| Summary of Significant Accounting Policies | 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, all of
which is considered the “Real Estate Operation” segment. The Company has a second segment “Fee for Service”
in which the Company is engaged as a preferred developer for CVS and Cumberland Farms (see Service Income to follow). Principles of Consolidation The accompanying consolidated financial statements
include the accounts of the Company, its wholly-owned subsidiaries, and all other entities in which the Company has a controlling
financial interest. The latter includes those in which the Company has been determined to be the primary beneficiary of a
variable interest entity or otherwise meets certain criteria as a sole general partner or managing member in accordance with the
consolidation guidance of the Financial Accounting Standards Board (FASB) Accounting Standards Codification. As such, included
in the consolidated financial statements are the accounts of Rockland Place Apartments Limited Partnership and Clarendon Hill Somerville
Limited Partnership. The Company’s ownership percentage in these variable interest entity partnerships is nominal.
All intercompany balances and transactions have been eliminated in consolidation. 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. Revenue Recognition 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 maintenance and other recoverable costs as provided in the lease agreements.
There are no contingent rents. If conditions of rent are not met, certain tenants may have rights to pay percentage rent not to
exceed stated rent. Currently, there are a very limited number of tenants on percentage rent. Service Income – The Company is party
to preferred developer agreements with CVS and Cumberland Farms. Under these agreements, the Company’s fee for such
services provided is recognized as earned when services, as outlined in the development agreements, are provided. Fees earned related
to the development of pharmacy stores for CVS during the years ended April 30, 2018 and 2017 were $2,695,000 and $3,394,500, respectively.
Fees earned for Cumberland Farms during the years ended April 30, 2018 and 2017 were $1,240,000 and $1,445,000, respectively.
These fees are included in service income in the consolidated statements of income. The Company also provides management and maintenance
services to others, primarily the Company’s unconsolidated Claymont, DE property. Fees for such services provided are recognized
in service income as earned when services are provided. Sales of Real Estate – The Company recognizes
sales of real estate as revenue upon the transfer of title and when substantially all performance requisites have been fulfilled.
For the years ended April 30, 2018 and 2017, the Company had sales of $40,424,504 and $34,373,493, respectively. The cost
of the property sold was $32,454,414 and $27,723,800 for 2018 and 2017, respectively. None of the property sold was otherwise
providing significant ongoing cash flows to the Company. Construction Income – The Company primarily
develops real estate for its own use. However, revenues from long-term 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.
There were no ongoing long-term construction projects or revenue recognized for the years ended April 30, 2018 and 2017. Other Receivables and Payables Pursuant to the Company’s Preferred Developer
Agreement with CVS, the Company is obligated to fund allowable costs incurred in connection with the identification and development
of new retail pharmacy stores for which it receives direct reimbursements from CVS. Payables for allowable costs incurred
in connection with these activities but not yet funded were $5,004,438 and $4,363,317 as of April 30, 2018 and 2017 respectively,
and have been included as “other payables” in the consolidated balance sheets. Related reimbursements due from
CVS were $4,494,150 and $4,064,876 as of April 30, 2018 and 2017, respectively, and have been included in “other receivables”
in the consolidated balance sheets. Also included in “other payables”
as of April 30, 2018 was $1,208,263 of cost reimbursements due to CVS upon completion of its Little Ferry, TX project. Cash and Cash Equivalents – Restricted Cash and cash equivalents – restricted,
includes 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. The
restricted cash also includes Tenant Security Deposits held by the VIEs and cash held in a lender-controlled lockbox account for
our Edinburg, TX property. Developed Properties, Equipment and Tenant Improvements Developed properties, equipment and tenant improvements
are recorded at cost. Depreciation and amortization are provided using
the straight-line method based on the following estimated useful lives.
