ITEM 1. DESCRIPTION OF BUSINESS
(a) General Development of Business
First Hartford Corporation (the "Registrant") which was incorporated in Maine in 1909, is engaged in the purchase, development, ownership, management and sale of real estate. As used herein, the term Registrant shall mean and refer to First Hartford Corporation and its subsidiaries, unless the context otherwise requires.
(b) Financial Information about Industry Segments
The Registrant is engaged in the purchase, development, ownership, management and sale of real estate, therefore, segment information is not applicable.
(c) Narrative Description of Business
The Registrant is engaged in the acquisition, development and management of land and properties with the ultimate goals of selling such properties when profitable opportunities arise or obtaining rental income therefrom.
The real estate, owned and managed by the Registrant through various subsidiaries, is located in Connecticut, New Jersey and North Carolina. A subsidiary of the Registrant owns a 1% interest in a partnership which owns a strip shopping center in Texas. Tenants are obtained through brokers and employed representatives of the Registrant, by means of newspaper advertisements, inquiries by potential tenants at the Registrant's on-site offices, and direct contacts with retail stores, banks and other potential commercial tenants.
The real estate business of the Registrant is diversified in terms of geographical location, 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. For the past three years development has been exclusively on retail.
Operation of the Registrant's real estate business requires construction materials and suitable land. Construction materials can be obtained from many sources, but supplies and construction are subject to strikes and delivery delays which can greatly increase the cost of a project.
Commercial properties are available in the states where the Registrant is qualified to do business, but all real property, of course, is by its nature finite and subject to fluctuations in cost
and to unpredictable changes in local zoning ordinances and to restrictions on planned construction.
All phases of the real estate business are inherently speculative and intensely competitive with many enterprises, both large and small, engaged in businesses similar to the Registrant's throughout the United States. The success of the Registrant, to a large extent, depends upon factors which may be beyond the control of management. Some of these factors are variable construction costs, the mortgage market, real estate taxes, income tax laws, government regulations, the commercial rental market and the economy. The ability of the Registrant to meet its debt service obligations and to operate profitably is, of course, also dependent on its ability to attract tenants and to compete successfully with the numerous other commercial properties available to prospective tenants. The ability to attract tenants is dependent upon the changing character of the areas in which the Registrant's properties are located, the rate of new construction in those areas and the extent of present and future competition in those areas. The Registrant's holdings are diversified both geographically and in use and types of occupancy. The Registrant believes that it thereby increases stability and diminishes the affect of possible adverse economic conditions in any particular geographic or economic area, but the Registrant recognizes that diversification by itself will not assure protection against risk and possible loss.
The real estate business does not experience "backlogs" as that term is generally understood, nor is it seasonal.
To the Registrant's knowledge, its real estate business is not dependent upon a single customer or a few customers.
The Registrant has no material patent, license, franchise or concession.
Research and development is not a part of the Registrant's business.
The Registrant anticipates that compliance with any applicable Federal, state or local provisions regulating discharges into the environment or otherwise relating to the protection of the environment will not have a material effect on its capital expenditures, earnings or competitive position.
At April 30, 1999, the Registrant employed approximately 34 persons.
(d) Financial Information About Foreign And Domestic Operations and Export Sales
The Registrant and its subsidiaries do not engage in operations in foreign countries. No material part of their sales or revenues is derived from customers in foreign countries.
ITEM 2.
ITEM 2. DESCRIPTION OF PROPERTY
The following table shows the location, general character and ownership status of the materially important physical properties of the Registrant and its subsidiaries:
Available Space or Facilities Ownership Location Use and Major Tenants Status - -------- --- ----------------- ------ Commercial Properties: - ----------------------
Lubbock, Strip 162,404 sq. ft. Owned by a partnership Texas Shopping Walmart 51% in which a subsidiary of the Center TJ Maxx 15% Registrant is the general partner with a 1% interest.
Plainfield, Strip 60,150 sq. ft. Owned by a subsidiary of the Connecticut Shopping Big Y 64% Registrant. There is an Center CVS 14% outside equity interest in connection with the financing
Putnam, Shopping 52,877 sq. ft. Owned by a subsidiary of the CT Center T. J. Maxx 50% Registrant and part of a Shopping Center complex.
Mt. Olive, Shopping 94,714 sq. ft. Owned by a subsidiary of the New Jersey Center A & P 59% Registrant.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
Waterville Industries, Inc. v. First Hartford Corporation and Finance Authority of Maine, CV-89-311 (Kennebec County Superior Court, Maine) and 89-0209-B (United States district Court, District of Maine). Actions commenced July 10, 1989.
These two lawsuits allege violation of environmental laws in connection with property located in Waterville, Maine. Waterville Industries is the current owner of property located in Waterville, Maine, which includes two waste treatment lagoons; the Registrant, through an affiliate, formerly owned the property, and the Maine Guarantee Authority, predecessor to the Financial Authority of Maine (FAME) also owned the property prior to its transfer to Waterville Industries. This lawsuit has been inactive for several years and the Registrant does not believe that it will be continued.
