable possibility that the outcome will be unfavorable. Using that guidance, as of December 31, 2008, the Partnership has no uncertain tax positions that qualify for either recognition or disclosure in the financial statements.
Fair Value Measurements
The Partnership has partially implemented SFAS No. 157, “Fair Value Measurements” for financial assets and financial liabilities. SFAS No. 157 defines fair value, establishes a framework for measuring fair value, expands disclosure requirements of fair value measurements and is effective for fiscal years beginning after November 15, 2007, except as it relates to non-recurring fair value measurements of non-financial assets and liabilities. This standard only applies when other standards require or permit the fair value measurement of assets and liabilities. The Partnership has determined that none of its financial assets or liabilities are measured at fair value on a recurring basis therefore the disclosures required by SFAS No. 157 do not currently apply. With regard to non-financial assets and liabilities which are not recognized or disclosed at fair value in the Partnership's financial statements on a recurring basis (at least annually), the standard is effective for fiscal years beginning after November 15, 2008. The Partnership has determined that, at present, none of its non-financial assets and liabilities will be subject to measurement and disclosure under SFAS No. 157.
- 8 -
CRANSTON/BVT ASSOCIATES LIMITED PARTNERSHIP
Notes To Financial Statements
For The Years Ended December 31, 2008 and
Note 1 - Summary of Significant Accounting Policies (Continued)
Fair Value Measurements (Continued)
In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities - Including an Amendment of FASB Statement No. 115” which permits entities to choose to measure eligible items at fair value at specified election dates and report unrealized gains and losses on items, for which the fair value option has been elected, in earnings at each subsequent reporting date. SFAS No. 159 is effective for fiscal years beginning after November 15, 2007. The adoption of SFAS No. 159 did not have an impact on the Partnership’s results of operations or financial position, as the Partnership has not elected the fair value option for any of its eligible financial assets or liabilities.
Note 2 - Concentrations of Credit Risk
The Partnership's financial instruments that are subject to concentrations of credit risk consist of tenant accounts receivable and rent receivable. The Partnership assesses the financial strength of its tenants prior to executing leases and typically requires a security deposit and prepayment of rent. Tenant accounts receivable represent unpaid base rent and reimbursements of certain costs such as real estate taxes, utilities, insurance and other common area costs. The Partnership establishes an allowance for doubtful tenant accounts receivable based upon factors surrounding the credit risk of specific tenants, historical trends and other information. As of December 31, 2008 and 2007, approximately 76% and 70%, respectively, of the tenant accounts receivable balance was due from four and two tenants, respectively. Rent receivable represents the amount of rental income recognized on a straight-line basis over the term of the related leases in excess of actual rental payments received to date and management does not believe an allowance is necessary. Approximately 63% and 62% of the Partnership's rental income is from two tenants in 2008 and 2007, respectively.
Note 3 - Mortgage Note Payable
The Partnership has a mortgage note payable to a bank in the outstanding principal amount of $34,285,540 and $34,797,383 as of December 31, 2008 and 2007, respectively. The mortgage note payable requires monthly payments of principal and interest totaling $206,737, carries interest at a fixed rate of 5.603% and is secured by the real estate of the Partnership. All principal and accrued interest outstanding at May 2015 is due and payable at that time.
Annual principal payments for each of the next five years and thereafter are as follows:
- 9 -
CRANSTON/BVT ASSOCIATES LIMITED PARTNERSHIP
Notes To Financial Statements
For The Years Ended December 31, 2008 and
Note 4 - Related Party Transaction
The Partnership is party to a property management agreement with Paolino Management, LLC, which is related to a partner of the Partnership. The agreement provides for a management fee of 4% of gross receipts and certain leasing commissions and continues until cancelled by either party.