Description Years
Developed properties 15 – 40
Equipment 3 – 10
Tenant improvements Lesser of improvement life or lease term 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 directly associated
with property under construction. Such costs include materials, construction labor and payroll cost, allocation of salaries and
payroll cost from direct activities such as engineering, purchasing and legal and services provided by subcontractors. Material
carrying costs for property taxes, insurance and interest are also capitalized during the period of active construction until construction
is substantially complete (see Note 3). The Company capitalizes labor cost for direct
work by offsite staff on specific projects. In the year ended April 30, 2018, $243,853 was capitalized. In the year
ended April 30, 2017, $52,500 was capitalized. Property Held for Sale The Company classifies property as “held
for sale” if management commits to sell the property and actively markets the property to potential buyers at fair market
value, the property is available for immediate sale in its present condition subject only to terms that are usual and customary
for sales of such property, and the sale is probable within one year. Deferred Expenses Expenditures directly related to real estate
under consideration for development are deferred and included in deferred expenses in the consolidated balance sheets. These costs
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 reclassified to property
under construction in the consolidated balance sheets. If the project is later abandoned, all of the accumulated costs are charged
to expense. Leasing costs incurred, primarily commissions,
are capitalized for signed leases and included in deferred expenses in the accompanying consolidated balance sheets. Such costs
are amortized using the straight-line method over the terms of the related leases. The unamortized balance of such cost was
$1,064,774 and $1,226,778 as of April 30, 2018 and 2017, respectively. Amortization expense for the next five years
and thereafter is expected to be as follows:
Year Ending April 30,
2019 $224,669
2020 138,851
2021 122,576
2022 111,562
2023 95,220
Thereafter 371,896
Total $1,064,774 Investment in Affiliated Entities The Company has an investment in an affiliated
limited liability entity Dover Parkade, LLC, (“Dover”). The Company has a 50% interest in Dover which owns a
shopping center in Dover Township, NJ. The operating and financial policies of Dover are not controlled by the Company.
For years prior to May 1, 2009, the Company was committed to provide funding to this equity method investee. The Company’s
investment was recorded at cost and subsequently adjusted for its share of their net income and losses and distributions. Through
April 30, 2009, losses and distributions from Dover exceeded the Company’s investment and the Company’s investment
balance was reduced below $0 and recorded as a liability. Beginning May 1, 2009, distributions from Dover have been credited to
income and any additional losses have not been allowed to further reduce the investment balance. The resulting carrying value of
this investment of ($1,007,642) as of April 30, 2018 and ($1,328,909) as of April 30, 2017 is included in other liabilities. The
Company recorded equity in earnings of unconsolidated subsidiaries of $681,267 and $685,452 for the years ended April 30, 2018
and 2017, respectively, which includes distributions of $360,000 in each year. On October 4, 2011, the Company entered into
a partnership with a nonprofit entity which purchased a 99 year leasehold interest in a 208 unit subsidized housing project in
Claymont, Delaware. The Company is a non-controlling .01% limited partner in the entity. The Company’s investment
is carried at cost of $100. A subsidiary of the Company is the managing agent. In August 2017, the Company finalized an agreement
to invest in an affiliated limited liability company called Ware Seguin 1518, LLC. The Company accounts for its 50% interest
in Ware Seguin 1518, LLC under the equity method of accounting. Ware Seguin 1518, LLC owns property in Schertz, TX that it
plans to develop for approximately 285 single family residential lots and approximately 15 acres of commercial or other uses.
The operating and financial policies of Ware Seguin 1518, LLC are not controlled by the Company. The Company’s initial
investment was $326,498 and the Company committed to invest an additional amount up to $500,000, of which an additional $103,149
was made as of April 30, 2018. Additional future investments may be required if agreed by the Members. The Company
is also a guarantor of 50% of a $1,000,000 bank loan obtained by Ware Sequin 1518, LLC that was used to purchase the property.
There has been no income statement activity as of April 30, 2018. On April 19, 2018, a 75%-owned subsidiary of
the Company invested in a limited liability company that purchased a 100 unit subsidized housing property in the Bronx, NY for
$14,900,000. The Company, through this investment, is a non-controlling .005% Class B member in the limited liability company.