First Hartford Corporation Pension Plan & Trust, on behalf of itself, Dollar Dry Dock Bank of New York and all other similarly situated shareholders of Dollar Dry Dock Bank of New York, Plaintiff-Appellant v. United States, Defendant - Appellant No. 99-5032 (United States Court of Appeals for the Federal Circuit). This is an appeal from the United States Court of Federal Claims in 96-CV-801, Senior Judge Robert J. York. This was a suit to recover damages sustained by Dollar Dry Dock Bank of New York, ("Dollar") and its shareholders resulting from the United States abrogation and repudiation of its contractual obligations to the institution. The Federal Deposit Insurance Corporation ("FDIC") breached the Amended and Restated Assistance Agreement ("Agreement") between the FDIC and Dollar. The Agreement gave Dollar the right to treat certain identified supervisory goodwill as a regulatory asset to be amortized over eighteen years. On December 19, 1991, Congress enacted the Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA"). As interpreted by the FDIC, FDICIA prohibited inclusion of supervisory goodwill in calculations of a bank's regulatory capital. Within weeks after enactment of the FDICIA, the FDIC recommended that the New York State Superintendent of Banks seize Dollar and simultaneously appoint FDIC as receiver of Dollar even though Dollar's liquidity was strong and its deposit base steady. On February 21, 1992, the institution was seized and FDIC was appointed receiver. The initial suit was dismissed on November 20, 1998. At this time, the Registrant does not assume a favorable outcome for this matter. The loss incurred by the plan of approximately $1,000,000 was reimbursed by the Registrant.
OTHER PROCEEDINGS
For proceedings involving officers and directors, see Item 10(f). on page 27.
The Registrant is also involved in other legal proceedings which have arisen during the normal course of its business,
including disputes over tax assessments, commercial contracts, lease agreements, construction contracts and personal injuries, but the Registrant does not believe that any of these proceedings will have a material impact on its consolidated financial condition.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The last meeting of security holders was held on February 13, 1986. The Registrant did not solicit proxies and the Board of Directors as previously reported were re-elected in its entirety:
Neil H. Ellis Leonard E. Seader (Deceased August 30, 1997) Stuart Greenwald
PART II
ITEM 5.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER MATTERS
The Registrant'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).
The Registrant has paid no cash dividends in the last five years.
Small sales of the common stock have occurred from time to time, we believe the range to be 1/8 to 1/2.
The number of shareholders of record for the Registrant's common stock as of April 30, 1999, is 931.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
For the Years Ended April 30, 1999, 1998, 1997, 1996, and 1995
The selected financial data set forth below for the years ended April 30, 1999, 1998, 1997, 1996 and 1995 are derived from the Registrant's financial statements. This information should be read in conjunction with "Management's Discussion and Analysis of Financial Conditions and Results of Operations" included in Item 7
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Result of Operations
The year ended April 30, 1999 produced a loss of $507,501 or (.16) per share compared to a profit of approximately $8,623,480 or 2.79 per share for the prior year.
The year ended April 30, 1998 is not easily comparable to the current period because it contains gains from the sale of Real Estate of $4,787,000 as well as non-recurring gains of $9,643,000 from mortgage transactions. On the expense side there were costs of the settlement with the Pension Benefit Guarantee Corp. and related legal expenses, the total cost of which was approximately one million dollars. There were also substantial rental income and expenses resulting in operating losses.
With rental and management income greatly reduced from previous year levels, the Registrant believes operating losses will occur for the immediate future. As additional properties come on line, profitability will increase.
Revenues in 1998 were approximately $9,000,000 greater than 1997 due to the Non Recurring gain on the purchase and collection of mortgages. Cost of sales $7,909,093 in 1998 versus $11,282,261 in 1997 cannot be compared due to the age and cost of the assets. The 1997 sale was new construction and never had an opportunity to grow in value.
With the exception of operating expenses that were inflated in 1998 by legal expenses and settlement costs with the PBGC as stated above, the other expenses are in line with the sale of rental properties in 1997 and 1998.
Capital Resources and Liquidity
In the recent years, the Registrant has pursued an aggressive path to end litigation and pay down its debt. Management believes both of those objectives were met, as there is no material litigation currently on the horizon and debt has been reduced as follows:
Year ended 1997 (Decrease) Loans, Notes, Mortgages, etc. ($4,601,000) Accounts Payable & Accrued Liabilities ($1,550,000)
Year ended 1998 (Decrease) Loans, Notes, Mortgages, etc. ($9,943,000) Accounts Payable & Accrued Liabilities ($7,679,582)
Year ended 1999 Increase Loans, Notes, Mortgages, etc. $11,682,000 Accounts Payable & Accrued Liabilities $ 588,000
For the year ended April 30, 1999, property assets of new developments increased by $11,602,000 causing almost all of the increase in the 1999 liabilities. To achieve the repayment of debt, virtually all of our partnership interests and most of our developed properties had been sold. The Registrant is currently on a path to attempt to rebuild its asset base. Shopping centers are under construction in Putnam, Connecticut and Mount Olive, New Jersey. In the year ended April 30, 2000, the Registrant expects to be in the ground with as many as three new centers. Two of these will be with Joint Venture partners.