Note 5 - Leases
The Partnership is the lessor of commercial real estate under operating leases ranging from five to twenty-five years with various renewal options. Lease payments are made to the Partnership in monthly installments and the payments escalate by varying amounts annually. The Partnership records rent on a straight-line basis over the life of the leases. Amounts recorded as revenue in excess of amounts received increased the rent receivable by $81,617 and $75,247 for the years ended December 31, 2008 and 2007, respectively. During each of the years ended December 31, 2008 and 2007, a tenant terminated their lease prior to expiration of the lease term. The related rent receivable balances which were written-off as of the termination date totaled $57,113 and $68,452, respectively,
Minimum future rental payments to be received on non-cancelable leases as of December 31, 2008, for each of the next five years are as follows:
Note 6 - Contingencies
The Partnership is involved in certain legal proceedings and is subject to certain lawsuits and claims in the ordinary course of its business. Although the ultimate effect of these matters is often difficult to predict, management believes that their resolution will not have a materially adverse effect on the Partnership’s financial position.
- 10 -
DOVER PARKADE LLC
FINANCIAL STATEMENTS
AS OF AND FOR THE YEARS ENDED
	APRIL 30, 2009 AND 2008
TOGETHER WITH
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
DOVER PARKADE LLC
Page
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
FINANCIAL STATEMENTS
Balance Sheets
Statements of Operations
Statements of Changes in Members’ Deficit
Statements of Cash Flows
Notes to Financial Statements
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Members of Dover Parkade LLC We have audited the accompanying balance sheets of Dover Parkade LLC (the "Company") as of April 30, 2009 and 2008, and the related statements of operations, changes in members’ deficit, and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Dover Parkade LLC as of April 30, 2009 and 2008, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.
Glastonbury, Connecticut
August 14, 2009
DOVER PARKADE LLC
Notes To Financial Statements
For The Years Ended April 30, 2009 and 2008
Note 1 - Summary of Significant Accounting Policies
Nature of Business
Dover Parkade LLC (the “Company”) was formed on May 6, 1999, under the laws of the State of New Jersey and has elected to be a Limited Liability Company. As an LLC, the members' liability is limited to their investment in the Company plus any obligations they may have personally guaranteed. The Company was formed to acquire an interest in real property located in Dover, New Jersey, and to construct and operate thereon a retail commercial shopping center.
The operating agreement dated May 1, 1999 (the “Agreement”) provides for the Company to be in existence until December 31, 2075, unless dissolved in accordance with the Agreement. Generally, members are not personally liable for any debts or losses of the Company beyond their respective capital contributions. Profits, losses and all gains and losses from a capital transaction shall be allocated to members based on their interest in the Company, which is presently fifty- percent to Sixth Venture, LLC and fifty-percent to Tri-City Plaza, Inc.
Financial Statement Presentation
Consistent with accepted practice in the real estate industry, the accompanying 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 amounts of assets and liabilities, the disclosure of contingent assets and liabilities at 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.
Revenue Recognition
Rental income is recognized on a straight-line basis over the terms of the respective leases and consists of base rent and reimbursements for certain costs such as real estate taxes, utilities, insurance, common area maintenance and other recoverable costs as provided for in the lease agreements. Rent receivable recorded in the accompanying balance sheets represents the amount of rental income recognized on a straight-line basis over the term of the related leases in excess of actual rental payments received. There are no contingent rents.
Real Estate and Improvements
Real estate and improvements thereon are stated at cost. The Company's real estate has been pledged as security for a mortgage note payable (see Note 3).
Buildings and improvements thereon are depreciated using the straight line method over an estimated useful life ranging from twenty-five to forty years. Depreciation and amortization expense on real estate and improvements for each of the years ended April 30, 2009 and 2008 was $282,352.
- 6 -
DOVER PARKADE LLC
Notes To Financial Statements
For The Years Ended April 30, 2009 and 2008
Note 1 - Summary of Significant Accounting Policies (Continued)
Cash and Cash Equivalents
The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. The Company maintains cash and restricted cash consisting of mortgage escrow accounts with various financial institutions, the balance of which may periodically exceed current federal depository insurance limits. Management regularly monitors the financial institutions, together with its cash balances, and attempts to keep this potential risk to a minimum. At April 30, 2009 cash equivalents consisting of a money market account totaled $376,332. There were no cash equivalents at April 30, 2008.