The Company’s investment is carried at cost of $100. The managing member has delegated the management of the property to
the Company, for which it will be paid a management fee of 4% of operating revenue. The Company, through a wholly-owned subsidiary,
will be the general contractor for the renovation of this property, which is expected to cost approximately $9,350,000. Finally,
a developer fee of $3,669,000 will be paid to the 75%-owned subsidiary of the Company. The first installment of this developer
fee ($350,000) was paid upon closing; the second installment of this developer fee ($848,877) will be paid at conversion to permanent
financing; and the balance of the developer fee ($2,470,123) will be paid over the next 15 years from net cash flow of the property. Fair Value Measurements Certain assets and liabilities are presented
at fair value on a recurring basis. In addition, fair values are disclosed for certain other assets and liabilities.
In all cases, fair value is determined using valuation techniques based on a hierarchy of inputs. A summary of the hierarchy
follows: ·
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. The Company’s financial instruments include
cash and cash equivalents, accounts receivable, marketable securities, accounts payable, accrued expenses and debt. The fair
values of accounts receivable, accounts payable and accrued expenses are estimated to approximate their carrying amounts because
of their relative short-term nature. In general, the carrying amount of variable rate debt approximates its fair value.
Further, the carrying amount of fixed rate debt approximates fair value debt since the interest rates on the debt approximates
the Company’s current incremental borrowing rate. Information about the fair values of marketable securities and derivative
liabilities is presented below. Level 1 Marketable Securities – Common and Preferred
Stocks The Company determines the appropriate classifications
of its investments in marketable debt and equity securities at the time of purchase and re-evaluates such determinations at each
balance sheet date. As of April 30, 2018 and 2017, investments consist of equity securities, which are classified as available
for sale. Investments in marketable securities are stated at fair value of $619,432 and $1,538,839 as of April 30, 2018 and 2017
(cost of $501,787 and $1,571,349). Fair value for marketable securities is based on the last sale of the period obtained from recognized
stock exchanges (i.e. Level 1). Net unrealized holding gains and temporary losses on equity securities are included as a
separate component of the deficiency. Net unrealized gains of $150,153 and $112,813 are included in noncontrolling interests for
the years ended April 30, 2018 and 2017. Gains or losses on securities sold are based on the specific identification method. Level 2 Derivative Instruments The Company, through its 50% owned consolidated
subsidiaries, has entered into two separate floating-to-fixed interest rate swap agreements with banks that expire in May 2025
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 gain (loss) on derivatives incurred during the years ended April 30, 2018 and 2017 totaled $1,531,013
and $2,669,416, respectively, and the Company has recorded a liability of $659,780 and $2,023,793 in the consolidated balance sheets,
which represents the fair value of the interest rate swaps as of April 30, 2018 and 2017, respectively. The following table presents information about
the Company’s respective assets and liabilities measured at fair value on a recurring basis at April 30, 2018 and 2017, including
the fair value measurements and the level of inputs used in determining those fair values:
April 30, 2018 Level 1 Level 2 Level 3 Total
Assets:
U.S. Equity Securities $ 619,432 $ -0- $ -0- $ 619,432
Interest Rate Swap Agreement $ -0- $ 625,841 $ -0- $ 625,841
$ 619,432 $ 625,841 $ -0- $ 1,245,273
Liabilities:
Interest Rate Swap Agreement $ -0- $ (1,285,621 ) $ -0- $ (1,285,621 )
April 30, 2017 Level 1 Level 2 Level 3 Total
Assets:
U.S. Equity Securities $ 1,538,839 $ -0- $ -0- $ 1,538,839
Liabilities:
Interest Rate Swap Agreements $ -0- $ (2,023,793 ) $ -0- $ (2,023,793 ) The Company recognizes transfers between levels
within the hierarchy as of the beginning of the reporting period. There have been no significant transfers between levels within
the hierarchy for the years ended April 30, 2018 and 2017. Long-Lived Assets Long-lived assets are reviewed for impairment
whenever events or changes in circumstances indicate that their carrying amount might not be recovered. Income Taxes Deferred income taxes are provided on the differences