Capital resource and liquidity have always been a major impediment of the Registrant. Reputation, industry contacts and capital resources are the key elements of the real estate development business. Management has continued to explore new lenders and believes we will continue to find capital resources at reasonable rates. Liquidity is worked on a daily basis through tight cash management and the Registrant believes that will be adequate. In the event that it is not, the Registrant will seek to bring a partner into one of the existing properties or an outright sale.
Y2K Readiness
Although the Registrant believes any possible time sensitive records could be easily managed, it has ordered new software which is Y2K compliant.
It is unknown if Y2K will effect any of its suppliers. If there is a disruption because of suppliers inability to ship, the Registrant could suffer delays in construction resulting in additional interest, cost or loss of rents.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Financial statements and supplementary data begin on the following page.
I N D E X
Pages -----
Independent Auditors' Report 10
Consolidated Balance Sheets - April 30, 1999 and 1998 11-12
Consolidated Statements of Income (Loss) - Years Ended April 30, 1999, 1998 and 1997 13
Consolidated Statements of Shareholders' Equity (Deficiency) for the Years Ended April 30, 1999, 1998 and 1997 14
Consolidated Statement of Cash Flows for the Year Ended April 30, 1999 and 1998 15-16
Notes to Consolidated Financial Statements 17-25
There are no Supplementary Data Schedules necessary.
Schedule IX Short Term Borrowings 35
Schedule XI Real Estate and Accumulated Depreciation 36
ITEM 9.
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
As of January 1999, the Company has engaged Kostin, Ruffkess Company, LLC as accountants. The Company has filed a Form 8-K with the Commission reflecting the engagement of accountants. There are no disagreements of any matters of accounting principles or practices or financial statement disclosure and none are contemplated.
[LETTERHEAD OF KOSTIN, RUFFKESS & COMPANY, LLC]
To The and Stockholders of First Hartford Corporation and Subsidiaries Manchester, Connecticut
INDEPENDENT AUDITORS' REPORT
We have audited the accompanying consolidated balance sheets of First Hartford Corporation and Subsidiaries as of April 30, 1999, and the related consolidated statements of income, shareholders' equity (deficit) and cash flows and the related schedules listed in Item 14(a)(2) of the annual report on Form 10-K for the year then ended. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these combined financial statements and related schedules based on our audit.
We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements and related schedules are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements and related schedules. An audit also includes 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, 1999, and the results of its consolidated operations and consolidated cash flows for the year then ended, in conformity with generally accepted accounting principles. Further, it is our opinion that the schedules referred to above present fairly, in all material respects, the information set forth therein in compliance with the applicable accounting regulation of the Securities and Exchange Commission.
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 9 to the financial statement, the Company has suffered recurring losses from operations and has a net capital deficiency, which raise substantial doubt about its ability to continue as a going concern. Management's plans regarding those matters also are described in Note 9. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
West Hartford, Connecticut July 22, 1999
FIRST HARTFORD CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS APRIL 30, 1999 AND 1998
ASSETS
(Unaudited) 1999 1998 ----------- ----------- Real estate and equipment:
Developed properties $ 7,379,545 $ 4,469,443
Equipment and leasehold improvements 117,311 168,726 ----------- ----------- 7,496,856 4,638,169 Less accumulated depreciation and amortization 941,535 938,132 ----------- -----------
6,555,321 3,700,037
Properties under construction and investment in undeveloped properties 11,641,378 2,948,678 ----------- ----------- 18,196,699 6,648,715
Cash 106,017 4,118 Accounts and notes receivable, less allowance for doubtful accounts of $46,000 in 1999 And $52,200 in 1998 69,953 144,115
Deposits, escrows and prepaid and deferred expenses 1,167,942 757,939
Due from related parties and affiliates 1,729,140 622,476
Deferred Tax Assets 1,606,441 1,610,691 ----------- ----------- $22,876,192 $ 9,788,054 =========== ===========
(Continued)
The accompanying notes are an integral part of the consolidated financial statements.
FIRST HARTFORD CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS - APRIL 30, 1999 AND 1998
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
(Unaudited) 1999 1998 ------------ ------------ Liabilities: Mortgages and notes payable:
Construction Loan Payable $ 10,161,257 $ 1,575,925 Mortgages payable 7,849,778 4,717,963 Notes Payable - Other 3,818,659 3,853,842 ------------ ------------ 21,829,694 10,147,730
Accounts payable 3,101,020 2,281,671
Accrued liabilities 639,001 870,832
Due to related parties and affiliates 1,834,624 508,467 ------------ ------------ 27,404,339 13,808,700
Commitments and contingencies
Shareholders' equity (deficit) Common stock, $1 par; Authorized 6,000,000 shares; Issued 3,322,213 shares 3,322,213 3,322,213 Capital in excess of par 4,857,645 4,857,645 Deficit (10,639,881) (10,132,380) ------------ ------------ (2,460,023) $ (1,952,522) Less 232,228 shares of common stock held in treasury, at cost 2,068,124 2,068,124 ------------ ------------ (4,528,147) (4,020,646) ------------ ------------ $ 22,876,192 $ 9,788,054 ============ ============
The accompanying notes are an integral part of the consolidated financial statements.