Mortgage Origination Fees
Mortgage origination fees represent legal fees and other costs relating to the acquisition of the Company’s mortgage financing. The fees are being amortized on a straight-line basis over the life of the related mortgage note payable.
Amortization expense was $23,404 for each of the years ended April 30, 2009 and 2008. Amortization expense for the next five years is expected to be $23,404 per year.
Leasing Commissions
Leasing commissions are amortized on a straight-line basis over the life of the related leases and are accelerated in the event of an early termination of a tenant lease.
Amortization expense for the years ended April 30, 2009 and 2008 was $29,681 and $30,750, respectively. During fiscal year 2009, the Company accelerated amortization of leasing commissions totaling $26,436 as a result of the early termination of tenant leases, which is included in loss on early lease terminations in the accompanying statement of operations. Amortization expense for the next five years is as follows:
Tenant Improvements
Tenant improvements represent improvements to leased space made by the Company to accommodate the specific needs of tenants. Such improvements are amortized on a straight-line basis over the life of the related tenant lease and recorded as a reduction of rental income. For the years ended April 30, 2009 and 2008, amortization of tenant improvements reduced rental income by $22,946 and $24,415, respectively. During fiscal year 2009, the Company accelerated amortization of tenant improvements totaling $3,393 as a result of the early termination of a tenant lease, which is included in the loss on early lease terminations in the accompanying statement of operations.
- 7 -
DOVER PARKADE LLC
Notes To Financial Statements
For The Years Ended April 30, 2009 and 2008
Note 1 - Summary of Significant Accounting Policies (Continued)
Prepaid rents
Prepaid rents consist of amounts collected from tenants in advance for rent, real estate taxes, and insurance.
Income Taxes
Income or losses of the Company are allocated on a pro-rata basis to each member as defined by the Agreement. Income taxes or credits resulting from the operations of the Company are payable by, or accrue to the benefit of, the members and, accordingly, are not reflected in the financial statements.
Uncertain Tax Positions
In June 2006, the Financial Accounting Standards Board (“FASB”) released FASB Interpretation (“FIN”) No. 48, “Accounting for Uncertainty in Income Taxes.” FIN No. 48 interprets the guidance in Statement of Financial Accounting Standard (“SFAS”) No. 109, “Accounting for Income Taxes.” When FIN No. 48 is implemented, reporting entities utilize different recognition thresholds and measurement requirements when accounting for uncertain tax positions as compared to prior technical literature. On December 30, 2008, the FASB Staff issued FASB Staff Position (“FSP”) FIN No. 48-3, “Effective Date of FASB Interpretation No. 48 for Certain Nonpublic Enterprises.” As deferred by the guidance in FSP FIN No. 48-3, the Company is not required to implement the provisions of FIN No. 48 until fiscal years beginning after December 15, 2008. The deferred effective date is intended to provide the FASB with additional time to develop guidance on the application of FIN No. 48 to pass-through entities. As such, the Company has not implemented those provisions in its April 30, 2009 financial statements.
Since the provisions of FIN No. 48 have not been implemented in accounting for uncertain tax positions, the Company continues to utilize its prior policy of accounting for these positions, following the guidance in SFAS No. 5, “Accounting for Contingencies.” Disclosure is not required of a loss contingency involving an unasserted claim or assessment when there has been no manifestation by a potential claimant of an awareness of a possible claim or assessment unless it is considered probable that a claim will be asserted and there is a reasonable possibility that the outcome will be unfavorable. Using that guidance, as of April 30, 2009, the Company has no uncertain tax positions that qualify for either recognition or disclosure in the financial statements.