between the financial statement and income tax bases of assets and liabilities and on net operating loss carryforwards using the
enacted tax rates. A valuation allowance is provided for deferred
income tax assets for which realization is not likely in the near term. As of April 30, 2018 and 2017, the Company had
no significant uncertain income tax positions. The Company recognizes interest and penalties on any uncertain income tax
positions as a component of income tax expense. During the years ended April 30, 2018 and 2017, the Company did not recognize any
interest or penalties related to unrecognized tax benefits. The statute of limitations is three years unless
there is fraud or substantial understatement of income. Therefore, tax returns beginning with fiscal year 2015 are open to examination
by Federal, local and state authorities. On October 26, 2017, the Company was informed
that its fiscal year 2016 Federal tax return was selected for examination. This examination is currently in process. 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). Earnings (loss) per share (EPS) Basic earnings (loss) per share amounts are
determined using the weighted-average outstanding common shares for the year. Diluted earnings (loss) per share amounts include
the weighted-average outstanding common shares as well as potentially dilutive common stock options and warrants using the “treasury
stock” method. There were no options outstanding at April 30, 2018 or April 30, 2017. New Accounting Pronouncements In May 2014, the FASB issued an Accounting Standards
Update (ASU) No. 2016-02, Revenues from Contracts with Customers (Topic 606), which provides a single, comprehensive revenue recognition
model for all contracts with customers. The revenue standard is based on the principle that revenue should be recognized
to depict the transfer of promised goods or services to customers in an amount that reflects the consideration of which the entity
expects to be entitled in exchanged for those goods or services. The standard is effective for fiscal years beginning after December
15, 2017. The standard may be applied retrospectively to each prior period presented or retrospectively with the cumulative
effect recognized as of the date of initial application. The Company is currently evaluating the potential impact of adopting
this ASU on its consolidated financial statements. In February 2016, the FASB issued ASU No. 2016-02,
Leases, (Topic 842), which is intended to improve financial reporting around leasing transactions. The ASU affects all companies
and other organizations that engage in lease transactions (both lessee and lessor) that lease assets such as real estate and manufacturing
equipment. This ASU will require organizations that lease assets—referred to as “leases”—to recognize on
the balance sheet the assets and liabilities for the rights and obligations created by those leases. ASU No. 2016-02 is effective
for fiscal years beginning after December 15, 2018. The Company is currently evaluating the potential impact of adopting this ASU
on its consolidated financial statements. In August 2016, the FASB issued ASU No. 2016-15,
Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. The ASU provides guidance on how
certain cash receipts and cash payments are to be presented and classified in the statement of cash flows. For public entities,
ASU 2016-15 is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early
adoption is permitted. The Company is currently evaluating the potential impact of adopting this ASU on its consolidated financial
statements. In November 2016, the FASB issued ASU No. 2016-18,
Statement of Cash Flows (Topic 230): Restricted Cash. The ASU requires companies to include restricted cash with cash and cash
equivalents when reconciling the beginning-of-period and end-of-period total amounts shown in the statement of cash flows. The
ASU will require disclosure of a reconciliation between the balance sheet and the statement of cash flows when the balance sheet
includes more than one line item for cash and cash equivalents. An entity with material restricted cash and cash equivalents will
be required to disclose the nature of the restrictions. This ASU is effective for fiscal years beginning after December 15, 2017.
Upon adoption of this ASU, restricted cash and cash equivalent balances will be included with cash and cash equivalent balances
as of the beginning and ending of each period presented in the Company’s consolidated statements of cash flows. In addition,
separate line items reconciling restricted cash and cash equivalents to the changes in cash and cash equivalents will no longer
be presented within the operating, investing, and financing sections of the Company’s consolidated statements of cash flows. |