FIRST HARTFORD CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
FOR YEARS ENDED APRIL 30, 1999, 1998 AND 1997
(Unaudited) (Unaudited) 1999 1998 1997 ------------ ------------ ------------ Revenues:
Sale of real estate $ 472,000 $ 12,696,700 $ 11,100,000 Construction 200,179 197,081 243,643 Rental 1,167,616 2,261,985 2,610,505 Other 544,702 330,276 808,094 Non-Recurring Items 480,247 10,610,432 1,685,425 ------------ ------------ ------------ 2,864,744 26,096,474 16,447,667 ------------ ------------ ------------ Cost and expenses: Cost of sales, real estate 464,005 7,909,043 11,282,261 Construction 113,483 133,020 97,190 Operating 878,323 2,398,474 1,973,488 Interest 761,440 1,254,142 1,712,077 Depreciation and amortization 204,655 425,775 552,935 Selling, general and administrative 926,523 1,029,945 1,218,019 Taxes 109 458 71,510 325,069 ------------ ------------ ------------
3,457,887 13,221,909 17,161,039 ------------ ------------ ------------
Income before income taxes provision (benefit) (593,143) 12,874,565 (713,372) Income taxes provision (benefit) (85,642) 3,714,050 (1,194,027) ------------ ------------ ------------
Net income (loss) ($ 507,501) $ 9,160,515 $ 480,655 ============ ============ ============
Basic Earning per share and diluted earnings per share $ (0.16) $ 2.96 $ .16 ============ ============ ============
Weighted average number of shares outstanding 3,089,985 3,089,985 3,089,985 ============ ============ ============
The accompanying notes are an integral part of the consolidated financial statements.
FIRST HARTFORD CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIENCY)
YEARS ENDED APRIL 30, 1999, 1998 AND 1997
The accompanying notes are an integral part of the consolidated financial statements.
FIRST HARTFORD CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS YEAR ENDED APRIL 30, 1999, 1998 AND 1997
The accompanying notes are an integral part of the consolidated financial statements.
FIRST HARTFORD CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS, CONTINUED YEARS ENDED APRIL 30, 1999, 1998 AND 1997
The accompanying notes are an integral part of the consolidated financial statements.
FIRST HARTFORD CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED APRIL 30, 1999, 1998 AND 1997
(Information with Respect to the Years Ending April 30, 1998 and 1997 and every page of note is unaudited)
1. Summary of Significant accounting policies:
Description of business:
First Hartford Corporation (the Company) 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 financial statements include the accounts of the Company and its wholly-owned subsidiaries, including partnerships in which the Company is a majority owner. 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). The Company records at cost its investment in partnerships in which it is not a majority owner.
Financial Statement Presentation:
Because the Company is engaged in the development and sale of real estate in 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.
Real Estate and Equipment:
Properties under construction and investment in undeveloped properties, developed properties and equipment and leasehold improvements are recorded at the lower of cost or net realizable value.
Statements of Cash Flows
For purposes of the statements of cash flows, the Company considers all highly liquid securities purchased with a maturity of 3 months or less to be cash equivalents.
FIRST HARTFORD CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED APRIL 30, 1999, 1998 AND 1997
(Information with Respect to the Years Ending April 30, 1998 and 1997 and every page of note is unaudited)
1. Summary of significant accounting policies (continued): Real Estate and Equipment (continued):
Properties under construction amounted to $11,641,378 and $2,948,678 at April 30, 1999 and 1998.
Following accounting practices of the real estate industry, interest and property taxes are capitalized for those projects which have a current development plan. In addition, properties under construction include revenue and operating expenses through substantial completion of the property. When property is substantially completed, the costs of property constructed for the Company's own use are transferred to developed properties and depreciation commences. Interest incurred at April 30, 1999 was $761,440 of which $415,311 was capitalized. Interest incurred at April 30, 1998 was $1,254,142 of which $120,430 was capitalized. Property Taxes capitalized at April 30, 1999 and 1998 was $44,539 and $-0- respectively.
Depreciation is provided using the straight line method for financial reporting purposes based on the following estimated useful lives:
Description Range in Years
Developed properties 40
Equipment and leasehold improvements 3 - 10
Leasing commissions and financing costs (included in deposits, escrows, and prepaid and deferred expenses in the accompanying balance sheets) are amortized using the straight-line method over the terms of the related leases and mortgages, respectively. In addition, the Company capitalizes predevelopment costs relating to potential new development projects. If the project is abandoned, the related costs will be expensed.