- 8 -
DOVER PARKADE LLC
Notes To Financial Statements
For The Years Ended April 30, 2009 and
Note 1 - Summary of Significant Accounting Policies (Continued)
Fair Value Measurements
The Company has partially implemented SFAS No. 157, “Fair Value Measurements,” for financial assets and financial liabilities. SFAS No. 157 defines fair value, establishes a framework for measuring fair value, expands disclosure requirements of fair value measurements and is effective for fiscal years beginning after November 15, 2007, except as it relates to non-recurring fair value measurements of non-financial assets and liabilities. This standard only applies when other standards require or permit the fair value measurement of assets and liabilities. The Company has determined that none of its financial assets or liabilities are measured at fair value on a recurring basis therefore the disclosures required by SFAS No. 157 do not currently apply. With regard to non-financial assets and liabilities which are not recognized or disclosed at fair value in the Company's financial statements on a recurring basis (at least annually), the standard is effective for fiscal years beginning after November 15, 2008. The Company has determined that, at present, none of its non-financial assets and liabilities will be subject to measurement and disclosure under SFAS No. 157.
In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities - Including an Amendment of FASB Statement No. 115,” which permits entities to choose to measure eligible items at fair value at specified election dates and report unrealized gains and losses on items, for which the fair value option has been elected, in earnings at each subsequent reporting date. SFAS No. 159 is effective for fiscal years beginning after November 15, 2007. The adoption of SFAS No. 159 did not have an impact on the Company’s results of operations or financial position, as the Partnership has not elected the fair value option for any of its eligible financial assets or liabilities.
Reclassification
Certain reclassifications have been made to prior year amounts to conform to the current year presentation.
Note 2 - Financial Instruments
Concentrations of Credit Risk
The Company's financial instruments that are subject to concentrations of credit risk consist of tenant accounts receivable and rent receivable. The Company assesses the financial strength of its tenants prior to executing leases and typically requires a security deposit and prepayment of rent. Tenant accounts receivable represent unpaid base rent and reimbursements of certain costs such as real estate taxes, utilities, insurance and other common area costs. The Company establishes an allowance for doubtful tenant accounts based upon factors surrounding the credit risk of specific tenants, historical trends and other information. Management believes that tenant accounts receivable and rent receivable are fully collectible at April 30, 2009 and 2008, and therefore has not recorded an allowance for doubtful accounts. As of April 30, 2009, 100% of tenant accounts receivable is due from two tenants. Rent receivable represents the amount of rental income recognized on a straight-line basis over the term of the related leases in excess of actual rental payments received to date and management does not believe an allowance is necessary. Approximately 54% and 53% of the Company's rental income is from one tenant in 2009 and 2008, respectively.
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DOVER PARKADE LLC
Notes To Financial Statements
For The Years Ended April 30, 2009 and 2008
Note 3 - Mortgage Note Payable
The Company has a mortgage note payable to a bank in the outstanding principal amount of $19,420,451 and $19,731,067 as of April 30, 2009 and 2008, respectively. The mortgage note requires monthly payments of principal and interest totaling $114,577, carries interest at a fixed rate of 5.358%, and is secured by the real estate of the Company. All principal and accrued interest outstanding at August 2015 is due and payable at that time.
Annual principal payments for each of the next five years and thereafter are as follows:
Note 4 - Related Party Transaction
The Company is party to a property management agreement with Paramount Realty, which is related to a member of the Company. The agreement provides for a management fee of 4% of gross receipts and certain leasing commissions and continues until cancelled by either party.
Note 5 - Leases
The Company is the lessor of commercial real estate under operating leases ranging from five to twenty-five years with various renewal options. Lease payments are made to the Company in monthly installments and the payments escalate by varying amounts annually. The Company records rent on a straight-line basis over the life of the leases. Amounts recorded as revenue in excess of amounts received increased the rent receivable by $59,257 and $122,446 for the years ended April 30, 2009 and 2008, respectively. During the year ended April 30, 2009, two tenants’ leases were terminated prior to expiration of their lease terms. The related rent receivable balances, totaling $193,091, were written-off as of the termination dates and included in the loss on early lease terminations.
Minimum future rentals to be received on non-cancelable leases as of April 30, 2009, for each of the next five years are as follows:
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