Maintenance and repairs are charged to operations as incurred; renewals and betterments are capitalized.
The cost of assets retired or otherwise disposed of and the related accumulated depreciation is eliminated from the accounts. Income or loss resulting from the disposal of properties and equipment is included in the consolidated statements of income (loss).
FIRST HARTFORD CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED APRIL 30, 1999, 1998 AND 1997
(Information with Respect to the Years Ending April 30, 1998 and 1997 and every page of note is unaudited)
1. Summary of significant accounting policies (continued):
Revenue recognition:
Since the Registrant is primarily involved in development for its own use (rental/future sale), construction revenue is recorded only upon sale of the property built for sale to third parties. 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 Registrant provides for estimated losses on contracts in the year such losses become known. There are no properties built for sale to third parties during the years ended April 30, 1999, 1998 and 1997.
Rental revenues are recognized as income under the operating method as the rentals become due. Other income includes management and service fees and interest income which is recognized over the period in which the service is provided or the interest is earned.
Off Balance Sheet Risk
During the years ended April 30, 1999 and 1998, the Company had an amount in excess of $100,000 in a single bank. Amounts over $100,000 are not insured by the Federal Deposit Insurance Corporation. These balances fluctuate greatly during the year and can exceed this $100,000 limit. Management regularly monitors the financial institution, together with its cash balances, and tries to keep this potential risk to a minimum.
Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amount of assets and liabilities, and the disclosure of contingent assets and liabilities as of the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
FIRST HARTFORD CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED APRIL 30, 1999, 1998 AND 1997
(Information with Respect to the Years Ending April 30, 1998 and 1997 and every page of note is unaudited)
2. Construction loans, mortgages, and notes payable:
1999 1998 ---- ----
Construction Loans and Mortgage notes ranging from 6.35% to 8.875%. Maturities are at various dates through 2009 $18,011,035 $ 6,293,888 The loans are secured by the respective real estate and guaranteed by the President of the Company
Notes payable, at interest rates of 1 1/2% over the prevailing prime rate and fixed rates of 6% - 8% maturing at various dates or demand. The loans are unsecured and guaranteed by the President of the Company 3,818,659 3,853,842 ----------- ----------- $21,829,694 $10,147,730 =========== ===========
Aggregate principal payments due on the above debt during the next five years are as follows:
Year Ended April 30 ------------------- 2000 $ 270,140 2001 1,242,903 2002 370,545 2003 402,358 2004 3,580,226
Included in notes payable are $2,250,000 of non-interest bearing notes to an affiliate with no certain date of payment.
3. Pledge of stock of subsidiaries:
For the past ten years and probably longer, the Company had not been able to obtain financing (secured or unsecured) without the personal guarantees of Neil Ellis, the president of the Company. To some degree, the Registrant recently has been able to obtain financing without that guarantee but it continues to be a necessary component to most loans. In the past, we have disclosed stock pledges of subsidiaries to protect Mr. Ellis from personal losses due to his guarantees. These pledges will stay in place until his guarantees are eliminated.
FIRST HARTFORD CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED APRIL 30, 1999, 1998 AND 1997
(Information with Respect to the Years Ending April 30, 1998 and 1997 and every page of note is unaudited)
4. Related party transactions:
Amounts included in revenue resulting from transactions with companies affiliated by common ownership and/or management are as follows:
1999 1998 1997
Rental Income -- 72,000 -- Management and service fees 351,485 49,247 566,192 Maintenance/Repairs 13,555 -- Interest income 28,160 28,152 28,160 Sale of Partnership Interest -- -- 1,014,658 ---------- ---------- ----------
$ 393,200 $ 149,399 $1,609,010 ========== ========== ==========
Amounts due to/from affiliates and related parties represent transactions between affiliated and related entities under common ownership and/or management in line with business transactions which generate the revenues noted above. The Company and its subsidiaries also have received cash advances from other entities affiliated with Neil Ellis, President of the Company and performed services for these entities. These advances/loans are non-interest bearing and have no specific repayment terms.
5. Accrued liabilities:
1999 1998 Accrued: Federal income taxes $ 54,950 $188,162 Taxes-other 188,494 199,282 Interest 270,978 338,610 Other 124,579 144,778 -------- --------
$639,001 $870,832 ======== ========
FIRST HARTFORD CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED APRIL 30, 1999, 1998 AND 1997
(Information with Respect to the Years Ending April 30, 1998 and 1997 and every page of note is unaudited)
6. Non-Recurring Items:
Income from non-recurring items are as follows:
1999 1998 1997 Income - Partnership distributions from sales of partnership assets $ -- $ -- $ 1,014,658 Gains on purchase of mortgage -- 9,643,397 -- Forgiveness of debt -- 967,035 508,800 Miscellaneous -- -- 161,967 Forgiveness of accts payable 480,247 -- -- ----------- ----------- ----------- $ 480,247 $10,610,432 $ 1,685,425 =========== =========== ===========
In the year ended April 30, 1998, the Registrant purchased three mortgages from a third party who won them at a HUD auction. The three properties (two wholly owned by the Registrant through subsidiary companies and one only partially owned) were sold to another third party. The gain represented the difference between the amount the Registrant received from the mortgage payments and the purchase price of the mortgages.
7. Employee Retirement Plan:
The Company had a single employer defined benefit non contributory pension plan. As of January, 1986 the benefits of the plan have been frozen. The Pension Benefit Guaranty Corporation (PBGC) had started to make the benefit payments to the participants at January 1, 1994.
In June, 1997 the PBGC had become interim Trustee of the Plan and in July, 1997 notified participants that they would seek to terminate the Plan.
In January, 1997, the Company had come to settlement terms with the Pension Benefit Guaranty Corporation (PBGC) and the Department of Labor (DOL). Under the settlement, the Company has given the PBGC a 10 year Note of approximately $670,000 (6% interest payable quarterly) which is guaranteed by a Bond of an Insurance Company. The Company has given cash to the Insurance Company which was then invested in a zero coupon bond to yield $670,000 at maturity.
FIRST HARTFORD CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED APRIL 30, 1999, 1998 AND 1997
(Information with Respect to the Years Ending April 30, 1998 and 1997 and every page of note is unaudited)
8. Commitment and Contingencies:
The Company is also involved in other legal proceedings which have arisen 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 the consolidated financial position.
9. Going concern:
Since the 1992 - 1994 period when the deficit in equity exceeded $23,000,000, the Company has achieved substantial improvements that has reduced the deficit to under $4,528,000. The improvements were a result of selling properties and partnership interest. On a short term basis, it is unrealistic to expect that the Company can continue to generate sales of any magnitude on its existing asset base. Unless cash flow can be generated from other services, conditions raise doubt about the Company's ability to continue as a going concern and meet its obligations as they become due.
10. Accounting Change
In the current year, the Company retroactively applied SFAS 109 (See Note 11) to the beginning of fiscal year 1997. The adoption of SFAS 109 resulted in the recognition of $3,958,432 of net deferred tax assets. The effect on net income for 1997 was an increase of $1,221,390 while for 1998, the adoption decreased net income by $3,569,081.
FIRST HARTFORD CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED APRIL 30, 1999, 1998 AND 1997
(Information with Respect to the Years Ending April 30, 1998 and 1997 and every page of note is unaudited)
11. Income Taxes
The Company follows the requirements of Statement Financial Accounting Standards No. 109 ("SFAS 109"), "Accounting for Income Taxes," which requires the use of an asset and liability approach that provides for the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the Company's financial statements or tax returns. In estimating future tax consequences, SFAS 109 generally considers all expected future events other than enactments of changes in the tax law or rates.
The income tax provision (benefit) comprised is the following:
1999 1998 1997
Current provision (benefit) $ (89,892) $ 144,969 $ 27,313 Deferred 4,250 3,569,081 (1,221,340) ----------- ----------- -----------
$ (85,642) $ 3,714,050 $(1,194,027) =========== =========== ===========
The components of the net deferred tax asset the following:
1999 1998 Tax effect of net operating loss carryforwards $ 3,212,883 $ 3,221,383 Valuation allowance (1,606,442) (1,610,692) ----------- ----------- $ 1,606,441 $ 1,610,691 =========== ===========
The Company has set up an allowance of fifty percent (50%) against the deferred tax asset since the likelihood of realization cannot be determined.
The difference in the statutory tax rate of 34% and the Company's effective tax rate of 0% is due to the increases in the operating loss carryforwards offset against expiring net operating loss carryforwards.
At April 30, 1999, the Company has net operating loss carryforwards of approximately $9,500,000. Approximately $4,700,000 expire in 2004, $1,200,000 expire in 2007 and $3,600,000 expire in 2012.
12. Leases
The Company leases commercial real estate under various operating leases expiring in various years through 2019. The real estate available for lease have a carrying value of $16,620,562 (some of which is still under construction) and accumulated depreciation of $851,585.
FIRST HARTFORD CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED APRIL 30, 1999, 1998 AND 1997
(Information with Respect to the Years Ending April 30, 1998 and 1997 and every page of note is unaudited)
12. Leases (Continued)
Minimum future rentals to be received on non-cancellable leases as of April 30, 1999 for each of the next five years are as follows:
2000 $2,363,792 2001 $2,577,121 2002 $2,391,723 2003 $2,316,924 2004 $2,301,325
13. Investments
The Company has performed services for a partnership in exchange for a one percent general partner interest. The Partnership owns a strip shopping center in Lubbock, Texas.
The Company is contingently liable for the satisfaction of all liabilities of the Partnership. Summarized unaudited financial data for the Partnership as of April 30, 1998 is as follows:
(Unaudited)
Assets $4,264,035 ==========
Liabilities $7,038,134 Partners' capital (2,774,099) ---------- $4,264,035 ==========
Revenues $1,223,868 Expenses (1,094,493) ----------
Net Income $ 129,375 ==========
PART III
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
(a) Identification of Directors
The directors of the corporation, their ages and positions and the periods during which each has served as such are as follows:
Name Age Position Period of Service
Neil H. Ellis 71 President l966 - Present
Stuart I. Greenwald 57 Treasurer/Secretary 1980 - Present
David B. Harding 54 1992 - 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 the 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 71 President 1968 - Present
Stuart I. Greenwald 57 Treasurer/Secretary 1978 - 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.
Leonard E. Seader, a director since 1973, and an officer since 1976 died on August 30, 1997.
(c) Identification of Certain Significant Employees
There are no significant employees not already mentioned above.
(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 Registrant for more than five years. He is also President and director of Green Manor Corporation, a holding company, owned by him and his wife.
Mr. Greenwald has been Treasurer of the Registrant for more than five years and also holds the position of Secretary. He is also Secretary/Treasurer of First Hartford Realty Corporation, a subsidiary of the Registrant, which position he has held for more than five years.
Mr. Harding has been the President of Richmond Realty, a Real Estate Management Company since January, 1996. Richmond manages certain properties of the Registrant as well as properties of others. Prior to that, he has worked for the Registrant in the area of finance for three years.
2. Directorships
No directors hold any other directorships, except directorships in subsidiaries of the Registrant and the aforementioned Green Manor Corporation and Richmond Realty.
(f) Involvement in Certain Legal Proceedings
No director or executive officer has been involved in any of the following legal proceedings except as noted:
1. Federal Bankruptcy or State Insolvency Proceedings, except as and to the extent they were involved as executive officers of the Registrant in its 1981 Reorganization proceedings, as executive officers of Parker Street Corp. and Putnam Parkade, Inc. in their Chapter 11 proceedings, and as executive officers of the general partner or managing agent of the following limited partnerships in their Chapter 11 proceedings:
Allen Park Associates Briar Knoll Associates Limited Partnership Graham Village Associates Hartford-Lubbock Limited Partnership Highridge Associates Limited Partnership Park West Associates Presidential Gardens Associates Sovereign Group 1984-2 Limited Partnership Springfield Associates
2. No director or executive officer has been involved in any criminal proceedings in the last five years.
3. Temporary or permanent injunctions concerning securities dealings or business practices, except for SEC v. First Hartford Corporation Civil Action No. 89-3156-NHJ (D.DC. 1989) in which the Registrant consented to entry of Final Judgment of Permanent Injunction requiring the Registrant to file its periodic reports with the SEC on a timely basis, specifically, its Annual Report on form 10-K for its fiscal year ended April 30, 1989 and its Quarterly Reports on form 10-Q within 120 days from entry of the Judgment on November 30, 1989.
4. Orders, judgments or decrees of State or Federal authority barring, suspending or otherwise limiting any securities dealing or business practices or barring association with persons engaged in such activities, except for the action described in 3. above.
5. Any findings in a civil action or by the SEC that such person violated any Federal or State securities law, except for the action described in 3. above.
ITEM 11.
ITEM 11. REMUNERATION
There is set forth below information relating to all direct remuneration paid by the Registrant during the year ended April 30, 1999 to each director and each executive officer of the Registrant whose aggregate remuneration totaled $60,000 and to all directors and officers of the Registrant as a group.
Name or Number of Persons Other in Group and Capacity Salary Compensation(1) --------------------- ------ ---------------
Neil H. Ellis, President $106,996 Stuart Greenwald, Treasurer $ 78,062
(1) To assist management of the Registrant in carrying out its responsibility and to improve job performance, the Registrant provides certain of its officers with automobiles. The Registrant cannot specifically or precisely ascertain the amount of personal benefit, if any, derived by those officers from such automobiles. However, after reasonable inquiry, the Registrant has concluded that the amount of any such personal benefit is immaterial and does not in any event exceed $10,000 as to all officers. No provision has therefore been made for any such benefit.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(a) Security Ownership of Certain Beneficial Owners
The following table sets forth information as of the date hereof with respect to all persons known to the Registrant to be beneficial owners of more than 5% of the Registrant's outstanding shares of common stock:
Title Name & Address of Amount and Nature of Beneficial Owner or of Beneficial Percent Class Identity of Group Ownerships of Class ----- ----------------- ---------- --------
Common Stock Neil H. Ellis 1,324,387 (1) 42.9% 43 Butternut Road Manchester, CT 06040
(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).
(b) Security Ownership of Management
The following table sets forth information as of the date hereof with respect to all shares beneficially owned by all directors and directors and officers of the Registrant as a group:
Title Name & Address of Amount and Nature of Beneficial Owner or of Beneficial Percent Class Identity of Group Ownerships of Class ----- ----------------- ---------- --------
Common Neil H. Ellis 1,324,387 (1) 42.9% 43 Butternut Road Manchester, CT 06040
Common All Directors 1,324,387 (1) 42.9% and Officers as a Group (3 in number)
(c) Changes in Control
The Registrant is aware of no arrangements which may result at a subsequent date in change in control of the Registrant.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
(a) Transactions with Management and Others
Since the filing of the Petition for Reorganization in February of 1981, and due to the uncertainty surrounding the financial stability of the Registrant, lenders, required by the Registrant to finance the purchase and development of real estate, have required the personal guarantee of Neil H. Ellis, President and Director of the Registrant, on any loans that they make. As consideration for this personal guarantee, the
Registrant has proceeded in its real estate development by one of two methods. The first method involves having the loans made to a corporation owned directly by Mr. Ellis. Mr. Ellis then grants to the Registrant a free option to purchase the stock of the corporation to which the loans have been made, at the lower of cost or market value. Unless the transaction is beneficial to the Registrant, it need not exercise the option. The second method involves lending the money directly to the subsidiaries of the Registrant which develop the property, and pledging to Mr. Ellis the stock of the subsidiaries until such time as the guaranteed loans are satisfied.
The Registrant and its subsidiaries have received from or made cash advances to other companies which are owned or controlled by Neil Ellis, President of the Registrant. The Registrant has also purchased from or sold property to, as well as performed services for these companies.
(b) Certain Business Relationships
Refer to (a) above.
(c) Indebtedness of Management
There is none.
(d) Transactions with Promoters
There are none.
PART IV
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
Pages -----
(a) (1) The following financial statements are included in Part II, Item 8:
Financial Statements:
Report of Independent Auditor 10
Consolidated Balance Sheets - April 30, 1999 and 1998 11-12
Consolidated Statements of Income (Loss) - Years Ended April 30, 1999, 1998 and 1997 13
Consolidated Statements of Shareholders' Equity (Deficit) for the years Ended April 30, 1999, 1998 and 1997 14
Consolidated Statement of Cash Flows for the years ended April 30, 1999 and 1998 15-16
Notes to Consolidated Financial Statements 17-25
(2) The following financial statement schedules for the year ended April 30, 1999 are submitted herewith:
Schedule IX - Short Term Borrowings 35
Schedule XI - Real Estate and Accumulated Depreciation 36
All other schedules are omitted because they are not required, not applicable, or the information is otherwise shown in the financial statements or notes thereto.
(b) Reports on Form 8-K:
A report on Form 8-K dated January 22, 1991 was filed by the Registrant reporting the bankruptcy filing of the Registrant's former Accountants, Laventhol and Horwath. A report on Form 8-K dated August 4,1999 was filed by the Registrant appointing Kostin, Ruffkess & Company, LLC as new accountants.
(c) Exhibits
Exhibit Index 32
(3) Articles of Incorporation and by-laws.
Exhibit (3) to Form 10-K for the Fiscal Year ended April 30, 1984, Pages 1-18 of Exhibits Binder, incorporated by reference to Securities File Number 0-8862.
(4) Instruments defining the rights of security holders, including Indentures.
Not Applicable
(9) Voting Trust Agreement.
Not Applicable
(10) Material Contracts.
Not Applicable
(11) Statement regarding computation of per share earnings.
See Item 6 of this report.
(12) Statement regarding computation of ratios.
Not Applicable
(13) Annual Report to Security Holders, Form 10-Q or Quarterly Report to Security Holders.
The annual report to security holders consists of this report (Form 10-K) and the President's letter attached as Exhibit 13. 37
(18) Letter regarding change in accounting principle.
Not Applicable
(19) Previously unfiled Documents.
Not Applicable
(22) Subsidiaries of the Registrant. 38
(23) Published report regarding matters submitted to vote of Security Holders.
Not Applicable
(24) Consents of experts and counsel.
Consent of Kostin, Ruffkess & Company, LLC
(25) Power of Attorney.
Not Applicable
(28) Additional Exhibits.
Not Applicable
(29) Information from Reports furnished to State Insurance Regulatory Authorities.
Not Applicable
(d) Other Financial Statements
Not Applicable
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, Registrant has duly caused this Annual Report to be signed on its behalf by the undersigned, Thereunto Duly Authorized.
Dated: August 13, 1999
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.
August 13, 1999 /s/ Neil H. Ellis ---------------------------------------- Neil H. Ellis Principal Executive Officer President and Director
August 13, 1999 /s/ Stuart I. Greenwald ---------------------------------------- Stuart I. Greenwald Principal Financial Officer Principal Accounting Officer Secretary, Treasurer and Director
FIRST HARTFORD CORPORATION AND SUBSIDIARIES SCHEDULE IX SHORT-TERM BORROWINGS YEARS ENDED APRIL 30, 1999, 1998, 1997 AND 1996
(1) Notes payable to banks represent obligations payable under credit agreements to various banks. Borrowings are arranged on an as needed basis at various terms.
(2) The average amount outstanding during the year represents the average daily principal balances outstanding during the year.
(3) The weighted average interest rates during the year were computed by dividing the actual interest incurred on short-term borrowings by the average short-term borrowings.
First Hartford Corporation and Subsidiaries Schedule XI Real Estate and Accumulated Depreciation April 30, 1999